Tag Archives: Market Timing

Should we buy the dip?

Last Wednesday we saw a broad sell off in global equity markets. We had not seen this degree of a sell off for quite some time. For instance, the most widely used ETF (QQQ US) of the NASDAQ 100 Composite Index fell 2.54%. The next day QQQ rose by 0.87%, and on Friday it rose again by 0.42% – closing at a level that was just 0.87% away from recent highs.

Our foremost mission is to safeguard our clients’ capital. Therefore, when faced with drawdowns of a significant amplitude, we must decide whether fight or flight is the most appropriate response. In other words, should we be selling, or should we buy the dip?

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We Have Been Selling

In our January commentary (LINK): Our January Results), we said the following:

Looking at the broader market, all major US stock indices are at all-time highs. On the other hand, the Volatility Index (VIX), which expresses anticipated market volatility, is at historical lows. Although we have been taking profits on some of our high-flying stocks, we do not intend to try to time the market by selling stocks that we like in the hope of buying them back more cheaply in the future. This is called being ‘cute’. ‘Cuteness’ is the domain of babies and puppies, not investment managers.

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German Business Climate is Getting Better and Better

The business climate in Germany continues to improve. This is good for stocks.

Just like the sun warms the ground in spring and lets farmers plant their crops, so too does optimism lead to heightened investment and economic growth. Think of the liquidity provided by the ECB as seeds. Having seeds is great, but you can not make actual use of them if your fields are frozen. It looks like the fields have finally thawed, and the sun (business and consumer confidence) is shining. This is the critical element that the European economy has been lacking.

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How Major Asset Classes Performed In January

In a world inundated with terms like ‘alternate facts’ and ‘post truth’ we take comfort in numbers.

Our business is simple, you make money for your clients or you don’t. No amount of academic accreditations, algorithms or excuses can compensate for not making successful investment decisions (see ‘Long Term Capital Management’…).

Here is how major asset classes performed in January:

gmi.01feb2017
LINK: Major Asset Class Performance January 2017

And here is the performance of our top equity holdings:
top 10

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The Five Trades That Most People Have Gotten Wrong – But We Have Gotten Right…

LINK: Five Trades That Most Have Gotten Wrong

1) Short Trump

*** we have added to equity positions ***

2) Long Dollar

*** our USD exposure in Euro accounts is completely hedged ***

3) Short bonds

*** we did not flee bonds and have added to names we like on price weakness ***

4) Long Banks

*** we do not have any targeted exposure to bank stocks ***

5) Short Healthcare

*** we have held onto our healthcare positions and have added to our biotech holdings on dips ***

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Hindsight is 20/20 and “The Could Have, Would Have, Should Have” Portfolio

“What hindsight does is it blinds us to the uncertainty with which we live. That is, we always exaggerate how much certainty there is. Because after the fact, everything is explained. Everything is obvious. And the presence of hindsight in a way mitigates against the careful design of decision making under conditions of uncertainty.”
(Daniel Kahneman)

Having worked in capital markets for over 15 years, I am very much aware of false clarity of hindsight. When I worked as an institutional trader in Canada, we used to joke that the best portfolio was the “could have, would have, should have” fund, meaning the investments that we would, could or should have made had we had the ability to look into the future. For instance, I remember discussing Apple with a portfolio manager back in 2004. Had we had true conviction, we should have theoretically taken all the money we had, quit our jobs and gone 100% or even 500% into Apple (using leverage would have magnified the genius of the trade…). But we didn’t, because uncertainty is the one true constant in investing.

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When to buy tech stocks?

As you may already know we like tech stocks. We have written several posts about Twitter, Netflix, Facebook, Google and others. When you have tech stocks in your portfolio then the constant growth that the info tech sector has shown works in your favor. If you do not own any tech stocks though there is strong will to buy then main question is when to buy tech stocks?

Going from quarter to quarter and from year to year, these companies seem to be growing regardless of market conditions. Every time individual tech stock reaches record highs, we read about in news and think that we should own it. Yet we do not want to overpay for them as we have heard many times “Buy low, sell high.” Therefore, we decide to wait for some correction to buy the stock. Weeks and months pass by, we may have taken a bit less active management style, there is new quarterly earnings, and stock reaches record highs again and we have missed our opportunity to buy.

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Watch Out Below – Gold Edition (Update)

Here is how the price of gold looks after yesterday’s sell off based on what is perceived to be a more hawkish stance (more likely to raise rates) by the Fed:

gold-4oct

I was recently asked by the Latvian finance magazine ‘Kapitals’ what I thought of gold.

My response was as follows:
“The market is waiting for the Fed to act. If inflation continues to grow, the Fed will increase rates. In turn, if rates increase, the price of gold will decrease. The previous period was successful for investment in gold. Nevertheless, the gains could be lost quickly. Gold does not produce anything; it does not bring an extra return and requires you to cover storage costs. Besides, assets that may decrease in price by up to 40% cannot be classified as either risk-free or reliable,”

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