One of the early lessons I learned regarding managed money is that once a trend is broadly recognized in the investing community, it may be time to look for an exit as you will often be late to the party. Too often investors pile into the hot investment after it has had its big run, just in time to lose a bundle; or worse, bail out after poor performing periods, just in time to miss a sharp rise in profits.
Some of this has to do with psychology, but more so the nature of trend following and investing in general. Warren Buffett is famous for advising, “Be fearful when others are greedy and greedy when others are fearful.”
That has always been good advice, and it appears the hedge fund world is going through such a period right now. In “Hedge funds under siege” Amy Bensted illustrates how Preqin’s polling of hedge fund investors shows a growing lack of confidence just as performance is turning up. The number of hedge fund investors who felt their portfolio fell short of expectations doubled in 2016 from 2015, despite positive returns. More disturbing is that investors could be fleeing alternatives right at a time they need them most. We’re nine years into a bull equity market, with an unstable new presidential administration that is having trouble getting things done. We are ripe for a correction and all investors need to protect their downside.
Earlier this month we commented on a Wall Street Journal article attacking commodity investing.
The thrust was that investing in commodities was inferior to equities as commodities have not proven to grow over time like equities have. It included some dubiously chosen (cherry-picked) time frames as well. No need to rehash that here, but the bottom line is that it is disturbing and slightly ominous to see attacks on alternatives — that hold out hope of providing diversification and positive returns in an equity market reversal — as the current bull equity market grows old and tired.
Trump bump? Sure, if it makes you happy. Just make sure you are covered if things go south quickly.
The not-so-subtle hint here is that investors should have a diversified portfolio, which includes alternatives that can produce positive returns in any market condition. In “Beyond the tear sheet” (page 20) the investment team at EMM provides guidance in performing due diligence while making an investment in hedge funds. They highlight the red flags that should ward off investments in questionable managers and strategies. Better to learn them now, rather than after a drawdown.
This article includes important tips on spotting ”too good to be true” strategies, because as Art Collins shares in “How to recognize false prophets,” sometimes performance summaries aren’t enough and can be massaged to draw investors into unrealistic and unprofitable strategies.
The best trading methods have a unique combination of attributes that can stand the test of time while also being able to build and grow on its basic tenets. In “Finding the Kairos Moment through Gann,” Jeff Greenblatt peels additional layers from the onion that is Gann Theory and introduces us to the “Kairos Moment,” which loosely can be defined as the time to pull the trigger. Is a Kairos Moment in our immediate future?
This year’s hedge fund issue includes great information on tools to help you make better trading decisions. Woozle and AlphaSense are two firms helping investors and analysts gain information.
We also take an in-depth look at the crude oil market in this issue. It is a fascinating time in the market with numerous competing fundamental and technical factors playing out. The market collapsed and more recently rebounded, leaving industry analysts to ask, what is “Crude’s new normal.” The interesting thing about crude oil is just how passionate folks attach themselves to a direction and often forget its history. Crude has been a boom and bust market. Perhaps now the boom and busts are over and the market will settle into a new normal.
And, finally, I need to report that Modern Trader was recently acknowledged as the Best Business Magazine of the Year by the 2017 Niche Magazine Awards committee. I always try to focus on what comes next and make sure we are providing our readers with information that can help them be better investors and traders, but it is always nice to be recognized. Kudos go to our design team that created Modern Trader’s new cleaner look, as well as our contributors and editorial staff.