Asset management, Behavioral finance, Commodity price, Complexity, Economics, Expertise, Hedging, Market psychology, Psychology, Stock market, trading, trend following

The illusion of expertise in financial markets

Participants in financial markets have to deal with uncertainty on a daily basis. Their need to research and understand markets has given rise to a massive industry delivering security prices, reports and expert analyses to traders and investors seeking to make sense of the markets and predict how they might unfold in the future.

The need to understand stuff is innate to our psychology: when something happens, we almost reflexively want to know why it happened. But the compulsion to pair an effect with its cause sometimes gets us jumping to conclusions. If such conclusions turn out to be mistaken or irrelevant, they could prove useless – or something worse. Consider two recent titles from the ZeroHedge blog, published 89 minutes apart: Continue reading

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Asset management, Commodity risk, Complexity, Economics, Expertise, Hedging, Market research, Policy, Risk management

Economic forecasting is exercise in futility

Economists can’t forecast for a toffee… They have missed every recession in the last four decades. And it isn’t just growth that economists can’t forecast; it’s also inflation, bond yields, unemployment, stock market price targets and pretty much everything else.” – James Montier

Forecasting commodity prices and economic indicators is demonstrably an exercise in futility. Our markets and economies are complex systems and as such, their future unfolding is impossible to predict with any degree of certainty. Concretely, let’s take a look at how the leading economic analysts did at predicting oil prices, GDP growth, unemployment and stock market indices. Continue reading

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Asset management, Economics, Market research, Market trends, Stock market, trend following

The crucial importance of trends

In Berkshire Hathaway annual report (1985), Warren Buffett wrote the following:

When a management with reputation for brilliance tackles a business with reputation for poor fundamental economics, it is the reputation of the business that stays intact. [1]

My wife and I recently spent some time in Egypt. For a few days we sailed up the Nile from Luxor to Aswan on a cruise ship that counted nearly 70 crew members serving the total of five guests. The manager of the vessel was Mr. Khaled, an impeccably polite and always well dressed man in his 40s who, in spite of running a nearly empty ship managed to keep the crew’s morale high and ran the ship’s operations admirably well. Unfortunately, even if Mr. Khaled were the world’s best cruise ship manager, this particular situation was a good illustration of what Warren Buffet was talking about in his 1985 annual report. Continue reading

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Asset management, Commodity price, Commodity risk, Hedging, Risk management, trend following

Lessons in trend following: how we traded sugar

Sugar prices have soared on the CSCE (Coffee, Sugar and Cocoa exchange) from just over $0.10 per pound in August 2015 to over $0.23 at present – a fairly sharp jump by any standard, particularly after several years of continuously falling prices. I trade sugar using our trend-following model and to channel my inner Donald Trump – we’ve done tremendously well, generating a respectable grosss annualized return of nearly 10% per annum over a 5-year period. Now, the main reason I find this remarkable is that I know next to nothing about the fundamental economics of the sugar market. I know it goes into biscuits and beverages, that it comes from sugar cane or sugar beets, but that’s about it. Continue reading

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Asset management, Behavioral finance, Commodity price, Commodity risk, Economics, Hedging, Market research, Market trends, Psychology, Risk management, trend following

Harnessing market trends to manage commodity price risk

On 24th September 2015, David Stein (M Sc., CFA, President and CEO of Aberdeen International[1]) wrote a compelling article analyzing the expected effect of last year’s VolksWagen emissions scandal on palladium and platinum markets that should be of great interest to commodity traders and industry. Continue reading

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Asset management, Commodity price, Economics, Hedging, trend following, Uncategorized

“Mastering Uncertainty” receives its first review

I’ve recently published my book, “Mastering Uncertainty in Commodities Trading” which has now obtained its first reader review on Amazon, and it’s a five stars review! For a first-time author, this is Christmas! Heartfelt thanks to Roman for taking time to read the book, “get it,” and post this flattering review. I’m posting the full text, titled “Exceptionally well written book,” below: Continue reading

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Asset management, Central banking, Economics, Market research, Policy, Politics, Stock market, Uncategorized

Investing in the age of unprecedented monetary experiments

Since the 2008 financial crisis, world’s largest central banks have unleashed a program of monetary stimulus that dwarfs anything we’ve experienced in history. With no historical precedents, how should investors navigate the risks and events that will likely exert extreme stress upon political, economic and social fabric of nations across the world. Altana Wealth’s founder Lee Robinon offers some unorthodox insights in a 45 minute interview with Real Vision TV with Grant Williams. You may not hear similar thinking from academics or CNBC-vetted pundits. Lee has the remarkable capacity to keep a mind-bogglingly detailed mental map of what’s going on in the world of business, finance and politics within a clear historical perspective and isn’t shy about laying it out as he sees it. The video is below: Continue reading

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