Asset management, Behavioral finance, Bitcoin, Commodity price, Market psychology, Market trends, Psychology, Risk management, trading, trend following

Of Bitcoins and bubbles

In my book, “Mastering Uncertainty in Commodities Trading” I argued that security prices “are driven by human psychology and its self-stoking collective action that can sustain major trends spanning many years.” Tat’s because in speculative decision making, our views about the actions of others can entirely override our rational appraisal of the underlying asset value.

The most recent example of this is the price of Bitcoin that has surged from below $400 in January of this year to $4,300 this week. When at Altana Wealth we set up the Altana Digital Currency Fund several years ago, many people thought that digital currencies were just a strange fad and investors continued to show little interest in them – until very recently. Continue reading

Standard
Asset management, Behavioral finance, Commodity risk, Complexity, Hedging, Market psychology, Market research, Market trends, Psychology, Risk management, Something completely different, trading, trend following, Uncategorized

Speculation in the natural world

Nature has … some sort of arithmetical-geometrical coordinate system, because nature has all kinds of models. What we experience of nature is in models, and all of nature’s models are so beautiful. – R. Buckminster Fuller

Nature’s survival strategies that bear the most similarities to activities of market speculators are those of predators. To live, predators must hunt and this activity includes elements of speculation. Like trading, predation requires knowledge, skills, judgment and decision-making. It also entails risk and uncertainty. A predator can’t be sure where her next meal is coming from. Each hunt is an investment of resources; it involves the risk of injury and loss of energy expended in failed hunts, which tend to be more frequent than successful ones. To survive and procreate, predators must consistently generate a positive return on this investment. Too much of a losing streak could turn out to be fatal. In his book, “The Serengeti Lion: A Study of Predator-Prey Relations” George B. Schaller painstakingly documented the details of hundreds of hunts by large cats in the Serengeti National Park in Tanzania. We have all seen wildlife television programs showing lions and cheetahs hunting, but Schaller’s work offers a much richer account of the life of predatory cats including their hunting behavior.

The anatomy of a hunt Continue reading

Standard
Commodity price, Hedging, Market trends, trading, trend following

On effective trend following strategies

A question frequently arises among trend followers on the nature of effective trading strategies. The old school of thought holds that strategies should be simple, ultra robust and effective across markets and time frames. I happen to disagree so here I share a hard-won piece of knowledge that should help settle this question. Continue reading

Standard
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

Standard
Commodity price, Economics, Energy crisis, Hedging, Market research, Oil market, trading

Saudis to unveil the big secret? Not likely.

Over at OilPrice.com Nick Cunningham wrote that Saudi Arabia might finally reveal one of its closest kept secrets as they prepare to sell some 5% of its oil monopoly, Saudi Aramco, to the public. The Saudis and their Wall Street bankers expect Aramco to be valued at $2 to $3 trillion, which would generate north of $100 billion for the Saudis and massive underwriting fees for Wall Street Banks.

Since both the Saudis and Wall Street hope for the highest possible valuation for Aramco, we should not expect that they’ll “unveil” anything less than the rosiest plausible figure for their oil reserves. Continue reading

Standard
Something completely different, trading

Trading for sport: just don’t!

Almost on a daily basis I see online advertisements stating “Become a Trader in 10 minutes!” or something idiotic like that. Sadly, I know of too many people who thought it would be a good idea to put some money into a trading account as a personal challenge, to earn some extra money, or just for fun. My strong advice: don’t!! That adventure is very likely to turn into a colossal waste of your talents, time, and ultimately a lot of your hard earned cash. Continue reading

Standard