Many small investors believe professional money managers are like gods. In a hot streak, they can create profits seemingly out of thin air. After all, they have access to some of the best brains and research in the world. But of course, all they are doing is joining the herd of other money managers who believe in a strong story and combined, they have enough firepower to push share prices higher. This leads to a virtuous circle where other investors copy what they are doing.
Many managers profess to be long term investors and claim to be buying ‘undervalued’ shares for their portfolios, expecting the market to hear the penny drop and re-value them sometimes years later.
Of course, this is generally a winning strategy while the secular trend in shares remains up (as it has been for US and UK markets in our lifetimes). The only losers have been the short sellers – or so you would think.
Neil Woodford has been one of the UK’s most prominent money managers for many years and in his glory days, was hailed as having a Midas touch with Invesco Perpetual.
But how fate can take a hand to this sunny picture!
In today’s Telegraph, he gives an interview where he finally confesses his performance has been ‘particularly difficult’. That’s one way of putting the loss of £300 million in Provident Financial a few days ago I suppose!
And that has not been the only major loss. In fact, he now seems to have the reverse Midas touch – almost everything he touches sinks like a lead balloon right after the investment was made.
Of course, anyone can have a bad patch as a trader/investor. I certainly get mine (but I protect with stop losses). But what I find fascinating is his reaction to these disasters. Right after several investments had plunged he said: “”I think the stock market, yet again, has become hysterical,”
I almost spluttered into my coffee when I read that. Here he is, not blaming himself for his poor judgment, but blaming the market!
I’m sorry, but a reasonably self-aware and honest person would just not shift the responsibility from himself. He lost a lot of money for his investors and must own up. After all, he made the decisions – not the market. And did he ‘blame the market’ when times were good? Of course not – he wallowed in the publicity and adulation. How the mighty have fallen!
If he is representative of the alpha-male mentality of professional money managers, that explains a great deal about the activities of hedge funds. Most of them are simply trend-followers partly because they rate each other by a comparison with their peers – and a contrary opinion is not highly valued to put it mildly. In fact, it is career-threatening.
In a nutshell, that is why I take a close interest in what the pros are doing – and look to take the opposite stance when the stars line up. They herd just like retail investors, but with more devastating consequences.
Crude oil prices remain in a major uptrend.
One of the sure signs of a bull trend is the performance of the Brent/WTI spread. It has been surging of late and has made a 36-month high
Brent is trading at the $54.50 level currently while WTI is at $49.50. What is this telling me? For one thing, the higher Brent price (where offshore OPEC oil is traded) demonstrates that the much-doubted OPEC production cut announcements are actually being realized. Now that’s a surprise – historically, over the years many OPEC nations have ‘cheated’ and actually increased production and that tended to put a cap on any rallies.
But, heaven forbid, have they been on the road to Damascus and been converted?
At the current $5 spread, it may well pay importers to source their oil from the USA – and help support WTI.
Since last year, I have set a $60 target and although the path has been very rocky, I still have that as a serious target. Here is the weekly
The Elliott waves are pretty clear. From the $113 top in August 2013, the market descended in waves 1 and 2 and a long and strong wave 3. Wave 5 was terminated at the $28 level on a large momentum divergence in January 2016 – an even I managed to catch and advise long trades close to that low.
Thus the scene was set for a multi-month rally in three main waves. As it turned out, the rally took place in fits and starts and was a nightmare to trade. But the A wave high was finally put in in January this year. From that high, wave B was likewise difficult to time but I managed to catch the low at $42 in June and rode the rally.
Also, on the latest dip to the $46 level on August 30, I was able to advise new long trades and today the market is moving up to test the blue trendline in the $52 area.
But my real goal is the Fibonacci 38% level at $60. That will be my main prize. Heer is the weekly chart of Brent
You can see the form of the two charts are quite different, but both sport the same Elliott waves. Just today, Brent has just poked above the blue trendline and on its way towards the $66 target.
Of course, this strong rally is counter-intuitive for those who believe oil demand will fall off now that electric vehicles are on the scene -and are being hyped to the skies. But there are many scenarios that could damage or delay this event. Whether demand rises or falls, if my wave labels are correct, these fundamental considerations will have no bearing on the progress of the waves.