Position before it happens

I’ve spent a lot of time telling clients and readers about staying away from certain stocks, commodities or bonds.

But the underlying message is to position yourself before the next move happens.

On June 3rd, 2022, when the share price of Hess Corporation was hitting a high of $131.40, I wrote in the note below that Hess’ stock prospects is either ‘a ‘$30 up or $30 down…..this is hardly compelling’

Hess is down 23% from its high.

The stock is now trading at $101.70, which is awfully close to the $30 variance I mused about.

A few days later, I wrote about the “Mother of all peaks” appearing in Natural Gas.

The downturn started within days and it has now fallen 32% in 2 weeks, since this note.

While the decline in certain energy related securities and commodities is not over.

In the interim, I expect a bounce in these prices for various reasons which translate ‘the sudden drop is overdone’.

From the book of ‘taking the fat part of trade’, by shorting Natural Gas at $9.45 (it’s now trading at $6.22) and now enjoying a 34% gain, it is prudent to close out that position, whether its wholly or partially.

This is an extraordinary result in any asset class over a 12 month period, let alone in 14 days.

It’s important to not confuse genius with being fortuitous.

But that’s the past……

Preparedness (analysis and mathematics) should be valued rather than the reporting of what has already occurred.

You want to be prepared for a trading low in Copper and Tin, which have fallen 26% and 40% respectively and the current trough in South Korea’s KOSPI equity index (currently at 2,367 points), to mention a few.

10 days, I wrote this note about the Buy signals appearing in South Korea.

Weeks ago, I wrote about the lows being seen in the Hang Seng, Shanghai Composite and the Hang Seng China Enterprises Index

The latter has risen 21% in the past 7 weeks.

For some perspective, I think investors need to condition for normalised (or lower) returns as I wrote in this January 3rd, 2022 note.

Today, the trend in those indices may be improving but your margin of safety has diminished if you are now buying those markets at a price which is 20% higher.

June 26, 2022

by Rob Zdravevski


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