Benchmarking Sucks and a safer time to buy ahead

My work suggests that this ‘trading’ bounce in many markets, assets and securities may see an end in the first couple days of the coming week.

The recent market advance has been a combination of a ‘bounce’ occurring once prices satisfied a host of mean reversions and extremes, coupled with notable pessimism and bearish investor readings along with short covering and ‘benchmarking’.

Because when mature, large index weighted Goliath’s such as Apple and Amazon rise 20% over a 4 week span, benchmarked money managers need to buy (chase) those and other stocks which are trending higher, in order to stay close to the index returns and the performance of their competitors.

Many fund managers have expressed a view to me over many years, similar to, “it sucks being benchmarked”.

But if you did benefit from the ‘fat part of the trade, let’s sell and pack up for the rest of the year and go on holiday?

After all, that is more than a year’s adequate return all within 30 days. 

Alas! Many of us won’t do that. It wouldn’t be fun (sic) until we squandered half of those gains, which then keeps us at the table for the rest of the year.

In all seriousness, there are many gap-up’s that markets will back and fill.

The setup in the weeks ahead should be a safer moment to accumulate for those longer-term investors.

July 31, 2022

by Rob Zdravevski

rob@karriasset.com.au