Hits & Misses 2018
How does an individual who earns his or her living from financial services and/or the financial markets maintain complete humility when they feel they have done well or out-performed? When a plumber, doctor, dentist or IT professional expresses that he or she has the ability to do a good job the reaction expressed is somewhat different than the sometimes "who-does-he-or-she-think-he-is?" reaction a financial services professional receives.
It's on that note I start this brief piece called "Hits & Misses 2018" - an attempt to highlight (through the calls made) how my think and analysis has developed, why I believe 2018 was a very good year, as well as where I failed.
If you are reading this we most likely follow each other on Twitter or are connected on Linkedin or you may have otherwise come across my post online.
The ideas highlighted form part of my roll as an researcher/analyst at a Johannesburg-based retail stockbroker where I am responsible for supporting the trading desk and provide and generate over 70% of all ideas produced in-house.
Alright, let's go:
#1. More Than I Bargained For. Shorting the S&P500 and Nikkei 225 at their all-time highs (HIT)
Trade Note Link Here: https://goo.gl/APCUqK
The nature of our trading is somewhat short term, which can at times be a disadvantage as one doesn't capture strong upward or downward trends. On 3 October I made a recommendation to short the S&P500 and Nikkei 225 at their all-time highs. I believe this was one of the best calls as these are the most-watched markets globally. The S&P500 Future, which peaked at 2944, was recommended as a short at 2934 (10 points below the peak).
#2. Waking Up On The Wrong Side Of The Bed: Mediclinic International (MISS)
Earlier in the year I managed to call MEI correctly twice. First, a long from 90 (it then ran up beyond 115), then a short from 115. Where I messes up was trying to call another leg up from R90 however we then saw the share tumble as troubles in Switzerland and the UAE continued.
#3. Samba's Sunset - Brazilian Equities Vulnerable To A Downturn (HIT)
This idea was based on numerous factors and the timing was near perfect. We then saw the index plunge 17% two months later. Trade Note Link Here: https://goo.gl/dPCfs5
Just to note: I called the Brazil downturn 1 month before we saw the now-famous bear call by Nancy Davis from Quadratic Capital Management (seen on Real Vision). Click here to view: https://goo.gl/4Kbqiv
#4. Buy/Long Mondi and Richemont (MISS and MISS AGAIN)
Both of these were short term trades, nonetheless they failed to work out as planned. I thought this would be a great "buy the dip" however these shares failed to hold onto it's upward trend line and continue to pull back from it's highs. Here's the big lesson I learned during 2018: STICK WITH THE BIGGER TIME FRAMES. If the weekly charts provide you with a high enough downside conviction then trust it, even though the daily charts point to an oversold level. In the end, the higher times frames (weekly and month charts) usually win. If you follow me on Twitter you will know that I have been calling a triple top of Richemont since around R119 in May 2018.
#5. Crude Cracked and Kept Tumbling (HIT)
Trade Note Link Here: https://goo.gl/7uQZX5
There's a very big misconception that technical analysts (or "chartists" as they love calling us) are all about momentum and trends and take no considering for any fundamental factors. This is one one of the biggest fallacies out there and I am determined to correct this. In fact, you'll find that many chartists were once staunch fundamentalists (such as myself) and often "grew up" reading Buffett, Munger, Schloss, Templeton , Fisher, Siegel etc. I've also got so many Finweek and Financial Mails you would not believe. Technical Analysis is also and equally as much about psychology, about price action (which in it's essence is psychology), price levels as well as fundamentals.
Brent Crude Oil, which was has ran up substantially this year was being called to the $100 level. Fair enough, fears around the Iran Sanctions may have a been a huge factor however when you look at the way the it was being discounted in the price then the only call was down. On the daily I made the call I had been watching Crude like a hawk, trying to time the call to perfection. It was a near perfect call, and if you took it you made a some nice money. I had a target of 80 (from $86.17) however I again got more than what I bargained for: Brent Crude Oil tested $50 two and half months later!
#6. Don't Try To Play Every Turn Like I Did. Let Me Say That Again: Don't Try To Play Every Turn Like I Did. (MISS)
Trade Note Link Here: https://goo.gl/szBRj3
I tried to time a short term bullish reversal in Brent Crude Oil however the bearish trend from the original short/sell (above, #5) just kept going. I had a smart trader on a Twitter try and warn me than the price would be lower but sometime we get anchored in our ideas and refuse to change our mind because we want to "be right".
#7. The Rand Reversed Retail....(HIT)
I have been bearish on SA Retailers and Banks for much of the year. I wrote a trade note called "Will the Rand Reverse Retail" Technically, they gave me medium term sell signals and if you combine that with the economic backdrop and somewhat elevated fundamental valuations, retailers should not have held, and they DIDN'T.
In March -
Mr Price Sell Call at 280, went as low as 205,
Massmart Sell Call at 170 (97 by Christmas),
Shoprite Sell Call at 250, went as low as 170
On Shoprite, I started having some serious doubts on my call as a big house came out four days later and called SHP a buy, indicating "ignore SHP at your peril, the share has R300 written all over it CEO Pieter Engelbretch is a "machine". How would you have a felt if a large institution with an army of analysts and deep research capabilities made a call that was contrary to yours? Me? I certainly doubted myself. Anyway, SHP it's almost 30% lower!!!
#8. Sasol - Range Broken (MISS)
The more times a level is tested, greater the chances are that the level is breached. That is what we saw with Sasol this year. The range was a comfortable Long at 360 and Short at 480 however this range was breached and we saw Sasol trade all the way up to 580/590. Thanks to a weak rand and strong oil price this one kept going and I mis-judged the call. Lesson learned!
#9. Down Tiger Down (HIT)
I have asked myself this question all year long: how can a consumer brand foods company (which is badly managed), in a terrible economic environment, trade at 21 times earnings? That is something I have been struggling to grapple with and yet, there are fund managers that own this and continue to preach the 'brand power' narrative. Not to mention the Listeria scandal. Just bad PR. Anyway, at 260ish the share still a over fair value and should trade below 220 (if not lower). On the idea, I recommended as a short at around R455 on 20 Feb.
#10. Sell The FANGS (HIT)
If you thought markets only go up, then did 2018 have a surprise for you! If there's one thing I believe then it's "Sell While The Sun Is Shining". While the fundamental outlook remained solid, the technical setup started to flash warning signs. I was a couple of days early on my sell calls on the FANGS but we managed to provide adequate an warning of what was about to happen.
Since my July sell calls, the results are as follows:
FB -34%
AMZN -22%
NFLX -40%
GOOGL -10%
#11. Sell Emerging Markets (HIT)
The big "surprise" in markets was the extent to which Emerging Markets sold off. On 29 January I suggested/asked the question whether the party could be over for emerging markets. Since then we saw EM under significant pressure as the US Dollar appreciated on the back of higher expected interest rates.
I've seen a couple of traders and analysts mention that it's not 'proper' to speak about your good trades, sort of in a 'bad etiquette' kind of way, I partially agree. There are some people who only tell you good side of the story while omitting the failed trades/ideas. Today I gave you Hits and Misses. While those traders are somewhat correct to shun blowing one's own trumpet, those traders often have decades of experience and have made more money than they need. Me? I'm trying to build my name and turn my ideas something that is even more highly desired while in process build my capital to a very, very decent level. I've been in this business for such a short period: 2 & 1/2 years however I have been reading up/been a student of the markets for 15 years. I honestly think I have some very good work and have good ideas. Combine that with a constant focus on markets (I'm writing this on Boxing Day, crazy me) and a good work ethic, it can can only mean good things.
If you're interested in ideas or need specific insights, hit me up on Twitter and Linkedin. If you didn't like my style of writing on this post, hit me up too!
It's on that note I start this brief piece called "Hits & Misses 2018" - an attempt to highlight (through the calls made) how my think and analysis has developed, why I believe 2018 was a very good year, as well as where I failed.
If you are reading this we most likely follow each other on Twitter or are connected on Linkedin or you may have otherwise come across my post online.
The ideas highlighted form part of my roll as an researcher/analyst at a Johannesburg-based retail stockbroker where I am responsible for supporting the trading desk and provide and generate over 70% of all ideas produced in-house.
Alright, let's go:
#1. More Than I Bargained For. Shorting the S&P500 and Nikkei 225 at their all-time highs (HIT)
Trade Note Link Here: https://goo.gl/APCUqK
The nature of our trading is somewhat short term, which can at times be a disadvantage as one doesn't capture strong upward or downward trends. On 3 October I made a recommendation to short the S&P500 and Nikkei 225 at their all-time highs. I believe this was one of the best calls as these are the most-watched markets globally. The S&P500 Future, which peaked at 2944, was recommended as a short at 2934 (10 points below the peak).
#2. Waking Up On The Wrong Side Of The Bed: Mediclinic International (MISS)
Earlier in the year I managed to call MEI correctly twice. First, a long from 90 (it then ran up beyond 115), then a short from 115. Where I messes up was trying to call another leg up from R90 however we then saw the share tumble as troubles in Switzerland and the UAE continued.
#3. Samba's Sunset - Brazilian Equities Vulnerable To A Downturn (HIT)
This idea was based on numerous factors and the timing was near perfect. We then saw the index plunge 17% two months later. Trade Note Link Here: https://goo.gl/dPCfs5
Just to note: I called the Brazil downturn 1 month before we saw the now-famous bear call by Nancy Davis from Quadratic Capital Management (seen on Real Vision). Click here to view: https://goo.gl/4Kbqiv
#4. Buy/Long Mondi and Richemont (MISS and MISS AGAIN)
Both of these were short term trades, nonetheless they failed to work out as planned. I thought this would be a great "buy the dip" however these shares failed to hold onto it's upward trend line and continue to pull back from it's highs. Here's the big lesson I learned during 2018: STICK WITH THE BIGGER TIME FRAMES. If the weekly charts provide you with a high enough downside conviction then trust it, even though the daily charts point to an oversold level. In the end, the higher times frames (weekly and month charts) usually win. If you follow me on Twitter you will know that I have been calling a triple top of Richemont since around R119 in May 2018.
#5. Crude Cracked and Kept Tumbling (HIT)
Trade Note Link Here: https://goo.gl/7uQZX5
There's a very big misconception that technical analysts (or "chartists" as they love calling us) are all about momentum and trends and take no considering for any fundamental factors. This is one one of the biggest fallacies out there and I am determined to correct this. In fact, you'll find that many chartists were once staunch fundamentalists (such as myself) and often "grew up" reading Buffett, Munger, Schloss, Templeton , Fisher, Siegel etc. I've also got so many Finweek and Financial Mails you would not believe. Technical Analysis is also and equally as much about psychology, about price action (which in it's essence is psychology), price levels as well as fundamentals.
Brent Crude Oil, which was has ran up substantially this year was being called to the $100 level. Fair enough, fears around the Iran Sanctions may have a been a huge factor however when you look at the way the it was being discounted in the price then the only call was down. On the daily I made the call I had been watching Crude like a hawk, trying to time the call to perfection. It was a near perfect call, and if you took it you made a some nice money. I had a target of 80 (from $86.17) however I again got more than what I bargained for: Brent Crude Oil tested $50 two and half months later!
#6. Don't Try To Play Every Turn Like I Did. Let Me Say That Again: Don't Try To Play Every Turn Like I Did. (MISS)
Trade Note Link Here: https://goo.gl/szBRj3
I tried to time a short term bullish reversal in Brent Crude Oil however the bearish trend from the original short/sell (above, #5) just kept going. I had a smart trader on a Twitter try and warn me than the price would be lower but sometime we get anchored in our ideas and refuse to change our mind because we want to "be right".
#7. The Rand Reversed Retail....(HIT)
I have been bearish on SA Retailers and Banks for much of the year. I wrote a trade note called "Will the Rand Reverse Retail" Technically, they gave me medium term sell signals and if you combine that with the economic backdrop and somewhat elevated fundamental valuations, retailers should not have held, and they DIDN'T.
In March -
Mr Price Sell Call at 280, went as low as 205,
Massmart Sell Call at 170 (97 by Christmas),
Shoprite Sell Call at 250, went as low as 170
On Shoprite, I started having some serious doubts on my call as a big house came out four days later and called SHP a buy, indicating "ignore SHP at your peril, the share has R300 written all over it CEO Pieter Engelbretch is a "machine". How would you have a felt if a large institution with an army of analysts and deep research capabilities made a call that was contrary to yours? Me? I certainly doubted myself. Anyway, SHP it's almost 30% lower!!!
#8. Sasol - Range Broken (MISS)
The more times a level is tested, greater the chances are that the level is breached. That is what we saw with Sasol this year. The range was a comfortable Long at 360 and Short at 480 however this range was breached and we saw Sasol trade all the way up to 580/590. Thanks to a weak rand and strong oil price this one kept going and I mis-judged the call. Lesson learned!
#9. Down Tiger Down (HIT)
I have asked myself this question all year long: how can a consumer brand foods company (which is badly managed), in a terrible economic environment, trade at 21 times earnings? That is something I have been struggling to grapple with and yet, there are fund managers that own this and continue to preach the 'brand power' narrative. Not to mention the Listeria scandal. Just bad PR. Anyway, at 260ish the share still a over fair value and should trade below 220 (if not lower). On the idea, I recommended as a short at around R455 on 20 Feb.
#10. Sell The FANGS (HIT)
If you thought markets only go up, then did 2018 have a surprise for you! If there's one thing I believe then it's "Sell While The Sun Is Shining". While the fundamental outlook remained solid, the technical setup started to flash warning signs. I was a couple of days early on my sell calls on the FANGS but we managed to provide adequate an warning of what was about to happen.
Since my July sell calls, the results are as follows:
FB -34%
AMZN -22%
NFLX -40%
GOOGL -10%
#11. Sell Emerging Markets (HIT)
The big "surprise" in markets was the extent to which Emerging Markets sold off. On 29 January I suggested/asked the question whether the party could be over for emerging markets. Since then we saw EM under significant pressure as the US Dollar appreciated on the back of higher expected interest rates.
I've seen a couple of traders and analysts mention that it's not 'proper' to speak about your good trades, sort of in a 'bad etiquette' kind of way, I partially agree. There are some people who only tell you good side of the story while omitting the failed trades/ideas. Today I gave you Hits and Misses. While those traders are somewhat correct to shun blowing one's own trumpet, those traders often have decades of experience and have made more money than they need. Me? I'm trying to build my name and turn my ideas something that is even more highly desired while in process build my capital to a very, very decent level. I've been in this business for such a short period: 2 & 1/2 years however I have been reading up/been a student of the markets for 15 years. I honestly think I have some very good work and have good ideas. Combine that with a constant focus on markets (I'm writing this on Boxing Day, crazy me) and a good work ethic, it can can only mean good things.
If you're interested in ideas or need specific insights, hit me up on Twitter and Linkedin. If you didn't like my style of writing on this post, hit me up too!
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