FX MARKET WATCH
Te higher the price a financial product goes the more investors it pulls in. Tis results in its price rising even higher until a buying frenzy materialises resulting in a near vertical, exponential short term upside explosion, similar to the huge lottery ticket buying that takes place in the final countdown.
Why does this happen? Again for the same reasons an ever increasing jackpot draws in exponentially greater numbers of lottery ticket buyers, hype, the media and participant greed.
Te end result is also the same. Te vast majority lose and only a handful end up sharing the gain.
Avoid Sharing the Jackpot
What can we do to overcome the obvious pitfall, which is to overcome sharing the jackpot and keeping most of it for ourselves?
Te answer lies in being a contrarian. Tere is only one rule in investing that everyone must adhere to and that is the rule of “buy low and sell high”. It is the only rule that will make you money. Incredibly it is a rule that very few follow.
Te vast majority of market participants like and want to be part of the mass. We like to feel part of the majority. Being the majority crowd is
a member of re-assuring,
safe, comfortable. Add these psychological factors with a dread of buying a financial product that has/ is undergoing a steep fall and we can now understand the mentality of the lottery ticket buyer and the financial
80 FX TRADER MAGAZINE April - June 2016
To overcome sharing the jackpot and keeping most of it for yourself, you should be a market contrarian
product speculator.
Now let us apply this to what we see in the financial market place currently, in other words where are investors the most overweight expecting the biggest jackpot and where are they the most underweight and therefore not buying a ticket?
Te recent market turbulence has
resulted in a big move out of risk into hard assets in the form of commodities especially crude and the precious metals. Whilst we believe that this is a good medium to long- term strategy, it is not one we wish to participate in at
this
shun today’s big jackpots which include precious metals, first world government debt and most currencies against the USD.
To summarize never buy a lottery ticket on a friend’s recommendation, always adhere to the only rule that works which is “buy low, sell high” and finally most importantly and the most difficult of all, stay away from the in-crowd.
Remember financial markets benefit the small minority at the expense of the vast majority.
stage. We
are happy to take the opposing view by buying into potential jackpots, which are currently small and which include first world risk, the USD and emerging markets. We will
Karim Ghaidan
Investment Director TFF
You can read Karim’s Fundamental Macro articles here
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