BULLS NEVER DIE?

The US market’s bullish attitude in 2013 stays with us or not in 2014? Everyone is curious about that.

It seems after this Wendesday’s FOMC meeting that the tapering in not in the focus anymore in the investor’s eye. But the markets always need something scary thing, fair. In a good bullish market there are in parallel optimism and fear about any sort of bubble. Now we can see some sort of fear about too high prices and fear about the correction, etc.

The difference in 2014, that the tapering fear has evaporated. This year the market get started to read the good macro news as good news. This is a new trend. The sentiment is still bullish and can last for few years, but don’t expect same good year as 2013 was.

Fundamentally what supports the uptrend:

• Low inflation
• Low unemployment
• Steadily increasing GDP

The odds on all three are good for 2014. The risk for 2014 and 2015 might be the higher inflation which can push the interest rate higher.

An average bull market statistically lasts for 61 months this current rally is around that average duration. But don’t be scared it means nothing some rallies could go much longer than the median 61 months. For instance between 1987 and 2000 the market was up for 50 month.

Historically the markets did the best performance if they had some major corrections as we had in 2008. Look at as a template on the “Black Monday” 1987, dot-com bubble 2000, crash of 1929.

After five years rally hard to get in the market. Believinge in the further climbing not easy, but it happened with most of us than you were not invested because waited for a good setup and perfect timing. Believe me it never comes. If you have a perfect timing and best set up point – you won’t believe it. The best periods to invest when the news is negative and when the market seems boring like in the last two weeks.

The BFM Assets Team.

WE ARE IN THE TOP OF HEDGE FUNDS’ RANKING

We did 49% in 2013.

Hedge fund industry made on average 7.4 % in 2013 against the SP500 which made 30%. The hedge funds are lagging behind SP500 by 23%. The Long-short equity funds, which bet on rising and falling stocks, rose 11 percent last year. The whole statistic includes 1264 funds out of 2257 which was reported. In 2013 we made more than 49% since March. So, we hit the market plus the hedge fund business with a wide percentage.

Last December hedge funds made only 0,1%, the SP500 gained with 2,4% we made 2,92%.

The point is the average hedge funds always underperform the SP500. Hedge funds the last time in 2008 beat U.S. stock market, when they lost only record 19 percent compared with SP500’s drop 37%.

There are some big fund templates:

• Paulson & Co., the $20 billion New York-based hedge fund run by billionaire John Paulson reached 31% last year. 
• The best performer is the Recovery Fund, its 63% 
• Elliott International rose 12 % in 2013 with $23.9 billion in assets, run by Paul Singer. 
• Bridgewater run by Ray Dalio, rose 5.3 % in 2013. 

So with our 49% we are in a very top of all hedge funds around the world. 

The BFM Assets Team.

FLAT LIKE A PANCAKE

I mean US stock markets in the last couple of days.

Mr. Market waits for the Fed minutes tonight about the tapering continues or not. My bet is no or a slight tapering further. Within few hours we are going to have ADP employment data from US and Friday the nonfarm-payrolls data. All macros are crucial about the directions. Now the SP500 is in consolidation mood and doing nothing serious, but I suppose this week we are going to see breakout, my bet is a long breakout.

The peripheral markets are doing well in these ranging market climate in the last few days. In sort of quiet trading days yesterday only the IBEX could gain significantly with more than 3%. The Spanish and Italian indices did well yesterday. My bet for this year these two indexes we have to own and buy. Why? The reason is obvious. They are both brutally underperformed in the last years. Most of indices are on historical record levels and Madrid and Milan still massively lagging. This rally could continue in longer term in quarterly or yearly basis.

Fundamentally Spain is doing well and macros are better and better from Iberia. The unemployment is declining, the GDP grows steadily and revised in each quarter to higher levels. So I don’t see recently any huge risk on the buying side.

Ibex chart:

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The BFM Assets Team.

COFFEE ARABICA BREAKOUT

Generally I like that instruments what nobody speaks about. The commodity asset class now is not so attractive for the great public, which is good and now I see some good buying opportunities in coffee arabica.

Monday the coffe arabica jumped more than 4,60% and made a great rally which was supported by the weak dollar. Made the price the biggest daily gain since 2013 September. The price now is 1,21$ per pound that is the highest price since middle of last August. Fundamental news might be the weak brazilian forecast for 2014/15.

Technically the price taken out a massive resistance level yesterday at 1,16$. Last year the coffee tumbled until last October, lost its value of more than 30%. Since last October rebounded the price from level 1,00$. The price was in 2011 April at 3,00$.

The air is widely opened for bullish run, the first target might be 1,35$ and then we will see.

The BFM Assets Team.

5 BASIC RULES TO BE BETTER INVESTOR

I have tens of rules, but I found these five rules very basics how being better trader. Those are all fascinating and easy and worth to consider them. The investment is not a rocket science or brain surgery, we only have to bear in mind some key rules, being stick with them and that’s it. Only goal is being disciplined mentally and intellectually.

1. Create wealth is not horse race it takes times
Plan for a long term and forget the 1, 5, 15, 30, 1 hour charts. There is no way you cannot make real money in short terms. Short term is much more casino than real investment. Just look at W. Buffett, J. Livermore or G. Soros neither of them are day traders. The only secret is the time. Honestly I made my nicest profits when I was patience and waiting long enough time. My biggest mistakes was when I cut my winning positions too early.

2. The debt/credit is the biggest financial problem
Live like a monk when you start investing, being focused and not wasting your money for idiotic gadgets and staffs. If you do you will act in same way on the markets too. Don’t do that. Keep your money tight and think twice when you start to buy something. Your capital is your insurance. If you lose your capital you lose your change to make more money. Be cautious.

3. Forecasting is close to impossible and dangerous.
If you start to forecast the market, that makes you overconfident and blind. You will ignore the risk side of trading and take too much risk because you are confident about your prediction and you cannot imagine you could be wrong.

4. Simple can be better than smart.
Make it simple. Don’t make the trading overcomplicated and don’t get in and get out to often. Just buy and hold it tight. In the last 10 years you could make more than 90% on SP500 but 96% of hedge fund they massively underperformed the SP500. Cause they wanted to be smarter than the market does. The easiest and simplest trading tactics are working. Good trades run by good traders purchased at good prices held for as long as possible. That's it.

5. The volatility is part of the business
Most of investors think if the market is volatile it is abnormal. No, and again no. This is the part of the business. You have to be prepared for that and use it as an advantage. That is normal pace of the markets. In the last century the yearly volatility of SP500 was 23%. It is severe, but general gain was 6% per year. The market was bullish but with thousands of corrections, don’t be scared about the corrections.

Everything in all these five rules is only part of my rules, but some of them protected me from big losses and some of them helped me making nice profit. What is the one word conclusion? Invest and wait. That is the wisdom.

Take a look at our Swiss fund and begin to invest with us!

The BFM Assets Team.

RED START OF 2014

All markets tumbled yesterday on the first trading day of 2014. US indices ended the first day of the year with the biggest loss since 2008 and SP500 made the biggest daily downswing in over three weeks, with -0,89%. Since 2000 have been seven years with a negative first trading day.

What does that mean?

Nothing at all. One day means nothing, but five days means nothing neither. There are many smart statistical oriented analyst who think it is possible to predict from the first five days of the year. But that is crap.

There is not any correlation between the first day and the full year performance – it is only 50%. Better if you flip the coin. The first five days of trading cannot tell you anything neither. Remember 2013 January, only one day was out first five good day and the year did the best annual return since 1986. Consider that, no sense what happens in the first five days of January. There are 65% chance that the market will rise through year if the first five days are positive.

The whole month – January – shows something and indicate better a bit. How goes January 73% of the time goes the whole year. January is better predictive.

What we might be sure about the market recently is strongly bullish and the era of super low cheap money and super low interest rates are making the markets pretty attractive.

The BFM Assets Team.

BUY & HOLD STRATEGY OR ACTIVELY MANAGED PORTFOLIO?

Which is the best. That great debate has been with us for many decades. I don’t believe is a black and white dilemma. Mr. Market is more complete that one system could work forever. So my bet is sometimes we have to use buy&hold strategy, sometimes use active management. But when and which. That is the one million dollar question.

Basically we have harder life with actively managed portfolio, we have to work, analyze, think and trade much. If you are buy&hold strategist, you have to only sit and wait and as W. Buffett recommends unplug your computer, internet and TV.

The key question is that. Are we better to pick individual stocks or we have to buy only indexes. Honestly I am skeptical that we can be smarter than the market, but I have some informations about that so many hedge funds and managers beat the market in long term. But for a general investor is almost impossible mission to beat the indexes. We are – including me – very bad market timers. We are jumping into positions too early or too late. Perfect timing I guess doesn’t exist. It is only question of luck.

In 2013 the buy & hold strategy worked perfectly, SP500 gained with 30%. If you bought that index you made more than a reasonable profit. But I wouldn’t say the active management is dead, I just mark here it fits only for pro traders. And, in this bullish rally the active management might not be the best strategy. But the point is that we never know when is trend in the market like this year or just moving sideways.

In 2013 the hedge fund industry massively underperforms, their 7,1% gain is against the SP500 30%. That is a huge number and honestly so disappointing about the quality of most money manager’s job and expertise. This year our company made more than 49%, so we overperformed the market.

All in all there is a majority of funds who underperform, but some like us overperform the market with active management. The active management strategy is not dead at all.

The BFM Assets Team.