News | Features
17 Aug 2022 21:54
NZCity News
NZCity CalculatorReturn to NZCity

  • Start Page
  • Personalise
  • Sport
  • Weather
  • Finance
  • Shopping
  • Jobs
  • Horoscopes
  • Lotto Results
  • Photo Gallery
  • Site Gallery
  • TVNow
  • Dating
  • SearchNZ
  • NZSearch
  • Crime.co.nz
  • RugbyLeague
  • Make Home
  • About NZCity
  • Contact NZCity
  • Your Privacy
  • Advertising
  • Login
  • Join for Free

  •   Home > News > Business > Features

    Swimming Against The Tide

    During the past couple of decades of writing about financial matters and the markets I have learned many important lessons - most of them the hard way. Of these, there is one that I consider to be the most rewarding and yet the hardest to implement.


    Investment Research Group
    Investment Research Group
    That is to do exactly the opposite of the consensus view. This is not the same as merely doing the opposite of what some or a lot of other people are doing. The importance of a consensus is that the minority have been persuaded, or more often browbeaten, into accepting the majority view.

    In an investment sense, that means popular assets are very expensive because everyone thinks they will continue to appreciate in value. Conversely, unpopular assets are priced to be virtually given away because nobody wants to buy them.

    With this in mind, it has occurred to me in recent weeks that virtually nobody expects oil to go down in value. This is despite the rate of price rises in recent months to be at almost an exponential rate.

    I am a believer that markets are self-correcting. When prices get too high, supply tends to go up (sometimes with a decent time lag since production facilities take time to build) and once-ignored alternatives become more appealing.

    As a result, we have reduced our clients’ exposure to oil. We didn't sell out entirely, just enough to soften the pain if prices do come down in the short term as I expect. If I turn out to be wrong and prices keep going up, clients still have a decent exposure.
    Knowing when to sell is always hard but I am mindful of the quote from Lord Rothschild who, when asked for the secret of his incredible wealth, said: "I never bought at the bottom and I always sold too soon."

    It pays to remember that it was only a decade or so ago when oil was trading at US$10 a barrel (against a recent record high of US$135) and the consensus was that it could only go lower.

    I remember when the Saudi oil minister was widely quoted as saying he thought the price of oil would fall to $5 a barrel. This week my gut feel that oil has topped out - at least for a while - has been backed up by comments from billionaire investor George Soros.

    He told a US senate committee on energy that record oil prices are the result of a 'bubble' caused by speculation from index funds and a tight balance between supply and demand. Soros laid some of the blame on recent oil price rises on commodity index funds, which only buy oil contracts, helping to push prices higher.

    'Commodity indexes are not a legitimate asset class,' he said. He added that raising margin requirements would not affect index trading but could function to limit speculation.

    This raises the interest topic of whether index funds follow a market or actually influence it. The amount of money that has gone into commodity index funds in the US in the past five years has risen from US$30 billion to US$260 billion and this figure is likely to rise as investors jump on the commodities bandwagon.

    I am not picking commodity prices to peak and decline for some years, but I am convinced that inevitably that is exactly what will happen.

    © 2022 David McEwen, NZCity

     Other Features News
     10 Sep: Spring clean your finances
     13 Aug: Plan ahead to give yourself a debt-free Christmas!
     10 Jul: Wise up to clear credit card debt
     07 May: Ways to prepare for the unexpected
     30 Mar: Time for a financial progress check
     10 Feb: Studying up on NZ Super
     10 Jan: Managing the back-to-school bills
     Top Stories

    RUGBY RUGBY
    NZR boss Mark Robinson is welcoming the elevation of Joe Schmidt's role within the All Blacks More...


    BUSINESS BUSINESS
    The biggest jump in median weekly earnings since records began ... haven't closed the gender pay gap More...



     Today's News

    Entertainment:
    Michelle Branch has reportedly filed for divorce from her estranged husband Patrick Carney and is said to be requesting custody of their children and child support 21:42

    Christchurch:
    Cars at a scrap metal yard in Christchurch have gone up in flames 21:19

    Entertainment:
    Nicholas Evans, the much-loved writer of 'The Horse Whisperer', is dead aged 72 after suffering a heart attack 21:12

    Living & Travel:
    The Loop: Scott Morrison dismisses calls to resign, the NSW flood inquiry's urgent recommendations, and a dog's amazing cave rescue 21:09

    Entertainment:
    Johnny Depp is set to direct his first film in 25 years, about an artist who died broke 20:42

    Entertainment:
    The Duke and Duchess of Cambridge will reportedly not have their long standing live-in nanny at their new downsized home 20:12

    Entertainment:
    Anne Heche will receive an Honour Walk after being taken off life support nine days after she was critically injured in a fiery car crash 19:42

    Entertainment:
    Hollywood legend Gina Lollobrigida will run for Senate in Italy's election next month 19:12

    Rugby:
    NZR boss Mark Robinson is welcoming the elevation of Joe Schmidt's role within the All Blacks 18:59

    Entertainment:
    The Duke and Duchess of Cambridge's imminent move to Adelaide Cottage on the Windsor Estate means they won't have room for their "live-in nanny" 18:42


     News Search






    Power Search


    © 2022 New Zealand City Ltd