Monday, 3 March 2014

What a difference a day makes

I have lots to tell you today. I have kept the best till last so keep reading.

Reaction to the Ukraine crisis

At last the market is faced with a situation it cannot ignore. All those banks pumped full of free cash from QE have happily sailed through political crisis after political crisis. Free money low interest rates and indifference to risk, have meant that all those traders were willing to push stock prices higher and higher. Now that the free money era is coming to an end a new political crisis is weighing on the minds of those traders. How will the situation in the Ukraine pan out? I have my own private view which I will come to in a moment. It is based on gut feel - no more, so you have been warned.

The markets

But more important what should I do with my holdings? I have already sold out of my UK shares to realise a profit of 5.8% in two and a half weeks. I felt it too risky to stay in.

Currently the FTSE is down 133 points and the DAX 293, the latter being closer to the front line. At the same time the dollar is recovering some of its losses. The change is too small to say that, for the moment at least, the market is running for cover in US bonds.

Gold has made a new high in its recovery trajectory. Again nothing massive, but it is still 13% up from its low. I pray that when the US market opens my mining shares will reflect that strength as I dump the rest of my portfolio. Hopefully with some of my profits intact.

Ukraine (a personal take on the situation)

My unresearched gut feel about the Ukraine crisis is as follows: I thought late last week that the Russians would take control of the Crimea to see if they could get away with it. They have taken over and they have gotten away with it. Next move? They will consolidate and take over Eastern Ukraine. They will reinstate Yanukovych as the lawfully elected president of the Country (which he is). They will encounter more bluster and inaction. They will consolidate their position in an area where pro Russian inhabitants predominate and then, at Yanukovych's request, will take over the rest of Ukraine. Their PR will focus on the right wing and neo-fascist elements that contributed to the over-throw of the "legitimate" government. There will be more bluster from western leaders, economic and diplomatic sanctions, NATO on a heightened state of alert and we will have to learn to live with a new and less stable European status quo. Let's see how it pans out and then we'll see if I'm right.

What else?

I have two stories to tell. The first concerns the dangers of trading on the US market. Friday was going on happily for me until the late evening (late afternoon US time). I was horrified to find that my portfolio had taken a massive cash hit. Investigation showed that it was all down to a  fall in the price of one share: NQ Mobile down 30% from its high of the day. The next hour or so saw it recover and my loss was cut by three quarters. No news items threw light on what had happened. The only item was, if anything positive. It was only the next day that I found this item on a share analysis site:

"NQ Mobile (NQ), which makes mobile security and productivity software. It lost 47% last Oct. 24 when a short seller's report questioned its accounting. The stock has worked its way back near a high, but its chart is deeply flawed. The fundamentals were solid, but none of the top funds had it in their portfolio. That was a red flag."

The only reader comment on the report accused the author of being a liar. I investigated and discovered that institutional shareholders held 14.17% of the stock. Perhaps they were not the "top funds" but a more measured comment might not have sent the price reeling. I suspect that some short selling hanky panky was going on. The other share mentioned in the article suffered a similar hit. Clearly the author has a big following who acted precipitously on his comment.

Sell in May - again

I have have kept  records of my monthly trading over the past ten years. Here is how I have performed month by month. It is very revealing

Monthly contribution to profits Percentage of losing months
Dec 41% 10%
Sep 24% 20%
Nov 21% 10%
Feb 18% 20%
May 12% 40%
Mar 5% 40%
Oct 5% 40%
Apr 3% 50%
Jan -3% 50%
Jul -4% 50%
Aug -6% 50%
Jun -16% 50%
Five months have been the big contributors: September, November, December, February and May. 

Apart from May in most years those months have been winners. 

April, June, July, August, June and January have only been winners in half the years. 

January, June, July and August and  have been losers despite my efforts to avoid being in the market in losing months. 

Lesson is clear: Trade in the winter starting in September and avoid risks in the summer starting in March.

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