Ken Veksler is a hilariously irritable and profane contributor to finance-related social media, but more importantly, is also the founder of U.K.-based foreign exchange trading firm Accumen Management Ltd.
Mr. Veksler’s most recent letter to clients, titled The Lobotomy Paradigm, provided useful reminders for all investors.
He writes, “So let’s get one thing straight; the market has a price and that price clears all day, every day … . The fact that you, me, my neighbour’s dog and his uncle’s sister happen to disagree [with the price] only means that we are wrong and the market is right. The market is always right. That’s why the price clears.”
The lesson here is that investors should not waste much time assessing what the market should or should not be doing. In the current environment, this means not obsessing about how the S&P 500 could be rallying so much given unemployment levels resembling the Great Depression.
Mr. Veksler adds that the S&P 500 rally dictates risk tolerance across the world. The benchmark "is the leader of sentiment and thus driver of most (if not in fact, all) asset classes. You’ve heard me utter that it’s all one trade, well it is, and it’s invariably led by the [S&P 500 futures market].”
The term “lobotomy paradigm” underscores the author’s belief that active traders need to take the upward market trends seriously, and temporarily shut off the parts of their brain recognizing that the rally is not supported by fundamentals and economic trends. He adds, “There’s no point trying to skate to where you think the puck will or should be, skate in sweeping circles around where the puck is RIGHT NOW.”
Accumen Management is a trading firm that specializes in extremely volatile currency markets, and this perspective is more relevant for traders and investors with short-term time horizons. It implies using a momentum strategy where the rich get richer – the asset classes and sectors that are currently outperforming will continue to do so, even if few experts can agree on why it’s happening. Those who follow this advice will be susceptible to sharper losses if the market corrects.
For all investors, the idea that the market is never wrong is always a useful one to keep in mind. It’s easy for spectators to have an opinion, but every market transaction involves a buyer and a seller with enough conviction to put their money behind it. This makes the price valid, if only for that moment.
In my case, my portfolio has a heavy cash weighting, which means I am underperforming. I sold a couple of positions late in 2019 and early this year, and with all the pandemic-related uncertainty, did not reallocate the proceeds. The underperformance is not because the market’s wrong to rally, it’s because I made a mistake, one that I take responsibility for.
-- Scott Barlow, Globe and Mail market strategist
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Question: We put $45,000 into a tax-free savings account with a discount broker for my 90-year-old mother. She has stocks in a separate, non-registered account that is also self-directed. Dividends from these stocks are important to her, and she would also like to generate income from the TFSA. Is it better to buy stocks such as Fortis Inc. (FTS), Algonquin Power & Utilities Corp. (AQN) or Brookfield Renewable Partners LP (BEP.UN) for the TFSA, or an exchange-traded fund? Do you need to sell ETF units to receive income? She is also fond of the Scotia Canadian Dividend Fund (fund code: BNS385), which she holds separately with an adviser who only deals in mutual funds. This adviser has recommended that she sell the Scotia fund. Do you have any advice?
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