Seven Billion Reasons to Trade the Trend

This is something to watch. The bears are being wound up.

Hugh Hendry, one of Britain’s highest profile hedge fund managers, is winding down his managed fund amid sustained losses.

The Financial Times reports the long-time permabear is shutting the fund he founded in 2002, after years of losses.

The fund has turned $1.3 billion in assets in April 2013 into just $30.6 million.

This year his hedge fund lost 9.4% in value in the first eight months of this year. That comes after a drop of 4% in 2016.

Hendry put the losses down to the fund’s ‘substantial risk book’ becoming strongly correlated with the ‘maelstrom of President Trump and the daily news bombs emanating from the Korean Peninsula’.

Too be honest I’m not sure what all that means. But to blame the funds poor performance on Kim Jong-un and Trump shows a lack of ownership for the fund’s poor performance.

Hendry also made some classic calls on China to collapse in 2010, which have never come to pass.

Anyway, Hendry now joins fellow hedge fund permabear Crispin Odey, who managed the feat of turning $12 billion of client monies into $6 billion!

Combined the pair have managed to lose $7 billion in a raging bull market.

Mr Hendry and Odey both came to fame because they got one trade right. 10 years ago, betting against the banks in 2008.

There are real lessons in these stories for your own practical day to day trading.

Hendry and Odey have been finding out what it’s like when you start trading your own opinions, and not the markets.

Trading their opinions has been a costly exercise for investors in their funds.

Opinions are the last thing you want to bring to the market. Trading is simpler and far less stressful when you just trade the trend of the market.

The trend of all the major stock market indices has been strongly up since the March 2009 low.

Just trade that! 

The other lesson that comes to mind, is never stick to or try and justify holding a losing position, like these guys.

You know the stuff you read from the contrarians. Things like, ‘Well it’s a good company, they have a good product, they’re in a good sector, the market will eventually come around to our view.’

That thinking is financial suicide.

Take your stop loss quickly, and move on.

Mr Odey, Mr Hendry and others of their ilk come out with alarmist predictions, dire forecasts and the media laps it up. They’re presented as sages. But all they’re doing is losing their clients’ money. And fast.

These are the guys that handle billions in assets, and watch the market full time. They should know a little bit about markets.

You’d think.

But what have they achieved? Nothing. Other than losses.

That might be harsh, but you might expect better performance from people who watch the market full time.

Being contrarian and independent thinking are good things, but so is keeping your capital and making a return on capital. Any return!

Just trade what the market gives you. In other words just trade the trend, be it up or down.

But bringing your opinion to the market and trying to trade that can be a costly exercise. Well it has been for the clients in Odey and Hendry’s hedge funds.

Trading markets is easier and far less stressful when you leave your opinions at the door and just trade the chart in front of you.


Terence Duffy,
Editor, Money Morning Trader

Terence Duffy is an analyst and chartist, specialising in researching economic trends and cycles.  His primary focus is housing and land affordability. But you can also depend on him to offer his unique analysis of stock market charts. As Terence will show you, the charts often forecast, well in advance, the good or bad news to come.

Money Morning Australia