What’s up guys, so many things to take about Brexit peeps, I just dunno where to start,
We all know how George Soros shorted the pounds and got himself into the B gang. Nowadays the same instruments are available from your bedroom and BREXIT is the perfect representation of a volatile opportunity.
Volatility equals opportunity for all hedge funds, and this picture represents exactly how the participants and money injection are increasing for BREXIT.
Following Georgey, I decided to diversify and minimize my overall exposure, if all trades fail at once, I still have chips to come back to the table.
So I committed small amounts for each assets.
I strongly believe that Britain will vote Remain, but I am still shorting the pound heavily, with a combination of forex pairs, again, to isolate the risk as much as possible.
Think about it this way, if you go to the horse track, and bet on all the horses 5 pounds, and your friend put all of his money into a single horse, who would you think risks the less of the both of you ?
The Environment is the following, if Britain leaves the Euro, Swiss Franc will benefit the most, Business remains (haha) still strong in Europe overall, and is showing good signs of recovery after the chinese Yuan disaster in 2015.
In Asian Equity Markets stocks were slightly up, many investors hid in safe haven assets shelters such as the Japanese Yen and Japanese Bonds. They all braced for impact on the Brexit case,
This would all make sense, as a wise investor, you are just trying to move your money away from the brexit consequences.
The Pound ran up to a six month high which is quite daunting, as if the market makers were pumping money into it before the fall, just to get a higher price, and also to gradually increase their huge exposure to a big short(hence the movie : The Big Short).
It’s highest since the beginning of the year, something doesn’t smell right.
On the commodities Market, oil price rose in Asian trading today, as the market nervously awaits the brexit verdict.
In US equity markets stock fell in low trading volume yesterday, with traders focusing on today’s referendum, Tesla motors was down 10.5 percent after Musk made an offer to buy his firm Solar City in a deal of 2.8 Billion. Fedex fell 4.5 percent after reporting a quarterly loss.
In Bond Markets they held firm with a Japan 10 year bond yielding 0.13 percent,
I have to say I reactivated some old brokerage I know I had lying somewhere just for brexit.
As soon as I saw the potential for opportunity and the massive volatility, I remember that volatility is the bread and butter of a trader.
So I called up my brokers, yes I have a few which isolates the counter party risk, in short, if one of them fucks me up for whatever reason, I will be happy I didn’t have all my money in the same account.
The moment you have been waiting, MY TRADES :
Swiss Exchange Index
UK FTSE 100
Lloyds Bank UK
Now these trades are being active before the results of the referendum, I plan on taking a number of other trades after the results.
I must say I am biased thinking that Britain will stay in the EU, but then I also argue with myself that there is all the reasons to make it happen, long story short, I have decided to position my trades so that I would profit from both scenarios.
So I am hedging myself with a few instruments, Swiss Franc, The Swiss index, The UK Index, Crude, and LLoyd Bank (UK financials).
Of course I have set the stop loss into all trade, but I am a bit worried about slippage when 10 pm strikes.
If the slippage does happen, I might find myself in a pickle,
There was a time where the Swiss Franc collapse not so far ago, and the renoun Broker FXCM asked all of his retail clients to pay back the slippage that they were owed.
The move in the currency market was so drastic that even the broker was unprepared ironically, we might see a similar situation tonight.
Anyways I am so excited guys I can’t wait to get started, it is now 9 pm, I am gonna get to my station.
Today I just got my Komono sunglasses for men at just 49 euros, delivered in about 5 days (in Europe), I believe the deliver time will be longer if you are in the States.
The shades are quite good surprisingly, very comfortable on the nose, and not too fancy.
I took it in the tortoise model because I was looking at some Tom Ford Flynn sunglasses, but wasn’t quite ready to commit that sum (250$) into an irrelevant added value to my life : shades.
You can look up the video as you can see the production quality is starting to come together (ironic),
The packaging was pleasant, I mean the box itself looks as expensive as the shades, there is a nice shades cloth, and a few papers.
I feel overall quite happy with the purchase as I reached the perfect equilibrium as a shades consumer : not too expensive that I just don’t wear them being afraid to break or loose them, and not too cheap that it will not protect me from the sun and I bought them 10$ on a tourist beach.
So that is it guys for my review, tell me what you think in the comments if you know about this brand, it is a Belgium company and they look decent (no crazy prices) so have a look at what they sell,
I didn’t review the watches because I didn’t order any, but I think they also look nice.
First of all I have compiled this method into a 6 video course that goes in depth into select the best outperforming stock to invest in, and the worst performing stock to short. You can find the fundamental course here.
In order to select a stock to go long or short, you wanna choose the outperforming stock of the outperforming sector of the outperforming market, and conversely, the opposite when shorting.
Now sure that may sound more easy to day than to do, I feel you.
But it is not as hard as you may think.
You can analyse and paint a picture of a market (for example, the US economy) by looking at economic indicators.
The indicators that we want to look at are the Leading Indicators, because they predict the future.
These indicators correlate with 12 months in advance with GDP (Gross Domestic Product), which represent the income of the country all added together.
We tend to look at them to figure out whether the market is in a bullish or bearish economy, and try to determine how the stock market will be driven over the next 12 months.
These indicators are the following : the Purchasing Manager’s Index (PMI), the University of Michigan Consumer Sentiment Index (UMCSI), and the Building Permits.
You can read the full article here on how to interpret them, but I’ll just go over it briefly now, The Purchasing Manager’s index is basically a survey made to businesses in the US, where they are being asked a series of question regarding their day to day business activity.
How is your Orders ? Do you plan on employing ? etc.
This will give you a very good idea where are the businesses right now in their activities, and ultimately, if the economy healthy or not.
The Building Permits are basically a housing developer paying around 1.5k for a permit to build a property.
This is quite expensive so the housing developer must be very bullish about the future to make that kind of investment.
Not only does it tells us that the housing market is healthy or not, which is a key chain of a capitalist economy,
It also tells us that the banks are actually lending money to the people (which is not always the case).
Because any housing developer doesn’t pay 100% in cash, he must get a loan for his project.
This shows us how is the banking system doing as well within that market.
By looking at all this indicators, you are starting on the journey to be a professional investment banker.
You are taking the approach that is called the Top Down Analysis approach, which is widely used within the Hedge Fund space.
This method consists of looking at the world first, then drilling down to the sectors and ultimately the stocks.
You can apply this method for any economy as these indicators are available as well.
By looking at the 3 major economies of the world : The US, Europe and China, you can paint a clear picture on the Health of Financials in the World.
Now that you understand how to select a market with the Leading Indicators, if you see a market that is changing direction, or is showing rapid growth or contraction, you can move on to the next step, which is to select stocks within sectors.
It is basically a way to divide stocks and sectors into 2 categories.
These categories are actually the opposite of one another.
We divide these stocks and sectors in these categories simply because of the nature of their respective business.
To put it in simple terms, the cyclical stocks are more sensitive to the business cycle than the defensives.
Now let’s take an example to prove the point.
Tommy Hilfiger is a very cyclical stock for example, meaning that it is sensitive to the business cycle, but why is that ?
Well quite simply because if there is another financial crisis tomorrow like the one in 2008 (it is coming bigger and faster than you think), stores will dry up and nobody will buy a Tommy shirt anymore and the stock will fall down sharply.
Conversely, if the economy rallies and it grows at a faster rate tomorrow, the stock will probably gain more than a regular defensive stock in value.
If you are not familiar with this company, they basically make shower gel, shampoo, and toothpaste.
In the same conditions above, meaning a crisis or recession, the stock will not loose as much value as you think, the stock price of this company will not really get affected that much, and that is for a simple reasoning behind it again.
If there is a recession, sure people will tighten their belts and save money by not buying a Tommy shirt or a car this year, but that does not mean they will stop brushing their teeth and taking a shower before going to work.
Do you start to see where I am getting at ?
And conversely again, if the economy is expected to grow, you will not see that stock gain more value than all other simply because the purchasing power of people will be directed toward cars and Tommy shirts (cyclicals) rather than investing loads in shower gels, shampoo, and toothpaste (defensives).
To me, when I didn’t really get what those categories were, I was kinda looking for an explicit list of defensive stocks and cyclical stocks, but you can really use common sense just by looking at what the company does, what does it sells, and you can put 2 and 2 together.
Another way to know the cyclicality of a stock is by looking at its Beta.
The Beta is a financial ratio that you can find next to the stock price on any site like Yahoo Finance or Bloomberg.
It is basically the correlation the stock price has relative to the Index of the Stock market.
For example, if we go back to the Palmolive example, it will be the correlation of Palmolive to the S&P 500, because Palmolive is a US listed stock, the beta shows how much does the stock price moves if the S&p moves 1%.
As you can see above in the picture, the beta of Colgate-Palmolive stock is at 0.836.
That tells us that when the stock market is moving 1%, the stock will move 0.83%, which makes it very defensive because it will move less.
Moving on the last section on how you actually select and pick a stock when you pull up a sector.
As we have already outlined above, the sectors are divided into cyclical and defensives, but how do you go about picking the right stock in the end ?
Well again I will have to make you familiar with another concept that will explain the point more accurately.
You will probably already heard an analyst on TV saying that a stock is cheap or a stock is expensive.
So let’s cut to the chase and tell this very clearly, there is no such things as cheap or expensive in the stock market.
If a stock is selling at a premium of its earnings, it is for a reason, and conversely, if a stock is selling at a discount to the sector, it is for a reason as well.
To put it more simply, the P/E ratio of a stock will show how much a stock is priced compared to the dividends you received for owning that stock.
So some stocks like Facebook will sell at a few hundred dollars, and another stock will sell at 5 dollars a stock, but both of them pay 1$ per stock at the end of the year.
So the P/E ratio of Apple will look like 50 and the P/E ratio of the other stock will be 2.
So all fake analysts will come forward and say on TV that Apple is expensive and you should short it, and they will say that the 5 dollar stock is cheap and you should buy it, because their respective P/E shows us what is cheap and expensive.
Well let me tell you that is total Bullshit !
If Apple is selling at a premium it is for a reason, and the shitty 5 dollar company the same, it is at 5 dollars because its a shitty company with no future and will probably go at 1$, and Apple at 1000.
There is no such things as cheap and expensive and you shouldn’t look at the names of the companies or reports or earnings, you can just look at the P/E ratio and you will see that the market has already priced the company through its P/E.
You can see already which stocks is popular, and which is not.
If you embrace and apply the few concepts that we covered up there, you can then add what you already know into your system, and of course risk management.
Don’t invest into one idea all at once, put 10% of your portfolio per idea, and hedge yourself by making pairs of trades Long/Short, so that you can isolate the risk into the Management of both companies and not be exposed to a earthquake or something like that.
If you are like me, you are probably wondering how to set your stop loss on a spread trade, or hedge trade, meaning that you are basically trading as pairs long/short in your portfolio, and you want to set the stop loss not on the 2 individual stocks themselves but on the actual ratio of the 2 stock prices.
Well first question, why would you do that ?
Its quite simple of an answer to be honest, because we are trying to isolate the risk we are taking into our trade.
If you open a trade without hedging yourself, you have a naked stock.
What I mean by naked stock is that you don’t have anything to protect if that trade goes wrong.
But if you hedge yourself, meaning that you go long one stock, and short another,