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The Failure of Asset Allocation & Commodity Trading

InvestorEducation / Commodities Trading Jul 10, 2009 - 02:16 AM

There was a very interesting article in the Wall Street Journal this morning stating that Asset allocation has failed.

wall street journal article The article states ” The financial crisis has sent many financial advisers, academics and investors back to the drawing board”.

What I do not understand is how can financial professionals still overlook commodity trading and trend following. In commodity trading virtually every type of product used in human existence is considered to be traded. When I mean traded.. I mean if there is a trend to be followed. It does not matter if it is soymeal or feeder cattle or gold or oil, these commodities trend. When there is a trend, trend following commodity traders put themselves in the position to profit. More so the correlation to stocks and bonds is small.

The article continues to state the statistics such as the S&P 500 lost 37%, the MSCI index of major markets in Europe, Asia and Australia lost 45%. The MSCI emerging-markets index fell 55%. Real-estate investment trusts declined 37%, high-yield bonds lost 26% and commodities fell 37%..
However there is a major issue with this fact! So what commodities fell 37%. Commodity traders go long and go short. This means very simply,no buy and hold, being flexible and no opinions. In commodity trading, commodity trading advisors can make money trading both sides of the market ( the long side…if prices go up..and the short side ..if prices go down).

Using any common sense do prices only go one direction? Nope…just look at crude oil up to $147 and crashing down to $30 something and then back up again to $73. All along the way commodity trading advisors that adhere to trend following took out pieces of this trend and made money.They did not catch the bottom nor the top, but pieces of the trend. Maybe I have been doing this too long, but is so complicated to understand this. Why didn’t the so called experts predict the market crash in 2008? Trend following commodity trading advisors did not predict anything but rode the down trend in the stock market indicies and made HUGE PROFITS…fact..not fiction..

Again ..it is funny all the experts are calling for green shoots…the market crash is over.. world is wonderful. Yesterday..we took a trade shorting the SP 500. I have no idea if it will work or not…nor care… Not predicting anything but the trend as our model sees it has changed and might continue. We are risking less than 1% of our account. No opinion..no emotion.. time will tell if it works or not..

What surprised me even more was that the Wall Street Journal did not mention how well commodity trading advisors did last year in one of the worst situations since the Great Depression. It would have be prudent to inform asset allocators the merits of commodity trading and managed futures. Last year is not a rare example. Trend following commodity trading advisors that understand risk and trade with strong risk management & money management have been around for decades grinding out positive returns. Can you say that about your buy and hold mutual fund?

Read more of myinvestorsplace.com and learn the truth about commodity trading. It is not easy.. most people don’t get it as in all the allocators mentioned in the wall street journal. Profits are made over long periods of time with strong volatility at times.

Andrew Abraham
www.myinvestorsplace.com

Andrew Abraham has been in the financial arena since 1990. He is a commodity trading ddvisor and co manager of a Commodity Pool. Since 1993 Andrew has been a proponent of quantitative mechanical trading programs. Andrew's major concern is not only total return on investment but rather the amount of risk that one would have to tolerate in order to achieve returns He focuses on developing quant models that encompass strict risk adherence and correlation. He has been a speaker at conferences as well as an author of numerous articles. Andrew has spent years researching ideas that have the potential to outperform indices as well as maintain fewer draw downs.

Visit Angus Jackson Partners (http://www.angusjacksonpartners.com) Contact: A.Abraham@AngusJackson.com (mailto:A.Abraham@AngusJackson.com)

© 2009 Copyright Andrew Abraham - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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