Today’s Profit Watch draws your attention to Marshall Wace.
They’re a hedge fund. Never heard of them? Me either…until now.
But they sure seem to have a lot of money under management — US$45 billion, according to the Financial Times (FT).
The FT reports…
‘Marshall Wace, one of Europe’s biggest hedge funds, is planning to raise $1bn for a new fund that will trade stocks based on their environmental and other ethical attributes, the latest sign that a sector known for its focus on profits sees opportunities in responsible investing…
‘The new fund will buy stocks with strong ESG characteristics and bet against stocks with poor ratings.’
Lately we’ve been talking about this as a strong theme for 2020 and beyond.
ESG investing is not necessarily new.
But something about the COVID-19 collapse seems to have accelerated it in terms of importance and urgency.
It may simply be what futurist Tony Seba told me on the phone the other week.
COVID-19 exposed how vulnerable the oil industry can be from a loss of demand.
Add in the pressure from climate activists, competition from electric cars, and potential litigation, the context of the discussion is completely different from even last year.
‘Context’ — that’s the important word.
Lately, I’ve been exploring the insights of trader Gary Norden. I doubt you know the name. I didn’t until a few weeks ago.
One of the points he makes is that every trading day, decision, and dynamic comes in a unique context.
That’s what makes the market so hard, and yet so alluring.
It’s this that drives a big part of any profit opportunity.
Every shift in the world, no matter how subtle and obscure, can change the context of an investment outlook.
Yesterday is already history.
That means every position, theme, and theory demands constant reassessment, and demands decisions to buy, buy more, hold, sell, or sit on the sidelines.
This is what can chew you out over time too. Constant decisions under pressure can become wearing.
That’s why my old trading mentor used to advise cashing in on all positions every now and again, and disconnecting for a time.
You refresh your mind that way.
Gary Norden draws parallels between trading and elite athletes.
Neither at the top of their respective groups would expect anything less than complete dedication and focus to their endeavours.
That includes constant — and deliberate — practice and feedback.
It is perhaps somewhat askew relative to the perception of trading as a ticket to the ‘easy’ life.
I happened to tune in to a podcast with a day trader last week. He’s astonishingly successful.
Put the profits aside for a moment.
His day, from 8am–4pm is at his computer. He doesn’t break for lunch.
When he socialises, he does so with other traders, and they talk about trading.
He credits his success to relentless consistency and ruthlessness in cutting losing trades. He has to be on constant alert to shifts overnight that can lead to repricings at the open on the market.
Then he has to decide which stocks to back.
He puts his timeframe to monetise this at no more than 20 minutes, often less.
He’s certainly not down the beach having fun most days.
Of course, there’s an important distinction between ‘trading’ and ‘investing’.
Long-term positions must now be viewed in the contest of their environmental implications and social licence in general.
Shorter-term trades can be less concerned with these, because their full impact will play out over time.
Two ASX Stocks to Potentially Short
One would think a lot of potential short trades are going to stem from writedowns in the oil business and even traditional utilities, such as the energy system, enters a period of upheaval.
We already know two potential candidates: Woodside and Santos. Analysts at Citi say these two price their assets and projections off an oil price of around US$70.
Unless oil heads back there fairly quick smart, they’re going to have to adjust that level down.
The question is though: To what extent is this already priced into their stock?
I don’t know enough about them today to tell you. And, so often in the market, just because something is inevitable does not mean it’s imminent.
However, be alert for another big drop in oil.
I have no way of knowing if this is going to happen, or anytime soon.
But if it does, you and I know the stock of Woodside and Santos are likely to go in one direction — down.
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