When the Smart Money Loses Its Shirt

Detailed summary

The US dollar breakout is putting pressure on gold and bitcoin, while back home the banks are keeping the ASX 200 close to a record as small caps struggle. Lachy and I look at that split and finish with a stock that’s still going up.

When the smartest people in the room are losing their shirts, you know it’s time to batten down the hatches.

I read an article in the Australian Financial Review pointing out the shocking losses suffered by some of the best-known hedge funds in October.

Regal hedge fund returns have already been terrible this year, but October kicked them while they were down.

So if you haven’t lost 10-40% of your money in the last month, you are doing better than them.

Markets are cyclical. There are times when investing is fun, and times when it is nothing but trouble.

Deciding when it’s time to sit on your hands and wait out the tough times is one of the hardest things to figure out as a trader.

The question is usually how many losses you need to take before you decide conditions have changed.

Last week saw some huge volatility erupt in the US after the Midterms. The Nasdaq dropped over 6% in one session, which is huge.

Then this week, the bounce occurred, and it feels safe to go swimming again.

Opening of the article, excerpted from Fat Tail Daily. To read the rest, open the article on the publisher's site.