Six of the World’s Dumbest Trade Ideas

This morning when I went for my daily jog I thought to myself, how about trying to go out and intentionally lose money! Yes it always appears (and is) so difficult to make money by trading in financial markets. But hang on, wait a minute, if it is so hard to make money then by definition it must be easy to lose money. So if we set out each day and instead of trying to make money (which is difficult) we actually tried to lose it (which is easy if you are trying to make it) then we would probably end up making money.

So if we set out to lose money (and in which case we would probably make money) what would be some of the easiest ways of losing money – i.e. what would be the dumbest trades out there right now?

We think that the dumbest trades would be those that that every expert commentator/analyst/economist would agree on as being the wrong thing to do (which by definition would probably be the right thing to do).

How about these stupid trade ideas! Note that all these trades would have to be kept on for 18 months before unwinding and would involve no leverage;

1. Long Natural Gas (via futures or UNG). We don’t think a detailed explanation is required here (in fact we won’t discuss this anymore)

1. Long Lean Hogs (via futures or COW). We “herd” that Chinese pig farmers are speculating in copper! We also know that swine flu is not passed on via pork. Yes flu’s come and go. Only a wee while ago I remember the bird flu epidemic. Perhaps cat flu will be the next big thing!

1. Long Grains (via futures or JJG). Seasons come and go, we are not predicting that next planting season will be favourable, but we know that all the good news for planting (bad news for corn and wheat prices) is already factored into prices.

1. Long Shipping Stocks (via SEA). Every dog has its day, considerable supply (as in physical ships) has been taken out of service. Only 30% building projects that were to be started in the first half of this year have been started and it seems unlikely that more than 50% of projects that were supposed to be commissioned in the last half of this year will be started. Result, on this alone it equates to a supply squeeze, goodness knows what will happen if global trade picks up. It also helps with the median price to book ratio of shipowners being less than 1.

   

1. Long US Regional Banks and Short the S&P 500 (long KRE short SPY). Buying regional banks is perhaps brave, shorting the S&P 500 against them boarders on insane. We like insane trades!

1. Long Homebuilder stocks and short the S&P 500 (long XHB and short SPY). Perhaps not as insane as the trade above but it is up there.

   

Yes the “fundamentals” for all these trades appear ever so bleak, in fact we can find little popular “rational” opinion to support these trades. But remember that the market is a discounting machine. It discounts what it thinks likely to happen 6-12 months ahead, the minute you hear that fundamentals are improving then these trades would have already moved dramatically. Perhaps a couple of these trades turn out to be dogs 18 months from now but all it takes is for a couple of these trades to come off and they will pay for any losers.