Stocktake

Fri, Jan 13, 2012, 00:00

Bullish Bridgewater: Robert Prince of Bridgewater, the biggest hedge fund in the world, spooked investors after recently telling the Wall Street Journalthat Europe and the US were “zombies” and stocks remained vulnerable to “air shocks”.

Deleveraging will take 15 to 20 years, and the European debt crisis is nowhere near over, with “insolvent banks supporting insolvent sovereigns and insolvent sovereigns supporting insolvent banks”, he said.

Bridgewater deservedly commands investors’ attention. Its main fund rose by a quarter last year and 44 per cent in 2010, and it predicted the global financial crisis in 2008.

However, commentators seem to have missed that Bridgewater’s long-term equity stance is actually quite bullish.

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Election years:US stocks were flat last year, but history suggests 2012 should be better. Jason Goepfert of Sundial Capital Research notes that flat years are followed by a median market gain of 12.3 per cent, with positive returns recorded on 78 per cent of occasions since 1929. 2012 is also an election year, which tends to be good for stocks.

The third year of a presidency is usually the strongest, with an average increase of 17 per cent since the second World War, but 2011 proved stressful for investors. So did 2008 – the most recent election year – when markets suffered their worst declines since 1931.

President Obama should keep a close eye on markets, reckons Sam Stovall of Standard Poor’s. Since 1948, market gains between July 31st and October 31st of election years have resulted in the party in power being re-elected on 88 per cent of occasions. When markets decline, the opposition invariably wins, Stovall notes.

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Trading wisdom:Technical analyst Art Huprich of Raymond James recently compiled a list of trading insights for 2012. Here are six nuggets of trading wisdom:

“Don’t make investment or trading decisions based on tips. Tips are something you leave for good service.

“Where there is smoke, there is fire, or there is never just one cockroach: in other words, bad news is usually not a one-time event, more usually follows.

“As long as a stock is acting right and the market is ‘in gear’, don’t be in a hurry to take a profit on the whole position, scale out instead.

“Never let a profitable trade turn into a loss and never let an initial trading position turn into a long-term one because it is at a loss.

“Don’t average trading losses, meaning don’t put ‘good money’ after ‘bad’.

“Understanding mass psychology is just as important as understanding fundamentals and economics.”