Beware of the Market Gurus
This article was originally published in the Against All Odds Research August 2021 Issue
I've been a subscriber of Fred Hickey's The High-Tech Strategist for years and I have a lot of respect for the guy. But the above tweet is an epitome of the kind of folly value investors are wont to keep repeating. According to the tone of his tweet, the August 10 COT report implies gold is a buy because the money managers have increased their short positions and reduced their long positions. That implies gold will rally. The underlying basis for his tweet is that CTAs are idiots who always do the wrong thing (and lose money). If that were indeed true, don't you think asset allocators would have figured it out by now?
Fred Hickey is a perma gold bull and tech bear. He occasionally takes long positions in tech stocks and reduces his allocation to gold, but he is firmly locked in to that mindset. Like most market gurus, he needs to consistently repeat this message in order to grow his fan following and sell newsletters. Even better, he doesn't publish a track record. Has he outperformed the HFRX or any of the trend following CTAs? We will never know.
But Kashyap, wasn't his call right? After all, gold has rallied since August 10th.
The trick is to go back and look at his timeline.
For a man with a hammer, everything looks like a nail.
The gurus are always repeating the same message. Price action is inconsequential, what matters is their own view of the world. If cryptos correct, why, they were right all along on why one should avoid that sector. They've always told you so. If gold corrects, well, you should just buy or "nibble" on the miners. Any piece of news is a catalyst for gold to go higher. This market is like that other time when gold miners went up 100%.
Good market gurus like Fred Hickey are bound to get it right over time. Especially ones who derive a significant chunk of their income from successfully investing their own money, rather than from just selling newsletters. The question is - do they have good risk adjusted returns? I tend to think not.
When in doubt, refer to the price action rather than a market guru on Twitter.