Let us recap my previous post. I discussed the importance of noncorrelated diversification to create a proper asset allocation and how disparate assets can add value to an investor’s portfolio. We spoke about precious metals, which have become the center of attention lately. Gold passed the $2,000 mark and Silver passed $29 for the first time in several years.
This week, I wanted to switch gears and talk about three different positions we entered and currently hold. I thought it might be interesting to see the entry date for each position and look at what has happened since.
The first position I want to show is Lumber. Intuitively its price should be linked with construction and new homes, which should not be performing so well during a pandemic, yet it is having a strong run mostly due to people working on remodeling their houses.
We initiated a long position on July 6th and have been riding its surge since then.
The second position is Feeder Cattle. The feeder cattle market is considered a good example of a competitive market. Its supply depends on various factors such as changes in breeding numbers, quality, weather, seasonal production patterns and price expectations. The demand for feeder cattle is influenced by the many industries that use it and economic conditions overall. An increase in the supply of cattle will lower its price and a decline in supply will drive prices up. Inversely, an increase in demand of cattle will push prices higher, while a reduction in demand will tend to drive prices down.
We initiated a long position on July 16th.
The third and final position I want to show is the US Dollar against the offshore Chinese Renminbi. This position is interesting to me because I think few individual investors trade this contract. As more uncertainty builds in the US and Treasury yields are near historical lows, the US currency will likely have a tough time maintaining its strength.
This is a more recent short position entered on August 6th.
While different factors drive prices of different contracts, we have processes in place for entering and exiting positions. While it is impossible to know what will happen in the future, it is possible to create a set of rules to approach ones trading and avoid the psychological burden that comes with thinking about what may or may not happen when making decisions.