Opportunity cost of a Fundamental-only strategy

From the Economist:

“The ups and downs in the prices of industrial metals since the beginning of 2008 have reflected the fluctuating fortunes of the world economy. The copper price, which peaked in April 2008, had fallen by over two-thirds from that high by December 30th last year, when it hit bottom. The price of nickel fell by a whopping 72.3% from peak to trough. Prices have recovered as growth has returned to most rich countries. Copper is now selling for more than it did at the beginning of last year. The price of zinc has doubled from its low point last December, though it is still 2.9% cheaper than it was at the start of 2008. The nickel price has risen by nearly two-thirds in the year to November 24th.”

Read it again with the italics (which are of course mine). It occurs to me that as a trend-follower, many of the words in the English lexicon are no longer useful: in fact, their usage instills bias.

How much did you lose out on making if you bought and held any of these metals? Assume 10% margin rates. You can get a pretty good idea.

Volatility is not something to be shaken from. Use smaller positions or options, but don’t miss out on big moves up or down. You’re leaving too many opportunities transpire without earning your rightful share.

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  • Michael

    Very well said Paul. Thanks for commenting.

  • Michael

    Very well said Paul. Thanks for commenting.

  • Paul Cohen

    I completely agree the media and those who deliver market data, atleast in English represent a bias most likely in favor of incresing viewership or generate advertising revenue. Up days and good news and those that deliver it are favored storys and guests. This year I’ve relied upon volume which is a tool utilized in the past too and the lack of same kept me much more on the sidelines than those who may have played the tremendous swings you mention. There is no opportunity cost with cash when the intention and result is preservation of capital. Certainly we remain in a choppy environment, possibly the worst time for lesser equipped trend followers with few exceptions, primarily gold. Cash will always be an asset and missed opportunities aren’t half as bad as lost principal. It’s a marathon and this race is the toughest I’ve seen.