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FT on avoiding the madness of crowds

In Financial competency on 20/07/2015 at 2:38 pm

The problem for the investor trying to avoid crowded trades is not just spotting them, but managing to resist joining in. The basis for crowding is usually compelling. The US economy seemed to be doing well; the Swiss central bank was stopping the currency strengthening; and the ECB seemed to be offering a guarantee of easy profit on German bonds. The fact everyone agreed seemed not to matter.
It is hard to buck the consensus. Investors need to recognise that while the story may be obvious, the risk that it is wrong is not properly discounted. When that risk becomes clear, “the mass volte face is what causes some of these crowded trades to reverse spectacularly,” says Altaf Kassam, head of equity applied research at MSCI.

James Mackintosh, Investment Editor

FT, sorry for the cutting and pasting such a long extract. I know, I know good quality journalism and profits is hurt by such an action. But given that the FT is almost as leftist as the Guardian on Greek austerity (i.e. making the Greeks face reality) …

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