Am I making a mistake by delaying investing?

tg99

bowlhead99 wrote: »

Well, when it gets close to quarter end the fund managers want to sell and convert their unrealised gains into realised gains because it looks good to have realised gains on the books even though it doesn't make a penny of difference to the NAV. Also they might have been holding some tasty stock that they like which doesn't actually fit the official stated strategy of the fund and they want to get it off the portfolio list. Then with the realised cash they can go and buy the coolest thing in their sector.

But the most common type of 'window dressing' is probably to dump stocks that were big losers during the quarter -get rid of 'mistakes' so you have a portfolio listing packed with stocks that everyone knows have been winners that quarter, instead. At the same time, some managers might like to pick up losers so they can say they hold X stock but it's valued close to cost because they're smart and bought it after a fall.

Of course, selling some shares and buying others won't boost the average price of shares in the market at month end because you're selling as much as you're buying -just switching assets and not actually putting more money into the system. And your sells were met with someone else's buys and vice versa so there is no big demand imbalance and no obvious reason for the market to rise as you approach month end.

The sneaky thing that some funds might do is, if they have a million shares of ABCXYZ Illiquid Nanocap plc worth 10p each, is go and do a cheeky buy of 1000 more shares right before the closing bell at 4.30 on the last day of the quarter, offering 12p a share. If they're lucky, the market makers might tick up the official bid price, and the last traded price will be over 10p, meaning they can publish their accounts showing that the whole million shares are 'worth' more than 10p each. Even though any slight premium would unwind the very next day, the quarter-end position might look nice.

None of the above effects adequately explain why the market at large would go up as we approach the last few days of an accounting quarter but probably fairleads has a good bit of insight which he/she is keeping close to their chest so they maintain their trading edge over us mortals.

Yes I am sure fairleads is only feeding us a few scraps of his/her trading strategy which in reality is built from a whole variety of complex algorithms that would put the likes of Renaissance Technologies and Winton Capital to shame.

Putting the sarcasm to the side for a minute, it looks like he/she is a bit confused regarding end of period window dressing and its impact on market indices as opposed to individual stocks. In any case, from what I've seen, such trades as you described above tend to be less prevalent these days for regulated pools of capital such as unit trusts.

The amount of oversight and monitoring by the compliance and risk departments of portfolio manager trades is significantly greater than in years gone by such that repeated end of period trading that is designed to window dress would soon be picked up and queried. Indeed it does actually often detract value from the NAV given transaction costs involved plus market impact on the price if you are are trading in a decent proportion of the market cap.

Secondly, retail unit trusts typically publish fact sheets at each month end showing top 10 holdings albeit this wouldn't show any trading in stocks below this threshold. And the fund research industry / institutional fund buyers these days tends to do more work at looking at what trades the manager has done over the month or quarter using tools such as Style Research and Barra to analyse the change in portfolio over the period (using full portfolio breakdowns supplied by the fund managers at start and end of period under a non disclosure agreement). Thus any such window dressing trades could easily be picked up here.

And a sizeable proportion of markets are dominated by institutional investors such as pension funds that invest via segregated mandates with their own custodian rather than via unit trusts so again such investors will clearly see all the trades going through the books.

Hedge funds on the other hand might be able to get away with more however again there is much more oversight of these funds today as they have had to become less secretive in order to raise capital from the big SWFs and others. And these days there is much more rigourous research into the hedge fund's middle and back office functions which includes looking at how trades are monitored etc.

AnotherJoe

EdGasket wrote: »

Well there are plenty of chartists using technical analysis of the share price to make decisions. .

Doesn't mean they are right and the if it was as simple as a trend occurring and being followed then it would never end. . And fact is, if it was as simple as your charts show, the big boys would have it sewn up and us pond scum wouldn't get a look in.

AnotherJoe

tg99 wrote: »

Hedge funds on the other hand might be able to get away with more however again there is much more oversight of these funds today as they have had to become less secretive in order to raise capital from the big SWFs and others. And these days there is much more rigourous research into the hedge fund's middle and back office functions which includes looking at how trades are monitored etc.

The hedge fund guys who followed this type of thinking with algorithms and supercomputers up the wazzoo have had a worse time than a blind monkey.