- Large swings in commodity prices (example: sugar – up 16%) have lasting impact on supply chains.
- Profitable long-short strategies can be reliably constructed on the back of this knowledge.
- In case of sugar, shorting or cutting a long position in breakfast cereal, packaging stocks likely to yield good returns.
Greed or laziness?
As the flow of court cases against hedge funds that use insider tips is unabated, one question that is often overlooked is what is it exactly that prompts the money managers to cross the line – greed or laziness? Sure enough, trading on insider information may be rewarding (the emphasis here is on may, because one still deals with the markets) to tempt even the largest hedge funds, but I venture a guess that it is rather laziness, lack of skill or a combination of both that is the cause, and here is why.
Generating analysis that is equally (if not more) powerful as an investment case takes business and financial analysis skills, experience, but mostly – a method. A combination of these will yield knowledge that is even better than insider information – something that even insiders may not fully realize. Here is one such example that generates a sell signal (read negative earnings surprises one or two quarters down the road) – a few hours’ worth of work that is repeatable and most importantly – completely legal.
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