Friday, May 20, 2011

Where are the Investment Sheep?

Aside from my duties as a top down rotational strategist I also devote time to tracking the movements of the investment sheep. Investment sheep are novice private investors, financial planners and front line bank staff who follow the current investment theme. Investment sheep tend to lack original thought and so they follow the shepherds into places that appear to offer rewards such as capital gains, high yields – all without risk of course. The shepherds are the media talking heads – portfolio managers, economists and financial writers who arrive into a space early and wait for the sheep. The sheep are then fleeced or harvested.

So where are the sheep now? We know they were all in the gold stocks six months ago. One clue is the 52-week high list with names like Canadian Utilities Limited, BCE Inc., Manitoba Telecom Services, Pembina Pipeline Corporation and recently Trans Canada Pipe. Could it be the investment sheep are now chasing yield?

Now if the run up in the utilities, the REITS and the telcos is the result of the investment sheep chasing yield then we know it will eventually end badly. On a technical basis TransCanada is over-bought having reached extreme price deviation from several long term moving averages. Our monthly chart illustrates the over-crowding with the price of TRP almost 30% above the 30-month moving average

1 comment:

chrispycrunch said...

With cash interest so low, it's not surprising to see the yield chase. I do like rogers, telus, bce for their strong cash flow and cost management.

The real suckers buy smartphones, migrating from ordinary phones. This is what fuels these companies to 52w highs.