Review of Goldman Sachs’ top trades for 2018
I’ll just leave this here:
There was 4% of positive carry but it wasn’t nearly enough to cover these kinds of losses.
7) Long a volatility-weighted basket of the Brazilian real, Colombian peso and Peruvian sol vs. a short US dollar bet
I’m not sure how they weighted the volatility but it doesn’t matter because the Brazilian real was crushed. At least they avoided the Argentine peso.
The core idea here was the industrial metals would strengthen but they’re down about 8%.
There’s plenty of irony here. In 2017, Goldman’s trade was for a stronger US dollar but they were stopped out in April of that year. This time they were short the US dollar it has outperformed everything but the Swiss franc.
Naturally, the main lesson is ‘be right’ but there are three other things to take away here.
1) A year out is tough. Six out of seven trades are down, flat or stopped out. However, early on most of them were in the money. If this had been ‘Seven trades for the next 3 months’ it would have been a winner on almost every front. Predictions are tough and they get tougher the further you look out. For big, global macron trades a three-month horizon is reasonable, longer is much tougher.
2) No one knows anything. That’s something I’ve been writing for years. Part of human nature is to seek out authority when there is uncertainty. Goldman Sachs is a financial authority and the people who came up with these ideas are high paid but the best trade ideas rarely come from authorities, especially when they’re hatched in groups.
3) Keep it simple
Some of these ideas where better than the performance of the trade. The best trade was shorting bonds on the Fed hiking four times this year. It was the simplest idea of them all.
Best of all was Greg’s idea at the bottom of the review when we first wrote about Goldman Sachs’ ideas. Buy FANGs he wrote.
- Facebook -7.5%
- Amazon +71%
- Apple +28%
- Netflix +87%
- Google +16%
Return on FANGs: +38.9%. It goes to show…attack the trends.