Another regular energy trading report hit my trading desk. It was a difficult month for one of the manager’s positions as long term bullish fundamentals finally gave way to the shorter term headwinds of seasonal weakness, warm weather, and over-extended refinery margins.
Here is a section:
I’m reminded of a quote from a mentor of mine (not sure it was his to begin with, but bear with me), “Are you a trader or an investor?” This adage arose in discussions regarding a position in the oil book at JP Morgan that was working against our favor.
The distinction lies in time horizons: trading pivots based on immediate information, subject to rapid change, while investing maintains longer term horizons, remaining calmly cognizant of the broader thesis. Our focus remains steadfast on investing, navigating through short-term volatilities with an eye on long-term gains.
To illustrate the difference, let’s do a thought exercise: which investment would be preferable?
Investment A: Total return 25%, daily standard deviation 1%, drawdown 40%.
Investment B: Total return 15%, daily standard deviation 2%, drawdown 15%.
Most individuals would likely opt for Investment B, recognizing that at a loss of 40%, they are likely cutting the investment entirely. I share this scenario to illustrate that while our models theses for the fall of weaker oil and weaker product cracks this month came to fruition, we were faced with a number ill-timed trades. This happens, timing the market is complex, particularly in exceptionally volatile markets with additional geopolitical considerations.