Sometimes when you look at a group of prices what you see is not necessarily what you get as I found out when I had a quick look at base metal prices. What triggered this little foray into a segment of the market I dont really deal in was the piece below that appeared on LinkedIn.
As I said I dont really spend that much time looking at base metals so I was curious to see if this was true, I was also curious that the evidence for this out performance was supposedly a drop in inventory stocks. Logically a drop in inventory stocks does not necessarily translate to an out performance of other members of a complex without referencing their inventory. If all inventory stocks are falling then any perceived out performance that might arise from this is lost as everybody is in the same boat. What generally happens when people compare groups of instruments is that they look at a raw price chart and try and divine some form of pattern from that. The chart below is of members of the base metals complex.
It is a rare individual that can look at charts such as these, normalise the performance in their head and then make a judgement on it and that individual is certainly not me. I resorted to the old trick of downloading some raw data and assuming that I had invested $1 in each and then calculated the return on that $1 over the space of a two years. This resulted in the chart below.
What is immediately apparent is that zinc is not the best performing member of this particular group – that honour belongs to nickel. Zinc and copper are only separated by $0.01 which could be argued is insignificant. The league table of performance is shown below.
This does raise the question as to what could be learned from this exercise and I think the answer the same that I always give. Opinions without data are simply opinions not facts and they certainly should not be the basis for any trading or investment decision. Part of the wider problem with the advice industry is that so much of what passes for advice is actually opinion and very little more than that.
