Headline: http://www.thestreet.com/story/13465588/1/week-ahead-in-energy-does-george-soros-know-something-we-don-t.html “Soros Fund Management in the last quarter dumped all of its shares in Chevron (CVX), Chesapeake Energy (CHK) and NTG Energy.”
The oil market has been is a state of chaos with the price dropping from $110 per barrel in mid summer 2014 to below $30 per barrel. This is a drop of 73%. According to Goldman Sachs the energy sector makes up 1/3 of S & P Capital Expenditures and 25% R & D. spending.
Last week we saw a glimmer of hope when Saudi Arabia and Russia agreed to cap output at current levels. However, Iran refused to go along with the deal. Iran produces 1/5 of world supplies.
There is speculation on The Street about what motivated Soros to sell his oil shares. We may never know the details of his decision. We can, however, get a sense of his style of trading.
Early on in his career he made an in depth study of the markets. His concepts are discussed in his 1988 text entitled “The Alchemy of Finance.” He started by analyzing the traditional system of the day called Fundamental Analysis. This is an analysis of such documents as Balance Sheets, Price Earnings Ratios etc.
George Soros found this approach to be flawed. It did not account for random events such as weather disasters or miners’ strikes that caused instant disruption in the markets. He then analyzed Technical Analysis. This is where you buy or sell a stock based on a series of indicators such as Moving Averages, Relative Strength or Stochastic. He found this also to be flawed, citing the collapse of Long Term Management. Two Nobel Prize Winners founded LTM. They developed a formula to price options. However, they nearly went bankrupt when they suddenly got caught on the wrong side of their trades when Russia defaulted on their bonds.
Soros noted that traders act in herds following one another. He identified which way the herd was headed (up or down) and jumped on board. Yet his instincts told him that any trend does not last forever. He looked to signs of a change in direction and took positions opposite the herd. This is where he made a good deal of his profits. http://www.investopedia.com/university/greatest/georgesoros.asp
Soros is quoted as saying: “I rely a great deal on animal instincts.” He says when his back hurts its time to get out of a trade. When his mouth waters he follows the trend.
In the 1980s Soros retired from active trading and spent his time and energy on philanthropic endeavors. He has written several books, many essays and has spoken out as a critic on world affairs. He is a macro thinker. He looks at the big picture. Perhaps he sees something on the world energy markets that prompted him to sell his oil shares.