Experience is the name that everyone gives to their mistakes.

Posted on 21 January 2015 by Douglas Chadwick

We learn from history not to repeat old mistakes, so we make new ones instead. At Saltydog we have been guilty of doing this twice. Initially by denying the gain that UK gilts have made over the last year and more recently by ignoring the potential for gain in the price movement of oil. In the first place we were listening to the financial pundits who were saying that the termination of Quantitative Easing and the potential for a rise in interest rates would force an increase in the yield from gilts, and an accompanying fall in the gilt prices. So we did not go there. We understood the argument and felt that this movement would in fact take place. Wrong! By doing this we drove a coach and horses through our own rules. In particular the one that says you follow the numbers. After all, that is what they are there for. The market is inanimate and never wrong, which is more than can be said for our opinions. This mistake probably cost us in excess of 15% on the sum of what we might have invested. The second instance is not so much a mistake; it is more a missed opportunity and a lack of awareness on our part. The whole world has watched the falling price of oil. It was around $110 and now after about six months it is down to around $44. Week upon week Saltydog has been producing the ETF numbers which have demonstrated the ETFs that `short`oil (which benefits from a fall in price), have been going up in value. Some have made a gain of 22% in the last four weeks, 60% in the last twelve weeks and 105% in the last six months. We certainly discussed the reasons for the oil price movement - OPEC is content to create the falling price if it bankrupts the American shale oil producers, and the Americans are happy if these lower prices bring the Russian economy to its knees. So why did we not invest into these short oil priced ETFs? The answer is that it never crossed our minds. We do not regularly use ETFs as an investment too, but we are going to watch out for when this lower price of oil has done its work and it starts to recover. We will then look to invest in a `long` oil ETF which should track the rise in price.