Investors never learn when to take profits and risk tears before bed-time when the tide goes out, according to Pedro Noronha, the managing partner at Noster Capital in London.
“Many investors are always fully invested until the end, failing to take precautionary measures when the tide is high.
This euphoria always ends in tears,” said Noronha in an interview with CNBC on Wednesday.
Admitting he does not know when the tide will go out for stocks and the risk-on trade Noronha believes investors should not take the risk of being fully invested simply to pick-up the last five to 10 percent of the rally.
“The bullish sentiment and greed of 2007 is back, fund managers are looking for yield in all the wrong places,” Noronha said.
“Central banks have forced normally risk-averse funds and investors up the risk curve. Humans are wired to forget it always ends in tears,” he added.
“You hear it all over the place, let’s make money! Don’t fight the Fed! But what happens when the Fed removes its unconventional measures?”
That of course is the trillion dollar question facing the market and while Noronha is honest enough to say he does not know when the risk-off trade will bite, he asks investors why take the risk for another five or 10 percent.
“Why not increase your cash position and wait for the glass to become half full when the real money will be made?” said Noronha
With his fund 50 percent long stocks, hedged by credit default swaps against losses, and 30 percent in bonds Noronha believes some stocks do offer the chances of big returns without major risk.
“Take a look at Golar LNG Partners in the US. It operates a fleet of LNG tankers, could raise its dividend aggressively over the next five years and should be viewed as a bond underpinned by assets that will grow over time. The stock could double or treble over time,” said Noronha, whose fund owns the stock.
Disclosure: Noronha does not own the stock personally and Noster Capital has no relationship with Golar LNG Partners.