LET PRICE TELL THE STORY | BUDGET DAY

A bet on bigger money, Budget day and why price gets the final say.

Today Britain gets a Budget nobody is looking forward to. In eight days Canada gets one that could hand its new wealth fund more cash than anyone expects.

In April, Ottawa announced the Canada Strong Fund, the country's first national sovereign wealth fund. C$25 billion of seed money over three years, to invest in Canadian projects and companies.

This is our view at FINK. It's an opinion, not a fact. We think C$25 billion is the floor, not the ceiling. We think the fund ends up with more cash than the market expects.

Here's why we lean that way. The federal budget on the 5th of November is expected to bring a "significant" update on the fund. On the 26th of October, Mark Carney opened talks on a separate First Nations sovereign wealth fund.

And ordinary savers are already piling in. Canadian ETFs took in C$156.8 billion in the first nine months of the year, according to National Bank Capital Markets.

None of that proves us right. We could be wrong.

Here’s why it matters for momentum if we’re right.

Markets price what they expect. If the money that turns up is bigger than what was priced in, someone gets caught out.

Think about who’s stuck.

The fund manager who’s underweight Canada and measured against it.

More cash than expected means more buying than expected. And that money doesn't go in all at once. It drips in over months.

And every month it has to find a home.

Every month the market grinds higher, the gap gets more painful. Eventually they have to chase.

That's how a trend feeds itself. Up and to the right, not because of one headline but because of who still has to buy.

Chancellor John Healey stands up at lunchtime with his first Budget. City analysts have said they're hoping for a dull one. The build-up hasn't been cheerful.

CPI inflation rose to 3.5% in September. Yesterday the government sold five-year gilts at an average yield of 5.036%, the highest since 2008.

The IFS says the last two Budgets already made this the biggest tax-raising parliament on record and that further tax rises "should be expected to drag on growth".

And UK investors keep walking away. Calastone says UK-focused equity funds saw net selling in 63 of the last 65 months.

So where's the sticky money that has to buy UK shares? Right now, it’s very hard to find.

The story says the UK is dreary. The price says something different.

The Vanguard FTSE 250 accumulating ETF is up 12.9% this year and sits above its 200-day moving average. Over 12 months, it’s up 13.5%.

The iShares MSCI Canada UCITS ETF, which trades in London, is up 21.9% in pounds over the same period and has been above its 200DMA for more than a year.

Both are going up. Canada has been steadier and has gone further.

That's why trend followers don't predict.

If the UK story looks grim but price holds above the 200DMA, you respect price. If the Canada story is great but price rolls over below the 200DMA, you respect that too.

Nothing good happens under the 200DMA.

So the order is simple.

Find the story. Check that price confirms it. Decide your exit before you buy. Then let price tell you when to sell.

You don't sit through a big fall waiting for the story to come good. Your exit is written down before you buy, so the decision is already made when the market’s throwing a hissy fit.

That's how you stack the probabilities. Not by being right about Healey or Carney. By having a plan for when you're wrong.

Most people are good at finding the story. Where they struggle is knowing when to get out. That's why we wrote our free guide, Good at buying. Terrible at selling. Grab it here:

David
Founder, FINK

This email is for education only and isn't financial advice. Past performance isn't a guide to future returns.