Senseless investment by Qatar Investment authority.

Averaging down on a trade is the only sure way we know to head into eventual trading bankruptcy for there is simply no telling how far  a bad trade can go once it begins to move against you.Ask the folks who bought Enron at $40/share when it was down 60% from its high and appeared "cheap" because of that weakness? They averaged down and watched as Enron's shares made there way to bankruptcy,carrying many of them along with it.Or how about Northern telecom which was once the largest capitalised company on the Toronto stock exchange?Ask those who bought it at $50/share,half way down its run toward $1 share . Or, in the other,bearish, direction, ask those who sold cotton at $1.00/lb,which was historically higher and which appeared expensive and worthy of shorting, as it made its way eventually to $2.15/lb. Or how about spring wheat back in the first half of ’08 when it rose from $5/bushel to $10 and seemed uncommonly expensive and historically unprecedented… as it made its way eventually to$25/bushel before topping out. Averaging down on long positions and/or averaging up on shorts is trading’s correlative to a carcinogen: it kills… sometimes swiftly;sometimes slowly but always, always painfully.                                                                          

 We bring this up in light of the decision by the Qatar Investment Authority’s decision to average down into its horrific previous purchases of Greek banking shares. The QIA made news over the weekend with its decision to inject capital into two Greek banks… Alpha Bank and Euro bank… Greece’s 2nd and 3rd largest banks respectively… and that news lit up the Greek stock market, sending it 10% higher on the day as euphoria broke out on all fronts. But wait a minute; read a bit farther into the press releases and you’ll find that the QIA was a large owner of Alpha Bank previously and its shares are down… and you are a holder of Alpha Bank you know this all too well.. 90% thus far this year alone! The QIA is averaging down big time into the Greek banking system and perhaps this time it shall work. Perhaps this time averaging down will get back all or some of the QIA’s lostmoney, but we have our doubts.We have our doubts because money is leaving Greece by the droves. The “doctors, dentists, accountants and engineer” who are the backbone of any major, first world nation, are taking their demand deposits and time deposits from their long standing Greek banks and moving the money abroad. Any rational person would, and yet into this the QIA is buying… averaging down, remember… by sending €500 million to Alpha bank to buy convertible bonds issued by the bank. If we had to guess, six months or a year from now, that €500 million will be worth next to nothing, and the QIA’s common equity investment will be worth exactly that: nothing.

source:http://terencereilly.wordpress.com/

          bloomberg,reuters