Hedge Funds: "Smart Money" - How Smart Is It To Lose Tons Of Money?

(Drivebycuriosity) - Today the price of oil (Brent Crude) dropped to $50. Since begin of May Brent  got more than 20% cheaper. Reuters reports that hedge funds and other speculators "cut their holdings in Brent crude oil futures by the largest percentage since September 2014" (reuters). In the begin of May Reuters had reported that "hedge funds and other money managers raised their bets on rising Brent crude oil prices for a sixth week in a row to a new record" (reuters)

What can we learn from this two Reuters reports? First: A lot of hedge funds are losing a lot of money. They bought oil when it cost $65 and more and they are selling it now for $50. Buy expensive, sell cheap?

In the begin of May I had explained that oil was way to expensive and  its price has to collapse again (driveby). For months I have been banging the "oil-has-to get-cheaper" drum (driveby). But the hedge funds, at least a majority of them, thought otherwise and raised their bets on climbing oil prices to a new record. Now they are losing tons of money.

The thing is: Hedge funds are often called "smart money". When journalists write about the actions of hedge funds they say "smart money" is buying or "smart money" is selling. How smart is it to lose tons of money? How smart is it to ignore the facts, which in this case were - and still are - speaking for cheaper oil and not for climbing oil prices (driveby).

I think the 2 Reuters reports explain why hedge funds are performing so badly: They often make stupid bets and they ignore stubbornly market data. The reports also show that hedge funds are way overrated. But journalists don`t care much about facts and they worship celebrities like hedge fund managers.