Canadian Natural Resources, Suncor and the rest of the TSX energy patch have spent the past two weeks doing what oil does when a shooting war breaks out around the Strait of Hormuz: rallying hard while nothing else did. WTI crude has climbed from $82.23 on August 26 to $97.26 Thursday, an 18% move across thirteen trading sessions, as the United States and Iran have traded strikes on tankers in the Persian Gulf.
The TSX Composite has done the opposite. It closed Wednesday at 35,906.56, down in four of the last five sessions and nearly 2% below its September 3 peak of 36,633.12. Clients are noticing both movements and drawing the wrong connection between them.
Two Reactions, One Mistake
Advisors are hearing two very different things from clients this week. Diversified investors are asking why their portfolios are down when the market seems to be reacting to a war. Investors who avoided or underweighted energy for the past two years are asking whether it is finally time to buy in, now that the sector is working.
Both questions come from the same cognitive shortcut: recency bias, the tendency to weight the most recent, most vivid information most heavily when a decision has to be made under uncertainty. The tanker war headlines are recent and vivid. The thirteen session oil chart is recent and vivid. Neither tells a client anything reliable about where either number goes from here.
The composite’s slide has tracked broad, index wide profit taking rather than an energy sector retreat; crude moved in the opposite direction across the same window, which is the divergence driving both client reactions at once.
The composite’s pullback began the session after the Bank of Canada’s September 2 hold and has continued alongside the tanker war escalation. Source: TMX Group.
What Odean’s Research Actually Found
Terrance Odean’s work with Brad Barber on individual investor trading behaviour, published in the Journal of Finance in 2000, found that households who traded most actively underperformed a simple buy and hold strategy by 6.5 percentage points a year. The mechanism was not bad stock picking in any single instance. It was the pattern of buying into recent strength and selling into recent weakness, repeated often enough that timing and turnover compounded against the investor.
A client who moves money into energy today because oil is up 18% in thirteen sessions is making exactly that trade. The entry point is not connected to a valuation view or a portfolio need. It is connected to a headline cycle around a conflict whose next turn, de-escalation, a new ceasefire attempt, a fresh strike, cannot be forecast by anyone reading the same news the client is reading.
The Advisor’s Actual Job Here
This is not a case for telling clients to ignore energy or ignore the war. Both are real and both matter to a Canadian portfolio. The job is separating a client’s existing strategic allocation, set before the tanker war started, from a reactive trade a client wants to make because of the tanker war.
The first deserves to be held through the noise. The second deserves a direct question: what would have to be true about oil twelve months from now for today’s entry to have been a good decision, and does the client actually believe that, or does the client believe the headline.