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Autumn 2018 stock market drops

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dave559
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Autumn 2018 stock market drops

#173170

Postby dave559 » October 11th, 2018, 11:37 pm

Apologies if this is not the most appropriate board, I wasn't sure where best this might fit.

As I am sure everyone has noticed, the world's stock markets have suffered some rather steep drops over the past few days. We are all of course regularly reminded that "the value of investments can go down as well as up", but, as a fairly new investor, the speed and size of this drop does have me nevertheless a little worried (although there was a not too dissimilar drop over a longer period in January and February, which the markets then recovered from).

All of my investments are in funds, so are spread very widely in terms of individual shares and bonds (and not very much in funds generally regarded as higher risk so far, while I try to get a feel for how investing works and how much risk I am willing to accept), and of course I also have cash savings, so I am not overly worried as yet, but, on the other hand, if the markets continue to fall significantly for a prolonged period...

Anyone care to share their thoughts on the current situation?

Itsallaguess
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Re: Autumn 2018 stock market drops

#173184

Postby Itsallaguess » October 12th, 2018, 5:03 am

dave559 wrote:
Anyone care to share their thoughts on the current situation?


You'll get used to it - stick with a plan and continue to regularly invest through all market conditions. Don't sell into a panicking market, it'll recover over time.

Go and spend some time on Yahoo, looking at the historical chart of the FTSE -

https://tinyurl.com/ybujt2fh

Understand that markets can and will have prolonged periods where prices drop. Also understand that markets then recover.

Both process may take many years, so make sure that you have a financial coping-mechanism that means that you're not likely to be a forced seller, for whatever reason, in a market that may be in one of it's regular 'down-periods'. Cash, or near-cash equivalents, in the form of a buffer, for use during those periods is often how people manage this.

Stick with it - force yourself to keep investing regular amounts during the down periods, and you will reap the rewards when markets recover. Don't bet big though - markets can continue in a downwards trajectory for long periods, so don't assume there's a bottom at any point - just assume that there will be a bottom....

Coming back to the above chart, many of us here have survived through the 90's and into the period today, so we've seen huge depressions in market prices and survived to tell the tale. Try not to be too worried - this is what markets do....

Good luck.

Cheers,

Itsallaguess

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Re: Autumn 2018 stock market drops

#173186

Postby johnhemming » October 12th, 2018, 5:50 am

dave559 wrote:Anyone care to share their thoughts on the current situation?

In the end the value of investments is really linked to the underlying value of the businesses. It is, of course, difficult to predict with any precision how well a business will do over decades and at times what the market is willing to pay is out of kilter (either far too high or far too low) with the underlying value.

There is always a danger in crystalising losses (by selling something because the market has moved), but at times the market is right and things don't have the value that they had and potentially will lose more.

Hence it is not easy to have hard and fast rules and everything depends upon the detail. Sitting and waiting is normally a good idea, but not always.

What I personally look at is energy prices and particularly crude oil prices. If those appear to be spiking then there is real trouble ahead.

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Re: Autumn 2018 stock market drops

#173201

Postby SalvorHardin » October 12th, 2018, 8:27 am

This is what markets do. They fluctuate. Many investors find this problematic thanks to the combination of loss aversion (the pain of a loss hurts far more than the pleasure of a similar sized gain) and that the media gives far more coverage to losses than gains (“if it bleeds it leads”). So people get twitchy when there are big falls and the media is basically saying that that they are idiots and losers because they own shares. Rising stock markets make the financial news headlines; falling stock markets make the main news headlines.

Loss aversion is an extremely powerful effect; I know people who dumped everything in 2008-09 and never went back into the market because of this fear.

https://en.wikipedia.org/wiki/Loss_aversion

Being retired I’ve found that it helps to keep several years’ worth of living expenses in cash and near-cash investments so I can ride out any prolonged downturn (as I live off my investments I have to be a bit cautious). There was a study a few years ago which showed that happiness was more determined by your bank balance rather than total wealth (the article linked below isn’t behind a paywall).

https://www.wsj.com/articles/the-more-c ... 1473645781

Another thing is that I mostly invest in operating companies which have what Warren Buffett calls a “moat” (things such as brands, geography, patents and network effects which provide some protection against the company’s products being commoditised). Moats make businesses much more resilient, a business with a strong moat will be harmed much less than the fall in its share price implies and will recover over time (and thus the share price pulls back). I’d have no problem in being told that I had to hold my ten largest shareholdings for another twenty years.

https://www.cnbc.com/2018/05/07/warren- ... iness.html

For a good selection of companies with weak moats look at the High Yield Portfolio board (that’s why these shares have high yields).

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Re: Autumn 2018 stock market drops

#173215

Postby toofast2live » October 12th, 2018, 9:53 am

SalvorHardin wrote:This is what markets do. They fluctuate. Many investors find this problematic thanks to the combination of loss aversion (the pain of a loss hurts far more than the pleasure of a similar sized gain) and that the media gives far more coverage to losses than gains (“if it bleeds it leads”). So people get twitchy when there are big falls and the media is basically saying that that they are idiots and losers because they own shares. Rising stock markets make the financial news headlines; falling stock markets make the main news headlines.

Loss aversion is an extremely powerful effect; I know people who dumped everything in 2008-09 and never went back into the market because of this fear.

https://en.wikipedia.org/wiki/Loss_aversion

Being retired I’ve found that it helps to keep several years’ worth of living expenses in cash and near-cash investments so I can ride out any prolonged downturn (as I live off my investments I have to be a bit cautious). There was a study a few years ago which showed that happiness was more determined by your bank balance rather than total wealth (the article linked below isn’t behind a paywall).

https://www.wsj.com/articles/the-more-c ... 1473645781

Another thing is that I mostly invest in operating companies which have what Warren Buffett calls a “moat” (things such as brands, geography, patents and network effects which provide some protection against the company’s products being commoditised). Moats make businesses much more resilient, a business with a strong moat will be harmed much less than the fall in its share price implies and will recover over time (and thus the share price pulls back). I’d have no problem in being told that I had to hold my ten largest shareholdings for another twenty years.

https://www.cnbc.com/2018/05/07/warren- ... iness.html

For a good selection of companies with weak moats look at the High Yield Portfolio board (that’s why these shares have high yields).


Ahem, I think you may mean STRONG MOATS?

As an investor of 30 years I fully know that shares go up on an escalator and down on an elevator.

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Re: Autumn 2018 stock market drops

#173225

Postby SalvorHardin » October 12th, 2018, 10:27 am

toofast2live wrote:Ahem, I think you may mean STRONG MOATS?

As an investor of 30 years I fully know that shares go up on an escalator and down on an elevator.

No, I meant weak moats. The typical HYP candidate is a weak moat company, which is why it has a high yield. If it had strong moats like Unilever or Diageo, the yield would be lower because its businesses would be more stable. Examples:

BP's and Shell's main product is a commodity which makes them price takers (and there's tremendous political pressure favouring substitutes for oil). Construction is highly exposed to the economic cycle, cost overruns plague the sector and profit margins can be surprisingly small. Banks are prone to contagion where a few bad banks affect the sector worldwide, often pursue reckless lending policies and they have a habit of systematically defrauding customers (see the PFI debacle and Wells Fargo's recent policy of fraudulently creating customer accounts).

Insurance companies find it extremly hard to differentiate their products whilst their customers focus highly upon price (more so than most other industries). Support services; just look at what happened to Carillion (bad cost control, construction sector problems, etc.).

Supermarkets used to have a strong moat but they are now being hammered by a dramatic increase in competition from Aldi and Lidl as well changing shopping habits (e.g. more frequent shopping trips to smaller stores). The property companies tend to be stuffed with retail properties at a time when there is tremendous pressure on the high street and out-of-town locations (to a lesser extent) due to changing shopping habits and business rates magnifying the difference between online and offline shopping (which is bad for most retailers).

Utilities have strong moats, particularly the water companies, but they're coming under severe pressure because of the threat of renationalisation whilst competition in the energy supply market has heated up in recent years. Telecommunications has become extremely competitive in recent years. Tobacco is a dying industry reliant on increasing consumption in the developing world. Mining is a commodity business so the companies are price takers.

Pharmaceuticals are finding it increasingly expensive to bring drugs to market and the increased time nowadays that's required to get approval eats into their lifetime of a drug's patent.

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Re: Autumn 2018 stock market drops

#173279

Postby Itsallaguess » October 12th, 2018, 1:38 pm

SalvorHardin wrote:
toofast2live wrote:
Ahem, I think you may mean STRONG MOATS?


No, I meant weak moats. The typical HYP candidate is a weak moat company, which is why it has a high yield. If it had strong moats like Unilever or Diageo, the yield would be lower because its businesses would be more stable.


As an investor that used to be of the more pure-HYP variety, I'm finding it harder and harder to disagree with this position as time passes.

It's for this reason that I have around 40% of my income being generated from diversified income-related Investment Trusts, some of which are focussed on areas of the world markets not normally covered in the purer type of HYP portfolio.

I've also allowed myself to recently allocate some capital into a Vanguard Lifestyle 80/20 fund, as an additional diversifier for my investments - a way of protecting me from myself to some degree, and I'm quite happy to recognise this as an important aspect when allocating my own capital for investment....

I would never advocate someone placing all of their investment wealth into a selection of 15-20 FTSE 100/250 high-yield investments - I think it's simply too risky, and whilst any single-company 'event' might not be too damaging in isolation, they do tend to come around with alarming frequency in many typical HYP portfolio selections.

It was for this reason that I started to diversify away into income-related Investment Trusts some years ago now, and I find that I've achieved a level of personal comfort far beyond where I used to be with a more vanilla HYP in the past, even though the capital currently deployed is far larger than I used to often worry about when my income-investments were much more tightly focussed on a smaller number of components.

I perhaps wouldn't go so far as to say these companies have 'weak moats', but it's clear that, at the very least, they could often be described as 'accident prone' to some degree, and so I'd always suggest a much wider level of diversification than what's often sold in the HYP Practical area of this site.

Cheers,

Itsallaguess

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Re: Autumn 2018 stock market drops

#173317

Postby Howard » October 12th, 2018, 4:12 pm

SalvorHardin wrote:
toofast2live wrote:Ahem, I think you may mean STRONG MOATS?

As an investor of 30 years I fully know that shares go up on an escalator and down on an elevator.

No, I meant weak moats. The typical HYP candidate is a weak moat company, which is why it has a high yield. If it had strong moats like Unilever or Diageo, the yield would be lower because its businesses would be more stable. Examples:

BP's and Shell's main product is a commodity which makes them price takers (and there's tremendous political pressure favouring substitutes for oil). Construction is highly exposed to the economic cycle, cost overruns plague the sector and profit margins can be surprisingly small. Banks are prone to contagion where a few bad banks affect the sector worldwide, often pursue reckless lending policies and they have a habit of systematically defrauding customers (see the PFI debacle and Wells Fargo's recent policy of fraudulently creating customer accounts).

Insurance companies find it extremly hard to differentiate their products whilst their customers focus highly upon price (more so than most other industries). Support services; just look at what happened to Carillion (bad cost control, construction sector problems, etc.).

Supermarkets used to have a strong moat but they are now being hammered by a dramatic increase in competition from Aldi and Lidl as well changing shopping habits (e.g. more frequent shopping trips to smaller stores). The property companies tend to be stuffed with retail properties at a time when there is tremendous pressure on the high street and out-of-town locations (to a lesser extent) due to changing shopping habits and business rates magnifying the difference between online and offline shopping (which is bad for most retailers).

Utilities have strong moats, particularly the water companies, but they're coming under severe pressure because of the threat of renationalisation whilst competition in the energy supply market has heated up in recent years. Telecommunications has become extremely competitive in recent years. Tobacco is a dying industry reliant on increasing consumption in the developing world. Mining is a commodity business so the companies are price takers.

Pharmaceuticals are finding it increasingly expensive to bring drugs to market and the increased time nowadays that's required to get approval eats into their lifetime of a drug's patent.


Surely it is difficult to generalise. It could be argued, Salvor, that you are belittling the types of companies that Warren Buffett invests in. For example he is a big investor in banks with billions invested in Wells Fargo and Bank of America, he has a large investment in the supermarket sector with Costco and he used to be a big investor in Walmart (and Tesco!!). He invests in General Motors - to some a dying brand?? (See Ody's posts on Tesla.)

Warren B has invested in Kraft, whose share price has suffered from the competition and not exactly reflected that of a company with a big moat. And he has a big investment in Phillips66 an Oil Company.

And as for slating insurance investments - Geico isn't exactly a failure is it?

I don't think you'd describe Warren as an unsuccessful investor. He likes companies that pay relatively high yields. So it could be argued that HYP shares, carefully selected, have their place in anyone's portfolio.

regards

Howard

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Re: Autumn 2018 stock market drops

#173328

Postby SalvorHardin » October 12th, 2018, 4:57 pm

Howard wrote:Surely it is difficult to generalise. It could be argued, Salvor, that you are belittling the types of companies that Warren Buffett invests in. For example he is a big investor in banks with billions invested in Wells Fargo and Bank of America, he has a large investment in the supermarket sector with Costco and he used to be a big investor in Walmart (and Tesco!!). He invests in General Motors - to some a dying brand?? (See Ody's posts on Tesla.)

Warren B has invested in Kraft, whose share price has suffered from the competition and not exactly reflected that of a company with a big moat. And he has a big investment in Phillips66 an Oil Company.

And as for slating insurance investments - Geico isn't exactly a failure is it?

I don't think you'd describe Warren as an unsuccessful investor. He likes companies that pay relatively high yields. So it could be argued that HYP shares, carefully selected, have their place in anyone's portfolio.

Yes I'm generalizing, but some sectors by their nature quickly erode moats, or never had them in the first place, so I avoid them. GEICO has a fairly decent moat due to its very low cost base. But most insurance companies are more like investment trusts with an expensive hobby, with management preferring to chase premiums rather than not write business (that's another Buffett speciality - Berkshire's companies generally won't write business just because others are).

When the Wells Fargo scandal broke the general consensus on the US Fool's Berkshire Hathaway board was that the company had behaved appallingly and would be lucky to avoid a RICO prosecution and jail time for some executives. Most banks screwed their shareholders by their appalling behaviour prior to the 2008 financial crisis, those who I hadn't still suffered because of contagion effects. Banking is a sector which suffers periodic crises because of the tendency towards empire building, insiders massively enriching themselves and sociopaths getting the top jobs. Just look at RBS and Lloyds in the last decade.

Costco has a fairly decent moat. Lower cost base plus a membership scheme and selling in bulk. But many supermarkets don't have much of a moat nowadays. Wal-Mart has hammered them in the States but it's now coming under attack from Amazon. From CNBC:

"Retailing is too tough for me," he said in the 2016 interview after Berkshire sold the majority of its Walmart stake. "I've been in various things in retailing...and got my head handed to me." The online thing is very hard to figure out. ... I just decided I would look for a little easier game."[i]

https://www.cnbc.com/2018/08/16/warren- ... ilers.html

Buffett doesn't chase high yielders like HYP investors do; he'd prefer that they have decent projects in which to reinvest their profits. Berkshire's subsidiaries are strongly encouraged to send excess cash to the Omaha HQ if they can't find anything decent to put them to use.

I do own two "classic" HYP shares; National Grid (super moat for part of its business) and AstraZeneca (big CGT Bill if I sell).

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Re: Autumn 2018 stock market drops

#173686

Postby dave559 » October 14th, 2018, 2:03 pm

Thank you, everyone, for your replies. Trying not to get too worried is useful advice.

It is disheartening to see almost all of the theoretical gains that I had made over the past year vanish over just a few days, but, on the other hand, there was a little recovery on Friday, so, hopefully that might be a sign that it might be just a market correction, rather than the start of a longer drop.

It does serve as a useful reminder to me to be more certain about what sort of risk I am comfortable with (I mainly started with Vanguard LifeStrategy 60, which seemed a prudent balance for me to start with, but over the year gradually experimented with other equity/bond ratios and some other equity-only funds).

I think it does makes sense for me to put some of my money into, potentially, higher return/higher risk funds, but this is also a good reminder for me to be very careful about exactly how much I am willing to expose to those higher risks: invest most more cautiously, in the hope of slower but steadier progress, and invest a small proportion slightly less cautiously (but not excessively so), in the hope that some of my money might achieve greater earnings, but that if it doesn't, it wouldn't be a damaging loss for me.

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Re: Autumn 2018 stock market drops

#173689

Postby jackdaww » October 14th, 2018, 2:09 pm

dave559 wrote:Thank you, everyone, for your replies. Trying not to get too worried is useful advice.

It is disheartening to see almost all of the theoretical gains that I had made over the past year vanish over just a few days, but, on the other hand, there was a little recovery on Friday, so, hopefully that might be a sign that it might be just a market correction, rather than the start of a longer drop.

It does serve as a useful reminder to me to be more certain about what sort of risk I am comfortable with (I mainly started with Vanguard LifeStrategy 60, which seemed a prudent balance for me to start with, but over the year gradually experimented with other equity/bond ratios and some other equity-only funds).

I think it does makes sense for me to put some of my money into, potentially, higher return/higher risk funds, but this is also a good reminder for me to be very careful about exactly how much I am willing to expose to those higher risks: invest most more cautiously, in the hope of slower but steadier progress, and invest a small proportion slightly less cautiously (but not excessively so), in the hope that some of my money might achieve greater earnings, but that if it doesn't, it wouldn't be a damaging loss for me.


========

the markets MAY drop a lot more ..

if they do , fill your boots , pile in , more hamburgers for your money ...
:)

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Re: Autumn 2018 stock market drops

#173698

Postby TheMotorcycleBoy » October 14th, 2018, 3:03 pm

dave559 wrote:Apologies if this is not the most appropriate board, I wasn't sure where best this might fit.

As I am sure everyone has noticed, the world's stock markets have suffered some rather steep drops over the past few days. We are all of course regularly reminded that "the value of investments can go down as well as up", but, as a fairly new investor, the speed and size of this drop does have me nevertheless a little worried (although there was a not too dissimilar drop over a longer period in January and February, which the markets then recovered from).

All of my investments are in funds, so are spread very widely in terms of individual shares and bonds (and not very much in funds generally regarded as higher risk so far, while I try to get a feel for how investing works and how much risk I am willing to accept), and of course I also have cash savings, so I am not overly worried as yet, but, on the other hand, if the markets continue to fall significantly for a prolonged period...

Anyone care to share their thoughts on the current situation?

Mel and I only started investing this March, so we have noticed the drop too. We have a mix of some bonds, stand-alone stocks, and about 12% in a World equity tracker fund.

I'm not really that annoyed about the drop, since we are in the long haul and of course markets fluctuate. I'm more annoyed at myself in that we spent too much of our 20k/year ISA allowance too soon: i.e. around the summer when the market was high.

Having the markets drop looks like a good opportunity to buy more equities - as long as those stocks seem to have good fundamentals I guess. So I'm kind of annoyed that we only have about 2k of our (we just have 1 for now) ISA entitlement (well 1.5k now, as I spent £500 of it on Friday), till next April :(

I wish I'd read the Intelligent Investor's section on Dollar cost averaging and applied that concept in earnest!

What I did on Friday when I saw that the FTSE was around 7000 points (i.e. falling) was look at all our equities in our portfolio, and figure out which ones were the combination of "best current performance" by a selection of brokers and had the lowest price/lowest PE/highest div yield. Then top up that holding. For us LGEN, MANX, and IMB fitted the bill the best, so I topped up the IMB holding by 500 quid.

I'm certainly planning to ration our buying next year better over the calendar.....

Matt

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Re: Autumn 2018 stock market drops

#173700

Postby Lootman » October 14th, 2018, 3:20 pm

TheMotorcycleBoy wrote: I'm more annoyed at myself in that we spent too much of our 20k/year ISA allowance too soon: i.e. around the summer when the market was high. I'm kind of annoyed that we only have about 2k of our (we just have 1 for now) ISA entitlement (well 1.5k now, as I spent £500 of it on Friday), till next April :(

I wish I'd read the Intelligent Investor's section on Dollar cost averaging and applied that concept in earnest!

I'm certainly planning to ration our buying next year better over the calendar.....

I would not beat yourself up over that. The drop in prices is fairly modest, so far, and if you are starting a long process then I would not worry.

I have been subscribing to ISAs since they were PEPs, i.e. over 30 years now. I always invest the lot on April 6th each year i.e. do not try and time the market or mess about with monthly subscriptions. Some years the market will drop from April but other years it will go up from there. It's impossible to know which will happen in any one year but, by investing early in the year, I have more in the market for longer on average and that is a good thing overall (unless markets are in a long-term decline in which case you would not invest at all anyway).

This recent move does not even rise to the level of a baby burp in my view.

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Re: Autumn 2018 stock market drops

#173708

Postby TheMotorcycleBoy » October 14th, 2018, 4:58 pm

Lootman wrote:
TheMotorcycleBoy wrote: I'm more annoyed at myself in that we spent too much of our 20k/year ISA allowance too soon: i.e. around the summer when the market was high. I'm kind of annoyed that we only have about 2k of our (we just have 1 for now) ISA entitlement (well 1.5k now, as I spent £500 of it on Friday), till next April :(

I wish I'd read the Intelligent Investor's section on Dollar cost averaging and applied that concept in earnest!

I'm certainly planning to ration our buying next year better over the calendar.....

I would not beat yourself up over that. The drop in prices is fairly modest, so far, and if you are starting a long process then I would not worry.

I have been subscribing to ISAs since they were PEPs, i.e. over 30 years now. I always invest the lot on April 6th each year i.e. do not try and time the market or mess about with monthly subscriptions. Some years the market will drop from April but other years it will go up from there. It's impossible to know which will happen in any one year but, by investing early in the year, I have more in the market for longer on average and that is a good thing overall (unless markets are in a long-term decline in which case you would not invest at all anyway).

This recent move does not even rise to the level of a baby burp in my view.

Thanks for this Lootman, I guess Mel and I are just starting to learn the ropes, so I'm not kicking myself too much.

Your approach is certainly an interesting one, and like you say probably smooths out over the years.

So apart from saving up over the remaining 11 months of the year, do you research new investments for the next ISA, or just top up ongoing asset choices?

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Re: Autumn 2018 stock market drops

#173711

Postby Lootman » October 14th, 2018, 5:20 pm

TheMotorcycleBoy wrote:So apart from saving up over the remaining 11 months of the year, do you research new investments for the next ISA, or just top up ongoing asset choices?

Bear in mind that your holdings will give off dividends so that there will be new money to invest during the tax year as well. I am now at the point where the annual amount in dividends from my ISA is about equal to the annual allowed subscription, so there is usually new money to invest several times a year.

I usually only do research at the time I am ready to invest, but I usually have a few things in mind all the time - a watch list as it were. When in doubt I just stick the money in an ETF. I don't like having uninvested cash in my ISA.

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Re: Autumn 2018 stock market drops

#173716

Postby Backache » October 14th, 2018, 5:46 pm

dave559 wrote:Apologies if this is not the most appropriate board, I wasn't sure where best this might fit.

As I am sure everyone has noticed, the world's stock markets have suffered some rather steep drops over the past few days. We are all of course regularly reminded that "the value of investments can go down as well as up", but, as a fairly new investor, the speed and size of this drop does have me nevertheless a little worried (although there was a not too dissimilar drop over a longer period in January and February, which the markets then recovered from).

All of my investments are in funds, so are spread very widely in terms of individual shares and bonds (and not very much in funds generally regarded as higher risk so far, while I try to get a feel for how investing works and how much risk I am willing to accept), and of course I also have cash savings, so I am not overly worried as yet, but, on the other hand, if the markets continue to fall significantly for a prolonged period...

Anyone care to share their thoughts on the current situation?

The way I sometimes look at it is have I got the investment process right? Is my basic plan sound?
As most people have pointed out last weeks sell off although bigger than is common in a week in overall stockmarket terms was a rather trivial fall. It could well fall a lot further.
You have to ask yourself can I cope with significantly larger falls for a prolonged time because they do happen from time to time and they are always disquiteting however much we try to ignore them.
Things which would concern me more would be if my portfolio went down disproportionately to the stock market and I couldn't work out why then I might think my investment process was wrong.
If you are concerned about whether or not you would be prepared to put up more money if the market was to fall significantly or worse be a forced seller this would suggest that you have maybe committed more money to the market than you are psychologically equipped to deal with, at some point in the future the market almost certainly will go down considerably more than it has for the past week and for a long time that is the nature of the market.

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Re: Autumn 2018 stock market drops

#173729

Postby TheMotorcycleBoy » October 14th, 2018, 6:50 pm

Returning back to the subject of the actual drop itself over the past week, I'm wondering if it was just a bit a knee-jerk reaction to the correction that occurred in the S&P500 earlier on in the week.

The US equity market seems really overblown. The Trump effect and the effect of the corporate tax cuts have cooked their equity markets up pretty good. And combine this with rising Fed interest rates meaning that their Treasury bond yields are rising too. So perhaps the fall over at Stateside was a result of the smart US money moving from equity to safety in TBs?

Like I mentioned above I think our FTSE fall could be related to the US fall combined with usual ongoing stagnation, or whatever, over Brexit negotiations.

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Re: Autumn 2018 stock market drops

#173730

Postby johnhemming » October 14th, 2018, 6:56 pm

Looking at the ratios the S&P has gone up a lot more then dropped part of that way than FTSE100 since 2016.

The Saudi Arabian situation is more of an issue. If they swap allegiance to Russia and constrain oil production there could be all sorts of consequences (not that they should be let off the Khashoggi issue)

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Re: Autumn 2018 stock market drops

#173755

Postby onthemove » October 14th, 2018, 9:22 pm

Itsallaguess wrote:
dave559 wrote:
Anyone care to share their thoughts on the current situation?

Go and spend some time on Yahoo, looking at the historical chart of the FTSE -

https://tinyurl.com/ybujt2fh

Understand that markets can and will have prolonged periods where prices drop. Also understand that markets then recover.

Both process may take many years, so make sure that you have a financial coping-mechanism that means that you're not likely to be a forced seller, for whatever reason, in a market that may be in one of it's regular 'down-periods'.


It also needs to be borne in mind that sometimes a downturn can be more substantial.

Alongside the long term FTSE, take a look at the long term Nikkei.

https://uk.finance.yahoo.com/chart/%5EN225
Set the interval to 1month, and view all data

It is barely back to where it was in 1991. And as for the peak a couple of years before that, 30yrs on, it's still got a substantial way to go before those investors will see break even.

My view is that in global terms, I actually think that things will be less turbulent. It's true that much of the global economy revolves around USA and to a lesser extent China, etc, and sure, if the US slows down, there will be a knock on effect. And no doubt, there will be an initial over-reaction globally - we just saw over the previous weeks how the slightest nervousness in the US / US trade policy has people rushing for the exits around the world. But this sort of over-reaction is the sort that outside of the US, markets will recover from. These are the some of the kind of blips that you're thinking about.

Others can come from things like the credit crunch.

But then there are other kinds of market down turns. And these can stem from fundamental changes in countries. And for nearly 20 yrs, I've generally felt comfortable that these were low probability things in the UK. Though that didn't stop me telling my pensions advisor 15yrs ago to put my work pension into 50:50 UK/Foreign, on the basis that over several decades, low probability of bad things in the UK could come to pass over those timescales.

From the UK perspective my view is now that the risks are now as high as they've been for many decades.

The brexit vote has now put in place a structural change to the british economy. Unless the gov caves and goes for a v. lightweight BRINO, it is otherwise going to introduce 'friction' in trade. I see this sort of friction at work when we deal with America. To introduce it into our dealings with the EU is bonkers.

I have no doubt that it is going to make Britain less attractive to foreign investors - companies, like the one I work for, have seen Britain as an english speaking location on the inside of the single market. An investment in the UK gave inside, friction free access across the whole of the EU. We've had staff in the UK, load some of a smaller (but still expensive) systems onto the back of a van, and drive overnight to deliver to customers in Spain. They could do this because they knew there'd be no holdups at either customs or immigration.

Constrast this with dealing with the US, and we've had installation staff turned away at the border and put on the next flight home. We've had multi-million pound systems held up in US customs for several _weeks_ awaiting paper work on trivialities (wanting to know the material content of safety clothing that was thrown in the container at the last minute just to ensure the installation guys had the necessary gear - ridiculous)

I've seen for myself how much hassle and arguments the different H&S regulations between the US and EU cause. If Britain decides it wants to diverge from EU regs (which seems to be what the brexiteers want), then add into the mix a 3rd UK set of regs, and really, I can truly see many multinationals putting the UK in the backseat and moving serious production to the much larger EU market. (Which is where, up until now, they thought they were when in the UK).

And the idea that "free trade deals" are going to compensate for all this is simply nonsense. Trump has already proclaimed that America will win his trade wars. And he's right. Why? Because America has a big market. It is important. The EU has a big market. It is important. A UK on its own, outside the EU... whatever.

And then on the UK side, you don't just have the regulations. Alas, where I work, we've had a disproportionate number of non-UK nationals quit over the past 12 months. Unbelievably, some who've been here for a few years now and felt to us like they were established as part of the team, they've already now quit and gone back to their countries of origin, and they don't even have jobs lined up when they get there.

None of them were pushed by the business. None of them have been pushed by the government. These are highly skilled people, the sort the brexiteers claim they would love to stay - these are the sorts of immigrants the brexiteers say they want. It seems to me, these sorts of immigrants don't want the brexiteers.

And that's all just brexit.

But brexit very well could (in my view, is likely) to lead to a secular underperformance in the UK over the next decades.

Then to top it all off, we've now got Corbyn and McDonnell promising a 10% nationalisation of British companies with more than 250 workers. And done so without any compensation to the shareholders. It's presented as a worker inclusion policy - in practise, look at the details, and you see that the worker only gets the first £500 dividends - this allows them to dress it up as an employee share inclusion scheme - but then consider that the government keeps anything and everything above that. The worker doesn't own the shares - the worker cannot sell the shares. The shares are in effect being held for the benefit of the government.

It is in all practical terms a 10% nationalisation of the entire economy (of the companies that are big enough to matter).

And once that principle is enshrined, why stop there? If workers are justified 10%, why not 15%? Why not 30%?

If these were fringe policies, I wouldn't be worried. But labour are neck and neck with the conservatives. And voters (remainers) like me, are really struggling to comprehend voting for a Tory government so now aligned with UKIP / Farage / the far right / etc.... . Until I saw McDonnell's 10% nationalisation proposal, I would - against every fibre in my body - have actually considered voting labour at the next election as a protest against Tory brexit - assuming labour were to make more anti-brexit noises.

So I'm floating on where to vote, but I can quite easily see that others - the majority who haven't saved their lives to buy shares, and who think shares are something held by the 'elite', the idea of a (disguised) 10% nationalisation barely registers with them as an issue. And the opinion polls would seem to back that up.

So right now, in my view, the UK has some serious potentially serious bumps going forwards - a brexit that is likely to cause a relative, secular decline, and the risk of a socialist Crobyn government that is likely to magnify any brexit damage with their soviet style policies. Though this latter is - one would hope - more likely to be cyclical... a labour government could be voted out in 5 to 10 years, and the damage from that start to put right (though examples like Venezuela show that that isn't a given). Brexit on the other hand is much harder (TBH, impossible) to see being reversed.

Don't get me wrong. Sure, Corbyn will be a disaster economically for the UK. But brexit isn't project fear. We might not even see a recession from brexit (Crobyn, otoh, is a different matter).

Imv, the effects of brexit aren't going to be large - but they are going to be persisten. And that is going to be the killer. A slow and steady underperformance relative to the other world economies. Perhaps 1% to 2% less growth than would otherwise have been the case. The GBP has already started showing characteristics of more normally associated with 3rd world / developing country currencies.

The upshot for me, is the best I can see for the UK economy going forwards is being pulled up by a rising tide globally. But always slightly lagging behind that tide. It might only be a 1% to 2% relative under performance each year, but over 10 to 20 years that could compound into quite a difference.

As such, I'm hoping that the general global malaise at the minute is going to provide some good buying opportunities for higher yield ETFs in Europe / Emerging markets / Asia / South and Central America.

I'm not necessarily going to sell my current UK holdings. But any new savings, dividends, and proceeds from ordinary sales of current holdings (for other reasons), for me are all going to be primarily invested with a large eye getting the money out of the UK and into non-UK based assets.

The only thing that would change my mind is a people's vote that decisively reverses brexit (which I believe without Brexit, the Tories would have a landslide at the moment). But I just cannot see a people's vote happening. Let alone the result being a decisive reversal of the brexit decision - not even the most favourable opinion polls suggest anything better than a whisker thin margin for remain. Which wouldn't really help.

So for me, for the foreseeable future, it's as per the above - shift when the opportunity arises to non-UK based investments. Globally, yes, the downturns are just noise. But for the UK, secular change is afoot in the economy.

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Re: Autumn 2018 stock market drops

#173767

Postby Spet0789 » October 14th, 2018, 11:41 pm

Onthemove - a very thoughtful post. Completely sums up my investment outlook.

This little dip is just that - some of the expected noise in the random path that share prices take. But the political decisions being taken right now will alter the long term returns of U.K. equities.

Unless the investment case is absolutely compelling I would not touch a U.K. business for the time being (as distinct from U.K. listed).

Btw, despite your obvious first hand experience with exporting goods, others on these boards who developed their pro-Brexit views theorising in an armchair (perhaps at the 19th hole) will probably show up soon with cries of ‘Project Fear’.


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