Buy Low, Sell high - But how low can you go?
Posted: March 10th, 2019, 3:08 pm
I'm sure I'm not alone when I originally came to stock market investing, in thinking I won't be the fool who buys high, sells low. I've got a reasonable scientific background, and I can understand charts and what not.
So for my first few years of investing, I actually felt a certain comfort in buying falling knives, and shares that were at lows - even all time lows - well below their peaks. And for several years, actually did quite well. Convincing myself that falls are exxagerated because of irrational fears, and that by fearlessly buying into them, I could capitalise on that overreaction.
But then the financial crisis came.
Now I understood why people were nervous about buying low.
The reason is quite simple - share (asset) prices are just relative. Companies can and do go out of business. A 'low' share price - relative to where the price has been - is a sign that all might not be well.
And we still seem to be suffering the effects to this day... not all financial crisis related, some perhaps retail / online related... but the principle is the same ... we now seem to be going through a period (it feels to me) where far more companies are succumbing and far fewer recovering. I've currently got probably 3 companies which I've lost a lot on, and there is now no realistic prospect of recovery - it just feels a matter of managing those losses for tax purposes. 15yrs ago, I'd have been confident in 2/3rds of my holdings in such a position recovering back to when I bought.
It's been a wakeup call.
(I'm still up overall - but I now understand why the fear arises)
So now...
I'm in a quandry.
I feel with Brexit that I wish I had a (even) more globally diversified portfolio.
I'm itching to trigger the buy on global ETFs - where doesn't really matter, I'm leaning towards just a globally diversified set covering anything and everything.
But here's my problem.
The £, particularly against the $ which tends to be a reasonable global yardstick, is at all time historical lows.
The younger investor in me says "whoooohoaaaa".... it's a cycle, why would you JUMP SHIP from an asset when it is at the very BOTTOM of its historical range?!
The younger me would be jumping into an investment that the charts put at such a low historically.
If brexit gets reversed, or we end up with BRINO, then there's a potential 20% to 40% benefit to be had from being in GBP.
And equally importantly - and my quandry - the risk of the opposite were I to choose this moment to jump ship into non-GBP / global shares.
So the younger me would actually be saying "Global equities?! Pah... now is the time to be going into the UK!"
But what about my lesson - that sometimes shares are low for a reason - companies can and do fail.
And equally countries - even democratic ones - can and do decide to trigger their own misfortune. From socialist Venezuela, or hilter's Germany, Pol Pot's Cambodia, ... examples are numerous.
So where are we in the UK?
If we have a second vote, and it is a resounding no deal, then that's it.. straight out we will have to go...
..with the sudden loss of 80% of the trade deals we already had courtesy of EU membership (but haven't been able to confirm as an independent britain), and with the imposition of additional customs checks putting an overhead onto business, and the imposition of extra red tape on employing EU migrants in the UK, the red tape of companies having to check more customs rates and allowances, and the ultimate certainty that some major global companies will prefer to move out of a UK which is no longer inside the single market...
... just how low could the pound actually go?
Is buying global equities at this moment in time, shutting the stable door after the horse has bolted?
Or might the horse still yet run out of the field, down the road, and disappear of into the distance if I don't still act, (albeit better late than never)...
In essence, is the current fall in the £ overdone fear from a brexit that is just in fact another small, insignificant factor in a general ebbing and flowing of the currency.
Or the start - some might argue continuation or further acceleration downward since the days of empire - of a country in secular decline.
We're currently at an historical low (matched only briefly once in the 1980s) ... could we be on the verge of the £ trading into historically uncharted, never before seen lows, and those now becoming the norm?
So for my first few years of investing, I actually felt a certain comfort in buying falling knives, and shares that were at lows - even all time lows - well below their peaks. And for several years, actually did quite well. Convincing myself that falls are exxagerated because of irrational fears, and that by fearlessly buying into them, I could capitalise on that overreaction.
But then the financial crisis came.
Now I understood why people were nervous about buying low.
The reason is quite simple - share (asset) prices are just relative. Companies can and do go out of business. A 'low' share price - relative to where the price has been - is a sign that all might not be well.
And we still seem to be suffering the effects to this day... not all financial crisis related, some perhaps retail / online related... but the principle is the same ... we now seem to be going through a period (it feels to me) where far more companies are succumbing and far fewer recovering. I've currently got probably 3 companies which I've lost a lot on, and there is now no realistic prospect of recovery - it just feels a matter of managing those losses for tax purposes. 15yrs ago, I'd have been confident in 2/3rds of my holdings in such a position recovering back to when I bought.
It's been a wakeup call.
(I'm still up overall - but I now understand why the fear arises)
So now...
I'm in a quandry.
I feel with Brexit that I wish I had a (even) more globally diversified portfolio.
I'm itching to trigger the buy on global ETFs - where doesn't really matter, I'm leaning towards just a globally diversified set covering anything and everything.
But here's my problem.
The £, particularly against the $ which tends to be a reasonable global yardstick, is at all time historical lows.
The younger investor in me says "whoooohoaaaa".... it's a cycle, why would you JUMP SHIP from an asset when it is at the very BOTTOM of its historical range?!
The younger me would be jumping into an investment that the charts put at such a low historically.
If brexit gets reversed, or we end up with BRINO, then there's a potential 20% to 40% benefit to be had from being in GBP.
And equally importantly - and my quandry - the risk of the opposite were I to choose this moment to jump ship into non-GBP / global shares.
So the younger me would actually be saying "Global equities?! Pah... now is the time to be going into the UK!"
But what about my lesson - that sometimes shares are low for a reason - companies can and do fail.
And equally countries - even democratic ones - can and do decide to trigger their own misfortune. From socialist Venezuela, or hilter's Germany, Pol Pot's Cambodia, ... examples are numerous.
So where are we in the UK?
If we have a second vote, and it is a resounding no deal, then that's it.. straight out we will have to go...
..with the sudden loss of 80% of the trade deals we already had courtesy of EU membership (but haven't been able to confirm as an independent britain), and with the imposition of additional customs checks putting an overhead onto business, and the imposition of extra red tape on employing EU migrants in the UK, the red tape of companies having to check more customs rates and allowances, and the ultimate certainty that some major global companies will prefer to move out of a UK which is no longer inside the single market...
... just how low could the pound actually go?
Is buying global equities at this moment in time, shutting the stable door after the horse has bolted?
Or might the horse still yet run out of the field, down the road, and disappear of into the distance if I don't still act, (albeit better late than never)...
In essence, is the current fall in the £ overdone fear from a brexit that is just in fact another small, insignificant factor in a general ebbing and flowing of the currency.
Or the start - some might argue continuation or further acceleration downward since the days of empire - of a country in secular decline.
We're currently at an historical low (matched only briefly once in the 1980s) ... could we be on the verge of the £ trading into historically uncharted, never before seen lows, and those now becoming the norm?