Buy Low, Sell high - But how low can you go?

[onthemove]

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?

[johnhemming]

The investing difficulty with Brexit is that different outcomes in terms of Brexit have different impacts on a number of stocks and it is not something in the margins. No deal will cause some bankruptcies, Mays deal will not be nice, but we should see the markets going up and remaining in is likely to be quite positive (although there will be some businesses that could gain from Brexit).

I did a risk analysis on my UK bank investments a few months ago and decided not to sell because I could live with a wipeout (as I have other investments) since then the market price has gone up about 20%. I am still a bit underwater, however.

[odysseus2000]

Onthemove, I wonder if you have fomo-itus: Fear of Missing Out.

The time to be buying oversees assets is when the £ is strong, not when its very weak.

Sure it could go lower, but the odds are much higher that some other nation against which the £'s value is determined will do something stupid, letting the £ rise.

The UK, if Brexit happens, may be going into secular decline, but as I look at things, the Euro is very vulnerable given that Europe has failed to get in on many of the major secular growth trends of the 21st century, save perhaps renewable energy, Seimens for example selling us a load of wind turbines. But the big growth opportunities of mobile internet, streaming movies, cloud storage, electric cars, electric storage etc etc have all become dominated by US corporations and are now becoming areas where China is showing good competence, creating a wave of competition for European industry.

The alternative to UK secular decline is to note that the UK went from bombed out in 1945 to the swinging sixties in 15 years and I expect something similar will happen again sparked by what ever happens over Brexit, better imho if we leave, but others argue the reverse.

Regards,

[tjh290633]

I have been following share prices for some time now, looking at the movement in price over the calendar year.

What became obvious fairly quickly is that yesterday's winners often become this year's losers, and vice versa. Not invariably, but often enough to avoid selling a falling share prematurely. Sometimes the chicken entrails indicate that a share is in permanent decline, like Marconi, for example, and then it is time to dump the share. Sometimes events overtake you, as with Cattles, Carillon or Interserve, and then you just have to grin and bear it.

My view is that, as long as dividends are rising or being held level, then it is worthwhile hanging on, even adding a new holding. Fortune favours the brave.

TJH

[onthemove]

My view is that, as long as dividends are rising or being held level, then it is worthwhile hanging on, even adding a new holding. Fortune favours the brave.

That was largely the view I took when investing in individual shares originally, and early on that worked.

But then reality reminded me why people get nervous, and therefore share prices fall in the first place - namely, companies can and do fail.

(Although I've clicked reply and quoted tjh290633, my reply is really in response to all the replies)

I suppose also the rise in the FTSE as the £ fell after the brexit vote also hammered home the reality of how our wealth is globally intertwined, something that I hadn't really paid much attention to when it felt Britain was one of a group of developed countries, all moving along together as allies, etc.

And that's where I'm coming from. I mean, even if UK companies (both based and operating in the UK) simply carry on, same GBP turnover, same GBP dividends, for a UK investor receiving those dividends, a fall of say 20% in the value of the £ means effectively and ultimately a 20% reduction in spending power.

Granted, spending power reductions due to currency moves can take a long time to filter through, but ultimately they will. And because you don't see the actual GBP amount reduce, you might not even realise it.

But for me, one of the things I've noticed of the past couple of years, or more specifically a relative who lives in the Lake District has noticed, is the substantial increase in chinese / japanese / taiwanese visitors. And at the same time, I will admit that I no longer feel quite so flush as I did when I went backpacking around the world 20yrs ago - when I look now, the relative prices of hotels, when converted back to £, are no longer the bargain basement they were back then. And that's down to the currency movements and relative economic prosperity.

So I'm already seeing the rebalancing of global wealth (or at least should I say, British wealth) in relation to the rest of the world, due to the currency movements.

"The time to be buying oversees assets is when the £ is strong, not when its very weak. "

That's what I mean by horses and stable doors.
If I buy foreign now, and brexit gets reversed, it's pretty much a guaranteed 10% to 15% loss.

But on the other hand, like I say, the lesson I learned the past 15yrs or so, is that the reason fear exists and prices do get pushed low, is because sometimes there is something more afoot.

"The alternative to UK secular decline is to note that the UK went from bombed out in 1945 to the swinging sixties in 15 years"

That's true, but the driver then was an absence of war that had quite literally result in the bombed out status, and gave the nation the opportunity to grow again - the absence of war removed a continual destroyer of wealth that was being fought up to 1945.

Here, we are doing almost the opposite- with brexit (assuming no deal) ...

- We throwing away decades of carefully negotiated trade deals.
- We are throwing away an openness that has massively reduced overheads on business.
- we are throwing away our presence in a single market that meant goods produced here could be shipped to 450million people without barriers, paperwork, costs or delays
- We are throwing away adherence to common standards (the 'being dictated to' that some complain of), and replacing with yet another new set of standards of our own that anyone trading with us will now have to make extra effort to deal with
- We are introducing friction at the borders to 27 countries for which we previously had completely free trade
- We are throwing away something in the region of (iirc) 50 global trade deals we were part of in the EU, and have only got commitments to maintain 7 of them

Quite simply there isn't a single tangible business benefit.
Only fabled superior trade deals, none of which have materialised, and we are going to be able to negotiate these from a position of only 1/10th the size of the EU, when size normally matters greatly in such deals!

We haven't yet got a single trade deal that improves on what we had before in any respect; the only signed deals (of which there are only 7 so far) are simply to continue the status quo.

The US has (surprisingly) already made their hand known for future negotiations, and it isn't pretty. It shows who holds the upper hand there, and it isn't the UK! I say surprising, because I'd have expected Trump to hold back on making it so obvious until we had passed the point of no return, and therefore maximum desperation to sign anything; maybe he slipped up there - he's shown his hand while we still have the chance - albeit slim few weeks - to back out of throwing ourselves out.

So in my view, if I knew for sure, right now it would be no deal brexit, I wouldn't have any quandary at all - I'd buy into a mix of foreign ETFs, because the UK, imv, would definitely be in for a secular decline - with a likely fall in £ that would make holding non-UK based assets very value in future.

"Sure it could go lower, but the odds are much higher that some other nation against which the £'s value is determined will do something stupid, letting the £ rise."

But this is where the ETFs come in - as well as for practical purposes. The practical purposes being holding foreign assets. Things like withholding tax, and simply just being able to buy and hold can get complicated. I've already had to try and deal with a (UK) relatives Australian shares, and finding a broker that can deal them in the UK ain't easy! I did find one eventually, but with so few others offering the service, I'd have no confidence they would continue to do so indefinitely - particularly not with all the brokerage consolidation going on.

But more importantly, things like Emerging Market ETFS, Euro dividend ETFs, Asia Pacific ETFs, and US ETFs, and also more 'global' ETFs, can provide for much currency diversification against 'some other nation' doing something stupid.

In fact, in my view, a no deal brexit genuinely would make us that 'some other nation' - the UK - doing something stupid of the nature that would impact the £ and our future prosperity, completely out of step with the rest of the world.

And that's the root of my (I guess) thinking out loud...

... the £ may already have fallen quite a way (between 10-30% due to brexit depending how you look at it), but this is with a second referendum still being a possibility, with May's deal still being a possibility, etc.

We are technically still in, and the EU have ruled the UK can still unilaterally withdraw article 50 and remain as they were - but that option ends in just a couple of weeks or so.

Brexit feels like it could still go either way from here, and my gut feeling is that the £ is basically reflecting that; it's sitting somewhere in the middle.

And basically I'm in a quandary as to what to do with approx 20% of my portfolio that's currently in cash, and really should be put to work.

If I put it into UK shares, and we get no deal, then it will lose likely 20% purchasing power (global terms, short to medium term) even if the £ numeric value remains seemingly stable.

But if my hunch is right, and that the £ is currently priced reflecting the middle way (reflecting 50:50 it could go either way), then what are already historical lows, could then prove to be a false bottom.

If the market (I'm talking currencies) is reflecting still a 50:50 outcome between no-deal and remain, then a no deal, could result in the GBP entering territory that it has never before been in. And likely staying there.

In such a situation, having a globally diversified set of equities, could then prove to be very valuable to someone in the UK looking to live off their dividends in the ideally near future...

[tjh290633]

And basically I'm in a quandary as to what to do with approx 20% of my portfolio that's currently in cash, and really should be put to work.

What are you after? Capital gains, capital preservation, growth in income?

Maybe you should be looking at companies with multinational interests. Oils, Miners, Pharmaceuticals, Tobaccos, and so on.

TJH

[odysseus2000]

onthemove,

Based on what you type, you seem too certain about what will happen.

If it was easy to predict the future there would be many more rich folk.

Extrapolating from what you perceive as a bad situation and presenting many arguments for why you are confident is the sort of thing I used to do, but I have verified to myself that I mostly get it wrong.

If e.g. just a few of your assumptions are incorrect then many things change.

It is inconceivable to me that nations that have been selling stuff here will suddenly want to stop and that we will do things to make such business difficult, likely imho the opposite. If we do Brexit we will be no different in many ways to Japan a nation that has been written off as in secular decline but which seems to be doing okay.

But if you are sure then perhaps the only way to calm your concerns is to do what you think will be optimum as soon as it becomes more clear what will happen regarding Brexit. As I read what you write you have so many caveats as to make a logical decision currently impossible, but perhaps after next week it will be more easy for you with somethings perhaps being ruled out or in.

Personally I think the odds of volatility in the markets are quite high in the short term and if I do anything it is likely to take advantage of such swings on short time scales.

Good luck!

[onthemove]

And basically I'm in a quandary as to what to do with approx 20% of my portfolio that's currently in cash, and really should be put to work.

What are you after? Capital gains, capital preservation, growth in income?
Maybe you should be looking at companies with multinational interests. Oils, Miners, Pharmaceuticals, Tobaccos, and so on.

As for what I'm after - I guess could best be described as ... standard of living preservation / standard of living growth tracking global living standards growth

I recognise that much of our standard of living is down to imports, or when going on holiday the value of our currency. Products we buy in the UK are rarely made in the UK. It's cheaper to import them. If we had to buy UK we'd be paying more. And when we go on holiday abroad, our choice of destinations, standard of holiday is (or was) such because of the value of the pound.

If the pound drops substantially (and I believe it will on no deal), then both of the above are threatened. Consumer electronics (which I use a lot) will go up in price, and the type and standard of holidays that I could afford would be much reduced.

Multinational interests are a consideration. But then isn't that just the same issue? I mean, the FTSE 100 went up when the pound dropped, precisely because of the value in it based overseas - like oil companies, miners, etc.

It has felt to me the past years since 2016, that a proportion of my portfolio gains are basically a 'brexit dividend' from holding companies with operations outside the UK.

But then if brexit were cancelled, and the pound rises, then aren't we going to reverse the rise of the past couple of years? I mean, for the past couple of years, both my share values rose, and dividends rose as well, basically because of that fall in the £.

I guess this is where my quandary comes in...

"Standard of living preservation" would be achieved by going global - if brexit is cancelled and the pound rises, then so what, my shares go down, but that's £ terms; in global purchasing terms it would still be stable.

And actually I guess also... "standard of living growth tracking global living standards growth" would also be achieved by going global.

So actually ... thanks.. I think that does actual somewhat provide some clarity on my quandry ...

I guess in essence, now my portfolio is fairly substantial - such that I could potentially just about consider living off the returns - then really on the above thought processes, I really should be paying attention to more global diversification - whether that's global companies in the FTSE100, or more 'explicitly' global foreign ETFs... either way, I probably should be looking at global diversification with the goals I gave in answer to your question.

Thanks

[onthemove]

It is inconceivable to me that nations that have been selling stuff here will suddenly want to stop

That's true - but what leverage would we have as a 1/10th the size country, compared to what we had as part of the larger EU?

I'd agree in many cases status quo would seem pragmatic; but I don't see that our position to negotiate anything better would be enhanced by leaving the EU - quite the opposite, in the majority of cases we'll have less bargaining power (smaller size) compared to pre-Brexit.

So leaving for the status quo isn't really any reason to expect sunlit uplands - just at best more of the same.

And when it comes to the EU itself - it's actually in their interests to be awkward. Sure there'll be some hit on german car makers (as the brexiteers like to tell us; even though the german car makers have said they'd prioritise single market preservation over UK trade)... but in many areas like finance, etc, there is a huge incentive, even obligation, for many companies that currently do a lot of business in the UK, to have to move into the rEU for regulatory reasons. So there is a lot for the EU to gain by not allowing the status quo.

But if you are sure then perhaps the only way to calm your concerns is to do what you think will be optimum as soon as it becomes more clear what will happen regarding Brexit.

I guess that's the issue we all have :^)

If only we knew which way brexit was going to go - just at the political level - remain / brino / efta / May's deal / no deal.

If I knew that, then for me I probably wouldn't have any hesitation about my investment decisions around it, other than perhaps trying to gauge what may or may not already be priced into the market.

I suppose the original idea I had in this post was really to think / discuss about whether the current value in the GBP reflects an expectation of no deal brexit, with minimal further downside for the pound, or whether it reflects a measured half way house reflecting the current political uncertainty.

But interestingly - and hence the subject line - if it does only reflect a half way house, then a further decline from here would, bearing in mind previous historical lows, be a break to the downside into levels never before seen...

... effectively like shares that are trading at the lower end of their range, so you think they're cheap, only to find that suddenly they get cheaper still... (but talking about currency levels rather than share levels)

[That said, as mentioned in my previous post, I think I might now have a little more clarity in my own mind how I should now navigate this]

[tramrider]

And basically I'm in a quandary as to what to do with approx 20% of my portfolio that's currently in cash, and really should be put to work.

If I put it into UK shares, and we get no deal, then it will lose likely 20% purchasing power (global terms, short to medium term) even if the £ numeric value remains seemingly stable.

But if my hunch is right, and that the £ is currently priced reflecting the middle way (reflecting 50:50 it could go either way), then what are already historical lows, could then prove to be a false bottom.

If the market (I'm talking currencies) is reflecting still a 50:50 outcome between no-deal and remain, then a no deal, could result in the GBP entering territory that it has never before been in. And likely staying there.

In such a situation, having a globally diversified set of equities, could then prove to be very valuable to someone in the UK looking to live off their dividends in the ideally near future...

If you think the likelihood of the 2 extreme Brexit outcomes is really 50:50 either way, then you could invest equally in UK and Global shares, with an equal chance that one will win and one will lose. Your losses on one side should neutrally balance your gains on the other side.

However, I would also only invest 50% or less of my cash pile at the moment and wait for a couple of weeks to see what turns up.

[dspp]

And basically I'm in a quandary as to what to do with approx 20% of my portfolio that's currently in cash, and really should be put to work.

If I put it into UK shares, and we get no deal, then it will lose likely 20% purchasing power (global terms, short to medium term) even if the £ numeric value remains seemingly stable.

But if my hunch is right, and that the £ is currently priced reflecting the middle way (reflecting 50:50 it could go either way), then what are already historical lows, could then prove to be a false bottom.

If the market (I'm talking currencies) is reflecting still a 50:50 outcome between no-deal and remain, then a no deal, could result in the GBP entering territory that it has never before been in. And likely staying there.

In such a situation, having a globally diversified set of equities, could then prove to be very valuable to someone in the UK looking to live off their dividends in the ideally near future...

If you think the likelihood of the 2 extreme Brexit outcomes is really 50:50 either way, then you could invest equally in UK and Global shares, with an equal chance that one will win and one will lose. Your losses on one side should neutrally balance your gains on the other side.

However, I would also only invest 50% or less of my cash pile at the moment and wait for a couple of weeks to see what turns up.

ah, but which currency would you keep your cash in ?

dspp

[tramrider]

ah, but which currency would you keep your cash in ?

dspp

Cowrie shells are quite pretty!