Greatest investment risks in 2021?

[TUK020]

5) Biden falls of his perch (mentally or physically) leading to the more radical politicians in the US like AOC, Omar and Tlaib taking over.

If Biden was incapacitated, I would expect Vice President Kamala Harris to take over.

Best wishes

Mark.

and I am not sure that I would characterise that as an investment risk!

[tikunetih]

I've only skim read this, but in 2021 - as in every year - the greatest investment risk will be and is nearly always "yourself".

Events happen, nearly all of which are entirely beyond your control. The primary tool we have as investors is to decide how we prepare in advance for eventualities both imagined and unimagined, and crucially to control how we respond to events as they unfold.

This year has proven to be a good illustration of how reasonable preparation for the unknown to come and controlling your response to the unexpected that occurs can, for investors, play a very large role in determining the outcomes they experience.

- If you were positioned reasonably via a sensible diversified portfolio, appropriate to your investment horizon, and managed patient inactivity during the year, then you very likely end this year quite or even very satisfied with your investment outcome.

- Similarly, if you were more active and lent against (bought) fear & panic in a measured way, rather than selling it, then you likely end the year quite satisfied.

Little need to predict anything other than that change and uncertainty endure. And to remember that investors are emotional animals prone to herding when stressed, which occurs from time to time, and which you either guard against by keeping the market at a distance and practising inactivity, or seek to benefit from via measured contrarianism.

Simple, but not always easy, with you/me/us being the primary risk that we have any control over.

[simoan]

I've only skim read this, but in 2021 - as in every year - the greatest investment risk will be and is nearly always "yourself".

Events happen, nearly all of which are entirely beyond your control. The primary tool we have as investors is to decide how we prepare in advance for eventualities both imagined and unimagined, and crucially to control how we respond to events as they unfold.

This year has proven to be a good illustration of how reasonable preparation for the unknown to come and controlling your response to the unexpected that occurs can, for investors, play a very large role in determining the outcomes they experience.

- If you were positioned reasonably via a sensible diversified portfolio, appropriate to your investment horizon, and managed patient inactivity during the year, then you very likely end this year quite or even very satisfied with your investment outcome.

- Similarly, if you were more active and lent against (bought) fear & panic in a measured way, rather than selling it, then you likely end the year quite satisfied.

Little need to predict anything other than that change and uncertainty endure. And to remember that investors are emotional animals prone to herding when stressed, which occurs from time to time, and which you either guard against by keeping the market at a distance and practising inactivity, or seek to benefit from via measured contrarianism.

Simple, but not always easy, with you/me/us being the primary risk that we have any control over.

Amen.

All the best, Si

[NoBidNoOffer]

The biggest risk is not being in the market. There was an article in yesterday's Telegraph, suggesting thatb the FTSE could get into 5 figures before too long. I've thrown the paper out now, but I have found the article online at https://www.telegraph.co.uk/business/20 ... ve-digits/

It's behind a fireweall but there ways around it if you don't subscribe. The title is:

Roaring Twenties should finally propel ailing FTSE to five digits

A case of out with the old stocks, in with the new will help shake London's major market out of its slump

Dateline 24 Dec 2020. Author Matthew Lynn.

TJH

You are right about being in the market as long as it's not the UK market. I ditched it in 2019 and had my best investing year in 2020 as I went USA, Asia and Tech.

As for the FTSE hitting 10,000 within the next 10 years well that's just like those hedge funds which have been shorting Tesla forever and losing.

[dealtn]

As for the FTSE hitting 10,000 within the next 10 years well that's just like those hedge funds which have been shorting Tesla forever and losing.

How so?

Sounds like an opinion, not a fact.

Confirmation bias, one of the (subset) of investment risks I alluded to earlier in the thread. For 2021, and indeed any year.

[BT63]

As for the FTSE hitting 10,000 within the next 10 years well that's just like those hedge funds which have been shorting Tesla forever and losing.

Over the ups and downs of the last 30 years, the FTSE seems to have an erratic uptrend of about 3.5 - 4% per year (not including reinvested dividends which would roughly double that).
FTSE is not expensive, especially when compared to international markets or the low level of return available on other assets such as bonds.

I don't think FTSE 10000 is out of the question in the 2030-2035 time period.
However it won't be a smooth or easy ride. Short term it feels like everyone is an optimist so perhaps a nasty correction will come soon.

Longer term these aren't bad prices to be accumulating a little in the FTSE, although I must admit that I've greatly reduced my accumulation since markets jumped in November.

The FTSE has a significant weight of commodity companies and I think commodities look relatively cheap and so do the companies which produce them.
Commodity companies relative to the rest of the market haven't been this cheap since about 1999, or, prior to that, about 1971, so it's possible the FTSE might give an unexpected upside surprise over the next decade.

[ADrunkenMarcus]

The FTSE has a significant weight of commodity companies and I think commodities look relatively cheap and so do the companies which produce them.
Commodity companies relative to the rest of the market haven't been this cheap since about 1999, or, prior to that, about 1971, so it's possible the FTSE might give an unexpected upside surprise over the next decade.

I think much of that goes for banks, too on a valuation perspective. On pretty much any measure - i.e. price / earnings or share price / net asset value per share - I suspect they're at near-record or record lows. The big UK banks are trading below levels in the 1990s, even in absolute share price terms. If banks recover to any significant degree, it will boost the FTSE 100.

Best wishes


Mark

[simoan]

As an adjunct to this thread. I've been considering the risk within my portfolio the past couple of days. I am heavily overweight UK small and mid caps shares, many AIM listed. For a long time it's been obvious that there are certain AIM shares that are popular with funds and Private Investors purely for Inheritance Tax purposes. So one of the main capital risks for my own portfolio is the removal of the IHT benefits on AIM shares. I'm sure it will get removed at some point, very possibly as soon as the Spring budget, and AIM could take a hit as a consequence.

FWIW I'm not going to sell any of my AIM shares as a result, as they are fundamentally sound companies on reasonable ratings and any fallback would be a good buying opportunity for me as long as the fundamentals of the company are unchanged. However, there are some AIM listed companies where the share price has long since exceeded the underlying fundamental value (i.e. low revenue and profit growth but rigidly high PER) and I think these could get hit very hard.

All the best, Si

[Adamski]

I think 2021 will be a volatile for stock markets. For a start we've got the mutations and continuing lockdowns. This will cause further job losses and a poss double dip recession.

The market has already factored in a recovery with the vaccine. If this takes longer then there will be a pull back in those already hit sectors. So I think 2021 will be a difficult year.

However perversely it may be another good year for investors if you're in the funds benefited already from stay at home (smt, monks, etc). That is until we genuinely come out of Covid. Then they'll be a reversal.

People will cancel the peloton membership and take up a gym membership. Book that foreign holiday which has been on hold. Cancel the Netflix subscription etc. Tesla, Zoom, etc will all take a hit. Then the hospitality and services sectors which have taken a hammering will come back, but anyone's guess if mid, late 21 or even 22.

[hiriskpaul]

I would say the greatest investment risk is with high asset (equity/bond) prices. Here is a good piece on this from seeking alpha:

https://seekingalpha.com/article/439640 ... -cape-fear

A reversal of expectations for ever lower, or even just sustained, bond yields could prove rather unpleasant.

Other than making sure you are positioned to be able to withstand poor returns, a mitigating strategy might be to weight investments away from assets on very stretched valuations. Overweight value compared to growth, underweight US shares, etc. Essentially do the opposite of what has worked best over the last 10 years.

[simoan]

I think 2021 will be a volatile for stock markets. For a start we've got the mutations and continuing lockdowns. This will cause further job losses and a poss double dip recession.

The market has already factored in a recovery with the vaccine. If this takes longer then there will be a pull back in those already hit sectors. So I think 2021 will be a difficult year.

However perversely it may be another good year for investors if you're in the funds benefited already from stay at home (smt, monks, etc). That is until we genuinely come out of Covid. Then they'll be a reversal.

People will cancel the peloton membership and take up a gym membership. Book that foreign holiday which has been on hold. Cancel the Netflix subscription etc. Tesla, Zoom, etc will all take a hit. Then the hospitality and services sectors which have taken a hammering will come back, but anyone's guess if mid, late 21 or even 22.

Hi Adamski,

I think if you are investing for yourself, you have to have a view on what is likely to happen. However, as I've said elsewhere on this thread I don't find it useful to try and extrapolate the present out into the future too far or share my views in any detail. It's not really helpful without knowing my financial situation and investing goals.

However, I like to keep things simple and very high level generally i.e. where are investors going to put their money if not in equities currently? I see practically no alternative, frankly, in a zero/negative interest rate world with bond prices where they are, and that in itself will be supportive of equities. As Howard Marks would say, it then comes down to how offensive or defensive you are feeling. Personally, I'm feeling quite defensive having taken the state of everything into account. So, buy the dips is the way ahead for me

Good luck to all in 2021!
All the best, Si

[TUK020]

I would say the greatest investment risk is with high asset (equity/bond) prices. Here is a good piece on this from seeking alpha:

https://seekingalpha.com/article/439640 ... -cape-fear

A reversal of expectations for ever lower, or even just sustained, bond yields could prove rather unpleasant.

Other than making sure you are positioned to be able to withstand poor returns, a mitigating strategy might be to weight investments away from assets on very stretched valuations. Overweight value compared to growth, underweight US shares, etc. Essentially do the opposite of what has worked best over the last 10 years.

One of the accepted wisdoms of this site is that it is difficult to time the market, and that one should remain fully invested through the cycles, as it is "time in the market" that matters.
The "Escape from CAPE fear" adjusted excess yield points to the fact that of any time, now is probably the lowest cost point of being out of the market.
While inflation is subdued, cash is not such a dangerous place to be.
Counter-intuitively, cash is a good place to be if one moves from low to high inflation, as assets reprice.

Fly in the ointment is that the Excess CAPE Yield analysis if very much a US market one, and things may be a little different from a UK perspective.
Tempted to pause dividend reinvestment, accumulate cash, and wait for a coming correction.

[TUK020]

For what it is worth, not having a serviceable crystal ball, I think the USA will largely keep going up, with the odd retrenchment, because of the way it embraces the tech of tomorrow. The possibilities for companies like Tesla, if it maintains its tech lead and is not nobbled by politics are phenomenal. I think the UK will improve, in spite of the poor leadership skills of those in charge. I worry about the medium term consequences of hitting the magic money tree so hard and what happens when it stops.
If I learnt one thing this year, it is that doing nothing is more often than not, the right thing to do.

Trouble is, the difference between an odd retrenchment and a bubble bursting is just a matter of scale and perspective.

Reading the exchanges on "Musk endeavours" on the Global/Macro board about Tesla valuations, they have a feel for rationalising "this time is different". When gravity overcomes exuberance, I wonder what else will get caught up in the re-rating.
Starting to feel less despondent about my Oil, Tobacco & Utility holdings.

[airbus330]

For what it is worth, not having a serviceable crystal ball, I think the USA will largely keep going up, with the odd retrenchment, because of the way it embraces the tech of tomorrow. The possibilities for companies like Tesla, if it maintains its tech lead and is not nobbled by politics are phenomenal. I think the UK will improve, in spite of the poor leadership skills of those in charge. I worry about the medium term consequences of hitting the magic money tree so hard and what happens when it stops.
If I learnt one thing this year, it is that doing nothing is more often than not, the right thing to do.

Trouble is, the difference between an odd retrenchment and a bubble bursting is just a matter of scale and perspective.

Reading the exchanges on "Musk endeavours" on the Global/Macro board about Tesla valuations, they have a feel for rationalising "this time is different". When gravity overcomes exuberance, I wonder what else will get caught up in the re-rating.
Starting to feel less despondent about my Oil, Tobacco & Utility holdings.

Can't help but agree with you, I am one of those that think that Tesla is potentially more than a car company and kind of embodies the "can do" attitude that Americans have as a culture. I don't invest in tech directly, but rather through SMT and ATT, where I hope the managers will have a better heads up if and when it all starts to go wrong. Gravity always wins, though, doesn't it, and I hope the correction comes sooner rather than later as I have funds to buy, it just seems a long time coming!