Anyone feeling bearish?

[GeoffF100]

Where have all the bears gone. We do not even have a bear board on this site. When the last bear capitulates the market peaks, as the saying goes. The market has been rising relentlessly for a long time now. Stock market valuations are at their highest since 1900. Where do we go from here?

[OZYU]

We have done fine over 2017 (overall up 12.92% on acc units over our five very different portfolios, not brilliant, but good enough for us bearing in mind that a good slice is defensive HY stuff), but we have not been relaxed about the markets for much of 2017, and gradually increased our cash in the portfolios to our self imposed usual maximum of 10%, but over the last few days have pushed this up to 15%. If the markets continue to defy gravity, we will gradually increase this cash further, if we lag on the upside a bit, then so be it.

Warren B., who has managed a fair bit of our money since 1993(we have invested in markets since early 70s), is holding much more cash than usual, and more than us in percent terms, because he can't find bargains he likes either, mind you his bargains purchases come into the $billions ours are somewhat less of a problem in that respect!

I have been, as a perennial bad sleeper (nothing to do with markets, just old age creeping in), re reading some of the extensive material/books/notes I have on his investing career over the last couple of weeks and reflecting on our strategy as a result. Since we will only use, starting this month as it happens, 15% of our current divi income, we will further reduce the dividend yield across our portfolios in the future and continue to increase our non UK investments, over the last ten years, this has improved our overall returns.

Each to his/her own

Ozyu

[baldchap]

I am with Fred.

Quantitative easing and years of low interest rates have thrown the old rule book out of the window. The FTSE doesn't look overvalued despite its new highs. Nervousness may cause it to stumble a few times in 2018 as always, and I will continue to top up on the dips.

Even the US, I don't feel is overpriced. Yes the CAPE, P/E etc etc are high, but if you strip out the half dozen tech type shares which are still only promising profits and not producing them, and look at the boring old companies which produce tangible goods and provide a regular quarterly dividend.....it still looks OK for my quality yield portfolio.

This may change with rising interest rates but at present my regular cash saving account offering 5% is limited to £300 pcm.

If I am reminded of this post in a year when all markets are 70% down, I will still be topping up the same old boring companies. As some famous bloke once said, market fluctuations are your friend.

[TUK020]

Thought experiment: this time next year.

Scenario
It becomes obvious to all and sundry that we are about to leave the EU without a trade deal, because the cabinet cannot agree on a deal, let alone agree it with the EU.
It will also become obvious by this point that the impact of this will be severe.
By this point, the Tory party will have torn itself apart, leading to a matter of time before a Corbyn government.

Impact
There is a good chance that this slow motion car crash will be post 'market peak'

Question
what do we do about it?

[GeoffF100]

Nobody I know is borrowing money to buy shares. Nobody is talking about how much money they made last week. The post man isn't delivering a share tip every time he hands you a letter. The papers are not full of articles about how much money you can make buying shares.

I do not remember that in 1973. Newspaper reports at the time were bullish though:

https://en.wikipedia.org/wiki/1973%E2%8 ... rket_crash

At the present time, there is a chorus of "this time is different". The most expensive words in the English language, or so I am told. Of course, this time is always different. Perhaps that is more true than it ever was. Currently, all asset prices are inflated by historical measures. Swiss Francs anyone? Krugerrands stuffed into a mattress? Where are all the bears?

[baldchap]

Swiss Francs anyone? Krugerrands stuffed into a mattress? Where are all the bears?

I always keep about 10% in that general form. Common sense whether you are a bull or bear. Like house insurance.

[OhNoNotimAgain]

There is a whole industry devoted to making people feel worried about markets and trying to get people to do things that are in the interest of the agent, but not of the principal.

In contrast, few journalists can find exciting things to write about compound interest. So they don't.

[Itsallaguess]

we have not been relaxed about the markets for much of 2017, and gradually increased our cash in the portfolios to our self imposed usual maximum of 10%, but over the last few days have pushed this up to 15%.

I've also spent most of the second half of 2017 at a cash level of around 15%, due to similar market-level concerns.

That's not to say that I've not been buying income-related equities though, as I have also purchased a few things when my cash levels popped over my self-imposed 15% cash-level. I'm quite happy to do that, and my market-concerns have not caused me to actually sell anything, and all sales have been company-specific or portfolio-weight related having just taken a quick look.

I'll probably continue to hold my cash-levels around the 15% mark for the foreseeable future, but as I'm still in paid employment and continue to accrue dividends from my HYP, and fresh capital from my wages, I imagine further purchases to be made as and when any cash over and above that rough 15% level makes any such purchases economically sound.

I've also tended to steer towards income-related Investment Trusts over the past couple of years, with a subsequent diversification-gain and what might be seen as a drop in yield-expectations when compared to some of the racier single-share HYP candidates that might currently be around, so whilst I've continued to purchase in the current market with cash over my 15% level, I should highlight that these purchases have probably been of a relatively lower risk in and of themselves than those I've been known to make in years gone by.

I'm currently investigating medium-to-long-term holding positions for the bulk of my 15% cash position, as the majority of it is currently yielding nothing at all, and I'd prefer to get something from it if I can find somewhere relatively safe that at least pays something.

Current likely homes are some Premium Bonds and the recently discussed NS&I Guaranteed Growth Bonds (2.2% @ 3 years) -

https://www.nsandi.com/guaranteed-growth-bonds

Cheers,

Itsallaguess

[GeoffF100]

In 1973, there were lots of adverts for unit trusts, selling on recent past performance. I was taken in, and invested £50 in Ebor Universal Growth. My landlady persuaded me to talk to an Abbey Life salesman who was selling property bonds. His sales talk made me wake up. I sold my unit trust holding at a small loss. The market crashed shortly afterwards, and the property bonds were massacred too.

As I am typing, there is an advert for BullionByPost at the top of this page. My experience of 1973-74 suggests that I should shy away from that. A safe haven for 10% of my money would be useful, but I doubt that is it.

[GeoffF100]

Scenario
It becomes obvious to all and sundry that we are about to leave the EU without a trade deal, because the cabinet cannot agree on a deal, let alone agree it with the EU.
It will also become obvious by this point that the impact of this will be severe.
By this point, the Tory party will have torn itself apart, leading to a matter of time before a Corbyn government.

That is possible. The government appears to be held together only by a shared pipe dream. Even if they had a common realistic objective, an EU trade deal typically takes 10 years or more, and formal negotiations cannot start until we have left. Nonetheless, the government has been retreating over its red lines, and it is doubtful whether there is majority in Parliament for a hard Brexit. We could be set for a very long "business as usual" transition period, which case the pound could well recover.

Corbin's rhetoric is very reminiscent of the Wilson government. The rise of the far right is reminiscent of the 1930s. By comparison with other times, and other countries, the British population is well off, but it is not happy, and the government feels compelled to keep mortgaging the future to placate them. We are entering dangerous waters.

[baldchap]

As I am typing, there is an advert for BullionByPost at the top of this page. My experience of 1973-74 suggests that I should shy away from that. A safe haven for 10% of my money would be useful, but I doubt that is it.

Well avoided. Overpriced, and If they are advertising we all know who pays for it.

[BruceyBabey]

Nobody I know is borrowing money to buy shares. Nobody is talking about how much money they made last week. The post man isn't delivering a share tip every time he hands you a letter. The papers are not full of articles about how much money you can make buying shares.

Two words:

Bee Tee See !!!

[scrumpyjack]

Yes there is certainly no sense of hysterical optimism, and one point to bear in mind about PE ratios being higher now is that inflation in the seventies, eighties and nineties was much higher so a lot of the reported earnings per share were not real earnings but the effect of inflation, for many companies at least.

I’m moving to being 20% in cash but that is more a reflection of my time of life than that I expect a large fall in markets.

Inflation is still running at 3 to 4% in the UK and interest rates virtually zero so from an investment perspective it’s hard to see a better alternative than international shares.

There is a good argument for being more in overseas shares if there is any prospect of a Momentum government and for putting one’s cash in other currencies rather than sterling.

[GeoffF100]

What are the best safe havens?

The gold price has already risen hugely, even in dollar terms. Storing and insuring it does not appear to be cheap. Do I want my mattress to be worth more than my house?

Cash looks sensible. Nonetheless, if we do have a hard Brexit or a Corbyn government, UK government deposit guarantees could turn to toast.

If we hold foreign exchange, we could have a soft Brexit or no Brexit at all, and the pound could recover.

[BruceyBabey]

Obvious innit...

* 20% correction coming for the US.

* Then BUY the fear in early '19 for the last BUMPER multiyear leg of this sweet, sweet bull market!

[Lootman]

if you strip out the half dozen tech type shares which are still only promising profits and not producing them . .

Not an entirely fair characterisation. The top eight US shares by market cap are Apple, Microsoft, Google, Amazon, Facebook, Johnson & Johnson, Exxon and JP Morgan. Of those the last three are not tech names. Whilst both Apple and Microsoft have not only earnings but also pay out dividends - in fact Apple is the third largest payer of dividends on the planet.

Which just leaves Google, Amazon and Facebook. Google and Facebook have significant and growing earnings, but do not (yet) pay dividends. So Amazon is the only share in the top eight that fits your classification (assuming that you classify it as a tech company and not a retail company, as the S&P 500 classification does) and of course Amazon reports no earnings only because it is investing all its revenues into world domination.

Do you really not want to be invested in the biggest engines of growth and wealth available?

[GeoffF100]

For what it is worth, I am about:

20% Fixed Interest
15% Index Linked
5% Cash

20% Directly Held UK Equities
40% Overseas Equity Trackers

I work on the principle of doing as little as possible. Nonetheless, the exact allocations are a moving target.

[nmdhqbc]

I no longer have the channel but I used to watch CNBC a lot. They'd have a lot of people saying it can't be a bubble because no one is euphoric. They'd say everyone is cautious. I just thought the "no-one is euphoric" line might be the new euphoria. Everyone saying that to me could be the euphoria itself in a new guise. But I personally think there's no predicting and just hold through the possible big corrections or halving.

[SalvorHardin]

I'm not seeing the usual signals that the UK stockmarket is very overvalued. Of particular interest is that the FTSE100 still yields almost twice the rate paid on 10 year Gilts.

There seems to be a major absence of clueless muppets piling into the market, which is my number one signal (e.g. breakfast TV presenters on ITV and disc jockeys talking about buying shares as they did at the top of the dotcom boom). I have friends offline who have in the past been great at buying an asset class at the top of the market. They are currently showing interest in Bitcoin - shares don't currently register with them.

The Bloomberg and CNBC financial channels currently have a lot of cautious commentators on them - get worried when they become universally bullish.

Some asset classes are overvalued; my view is that cryptocurrencies are a modern day South Sea bubble with a similar number of scams, there are a lot of stupid valuations in private equity "unicorns" and fixed interest is a bit pricey. I just avoid these sectors.

I like low tech stuff with a decent moat (my five largest shareholdings are Berkshire Hathaway, Union Pacific, Madison Square Garden, Brookfield Asset Management and Unilever - I'd be happy to top up any of these at today's prices (Unilever is the priciest IMHO)).

Canadian Gold explorers are a good hedge against inflation and war risks. Victoria Gold has lots of gold in the ground waiting for a price rise to make a mine viable, which effectively makes it a massively geared play on the gold price akin to a warrant.

Gold today at about $1,300 per ounce isn't particularly expensive by recent standards. It came close to $1,900 back in 2012 when gold mining and exploration shares were a lot more expensive.

Not too fussed about the economic effects of Brexit because most of my money is outside the UK and I don't believe the forecasts of economic armageddon. These forecasters have been terribly wrong before when it comes to Brexit (UK GDP is supposed to be about 7% down on where it is today according to the consensus forecast in June 2016). I was far more accurate than these esteemed individuals and I'm only MSc Economics (Austrian School). I reckon that hard WTO defaults will knock off no more than 2% off UK GDP over several years. Funnily enough The Economist, a major doom monger over Brexit, said the same a few weeks ago.

I'm not to bothered about Corbyn (I'll emigrate if he and his commie pals win the next election - I can't really see this happening).

India. My pick for the next 25 years. From an investment point of view India looks a lot like Japan did in the 1960s.

[GeoffF100]

With regard to gold, I found this:

http://monevator.com/the-permanent-portfolio/

The cost of trading and holding gold with this company looks reasonable:

https://www.bullionvault.com/

Certainly a possibility. You have to pay CGT, but there is currently no CGT on death or charitable donations of shares, and I expect that the same is true for gold.