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where to stick £78 000 to at least retain it's value for 6 years
Ark Welder
Posted: 02 June 2017 23:40:05(UTC)
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However, a two-hundered year log-chart of returns might have insufficient granularity to provide a reliable picture of what can happen over a timescale that is only three percent of that two-hundered year period. A far more informative approach would be to slice that chart into rolling six-year periods and compare those results.
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Tim D on 18/07/2017(UTC)
sandid3
Posted: 03 June 2017 01:55:47(UTC)
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Quote:
A far more informative approach would be to slice that chart into rolling six-year periods and compare those results.

Exactly - I wish I had the time to do it. The point is that we are talking here about a short term investment and therefore all generalisations about the long term don't apply. We are also not talking about the average six year return but the specific return over the next six years - which includes the Trump era and the Brexit era, neither of which can be predicted with reference to previous eras.

I think there's an asymmetry in the question. Eain is prepared to wait to enter the market - i.e. time the entry - but wants to hold any purchase come hell or high water right to the end - i.e. not time the exit.

If returns are modest for four years and then start to plummet, why would you not sell? You may reply 'but I don't know what will happen next'. Now you have enlightenment!

Long term investors dodge the sale-timing problem but it exists for short term investors and it's better to learn how to deal with it than to ignore it.
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Cyrus Zaydan on 04/06/2017(UTC)
SDRL
Posted: 03 June 2017 02:06:38(UTC)
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I always invest in bear markets wherever they maybe. For example, retail, energy and auto industry. I have recently added to my position in RDSB, TGT Target Stores and GM. All my stocks in my portfolio must pay a dividend. USA municipal bonds funds are a good deal now.
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Mike L on 16/07/2017(UTC)
King Lodos
Posted: 03 June 2017 06:35:21(UTC)
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sandid3;47514 wrote:
Quote:
A far more informative approach would be to slice that chart into rolling six-year periods and compare those results.

Exactly - I wish I had the time to do it. The point is that we are talking here about a short term investment and therefore all generalisations about the long term don't apply. We are also not talking about the average six year return but the specific return over the next six years - which includes the Trump era and the Brexit era, neither of which can be predicted with reference to previous eras.

I think there's an asymmetry in the question. Eain is prepared to wait to enter the market - i.e. time the entry - but wants to hold any purchase come hell or high water right to the end - i.e. not time the exit.

If returns are modest for four years and then start to plummet, why would you not sell? You may reply 'but I don't know what will happen next'. Now you have enlightenment!

Long term investors dodge the sale-timing problem but it exists for short term investors and it's better to learn how to deal with it than to ignore it.


You can essentially see what's happening in 6-year windows here.

Since 1971, the Permanent Portfolio only had 4 down years (in this chart) – so that's a 1 in 10 chance of a negative year, per year.

1 in 100 chance of two negative years in a row .. 1 in 1000 of three in a row .. Of course we've never started from a position of stocks and bonds being this expensive, not global debt being this high .. So to some extent backtesting is very hypothetical .. It may be that inflation-linked bonds make more sense from a macro view now.

http://www.steveonomics.com/wp-content/uploads/2014/11/PermanentPortfolio.1972-2011.png
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Jenki on 15/07/2017(UTC)
huudi
Posted: 03 June 2017 09:31:16(UTC)
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King Lodos;47495 wrote:
huudi;47463 wrote:
"Compensated for the risk of holding stock"? Tell me more, its new to me. Only the bookie makes money on falling stock prices.


This is worth understanding .. Bonds pay you for holding them because there's value in having immediate access to capital, rather than waiting for it .. So they're paying you for your patience.

And that value is basically productivity .. A government or corporation expects to be able to grow the value of invested capital at a higher rate than it's compensating you.

Why do stocks return more than bonds? If they were the same risk, we'd just bid stock prices up until they matched the returns of bonds .. The difference is risk .. And that gives a neat way to estimate returns – double the risk (e.g. 2x leverage) double the return .. Invest in higher risk stocks (value, small-caps) higher return, etc.

And people do make money on falling stock prices .. This is my easy explanation of shorting:

You go to a fruit & vegetable stall at a market .. Ask the guy if you can borrow a bunch of bananas, and you'll give him a bunch of bananas back at a future date .. Right now the price of bananas is £10/kilo, so you sell your borrowed bananas and pocket £10 .. Next week the price plummets to £5/kilo .. So you buy a bunch for £5, give it to the vendor you borrowed the bananas from originally, and pocket the £5 difference.



That's the simple lesson for a Junior school, now how do I get "compensated" for holding stock?
Mr Helpful
Posted: 03 June 2017 10:44:33(UTC)
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King Lodos;47496 wrote:

1. But then two things that chart shows you: looking at total returns, stocks spend a lot of time making new highs that they never fall below again (for everyone waiting for corrections), and events like 1929 are extremely rare.

2. If you follow Harry Browne or build an All Weather portfolio that has a maximum 25% allocation to stocks, that 80% worst case scenario only becomes 20%, and with a simple rebalance you get a chance to buy stocks at generational lows.


1. Another problem with a buy and hold Polyanna Approach is that it ignores valuations.
Let us say we exit a position at 100p, but re-enter a year or two later at 110p.
This seemingly is a disaster versus buy and hold?
But :-
1.1 The investor may be re-entering at a higher yield and lower PE than they exited.
1.2 Far more important is what has happened to the monies released in the interim.
They might blossomed in a cheaper position from 100p to 150p?
There was an interesting discussion along these lines on a Citywire thread earlier which made this very point.

2. Why the sudden enthusiasm for the Harry Browne Permanent Portfolio?
25% Stocks
25% Long US Treasuries
25% Gold
25% Cash
Have some of these positions, perhaps most, not had their day in the sun?
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Keith Cobby on 03/06/2017(UTC)
Ark Welder
Posted: 03 June 2017 11:32:21(UTC)
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Mr Helpful;47529 wrote:
Why the sudden enthusiasm for the Harry Browne Permanent Portfolio?
Probably the latest thing read in the current book.

+++

But on serious note, anyone that believes that 200 and 40 year charts which show cumulative returns over those periods as being reliable sources for what has happened over discrete six-year timescales, then they are kidding themselves.
xcity
Posted: 03 June 2017 12:05:45(UTC)
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King Lodos;47458 wrote:
Value's always flowing into something .. It's like rock pools .. The water can't really go anywhere, because to sell any asset you need a buyer, and whatever's being bought and sold, demand somewhere is offset somewhere else.

Not really true.
Transactions are a small % of the value of holdings but it is the transactions that decide the overall value. It's easy to think of circumstances in which the value of everything will fall: economy spiralling down, rampant inflation as government keeps printing money to spend, confiscating assets/businesses for a bit more income.
In most developed economies with a stable political system it tends to happen slowly, over decades, but it does still happen. It is most often seen in single countries, so geographical diversification will give some (but not total) insurance against these risks.
Keith Cobby
Posted: 03 June 2017 12:51:33(UTC)
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I have been thinking about this for the last 6 days (on and off!) and there is no answer. Presumably we are measuring against inflation, but is it CPI, RPI, RPIX etc. Inflation and interest rates are the variables and nobody can predict them.

xcity
Posted: 03 June 2017 20:06:17(UTC)
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Keith Cobby;47536 wrote:
Presumably we are measuring against inflation, but is it CPI, RPI, RPIX etc.

Inflation is a fuzzy concept when considered for general use, with a number of very precise definitions mostly designed to give a reasonable comparison over time.

In this situation only two types of inflation matter:
1. The rate of price increases in items you buy or might choose to buy;
2. The increase in prices that affect the investments you are considering making (and it's quite possibly a different rate for each investment).
You won't want to try to work it out yourself, so just see which of the published rates applies best to your own needs.
BOB 2
Posted: 03 June 2017 22:30:49(UTC)
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ME BOB OF INTEREST RE BANKS, / CORRECTION ?
....................................................................................................

OF INS&P RETAINS NEGATIVE OUTLOOK ON SEVERAL UK BANKS DUE TO BREXIT

(ShareCast News) - Standard&Poor's reaffirmed its negative outlook on the long-term credit rating of several of the UK's largest lenders due to the marked downside risks it sees for its base case of a 'hard' but orderly Brexit process.
To reach a Brexit deal, authorities on both sides of the Channel would need to overcome the sheer technical complexity involved, within a limited timeframe.

They would also be faced with the multiplicity of economic and political interests, S&P said.

"We continue to believe that U.K. banks' strengthened capital, liquidity, and funding profiles provide considerable flexibility to manage an extended period of economic and market uncertainty, but that they could weaken in a marked downside scenario."
................................................................................................................................................
In particular, S&P said it would be watching for signs of a "significant" correction in asset prices that could push credit losses "well above" their long-term average or of significant outflows of foreign capital or substantially worse than projected declines in foreign direct investment.
....................................................................................................................................................
On a cheerier note, S&P's base case scenario was also for a transitional agreement to be put in place, thus avoiding the risk of a regulatory cliff-edge when it left the European Union in March 2019.

The ratings agency therefore reaffirmed negative outlooks for the credit ratings of Barclays (including its core subsidiaries), HSBC Bank PLC, Lloyds Banking Group PLC (including its core bank subsidiaries), and Santander UK PLC.

"The negative outlooks primarily reflect our view that we could lower the ratings on these institutions if we see a materialization of the economic risks for the U.K. banking industry," it said.

However, the outlook on Santander UK Group Holdings PLC's debt was kept at 'stable' given the high probability that the parent group would offer support if needed.

RBS's outlook was also maintained at 'stable' due to its strong capital buffers and continued progress with restructuring the group, which would offset the headwinds which might arise.

Then current long and short-term counterparty credit ratings for all of the above lenders was reaffirmed.

In its base case, S&P forecast UK gross domestic product would expand by 1.7% in 2017 and at an average of 1.3% a year between 2018 and 2020.
King Lodos
Posted: 04 June 2017 03:37:59(UTC)
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huudi;47523 wrote:
That's the simple lesson for a Junior school, now how do I get "compensated" for holding stock?


I think you may need a few more lessons from Junior school.

They (hopefully) provide a positive return.
King Lodos
Posted: 04 June 2017 04:15:35(UTC)
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Mr Helpful;47529 wrote:
1. Another problem with a buy and hold Polyanna Approach is that it ignores valuations.
Let us say we exit a position at 100p, but re-enter a year or two later at 110p.
This seemingly is a disaster versus buy and hold?
But :-
1.1 The investor may be re-entering at a higher yield and lower PE than they exited.
1.2 Far more important is what has happened to the monies released in the interim.
They might blossomed in a cheaper position from 100p to 150p?
There was an interesting discussion along these lines on a Citywire thread earlier which made this very point.

2. Why the sudden enthusiasm for the Harry Browne Permanent Portfolio?
25% Stocks
25% Long US Treasuries
25% Gold
25% Cash
Have some of these positions, perhaps most, not had their day in the sun?


The problem with value investing is it ignores risk.

There's only a real value premium if markets consistently misprice risk .. As per Robert Shiller's Irrational Exuberance, it's the extremes of over and undervaluation where there are opportunities – and they're essentially issues of behavioural economics.

Imagine High Yield bonds are the value stocks .. Well you wouldn't just buy high yielding bonds without looking at default rates .. Many famous value investors I've followed (such as Peter Lynch) wound up on losing streaks, possibly because they ran into the risks they'd been unknowingly getting compensated for.


1.1 Because this strategy's trading annually or quarterly, there's virtually no correlation between valuations and 1-year returns. So each trade has as much chance of being right as it does wrong, regardless of valuations. Over 1 year, there's probably more chance you're selling against momentum: simply selling something that's got more expensive.

1.2 This strategy is anti-momentum .. And momentum's the strongest known anomaly in pricing – so I use momentum myself .. But I'd say (from personal experience) momentum makes you a trader, which is a completely different game .. It really does rely on having an edge – being right more often than wrong, or having a system which nudges outcomes in your favour .. It's so rare I'd ever recommend it to anyone, because you're always writing the rules as you go.

2 It's a useful example .. I'd feel nervous holding that much gold, or long-term gov bonds .. I do hold Ruffer Total Return (which holds long-term index-linked bonds and gold), and I like the fact they don't worry about it.

I think it demonstrates a) the power of true diversification, and b) that systematic approaches are far superior to most active approaches, because if we didn't (collectively) get most things wrong, there wouldn't be risk factors like value and momentum to profit from .. All the assets we expect to do best over the next 10 years, are probably going to be the ones that do worst.
Tyrion Lannister
Posted: 14 July 2017 23:56:10(UTC)
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BOB 2;47289 wrote:
Make your list out, and wait for the correction , it may be this week or next month
all is needed is a bit of bad news, and there is enough of that around.
i see all markets as over priced at the moment. so it will not take much to bring the roof down
ok i mite be wrong but unless i see a outstanding bargain i am holding back/cash


You can't be sure a correction is imminent.

All asset classes seem to be at near highs but people have nowhere else to put their money. On top of that, there's a lot of people sitting on cash waiting for a correction to buy into.

Tug Boat
Posted: 15 July 2017 09:21:48(UTC)
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BGLP, NBLS
Jordan Stodart
Posted: 21 August 2017 16:19:28(UTC)
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Sara G;47269 wrote:
No one has mentioned infrastructure funds or P2P... given that there is no entirely risk-free solution, these might be worth considering as part of the mix.

I don't know much about P2P, but infrastructure funds may offer stable and rising income. Here's one yielding 4%, and in the comments you'll see other recommendations:

http://citywire.co.uk/mo...structure-fund/a1000523





Yeah I'd agree a look at P2P is worthwhile, given the avg yield 5-6% you can get on some secured or unsecured. Small exposure within the portfolio could be useful over time given its largely uncorrelated nature.

This is an asset class I have a keen interest in so if you need any info or have questions, just shoot.
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