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Time to cash in my chips?
Max P
Posted: 14 January 2018 11:00:06(UTC)
#22

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A couple of securities mentioned.

Is FCRL defensive? Not so sure.

IS15 returned 2% last year, what would happen if interest rates rose a couple of percent over the next say 2 to 3 years?

I do like Fundsmith and not selling down that one, I cant judge whether Smith is just lucky or brilliant but anyone that holds low debt cash generative companies appeals to me.

I have had a very good run with VAPX, VFEM, TEM and HFEL and am thinking of reducing to a rebalance/derisk/harvest CGT. Probably going to leave it in cash (account paying 1.3%) and wait for a pull back before reinvesting in the same or similar. I am fundamentally happy with EM and the east in general as having seen it with my own eyes I personally take the view that over the medium/long term that area will outgrow the west.
Mr Helpful
Posted: 14 January 2018 12:18:05(UTC)
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Max P;55363 wrote:

IS15 returned 2% last year, what would happen if interest rates rose a couple of percent over the next say 2 to 3 years?


A crude rule of thumb, is that for every 1% rise in interest rates, the price will fall by the Effective Duration (years).

So taking the assumed 2% rise, 'IS15' with an Effective Duration of 2.72 years could be assumed to fall 5.44%.
The good news is that fresh incoming Bonds would then be on higher yields from which some dedicated Bond Holders would take solace.
All this ignores the Credit Risk of Corporates versus Gilts. Others may expand.

As a comparison the all Gilt ETF 'IGLT' with a 10.9 year Effective Duration, could be assumed to fall 21.8%.

E&OE
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King Lodos
Posted: 14 January 2018 12:28:39(UTC)
#24

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I think the key with bonds is the rate path.

There are diversification arguments for holding bonds, but starting at such low yields in 1945 (1.55% on the 10yr), you can see bonds spent the next half century making effectively nothing.

https://investorshub.advfn.com/uimage/uploads/2015/5/5/ikbeo10YrLReal.png

Then the reversal in the 80s was that rate path going in the other direction:

http://static1.1.sqspcdn.com/static/f/488594/14017899/1315328336487/10yr1800a.png
1 user thanked King Lodos for this post.
Max P on 14/01/2018(UTC)
Chris Squire
Posted: 14 January 2018 12:50:51(UTC)
#25

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I’ve been selling up in weekly tranches = 2 % of my starting balance holding for 9 weeks now and plan to continue this for several months. So I’m glad to see that there are plenty of punters still willing to buy at current prices.

For me the compelling statistic is the estimate that the US forwards price earning ratio is at the 98th %ile of its historical range. The risk-reward balance is heavily weighted towards risk just now even if most punters can’t see it yet. Then there will be a gadarene rush for the exit and not a buyer in sight.

I also recommend the CNN Money Fear and Greed Index, a composite of 7 indicators: http://money.cnn.com/data/fear-and-greed/, which is at 79 Extreme Greed up from 67 Greed a month ago and 57 Neutral a year ago. ‘When the S&P 500 (SPX) plummeted to a three-year low on Sept. 17, 2008 - the height of the financial crisis -- the Fear and Greed index sank to 12. The index gained some ground to 28 before stocks finally bottomed out on March 9, 2009 and the latest bull market began.’
3 users thanked Chris Squire for this post.
Mickey on 14/01/2018(UTC), Mr Helpful on 14/01/2018(UTC), Tim D on 14/01/2018(UTC)
colin overton
Posted: 14 January 2018 12:52:17(UTC)
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Investing is a matter of greed and fear, these are personal traits.
In a cricket match you can always loose 2 or 3 wickets quickly, in fact it is the normal way wickets are lost, unless you are England when its more like 5 or 6 quick wickets.
Depending on age, attitude to risk, other assets and how much you have to loose from a correction, I would say to not hold for ever, sell when the investment has achieved its goal for you and always sell "high". Buying low is also a good idea, buying now seems difficult for me.

How do YOU feel about a 10% correction? 20%. 30%. .....................................................
I have only "watched the FTSE" for ~30years and recall examples of "corrections" of all these magnitudes. Markets often over react, do they always recover quickly?
I would give Shell as an example. Some of us recall the old adage "Never sell Shell". Looking at growth curves (ex HL), surprisingly, it has only just beaten the FTSE100 over 10 years and doesn't come close to gold's growth. Shell is up 25% over 10 years (not sure if divs are included, perhaps not, I've asked the question), although up 100% from its 3-year low. If you'd bought and held Shell for 10 years you'd have been better in cash or buying a tracker (? - depending on the divs, in any case you might have had to pay tax). If you'd bought/sold at the wrong times a straight loss would be easily possible. I have actually bought and sold Shell over the last ~20years and although have turned reasonable rather than high profits, have been at times down. I'm currently selling Shell as it rises. If the oil price was to slump badly the current share price could halve - it has within the last 3 years from its current "height"! I recall "pundits" writing that oil could become $10/barrel. That was before "all" governments announced that petrol cars would be banned in .............. years.

I am looking critically at all my investments on a relatively short term basis and have already increased cash from below 5% to above 20%, this trend will increase. If you've bought "a punt" or should I say an over-sold stock and its made 20, 30, 40%, why not sell or are you too greedy. Markets do tend to get over sold.

I just watched Preston on the BBC smarm over The Kommisar, a smile barely left his lips. The Money Tree has lost all its leaves, its winter. If/when an election comes the result is at best uncertain, The Tories last campaign was so poor. Few recall the 70s and 80s, the young just see a "cool" "nice" old man not a neo-Trot, backed by John Mao and a women who can barely count. Could they run a bus? 5 years is a long time.

How lucky do you feel? Can you afford to be greedy or are you a little scared? I do agree the question is always when do you reinvest. By the way I'm an optimist by nature!
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King Lodos
Posted: 14 January 2018 14:45:34(UTC)
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Chris Squire;55372 wrote:
I’ve been selling up in weekly tranches = 2 % of my starting balance holding for 9 weeks now and plan to continue this for several months. So I’m glad to see that there are plenty of punters still willing to buy at current prices.

For me the compelling statistic is the estimate that the US forwards price earning ratio is at the 98th %ile of its historical range. The risk-reward balance is heavily weighted towards risk just now even if most punters can’t see it yet. Then there will be a gadarene rush for the exit and not a buyer in sight.


This is true – and may well turn out to be right .. But it's not the whole picture.

Everyone needs to make a return .. Right now the two main options are bonds at 2%, or stocks at 4% (PE ratio of 50 on bonds, and 25 on stocks).

– Let's say inflation stays at 2%, so now bonds are yielding 0 real, and stocks 2% (with some inflation protection).

– So if this picture stays the same, stocks on PE ratios of 25 are incredibly valuable: they're the only positive return in town.

As Warren Buffett's said, if we knew bond yields were going to stay around 0 real, stocks could easily command valuations of 100 PE .. Which would be historically unusual, but then 'usual' is really just the past century.

In the century before, bonds beat stocks for 75 years straight .. We didn't have AI, which could have this really positive effect on productivity, but keep inflation low (through compressing wage growth, etc), which may keep rates low.

Of course I expect a crash – but the risk for perma-bears like me is basing the future too much on the past 100 years .. In Buffett's words, while bonds are so expensive, stocks are still very cheap
2 users thanked King Lodos for this post.
Mr Helpful on 14/01/2018(UTC), Martina on 14/01/2018(UTC)
John Griffiths
Posted: 14 January 2018 17:36:45(UTC)
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Lots of sound advice on this string!
For myself - I am much older than the originator - I keep proper cash at around 9-10% but hold 28% in prudential TIPS (2 types) which are smoothed and the most cautious yield between 4 and 5% - better than straight cash. As long as I have a couple of years income requirement in cash I can survive a correction of all but the most severe type. Other than that I have some "safer" funds in the equity mix and a bit in a property fund. At present the general growth in the world is not bad only the UK is somewhat more uncertain.
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Mickey on 14/01/2018(UTC)
Dennis .
Posted: 14 January 2018 18:08:43(UTC)
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On the question of an impending market crash/correction "because markets are at an all time high" I would point out that markets have gone largely sideways for the past decade or more and in real terms the FTSE should be up over 9000 so markets aren't really high at all.

Having been investing for 40 years I have been through the BRICS and the MINTS and China and tech bubble fever etc. Whilst emerging and new markets should logically have the possibility of greater gains, my own experience has been negative and my best investments have been in the big boring stuff like Fundsmith Equity, Shell, BP, NG Unilever etc and this is where I will stick for now on. Forget smart Beta and charts, they are meaningless in a chaotic system like the economy.

Out of a nearly £600k portfolio I hold no cash apart from about £3k in my current account and don't even have a building society account.

Lindell Train Global Equity- 17%
Fundsmith Equity - 60%
Marlborough Special Sits 6%
The rest is a couple of income trusts and a smattering of Shell, UNilever, NGrid,BT etc.

My advice is to be largely invested in non UK (or dollar denominated) companies until Brexit is sorted.

PS I am nearly 70 and have good DB pensions with sufficient spare cash that I am still investing over £1k/month. If I lost the lot it wouldn't affect my lifestyle so I can be fairly aggressive in my investing.
7 users thanked Dennis . for this post.
Luca Brasi on 14/01/2018(UTC), Tim D on 14/01/2018(UTC), King Lodos on 14/01/2018(UTC), Mike L on 14/01/2018(UTC), Martina on 14/01/2018(UTC), Mickey on 14/01/2018(UTC), kWIKSAVE on 15/01/2018(UTC)
J Thomas
Posted: 14 January 2018 21:13:49(UTC)
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Sara G ' If gold dips I will top that up....gold may be the place to be.'
The forward guidance of the market has been telling us that for the last three months with gold now up 8% in that period. Higher inflation (perhaps substantially higher in the future) and a weaker US Dollar have already translated into the bond market. China is decoupling from US Treasury bonds along with the demise of the fifty year petrodollar.
The important point to remember is gold never changes in its true value, only the currencies it is priced in decrease in value as inflation and debt rise.
The figure to measure is 235 ounces of gold. Since 1800 to the present day in 2018 it has taken this amount to buy an average house in the UK, obviously not in London or the SE, but this is an average across the whole Country. There are often quite dramatic variations over and under the 235 ounce barometer, however within a few months or years equilibrium settles at this property/gold price exchange. The same is true for virtually all goods and services measured against gold.
The historical ultra rich know this already, which is why their wealth is in gold bars for their heirs in Zurich vaults.
4 users thanked J Thomas for this post.
Sara G on 15/01/2018(UTC), Tim D on 15/01/2018(UTC), Mr Helpful on 15/01/2018(UTC), cliff aner on 15/01/2018(UTC)
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