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Market Correction
chazza
Posted: 11 February 2018 12:08:51(UTC)

Joined: 13/08/2010(UTC)
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I don't know where this is going, but I've been buying more FCSS as the price went down to 230, with a view to the long-term. I feel curiously calm as my mostly 'high risk' but diversified portfolio is down (only) 5% since end of January peak. I did review in January, but concluded that, having sold out of almost all UK (notably Invesco UK Higher Income fund) and removed IBT from my ISA, I was pretty much content to hold what I have. Apart from FCSS, only minor tweaking....
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Sara G on 11/02/2018(UTC)
Big boy
Posted: 11 February 2018 12:31:08(UTC)

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I think we are seeing the battle of the "Bulls and "Bears" which has nothing to do with fundermental or data.

When the FTSE 100 was 6000 the "Bears" were winning as we saw Investment Trust average discounts plummet.

From that moment we saw the majority of investor move to being massive Bulls and the corrections will be small.

It appears to me that the risk/reward has moved to a level where I have moved into cash rather that defensive stocks which will also fall. I must also try not to "catch the falling knife" until it's landed.

None of us can forecast what will happen........investors as a whole will decide the outcome.
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Vince. on 11/02/2018(UTC)
Alan Selwood
Posted: 11 February 2018 15:52:34(UTC)

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Logically, we should be in sectors where there is no link to turbulence caused by exterior forces such as 'end to QE', 'Trump-tweets', 'Brexit', 'global indebtedness' etc.

In the real world, those with money to invest or power to shape the destiny of others hold sway, and therefore logic will probably have little part to play in the outcome.

I can imagine an ETF being set up (if not already done) that uses derivatives based on the opinion of investors as to what other investors think other investors think other investors think (....) is going to happen.

I wonder what the weather will be tomorrow.........!
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john_r on 17/02/2018(UTC)
King Lodos
Posted: 11 February 2018 16:10:45(UTC)

Joined: 05/01/2016(UTC)
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There is a new ETF that uses AI to scan social media posts to gauge opinion on individual companies .. I think Amazon was its top holding.

My ETF screen is about the best I've got to identify where money's moving – this was 1st Feb, so mainly reflects the recent rally.

It suggests US Consumer Discretionary, Financials and Tech .. Nothing too surprising .. Seems odd though that Financials wouldn't be doing a little better, and corporate bonds a little worse, if this turbulence is really about pricing in a faster hiking cycle.

Big boy
Posted: 11 February 2018 17:50:28(UTC)

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I have found over many decades once a consensus has been reached (most investors would Buy rather than sell SMT) you should do the opposite.......at present their are many buyers ready to step in on any setback. When everyone has bought who's going to get me out.

All the clever people have access to the same information and will arrive at the same answer but at different times.
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Tyrion Lannister on 11/02/2018(UTC), North Star on 12/02/2018(UTC)
Tyrion Lannister
Posted: 11 February 2018 18:16:52(UTC)

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chazza;56952 wrote:
I don't know where this is going, but I've been buying more FCSS as the price went down to 230, with a view to the long-term. I feel curiously calm as my mostly 'high risk' but diversified portfolio is down (only) 5% since end of January peak. I did review in January, but concluded that, having sold out of almost all UK (notably Invesco UK Higher Income fund) and removed IBT from my ISA, I was pretty much content to hold what I have. Apart from FCSS, only minor tweaking....


I'm still drip feeding my UK stocks.

At some stage they will recover and I intend to be invested when they do. Between now and when (if) Brexit happens, there are countless possibilities. As much as I detest Brexit, we will recover sometime - the UK economy has always been pretty resilient over the long term.
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Tony Peterson on 12/02/2018(UTC), Tim D on 12/02/2018(UTC), Sara G on 12/02/2018(UTC)
Freefall Junkie
Posted: 17 February 2018 09:24:24(UTC)

Joined: 09/06/2014(UTC)
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Thought it might be interesting to revisit this thread a week on from correction week. It has certainly been a learning experience for me as I have only been managing my own investments for around 7 years and I am acutely aware that most of that time the markets have been pretty benign. Now, if you had a crystal ball and had told me on Friday 2nd Feb that the markets were going to fall off a cliff with a 10% correction the following week AND that the week after that worse than expected US inflation figures would be announced, I would have run for cover and sold a big chunk of investments.

Well, here we are 2 weeks on and of my 3 biggest holdings, SMT, JEO and BGFD, the first two are actually now slightly higher than on Feb 2nd; BGFD has a little way to go but is recovering well.

No doubt we have not seen the last of volatility and further shocks will come, and we surely must be in the late stages of the bull market now, but the big lesson for me has been that when they do come just sit tight or treat it as a buying opportunity.
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gillyann on 17/02/2018(UTC), Will Morris on 17/02/2018(UTC), Mickey on 17/02/2018(UTC)
King Lodos
Posted: 17 February 2018 11:04:42(UTC)

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Freefall Junkie;57389 wrote:
No doubt we have not seen the last of volatility and further shocks will come, and we surely must be in the late stages of the bull market now, but the big lesson for me has been that when they do come just sit tight or treat it as a buying opportunity.


This was certainly an easy correction to buy as it was driven by prices .. the positive stories that had taken stocks to new highs the days and weeks before hadn't changed.

This kind of correction has to happen over and over in a hiking cycle, as the train that's been carrying stocks has to make repeat stops, with people getting off and buying bonds at 2.8%, 3%, 3.2%, etc. all the while bonds going deeper into a bear market.

Whether dips are always a buying opportunity is a tricky one .. One reason this correction was so fast is because algorithmic traders sell as volatility increases – they want to be fully invested when markets are calming going up; but much less invested by the time we're in a bear market.

To use a worst-case-scenario – the Japanese stock market from 1990 onwards, which lost 80% over 20 years .. On the way down it gave you countless opportunities to buy the dip – most of which would've been disastrous.

https://upload.wikimedia.org/wikipedia/commons/thumb/6/6d/Nikkei_225%281970-%29.svg/375px-Nikkei_225%281970-%29.svg.png

What might have helped you avoid the Japanese market's 20-year-falling-knife would've been looking at valuations:

http://i0.wp.com/siblisresearch.com/wp-content/uploads/2016/10/Japan-Shiller-PE.png

The problem is the kind of stocks SMT and JEO holds, like Amazon, are already on CAPE ratios of 694 .. So you're already in much deeper water than Japan got into .. So then it becomes looking at things like earnings growth to make sure those valuations are supportable .. There is a reason fund managers like Woodford prefer to take big risks on companies with PE ratios below 15
3 users thanked King Lodos for this post.
Mike L on 17/02/2018(UTC), Freefall Junkie on 17/02/2018(UTC), Mr Helpful on 17/02/2018(UTC)
Mr Helpful
Posted: 17 February 2018 11:29:30(UTC)

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King Lodos;57397 wrote:
Freefall Junkie;57389 wrote:
No doubt we have not seen the last of volatility and further shocks will come, and we surely must be in the late stages of the bull market now, but the big lesson for me has been that when they do come just sit tight or treat it as a buying opportunity.

This was certainly an easy correction to buy as it was driven by prices .. the positive stories that had taken stocks to new highs the days and weeks before hadn't changed.
Whether dips are always a buying opportunity is a tricky one .
To use a worst-case-scenario – the Japanese stock market from 1990 onwards, which lost 80% over 20 years .. On the way down it gave you countless opportunities to buy the dip – most of which would've been disastrous.
What might have helped you avoid the Japanese market's 20-year-falling-knife would've been looking at valuations:
There is a reason fund managers like Woodford prefer to take big risks on companies with PE ratios below 15


Quite so.
Valuations IMHO do hold the key, longer term.
But that wretched business 'momentum' can prematurely drain the resources of a Value Investor.
Whatever Stocks target method is being used, a gradualistic phased approach (time diversification), can be a calming influence on the investor and the portfolio.

Very much appreciated the chance to build up some Stock holdings at lower valuations during the 'correction'. Further weakness over an extended period cannot be ruled out from current valuations, and might be welcomed as pricing steadily improves (becomes cheaper)?
But could be a long haul, with counter-surges along the way, to fool us all !
1 user thanked Mr Helpful for this post.
King Lodos on 17/02/2018(UTC)
King Lodos
Posted: 17 February 2018 13:09:30(UTC)

Joined: 05/01/2016(UTC)
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Mr Helpful;57399 wrote:
King Lodos;57397 wrote:
Freefall Junkie;57389 wrote:
No doubt we have not seen the last of volatility and further shocks will come, and we surely must be in the late stages of the bull market now, but the big lesson for me has been that when they do come just sit tight or treat it as a buying opportunity.

This was certainly an easy correction to buy as it was driven by prices .. the positive stories that had taken stocks to new highs the days and weeks before hadn't changed.
Whether dips are always a buying opportunity is a tricky one .
To use a worst-case-scenario – the Japanese stock market from 1990 onwards, which lost 80% over 20 years .. On the way down it gave you countless opportunities to buy the dip – most of which would've been disastrous.
What might have helped you avoid the Japanese market's 20-year-falling-knife would've been looking at valuations:
There is a reason fund managers like Woodford prefer to take big risks on companies with PE ratios below 15


Quite so.
Valuations IMHO do hold the key, longer term.
But that wretched business 'momentum' can prematurely drain the resources of a Value Investor.
Whatever Stocks target method is being used, a gradualistic phased approach (time diversification), can be a calming influence on the investor and the portfolio.

Very much appreciated the chance to build up some Stock holdings at lower valuations during the 'correction'. Further weakness over an extended period cannot be ruled out from current valuations, and might be welcomed as pricing steadily improves (becomes cheaper)?
But could be a long haul, with counter-surges along the way, to fool us all !


It's a tricky one though, as Phil Fisher wrote, great companies can sometimes justify valuations many multiples higher .. In a recent Lindsell Train article, they concluded the fair value for a company as profitable as Diageo could be a PE of about 45.

If I'd bought Amazon when I started using it, I'd be up 30-40x on my original investment, and the PE would only just be coming down from over 500.

If you've got a business doubling its earnings every year, PEs go: 500, 250, 125, 62, 31, 15, 7 (on your original investment) .. So buying at PE 500 can be great value .. I can still be very bullish about these markets, as you've got companies like Amazon and Tencent rapidly expanding and increasingly driven by AI – it's a very different world from 10 years ago .. Building a virtual shopping centre that can accommodate the whole planet, with no more overheads than a website, with a virtual assistant that's going to become increasing telepathic
2 users thanked King Lodos for this post.
chazza on 17/02/2018(UTC), john_r on 18/02/2018(UTC)
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