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Market Correction
tony m
Posted: 23 May 2018 14:21:23(UTC)

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Well free fall I got it right 3 months ago as evidenced by my posts which somewhat
Negates your zero % argument
Only recently bought Odey as I agree he was premature and we can see
How the next few months turn out
King Lodos
Posted: 23 May 2018 14:48:52(UTC)

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tony m;62729 wrote:
Amongst all the investment theory it is my view that a decision to be in or out of a market is exactly the same as an asset allocation decision A balance between capital gain or loss and income return requires more than just staying invested


That's true – but an asset allocation implies there are two possible outcomes .. If you thought there was a 50% chance of a crash this year, it might make sense to be 50% in cash.

A binary decision (all in or all out) implies there's only one possible outcome .. And that means you're either 100% right or 100% wrong – and that relies on being lucky, not just this time, but every time you make this kind of decision
2 users thanked King Lodos for this post.
Freefall Junkie on 23/05/2018(UTC), Amit Kapoor on 25/05/2018(UTC)
Freefall Junkie
Posted: 23 May 2018 14:50:59(UTC)

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tony m;62756 wrote:
Well free fall I got it right 3 months ago as evidenced by my posts which somewhat
Negates your zero % argument
Only recently bought Odey as I agree he was premature and we can see
How the next few months turn out


Quite simply, you got lucky on this occasion. The chances of being able to time the market correctly and fully sell up on the highs and buy back in on the lows on a consistent, repeatable basis are nil.
3 users thanked Freefall Junkie for this post.
King Lodos on 23/05/2018(UTC), Peter59 on 25/05/2018(UTC), dlp6666 on 25/05/2018(UTC)
Tony Peterson
Posted: 23 May 2018 17:35:15(UTC)

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When, exactly, did tony m get back into the market? Check his posts up to 24 March about how skillfully he has avoided significant losses sitting on his cash pile from his total sellout a month or so earlier.. Yet not a word, anywhere, about repurchases. Until now that the market has rocketed.

The first hint that he had used any of his cash pile came on 23 May. Well, I wouldn't class his investment strategy as brilliant even if my own is flawed.

And the poor man couldn't even find one amongst the remaining bargains - he has to look for gurus to invest for him and take their cut. Tragic really. I still feel for him.






CUEBALL
Posted: 23 May 2018 17:52:55(UTC)

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Tony..there are some complete idiots now posting on this site...thank goodness we're not one of them..
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Tony Peterson on 23/05/2018(UTC)
kWIKSAVE
Posted: 23 May 2018 18:38:32(UTC)

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We all have slightly different ways of reacting to downturns.

As opposed to Tony P, I sat tight in February not adding to portfolio with spare cash just to let things settle.
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Tony Peterson on 23/05/2018(UTC)
Tony Peterson
Posted: 23 May 2018 18:54:11(UTC)

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kWIKKY

Why would anyone want markets to settle?????
2 users thanked Tony Peterson for this post.
CUEBALL on 23/05/2018(UTC), Tim D on 23/05/2018(UTC)
Rishan
Posted: 23 May 2018 21:39:56(UTC)

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CUEBALL;62780 wrote:
Tony..there are some complete idiots now posting on this site...thank goodness we're not one of them..



Thank goodness indeed. I don't know how the vast majority of sensible and educated posters would cope without the likes of your nonsense drivel and snide comments.

Btw, your friend Tony P feels sorry for you as well, what with the funds you hold. He just doesn't say it. Meanwhile most of the rest of us know there are plenty of good fund managers around, and invest with them accordingly - we just don't have the need to go around sneering that we knew about them since 1980-something.
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King Lodos on 23/05/2018(UTC), Guest on 24/05/2018(UTC)
Tony Peterson
Posted: 24 May 2018 06:19:50(UTC)

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Rishan

Since when do you know who I feel sorry for without saying?
tony m
Posted: 24 May 2018 08:25:40(UTC)

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Well said rishan If exiting the market before a correction and returning with a balance of funds and investment trusts provokes the kind of comments made by free fall cueball and Tony p then I'll leave them to their little games
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Aminatidi on 24/05/2018(UTC)
Freefall Junkie
Posted: 24 May 2018 09:48:15(UTC)

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It is nothing to do with little games. I am simply pointing out that no one, not you, me, hedge fund managers or anyone can predict the short term path of the markets. Trying to time the market by fully selling up and jumping back in is likely to cost dearly in the long run because chances are most times you will get it wrong. To me that is just basic investing common sense.
11 users thanked Freefall Junkie for this post.
Aminatidi on 24/05/2018(UTC), Fell Walker on 24/05/2018(UTC), Tony Peterson on 24/05/2018(UTC), Senny on 24/05/2018(UTC), Tim D on 24/05/2018(UTC), Freddy4Skin on 24/05/2018(UTC), andy mac on 24/05/2018(UTC), King Lodos on 24/05/2018(UTC), Alan M on 25/05/2018(UTC), Peter59 on 25/05/2018(UTC), dlp6666 on 25/05/2018(UTC)
King Lodos
Posted: 24 May 2018 16:13:02(UTC)

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You get it regularly on every trading and investing forum ..

A wide-eyed user shows up saying they've sold everything because they think the market's going to fall (about every 3 years the media starts running "Sell everything" stories .. so that may be a factor).

And sometimes the market does correct a bit – usually it doesn't – and they come back vindicated, waiting to impress everyone with their next big 'market call'.

I don't recall anyone online being right twice in a row – so the next time they proclaim they're getting out, and it goes up and up instead, they tend to disappear .. Getting back into the market from there presents a real problem – I imagine they probably give up on investing; but maybe they just jump to the next gambling opportunity: Bitcoin? P2P bridging loans?


The problem is people have a preconception of what investing's about, and no amount of recommended reading or thinking about the problem seems to sway them .. I've got otherwise-intelligent friends I recommend Fundsmith or Lifestrategy 100 to – who'd have done great just sticking the money in there and ignoring it – but 2 months later it turns out they sold because "The market was too high", or something, and they're back to messing around with whatever latest investing fad they read about online .. And these people never become wealthy – they can tell you everything about binary options trading and gold futures, but they're always broke
6 users thanked King Lodos for this post.
Fell Walker on 24/05/2018(UTC), Tim D on 24/05/2018(UTC), Alan M on 25/05/2018(UTC), Peter59 on 25/05/2018(UTC), Will Morris on 25/05/2018(UTC), dlp6666 on 25/05/2018(UTC)
Tony Peterson
Posted: 24 May 2018 17:38:14(UTC)

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tony m

I realise that your feelings are hurt after FTSE hits a record and you have been constantly patting yourself on the back for getting out in early February (when the indices were much lower than they are now). You went very quiet when the market turned up to head towards record territory.

And now you claim you have reinvested your cash pile even though you expect an even bigger crash. Why? And when did you get back into the market?

I've posted dates and times of my ISA trades (post 275 in this thread you started) in response to a challenge by Apostate. I've been open about my investment mistakes too.

You are obviously a delicate flower. But don't kid yourself that you can predict the future. No-one can. You trust your gut-feelings, but I do not think that you have the intestinal fortitude to tell us all when you realised you had made a mistake. `How much better off would you have been if you had sat tight instead of heading for Cuba?

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Tim D on 24/05/2018(UTC)
Mr Helpful
Posted: 24 May 2018 18:25:19(UTC)

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Here's a couple of links, albeit US, for the little grey cells to digest.

Tobins Q and CAPE
http://www.smithers.co.uk/page.php?id=34

PE S&P
http://www.multpl.com/

Now the UK is more reasonably priced, so some investor might consider logical to overweight, but should the US settle back then the UK is unlikely to be completely immune.

Valuations do not mean revert overnight, so this is not about clever guesses re immediate market direction, or taking polarised positions; remembering JMK's observation "The Market Can Remain Irrational Longer Than You Can Remain Solvent".

More IMO about how rational investors can integrate valuations and prudence into an Investment Plan.
King Lodos
Posted: 24 May 2018 18:46:30(UTC)

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Mr Helpful;62876 wrote:
Valuations do not mean revert overnight, so this is not about clever guesses re immediate market direction, or taking polarised positions; remembering JMK's observation "The Market Can Remain Irrational Longer Than You Can Remain Solvent".


And you know I've got slightly different views on this ..

A lot of praised value investors got out the market in the 90s or 00s, and still haven't got back in (e.g. Hussman) – and that's as bad as losing money.

(imo) Valuations don't mean revert (with the exception of irrational exuberance – which we haven't come close to in this bull market) .. It's the underlying economy that tends to mean revert – inflation -> rates -> etc. And that in turn would tend to lead to repricing of assets .. But if inflation and rates are in a new range, then valuations (by extension) will have a new long-term average

Tim D
Posted: 24 May 2018 20:09:53(UTC)

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For an optimistic view (there's no getting away from the fact that, statistically, high P/E is a predictor of poor returns)... there's always the possibility that P/E mean reverts not so much by P falling but more by E rising. Extract from a Forbes article a year ago:

Quote:
...the correction does not even have to come from the numerator, or the price, in the PE ratio. It can come through earnings. Investors who anticipate a mean reversion in PE valuations should be aware of the fact that while stock prices have indeed soared over the last several years, we have been in an earnings recession, and are just now showing signs of emerging. The average earnings-per-share growth for the S&P for the last 4 years is just 2.25% compared to a median growth of 9.3% since 1990. Maybe it's time for earnings growth to mean revert to the upside? The uptick in global growth combined with the expectation for meaningful corporate tax reform make this a distinct possibility.
2 users thanked Tim D for this post.
King Lodos on 24/05/2018(UTC), Peter59 on 25/05/2018(UTC)
Big boy
Posted: 24 May 2018 20:14:37(UTC)

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You guys are making hard work of something I found very simple. Clever people go round in massive circles and all arrive at the same points.........once there you should do the opposite.
King Lodos
Posted: 24 May 2018 22:07:52(UTC)

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Tim D;62883 wrote:
For an optimistic view (there's no getting away from the fact that, statistically, high P/E is a predictor of poor returns)... there's always the possibility that P/E mean reverts not so much by P falling but more by E rising. Extract from a Forbes article a year ago:

Quote:
...the correction does not even have to come from the numerator, or the price, in the PE ratio. It can come through earnings. Investors who anticipate a mean reversion in PE valuations should be aware of the fact that while stock prices have indeed soared over the last several years, we have been in an earnings recession, and are just now showing signs of emerging. The average earnings-per-share growth for the S&P for the last 4 years is just 2.25% compared to a median growth of 9.3% since 1990. Maybe it's time for earnings growth to mean revert to the upside? The uptick in global growth combined with the expectation for meaningful corporate tax reform make this a distinct possibility.


One of the things I *really* think needs doing is to debias P/E vs future returns calculations.

This would be quite simple (and perhaps shows how lazy I am, and how low the standard of maths in investing is), but consider this: PEs are usually lower during and after crises.

So if we just take a scatter of PEs and plot them against future returns, the low PE results themselves would include a significant element of market timing (buying during recessions and crises) .. What the simple scatterplots fail to show is whether it's PE itself that's predictive of future returns, or PE and future returns are both secondary effects of market timing, that would naturally show some alignment, but not enough to make future timing decisions.

If that makes sense?


On mean reversion of earnings .. I find UK and US stocks almost identically valued when you factor in growth and expected growth .. As they should be.
Balvenie
Posted: 24 May 2018 22:36:39(UTC)

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I'm an amateur compared to most on here, but I don't accept the market will turn bear just because it's been bull for a long time. That just doesn't make sense to me. Is there any real reasons the market cannot contine to be bull ?

An example.... A long time ago I remember paying circa 15% mortgage & when the rates came tumbling down many doomsdayers forecast it would return to high levels just because it had to. Recent history suggests low cost borrowing may be here to stay.

A good time for leverage perhaps ?
4 users thanked Balvenie for this post.
King Lodos on 24/05/2018(UTC), Alan M on 25/05/2018(UTC), Tyrion Lannister on 25/05/2018(UTC), Peter59 on 25/05/2018(UTC)
King Lodos
Posted: 24 May 2018 23:02:48(UTC)

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I'd argue the market doesn't price assets thinking they're going to be worth less in the future – so if we keep on correctly pricing in what's likely to happen, there's no reason you need a bear market.

There is a business cycle .. Economies go through expansions and contractions – and when growth turns to recession, the Earnings supporting stock valuations would tend to fall .. But again, it depends how well that's priced in, and how soon governments intervene with stimulus (it could be that stocks behave very differently, believing stimulus will likely be employed much sooner and more aggressively than in the past).

In recent years there's been a tendency for stocks to rise sharply on bad news, as it's meant pushing back economic tightening .. For some, the fear is that markets don't correct and present big opportunities, and rather get into moving sideways with a slight up tilt .. But no, I'd say it's never a good time for leverage
2 users thanked King Lodos for this post.
Tyrion Lannister on 25/05/2018(UTC), Balvenie on 25/05/2018(UTC)
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