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Market Correction
philip gosling
Posted: 25 May 2018 08:52:03(UTC)

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King Lodos;62865 wrote:
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


Manek Growth Fund
Even a stopped watch or clock is at the correct time once or twice a day. But its not sensible wear one all the time. Those who have invested for a long time may remember Mr Manek who won a shares/investment competition and I think £100,000 two years in a row with fantastic notional returns. He left his job as a pharmacist and started the Manek Growth Fund which took in £200+ million and for a few years, 3 I think did well, and then it all went down hill and investors lost much of their money and returns were negative in rising markets.. Long term holders would have lost 90% and the fund is no more. Manek and many people thought he had special knowledge of how and what to invest in the Stock market a secret methodolgy. Instead he had been lucky - for a while.
2 users thanked philip gosling for this post.
AJW on 25/05/2018(UTC), Guest on 26/05/2018(UTC)
Mr Helpful
Posted: 25 May 2018 09:19:30(UTC)

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King Lodos;62877 wrote:
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



Quite so.
Would be erroneous to look at valuations in absolute terms and expect full mean reversion.
As discussed previously valuations median anchors drag this way and that from decade to decade.
Moving averages can help a little to see where anchor moved.

But what cannot be ignored is that price matters re future returns with Stocks as in other things in life.
So with due respect to dedicated always opportunistic momentum investors; some study of valuation charts may suggest a little prudence when prudence might be due.
I may well be wrong, but no outright alarm bells ringing today, the message is more nuanced.
Perhaps some caution for the value aware investor?

"There may be trouble ahead
But while there's music and moonlight and love and romance
Let's face the music and dance"
Diana Krall

Or as someone, but can't remember who, said, "let's dance near the fire exit".
5 users thanked Mr Helpful for this post.
dyfed on 25/05/2018(UTC), Jim S on 25/05/2018(UTC), Freefall Junkie on 25/05/2018(UTC), chazza on 26/05/2018(UTC), Dian on 26/05/2018(UTC)
tony m
Posted: 25 May 2018 13:40:56(UTC)

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Well King Lodos etc I'll leave you all to your self congratulatory clique as you obviously can only cope with an alternate view by mockery and enforced superiority. Good luck communicating with each other, you obviously feel much happier with no challenge
King Lodos
Posted: 25 May 2018 14:56:08(UTC)

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tony m;62914 wrote:
Well King Lodos etc I'll leave you all to your self congratulatory clique as you obviously can only cope with an alternate view by mockery and enforced superiority. Good luck communicating with each other, you obviously feel much happier with no challenge


The challenge is becoming wealthy .. If you want a real challenge, try beating the market.

People coming along saying they've sold everything are a dime a dozen – in trading we might call it getting 'shaken out' .. You've basically lost your nerve – the fear's taken over .. It's why investing's difficult.

The solution, however, isn't to become psychic – it's to become more rational, more evidence-based, to read more, generally to do less .. This is what stocks do, long-term – notice how much of the time they're actually making new highs .. Very few investors have the nerve to just sit and hold stocks – very few increase their wealth 100x:

http://3.bp.blogspot.com/_kRV8NvpbYc4/SbzB0msu1vI/AAAAAAAAAMU/TLkh2cBE5d8/s400/Graph+of+why+to+buy+stocks.jpg
6 users thanked King Lodos for this post.
Tyrion Lannister on 25/05/2018(UTC), Freefall Junkie on 25/05/2018(UTC), Balvenie on 25/05/2018(UTC), chazza on 26/05/2018(UTC), Dian on 26/05/2018(UTC), Tim D on 29/05/2018(UTC)
Mr Helpful
Posted: 26 May 2018 09:26:09(UTC)

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tony m;62914 wrote:
Well King Lodos etc I'll leave you all to your self congratulatory clique as you obviously can only cope with an alternate view by mockery and enforced superiority. Good luck communicating with each other, you obviously feel much happier with no challenge

Posters here have varying investment methods.
For some posters with determined views, this variety can become a problem and patience may sometimes run thin.
But one or two posters do not a consensus make.
Find your posts challenging and interesting, so please continue to contribute.
Where would we be without fresh thinking?
Dian
Posted: 26 May 2018 11:18:14(UTC)

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In some sectors like consumer and healthcare picking the right stock is key. Investors are more likely to find bargains in areas of the market that are less covered by analysts. Less research means these stocks could get overlooked, and undercrowded. It seems time to avoid hot and crowded stocks. There could be attractive opportunities in sectors or geographies that are a bit out of favour. Companies with strong balance sheets and limited competition are also could do well. They will have profitable businesses even when conditions are challenging. Strong balance sheets firms will stand out from the rest. In addition to income from the core business they will have secondary income as well.
Stephen B.
Posted: 26 May 2018 12:14:50(UTC)

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philip gosling;62898 wrote:
Those who have invested for a long time may remember Mr Manek who won a shares/investment competition and I think £100,000 two years in a row with fantastic notional returns.


Back in the 90s I was a regular on the uk.finance usenet group, and someone (not Manek) who'd won one of those competitions posted a detailed explanation of how it worked. Basically at that time entries and portfolio changes were all done by post, and the game was to work out the post office closest to the address (in terms of delivery time) and wait to the very last minute before the last collection so you knew the market prices as late as possible - apparently there were several people there regularly doing the same thing. I.e. it wasn't much to do with investing skill and everything to do with gaming the competition rules.
1 user thanked Stephen B. for this post.
Tim D on 29/05/2018(UTC)
Stephen B.
Posted: 26 May 2018 12:45:24(UTC)

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Tyrion Lannister;62722 wrote:
Statistics are little understood by the majority of people, understanding that is a great way to make money which, of course, is exactly what the bookies do.


In fact the development of modern probability theory by Pascal and Fermat in the 17th century was motivated by analysis of dice games, not by any abstract mathematical interest (e.g. they made the surprising discovery that getting 4 from 3 dice was less likely than 7).

Human beings have a good intuitive grasp of many aspects of maths and physics, e.g. as in the ability to catch a fast-moving ball on a ballistic trajectory. However our intuitive understanding of probability seems not to go much beyond certain/likely/maybe/unlikely/impossible.

Even people with a lot of training in probability and statistics are likely to get things wrong unless they calculate carefully (and sometimes even then). In particular we're very bad at dealing with events which are rather unlikely - either we treat them as impossible or we vastly overstate them, and we have almost no ability to contrast, say, a 1 in a million risk with 1 in a trillion.

We also have a strong instinct to rewrite our prior estimate of probability in the light of the outcome, so e.g. if there's a market crash we assume that our estimate of the probability before it happened should have been high, and vice versa.
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Tim D on 29/05/2018(UTC)
Stephen B.
Posted: 26 May 2018 13:22:56(UTC)

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King Lodos;62877 wrote:
(imo) Valuations don't mean revert (with the exception of irrational exuberance – which we haven't come close to in this bull market) ..


The original quote about irrational exuberance (which Greenspan later retracted) came in 1996 when the DJIA hit 6000 - it's now 25000. And I remember someone after the dot com crash asserting that the NASDAQ would never get back to 5000 (ISTR he predicted it would fall to 300) - it's now 7500.
tony m
Posted: 26 May 2018 13:40:20(UTC)

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Thanks Mr Helpful In that spirit I would like to ask King Lodus & Tony S if their belief in buy & hold extends to the bond market. Are they remaining invested in bonds when it 'appears' that the longest bull market in our investment lifetime is coming to an end & 'maybe' a messy one.
King Lodos
Posted: 26 May 2018 16:37:47(UTC)

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tony m;62950 wrote:
Thanks Mr Helpful In that spirit I would like to ask King Lodus & Tony S if their belief in buy & hold extends to the bond market. Are they remaining invested in bonds when it 'appears' that the longest bull market in our investment lifetime is coming to an end & 'maybe' a messy one.


For belief in buy-and-hold, you only have to look at that long-term stock market chart .. or the bought-and-held Vanguard Lifestrategy portfolios .. Or Warren Buffett or Lindsell Train's performance (they do nothing) .. The evidence is indisputable.

It's not that it's the perfect strategy – it's that the alternatives present serious problems .. If highly resourced professionals like Odey and Hussman can underperform savings accounts, while devoting decades to analysis and wasting £millions in trading costs, why even play that game?

When stocks come down, it means nothing unless you need to sell .. If you buy a house, you don't get it revalued every weekend, then desperately try to sell when weakness creeps in .. No one would make money on property if they did that .. Like any asset, the money's made when you ignore the price for a long time, and markets take it up – because it's not going to go up any other way.


EDIT: the bond question

Buy-and-hold doesn't have to mean 'passive' .. I still use value, momentum and macroeconomics (and an algorithm) .. I'd buy US treasuries now, at 3% .. When you buy a gov bond, you're guaranteeing a return – again: you don't have to worry about prices if you're planning to hold to maturity
2 users thanked King Lodos for this post.
Guest on 27/05/2018(UTC), Tim D on 29/05/2018(UTC)
philip gosling
Posted: 26 May 2018 16:59:28(UTC)

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tony m;62950 wrote:
Thanks Mr Helpful In that spirit I would like to ask King Lodus & Tony S if their belief in buy & hold extends to the bond market. Are they remaining invested in bonds when it 'appears' that the longest bull market in our investment lifetime is coming to an end & 'maybe' a messy one.


Tony M - Bonds
To broaden the reply - Vanguard has been criticised because it is holding longer dated bonds in its Life Strategy Equity funds (except 100% which doesn't hold any) . It ignored criticism saying investing was a very term occupation but it has created a new shot term bond ETF - USD Corporate 1-3 year Bond UCITS ETF (VUSC) - UK Reporting inception on 28 May 2018 so for today's market,. Details on Vanguard.co.uk. Giving investors more choice to spread risk while staying in vested. Maybe we should all be looking at investing being for 10 years plus rather than the 3-5 years so often written about. I do not hold bonds now but with such low interest rates I hold cash as part of my diversification plan instead of traditional bonds.
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Mr Smith on 26/05/2018(UTC)
King Lodos
Posted: 26 May 2018 18:25:48(UTC)

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Obviously the way funds and fund managers look at bonds, short-term losses are important, because you'll lose business.

And a lot of investment media is aimed at professionals, whose careers are based on different parameters .. 3-5 years is important for a fund manager .. The fact HL only show 5 years past performance is probably to maintain the illusion that a lot of active funds beat trackers .. As you go further in time, the proportion that do gets smaller.

But you shouldn't think of bonds like that .. If I buy a US 10 yr treasury today, I get a guaranteed 3% annual return, and full return of capital after 10 years .. No matter how expensive bonds are, that is the risk-free rate of return .. That's what all other assets are measured against .. And if something were to rock financial markets, demand for US bonds yielding 3% would likely increase, which would give me an opportunity to sell early on a profit.


So the idea things are obviously 'cheap' or 'expensive' is a delusion (imo) that markets are less efficient than they are.

No one's been making money betting against the bond market in years – it's what funds like Brevan Howard try to do .. No matter how obvious the signs, we're still really bad at predicting what's going to happen
Tyrion Lannister
Posted: 26 May 2018 21:47:28(UTC)

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King Lodos;62967 wrote:


And a lot of investment media is aimed at professionals, whose careers are based on different parameters .. 3-5 years is important for a fund manager .. The fact HL only show 5 years past performance is probably to maintain the illusion that a lot of active funds beat trackers .. As you go further in time, the proportion that do gets smaller.




But HL show past performance data for the last 10 years, for the funds you own anyway.
Dian
Posted: 26 May 2018 22:24:10(UTC)

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Markets are a random voting machine and it is nearly impossible to predict short term movement of markets. In my opinion, fluctuations and correction in price present opportunity. Buying a business that sells for less than half its full value not only will minimize risk but also hefty gain later.

Quote:
We define value investing as buying dollars for 50 cents.
- Seth Klarman


Why do investors and traders sell stocks?

Weakness in fundamentals, panics selling on short term events or earnings, bear market, overcrowding, overvaluation and personal reasons and so on. I found already some global stocks have dropped more than 40% after their long rally. There could be more opportunity in corrected quality stocks than in current hot stocks.
King Lodos
Posted: 26 May 2018 22:54:39(UTC)

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Tyrion Lannister;62973 wrote:
King Lodos;62967 wrote:


And a lot of investment media is aimed at professionals, whose careers are based on different parameters .. 3-5 years is important for a fund manager .. The fact HL only show 5 years past performance is probably to maintain the illusion that a lot of active funds beat trackers .. As you go further in time, the proportion that do gets smaller.




But HL show past performance data for the last 10 years, for the funds you own anyway.


Well that perhaps says a lot too .. and on that screen (if it's the one I'm thinking of) you've not only already bought them, you can't compare them to benchmarks.

I really like HL as a platform – but presumably their business model is reliant on people having thousands of funds to choose from .. If everyone went passive, they'd cut out the middle man

Jon Snow
Posted: 26 May 2018 22:57:33(UTC)

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Tyrion Lannister;62973 wrote:
King Lodos;62967 wrote:


And a lot of investment media is aimed at professionals, whose careers are based on different parameters .. 3-5 years is important for a fund manager .. The fact HL only show 5 years past performance is probably to maintain the illusion that a lot of active funds beat trackers .. As you go further in time, the proportion that do gets smaller.




But HL show past performance data for the last 10 years, for the funds you own anyway.


I can find 5 year charts for unit trusts and 10 year charts for investment trusts on HL.

I think KL makes a very valid point about reference points/anchors and fund performance. I read a lot of articles in 2013 about how managers couldn't wait until the 2008 crash disappeared from their 5 year performance figures.


3 users thanked Jon Snow for this post.
King Lodos on 26/05/2018(UTC), cliff aner on 27/05/2018(UTC), Tim D on 29/05/2018(UTC)
Jon Snow
Posted: 26 May 2018 23:32:54(UTC)

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King Lodos;62967 wrote:
Obviously the way funds and fund managers look at bonds, short-term losses are important, because you'll lose business.

And a lot of investment media is aimed at professionals, whose careers are based on different parameters .. 3-5 years is important for a fund manager .. The fact HL only show 5 years past performance is probably to maintain the illusion that a lot of active funds beat trackers .. As you go further in time, the proportion that do gets smaller.

But you shouldn't think of bonds like that .. If I buy a US 10 yr treasury today, I get a guaranteed 3% annual return, and full return of capital after 10 years .. No matter how expensive bonds are, that is the risk-free rate of return .. That's what all other assets are measured against .. And if something were to rock financial markets, demand for US bonds yielding 3% would likely increase, which would give me an opportunity to sell early on a profit.


So the idea things are obviously 'cheap' or 'expensive' is a delusion (imo) that markets are less efficient than they are.

No one's been making money betting against the bond market in years – it's what funds like Brevan Howard try to do .. No matter how obvious the signs, we're still really bad at predicting what's going to happen


A risk free rate of 3% implies equities are overvalued as the equity risk premium is negative (USA metrics), so as you say markets (today) don't seem to be efficient.

Is that a function of the era in which the EMH was proposed - compared to the data saturated world we now live in.

Or is something else in play, fake (or at least manipulated) interest/mortgage/inflation rates (ZIRP), state support expected for any failure (TARP) etc.

Also, where can I buy these USA treasury bonds yielding 3%, do HL offer them.
Jon Snow
Posted: 26 May 2018 23:57:10(UTC)

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King Lodos;62967 wrote:
Obviously the way funds and fund managers look at bonds, short-term losses are important, because you'll lose business.

And a lot of investment media is aimed at professionals, whose careers are based on different parameters .. 3-5 years is important for a fund manager .. The fact HL only show 5 years past performance is probably to maintain the illusion that a lot of active funds beat trackers .. As you go further in time, the proportion that do gets smaller.

But you shouldn't think of bonds like that .. If I buy a US 10 yr treasury today, I get a guaranteed 3% annual return, and full return of capital after 10 years .. No matter how expensive bonds are, that is the risk-free rate of return .. That's what all other assets are measured against .. And if something were to rock financial markets, demand for US bonds yielding 3% would likely increase, which would give me an opportunity to sell early on a profit.


So the idea things are obviously 'cheap' or 'expensive' is a delusion (imo) that markets are less efficient than they are.

No one's been making money betting against the bond market in years – it's what funds like Brevan Howard try to do .. No matter how obvious the signs, we're still really bad at predicting what's going to happen


The trap we fall into is thinking we all make decisions based on logic, mathematics and (god forbid) statistics. If that were the case everything would be priced to perfection based on its utility value alone.

Unfortunately or fortunately we are all different, we perceive, filter, make assesments, compare, value, ignore, dismiss etc things differently, that is what makes the market and that is why you can't beat it.

A little example-

I bought my wife a macbook air a few months ago on offer from Currys/PC world - £700.

I'm writing this on a Medion notebook (HD, of course) I bought from Aldi on Thursday that was delivered this morning for £199.





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Tim D on 29/05/2018(UTC)
Tyrion Lannister
Posted: 27 May 2018 03:00:32(UTC)

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Jon Snow;62976 wrote:
Tyrion Lannister;62973 wrote:
King Lodos;62967 wrote:


And a lot of investment media is aimed at professionals, whose careers are based on different parameters .. 3-5 years is important for a fund manager .. The fact HL only show 5 years past performance is probably to maintain the illusion that a lot of active funds beat trackers .. As you go further in time, the proportion that do gets smaller.




But HL show past performance data for the last 10 years, for the funds you own anyway.


I can find 5 year charts for unit trusts and 10 year charts for investment trusts on HL.

I think KL makes a very valid point about reference points/anchors and fund performance. I read a lot of articles in 2013 about how managers couldn't wait until the 2008 crash disappeared from their 5 year performance figures.




As I said to KL, you can get 10 year graphs for unit trusts but, as far as I can tell, only for those that you own.

Do you have an account with HL?
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