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Market Correction
King Lodos
Posted: 27 May 2018 03:06:06(UTC)

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Jon Snow;62977 wrote:
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.


Actually by the metrics I use – e.g. the Bond Equity Earnings Yield Ratio (BEER) – stocks look undervalued:

https://i.imgur.com/FSQZbRC.jpg

You can see 10-year treasury yields and stock market earnings yields tend to track (anyone who doubts stocks are valued relative to bonds).

Before the 80s, you can see the bonds were becoming better and better value relative to stocks, because of course you had monster inflation, and the yield had to rise to meet it .. By the early-80s, long-term bonds became one of the best investments you could make.

Since then, 10-year-bonds have sat on higher earnings yields .. And then you can see the effects of QE, driving them down .. Today, stocks on PE of 25 would need 10yrs to be on yields of 4% to reach parity .. But I think the reason stocks have been so slow to rise during this bull market is bond forecasts have ALWAYS had yields rising much faster than they have .. and we always value ahead.

In inflationary periods, it also makes sense stocks command higher valuations because there's more inflation protection .. Maybe we should be valuing stocks relative to TIPS, which yield about 0% .. Most ways I cut this, stocks still look cheap.

And I don't *think* they do offer US treasury bonds on HL? The problem is 3% isn't enough to cover currency hedging adequately .. So it's going to be more a bet on the US dollar .. That's why the US 10yr rising above 3% doesn't suck liquidity out of the global market – they can still be quite loose.
4 users thanked King Lodos for this post.
Mr Smith on 27/05/2018(UTC), Sara G on 27/05/2018(UTC), Jon Snow on 28/05/2018(UTC), Tim D on 29/05/2018(UTC)
King Lodos
Posted: 27 May 2018 03:49:56(UTC)

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Jon Snow;62978 wrote:
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.


And that's why I invest in Apple.

Aldi's perhaps an example of what could kill investing off .. Amazon perhaps an even better example .. When a sector gets taken over by a company who are intent on cutting margins, you're on the way to 'perfect competition', and a world in which companies generate no net profits.

On efficient markets .. I think fund managers who decry how irrational markets are have incomplete pictures .. The collective opinions of thousands of traders, and just as many algorithms, form something beyond 'opinion' .. A crude metric will paint a 1-dimensional picture .. It may have mean reverting tendencies, but these pictures have rarely been suitable for timing the market .. I know I've found a good metric, because it'll show most companies and regions priced for extremely similar returns .. But it's the intangible (e.g. Apple) who have something markets obsessed with numbers will continue to undervalue – at least according to Buffett, Lindsell Train, etc. and I think that's still the best way to beat markets, especially as the battles these days are in the realm of numbers
1 user thanked King Lodos for this post.
Jon Snow on 28/05/2018(UTC)
Keith Cobby
Posted: 27 May 2018 07:56:40(UTC)

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In the 1980s when I started investing it would be difficult to imagine the current financial situation. Interest rates below war time levels, bond yields lower than equity yields for years (maybe decades), huge debt everywhere. The situation is different this time and I think that although the US is quite high, most markets remain fair value or cheap compared to bonds.

One other reason is the shrinkage in equity markets and the rise of private equity/placings.
2 users thanked Keith Cobby for this post.
Jon Snow on 28/05/2018(UTC), King Lodos on 28/05/2018(UTC)
Jon Snow
Posted: 28 May 2018 00:09:38(UTC)

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Tyrion Lannister;62981 wrote:
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?


Yes, we have 8 accounts with HL.

I still can't find 10 years data on UTs though.

Is it a hidden option.
King Lodos
Posted: 28 May 2018 02:01:24(UTC)

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The 10 yr charts are accessible from your Account Summary page .. when you click on a fund's name.

It takes you to a Price Summary page, with dividends paid, and I think the average price you've paid for the fund, and a little price chart on the right which goes up to 10 years.

But it's a very limited chart, with no benchmarks or comparisons – so it does make you wonder why they limit you to 5 years on the fully featured charts
3 users thanked King Lodos for this post.
Tyrion Lannister on 28/05/2018(UTC), Jon Snow on 28/05/2018(UTC), Tim D on 29/05/2018(UTC)
sandid3
Posted: 28 May 2018 02:22:05(UTC)

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Jon Snow;63019 wrote:
I still can't find 10 years data on UTs though.
If it's any help, you can see fund charts back to 1990 at my amateur website fundvista. Click on the chartvista button and select a sector, eg UK All Companies. For data back to 1990 (or max available), enter 360 for 'Time span'. After that, it's trial and error - because I haven't had time to write a FAQ.

Here's a link to an 'overlay' chart. The following is the text of the link location. It can be used to insert into your own web page, with a bit of substitution:
Code:
https://cachedproxy.iii.iiservices.uk/ampleisa/gifchart.asp?wd=560&ht=249&gpcolour=H808080%2CH000099%2CH990000%2CH009900%2CHFF4500&ftcolour=H000000&bgcolour=HFFFFFF&gdcolour=HCCCCCC&bdcolour=HFFFFFF&axcolour=H000000&chartbgcolour=HFFFFFF&ZeroPCColour=H666666&ZeroPCStyle=0&gphtype=4&ShowDate=1&ShowCCY=0&hdg=14&hdgpos=1&fg=3&vgridint=1&fontsize=8&lblfontsize=8&compareflag=A&plotpixsize=2&bgbs=0&bgbp=1&yoffs=-2&span=360&code=XU:UG~TR,FFICNRQ~TR
1 user thanked sandid3 for this post.
Tyrion Lannister on 28/05/2018(UTC)
Tyrion Lannister
Posted: 28 May 2018 03:40:55(UTC)

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King Lodos;63020 wrote:
The 10 yr charts are accessible from your Account Summary page
when you click on a fund's name.

It takes you to a Price Summary page, with dividends paid, and I think the average price you've paid for the fund, and a little price chart on the right which goes up to 10 years.

But it's a very limited chart, with no benchmarks or comparisons
so it does make you wonder why they limit you to 5 years on the fully featured charts


It makes me wonder too so I’ve written to them and asked.
I’ll post the reply when I receive it.
3 users thanked Tyrion Lannister for this post.
King Lodos on 28/05/2018(UTC), Tim D on 29/05/2018(UTC), Jon Snow on 30/05/2018(UTC)
Jon Snow
Posted: 28 May 2018 23:45:22(UTC)

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Tyrion Lannister;63022 wrote:
King Lodos;63020 wrote:
The 10 yr charts are accessible from your Account Summary page
when you click on a fund's name.

It takes you to a Price Summary page, with dividends paid, and I think the average price you've paid for the fund, and a little price chart on the right which goes up to 10 years.

But it's a very limited chart, with no benchmarks or comparisons
so it does make you wonder why they limit you to 5 years on the fully featured charts


It makes me wonder too so I’ve written to them and asked.
I’ll post the reply when I receive it.


Thanks,

I've also just spotted the 10 year option on the app for my iphone and as you say in isolation it's pretty useless.
cliff aner
Posted: 29 May 2018 12:53:43(UTC)

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HL graphs--If you start with the better 10 yr graph of an IT,the comparison tab says name or EPIC but it does accept some ut's. Fundsmith oeic and jupiter european ut come up but not lindsell train global. I hold all 3 of these so this it not the criteria.
Aminatidi
Posted: 29 May 2018 16:28:25(UTC)

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So according to the BBC and Citywire there's a bit of a "sell off" today with concerns over the political situation in Italy.

I've noticed around 2% off everything I'm in individually (which makes me wish bank transfers from Degiro were instant as there's no spare funds in there).

I wish I could understand how political uncertainty in Italy leads to people thinking Nike is worth less than it was yesterday!
King Lodos
Posted: 29 May 2018 17:46:36(UTC)

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Markets are always pricing in the future as a range of probabilities – so when you buy a stock like Amazon, you're not really buying it for what it's worth today, but what it's likely to be worth maybe even 15 years in the future.

Italy spooks markets because of debt, and problems that could lead to a Eurozone debt crisis (which could spark the next market crash), and the rise of populist parties which could lead to the breaking up of the EU.

I don't think it's necessarily a bad thing – but 2% might represent a 10% increase in the chance of a 20% drawdown event, or a 5% increase in a 40% event .. That's basically what markets are doing
4 users thanked King Lodos for this post.
Haleric on 29/05/2018(UTC), Mr Smith on 29/05/2018(UTC), sandid3 on 29/05/2018(UTC), dlp6666 on 01/06/2018(UTC)
Tom Mozy
Posted: 29 May 2018 18:22:48(UTC)

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Aminatidi;63089 wrote:
I wish I could understand how political uncertainty in Italy leads to people thinking Nike is worth less than it was yesterday!


Its pointless even trying to work it out. Take advantage. I cant think of any reasons. If people cant afford trainers anymore then its not a world you probably are alive in. So who cares if you are dead with no money haha
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Mr Smith on 29/05/2018(UTC)
Dian
Posted: 01 June 2018 09:39:19(UTC)

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In addition to volatility, markets throughout the world had some sort of correction during May. It intensified towards the final week of May.

Is there and specific reason for selling various types of assets like stocks, oil and some commodities over the past week? Is it due to overbought and overvalued global assets? Is market telling us to look for value over growth?Thanks.
Stephen B.
Posted: 01 June 2018 09:43:45(UTC)

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We've had at least three specific shocks - the uncertainty in the Italian government, North Korean talks on/off/on and Trump's trade sanctions. Probably most of the market reaction has been an attempt to adjust to those - since the impact is unclear it's likely to generate volatility.
Freefall Junkie
Posted: 01 June 2018 10:04:47(UTC)

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Always surprises me how the markets collectively show spectacular levels of neurosis, often wildly overreacting to both good and bad news. They have always done this of course - the very low levels of volatility last year were unusual. Plenty of scope for further neurosis this year - Korea, Italy, QT rather than QE, the US mid-terms, you name it, lots on the horizon for the markets to fret about.
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Tim D on 01/06/2018(UTC)
Dian
Posted: 03 June 2018 00:34:15(UTC)

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Is hitting stocks 52 weeks low could consider as another type of correction in the market? Thanks.

Recent market sell-off created 52 week low stocks throughout the world which include fundamentally sound companies as well. It is really confused me when various analysts have different opinions on 52 weeks low and high. But I found following links very useful. Thanks

According to the following link he is trying to avoid the behaviors, mindset, emotions, market noise and investment strategies that result in poor long-term investment performance. His journey led to an investment strategy that looks to buy low and sell high, but only focuses on the shares of sound companies trading near their 52-week lows that have a competitive advantage, maintain a strong margin of safety, generate a consistent returns on their invested capital and are financially strong. It makes some sense when there are extended stocks in markets.

http://www.aaii.com/jour...week-low-strategy.touch

The top stocks that traded at 52-week lows last week include:

Johnson & Johnson (JNJ) ,
Prudential Financial Inc. (PRU)
Goodyear Tire & Rubber Co. (GT)

The top five stocks that are trading at 52-week highs last week include:

Valero Energy Corporation (VLO)
Netflix Inc. (NFLX)
Intel Corp. (INTC)
2 users thanked Dian for this post.
Mr Helpful on 03/06/2018(UTC), gillyann on 16/06/2018(UTC)
Mr Helpful
Posted: 13 June 2018 14:07:18(UTC)

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Latest musings from John Hussman, whose views several posters here "enjoy".

https://www.hussmanfunds.com/comment/mc180604/

QUOTE
"Understand that point, or nearly two thirds of your paper wealth in stocks, by our estimates, will likely be wiped out over the completion of this market cycle."

If nothing else, a reminder to keep to Investment Plan.
The February Flurry seems a distant dream !!!
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Tim D on 13/06/2018(UTC), Mr Smith on 13/06/2018(UTC), chazza on 14/06/2018(UTC)
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