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Weekend reading: A boom in crash talk

Weekend reading

Good reads from around the Web.

There is always lots of commentary when the stock market falls fast, but this week it seemed unending.

Given how rarely big declines have happened in recent years, I guess the excitement was not a surprise.

Pundits finally got another chance to express their worldly wisdom about plunging share prices.

  • Traders like nothing more than volatile markets when talking about trading, as well as when actually doing it.
  • Bears have waited a long time to say “I told you so”.
  • Bulls had fun pointing out that being bullish has been right for many years.
  • Legions of Warren Buffett disciples and buy-and-hold passive investors have been itching to show off their long-term thinking skillz.

I certainly wasn’t too precious to miss the chance, either.

My thoughts on how to face a stock market slump went up earlier this week.

Most of us kept calm and carried on

Actually, amid all the noise there was a lot of sensible stuff being said, at least on the Internet (and in the Monevator comments).

Perhaps it’s the people I read – largely investors, not journalists – but I came across much less of the hysteria that you tend to read in the newspapers.

My single favourite contribution was from US investor and Motley Fool co-founder David Gardner, in an excellent podcast that offered his rules of thumb on coping with stock market volatility.

I love Gardner’s thoughts on investing and I admire his active investing style, which focuses on expensive growth stocks. He has an interesting and internally coherent philosophy.

Obviously it’s also far off-base from the passive investing path I’d strongly suggest most people follow with most or all of their money.

But even passive purists will find this soothing podcast worth listening to.

Here’s an extract (and for context he’s talking about the US market):

The market always goes down faster than it goes up, but the market always goes up more than it goes down.

Those are opposed ideas.

Let’s start with the second part of that line. The market always goes up more than it goes down.

Well, that’s pretty obvious. Anytime you have something that’s gaining 9-10% per year over a century, you can expect that’s going to go up and, indeed, the market is doing not much more than reflecting the growth of innovation, technology, and wealth worldwide over the course of the last century.

And that’s why I have great confidence in the market over the next century, because we will all continue to grow and to prosper together.

Great businesses will come along. More great entrepreneurs will start things you and I can’t dream of and add value to the world. And that’s what’s happening with the stock market.

The market always goes up, of course, over time more than it goes down.

But what’s the first part of the line that I just delivered to you?

The market always goes down faster than it goes up.

And that’s really important to keep in mind — both of those thoughts — especially during a week like this one.

I can’t think of any time in my investment career when on three consecutive days my stock portfolio rose 4%. That just doesn’t happen.

You might have one great day here or there.

But the idea that over the course of three days somebody would gain 10-15% of their net worth thanks to just market gyrations — I’ve never seen that happen.

And yet, it just happened on the downside.

I’ve also never seen a stock market in one day gain 20 percentage points or more, but yet that did happen in 1987 on the downside.

The market always goes down faster than it goes up.

You can have fun picking apart the word “always” in the comments if you like, but I’d rather focus on the main point than on outlying periods and places dug up from the history books.

I think you’ll find that’s a much more profitable way to think in the long-term than lurking around bearish sites and forever fearing the next Japan.

Still, horses for courses.

Here’s a handy collection of crash articles – enabling you to devour or dodge them as you see fit – followed by the rest of the week’s good reads.

Stock market slump special

General context

  • It really WAS a really big sell-off, in the US – Bloomberg
  • Although the six-year bull run before it was at least as odd – AARP
  • Some thoughts on why this particular crash happened – Slate
  • Evidence of the panic: Record outflows – Yahoo Finance
  • More on the weird Monday open I mentioned – Bloomberg View
  • Some high-profile hedge funds have lost all their gains – Bloomberg
  • But a slump is good news for most investors – UK Value Investor
  • US stocks now undervalued – Morningstar [via Abnormal Returns]

Active investing

Passive investing

The US ETF ‘flash crash’ in focus

From the blogs

Making good use of the things that we find…

Passive investing

  • How messy fund managers create an illusion of skill – Rick Ferri

Active investing

Other articles

Product of the week: Savers rejoice! You can now get much more than 2% on a one-year fixed rate savings account. You can get 2.1%, in fact, from Kent Reliance – up from the previous 2.02% it paid. That makes it a Best Buy, according to The Telegraph.

Mainstream media money

Some links are Google search results – in PC/desktop view these enable you to click through to read the piece without being a paid subscriber of that site.1

Passive investing

  • The passive bond funds outperforming their active rivals – FT Trustnet

Active investing

  • (Japan) fund manager never been more bullish about Japan – Telegraph

Other stuff worth reading

  • Women in 20s earn more than men – Guardian
  • Solar panel returns to fall nearly 90% from January – ThisIsMoney
  • House prices have made the word ‘millionaire’ meaningless – Guardian
  • The UK towns that the property recovery hasn’t reached – Guardian
  • Chart that tells a story: The rush to remortgage [Search result]FT
  • The coddling of the American mind – The Atlantic

Book of the week: Are you worried about the coming A.I. revolution? Me too, but one person’s future dystopia is another person’s publishing opportunity. In Humans Are Underrated, Nicholas Brealey argues that there is much we can do that Joe Robot will never manage. (Writing books is surely near the top of that list?)

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  1. Note some articles can only be accessed through the search results if you’re using PC/desktop view (from mobile/tablet view they bring up the firewall/subscription page). To circumvent, switch your mobile browser to use the desktop view. On Chrome for Android: press the menu button followed by “Request Desktop Site”. []

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{ 11 comments… add one }
  • 1 Rob August 29, 2015, 2:12 pm

    I’m curious TI, how do you see the AI thing playing out, do we face a jobless future?

  • 2 MyRichFuture August 29, 2015, 3:43 pm

    Sensible stuff from Mr Gardner. Just wish the rest of the Motley Fool articles you get on Google Finance weren’t such nonsense.

  • 3 M from theresvalue August 30, 2015, 5:23 am

    Thanks for a really good selection of articles this week! Nearly crashed my phone by opening so many of them in new tabs 😉

  • 4 Learner August 30, 2015, 10:22 am

    Good grief, that story of the day trader taking $34m is a thriller.

    I’m in the dubious position of having to liquidate everything this year due to an impending migration to the jurisdiction of the IRS. Grim.

    Any more podcast recommendations to cheer me up?

  • 5 MyRichFuture August 30, 2015, 3:27 pm

    Just like to add that I liked the Joshua Kennon piece on oil. Very well researched piece.
    I’ve been loading up on RDSB for the past couple of months. Should be a decent long-term move.

  • 6 PC August 30, 2015, 4:46 pm

    just one thing to add http://xkcd.com/1570/

  • 7 Mathmo August 30, 2015, 10:07 pm

    Thanks for the links, TI.

    I suppose we know what it was all going to be about his week, but still the nuances are interesting and much to be learnt from them. Needing a plan comes through loud and strong, loving TKotC’s post on it, but chortling at the “that’s why you need us to advise” twist from the pros. Ermine’s rant against leveraged BTL I found a little surprising as I had previously lumped him in the level-headed crew. And Merryn writes for the Grauniad?

    Well plenty to be learnt there, but not as much as there was on Monday afternoon. 🙂

  • 8 weenie August 31, 2015, 1:03 pm

    Thanks for linking my post, which caused an unexpected spike in traffic! 🙂

  • 9 Richard August 31, 2015, 2:50 pm

    I’ve learnt that a 10% fall doesn’t bother me – my first one.

    I increased my investment funding by about £3,000 during the fall, but didn’t get the full benefit as I was buying Unit Trusts and Hargreaves L can take a day or two, sometimes more, to action a request.

    I also learnt that I don’t have the appetite to really buy heavily during a 10% fall.

    I suspect a 30% fall would be completely different – I hope it would worry me, but that I would invest significantly more heavily.

    File under “Risk Tolerance” I guess…

  • 10 The Investor September 1, 2015, 12:09 am

    Evening all. Thanks for checking in and commenting. A few replies!

    @Rob — Haven’t made my mind up yet. I am concerned, and that’s as someone who has taken the other side of the argument for 20 years. I think it’s telling that many of the people who know a lot about practical AI/robotics (e.g. Deep Mind founders (acquired by Google), Elon Musk etc) are among those who are most concerned, and even some of those who aren’t concerned are only not concerned because they don’t seem to see human beings being replaced by machines as a bad thing per se (e.g. Kurzweil, from memory). I’m not someone who knows a *lot* of about it — it’s not my day job! — but I know a little bit. I knew it wasn’t a problem two decades ago, when I first took a pass at it all. Not sure now.

    @M — Welcome! (Time for an upgrade? 😉 )

    @Learner — I’ve been listening to a podcast called The History of England, which is excellent. I’ve started from episode one and I’m about three years behind. It’s a perfect length for my once/twice a week runs. Chummy tutorial-style that you’ll either like a lot or hate. Nothing to do with investing!

    @MyRichFuture — I’ve been buying BRCI, which has energy at about 40% and also lots of miners but I’m thinking I might need to take another tilt at big oil specifically. Maybe Exon?

    @PC — That’s not even a comic strip, it’s a documentary. Don’t know if you remember this post: http://monevator.com/weekend-reading-how-many-mensa-members-does-it-take-to-beat-the-market/

    @Mathmo — Yes, I was very surprised by Merryn showing up in The Guardian. Perhaps she met a Guardian editor at a friends villa in Tuscany or similar and lost a bet… 😉

    @weenie — You’re welcome, and yes that can happen. 😉 P2P is an interesting area (and I think yours an interesting approach) and a boom niche for the companies concerned.

    @Richard — Yes, HL is incredibly quick at processing these things for a giant, but funds are funds and once a day is once a day. Sometimes I think more speed bumps might help when I’m being overly active in today’s world where you can typically go from idea to action in about 15 seconds!

  • 11 The Rhino September 2, 2015, 11:05 am

    on the p2p front, funding circle have just announced switching to a fixed rate rather than auction model. seems to be the way all the big players are evolving over time.

    possibly not so much fun – but certainly a bit simpler

    i’m still holding off any serious p2p allocation until they can be wrapped up in an isa next year

    p2p seems to be a success in the main – the founders of the big ones must have made their fortunes many times over

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