What caught my eye this week.
Another miserable week in the markets. Thanks in part to shocking updates from US retail giants Target and Walmart, the all-important S&P 500 index briefly joined the growthier Nasdaq in bear market territory on Friday, having dropped 20% from its all-time high before a mild end-of-day rally.
Meanwhile inflation in the UK hit 9% and the Bank of England won both plaudits and wooden spoons for candidly admitting there’s not a lot it can (constructively) do about it.
Getting on for a year into this regime change, and some readers continue to insist there’s nothing to see here. Nor in the bond market, which has endured its biggest, sharpest sell-off for decades, if not ever.
I’m not sure why the denial, apart from the currency weakness that I talked about last week clouding the picture. I think we can agree markets rose an awful lot in 2020 or that super low interest rates spurred some ‘questionable’ antics without downplaying the reality check that’s now taking place.
Veteran commentator Josh Brown describes it as:
one of the most treacherous environments I have ever seen, and I traded during the dot com meltdown, 9/11, Enron and Tyco and WorldCom and Lehman and LTCM and Madoff and the debt ceiling downgrade and the Asian currency crisis and the European debt crisis and Gangnam Style and the pandemic lockdowns and Zika and Ebola and SARS and Bird Flu and Hoof and Mouth and all sorts of other shit.
Not just traded for myself but answered to others about their money, in real-time, during all of it. Those environments were tough. This one’s impossible.
I even spotted the once famously bearish hedge fund manager Hugh Hendry making waves on Twitter, like some wintry White Walker reappearing from legend in Game of Thrones.
Hendry was appropriately uber-gloomy. The last time he got a mention on Monevator it marked the bottom of the financial crisis crash. But I’m not confident of a repeat, omen-wise.
(For one thing: has anyone seen the especially portentous Nouriel Roubini?)
Once upon a time
In that last big bear market I wrote a lot about how and why I bought stocks in downturns.
Eventually, those investments turn out to be among the best you will ever make.
But it can be hard to see cheaper prices as your opportunity to profit when your portfolio is shedding ballast faster than the Met issuing fines in Downing Street.
So I thought I’d point newer investors to a comment I uncovered while digging for this week’s Archive-ator link below.
Doing so, I came across 2008-era-me offering unsolicited advice as usual, only this time on someone else’s blog: Accumulating Money.
At the time, January 2008, that blogger’s household net worth was just shy of $72,000.
Accumulating Money knew buying at lower prices should be good, long-term.
But they also recognized they faced a challenge after a ‘brutal start’ to 2008.
The Goldilocks scenario
I was there in 2008 and it was indeed tough going. The year got a lot worse before things started getting better, too.
But we have an advantage, sitting here in 2022. We know how the story ended.
In fact, it turns out we can skip to the most recent net worth update from Accumulating Money, March 2022, where we learn their number is now…
…$1.5 million!
Yep, despite the gloom in 2008 and a lot of terrible headlines in-between, A.M. has multiplied their wealth more than 20-fold. And that’s despite the market mauling their retirement accounts in recent months.
To be honest I’m not surprised by this figure. It more or less tracks my own trajectory over the past 15 years.
But I thought perhaps those who haven’t yet lived through a few stock market storms might be reassured, by seeing what’s come before.
Are you sitting comfortably?
Of course every market downturn is different. To me this one looks more challenging for the likes of Monevator readers, at least with hindsight, thanks to its higher inflation and rising interest rates.
I expect both to start coming down, but that’s partly because I expect demand destruction and at least a mild recession. (As do a few of those sellers of Target and Walmart shares I’d wager.)
On the other hand, if inflation and rates do keep on rising indefinitely… well.
Either way, we know the playbook. Try to earn more. Live below your means. Save as much as you can without derailing your life.
Then invest in equities for the long-term, probably through low-cost global index funds.
Just promise to come back in 15 years to tell us how it went!
Take these time-tested steps towards financial freedom and I believe your tale will also have a happy ending.
From Monevator
What credit card should I get? Everything you need to know about the different types of credit card – Monevator
The rising cost of living: how to maintain your quality of life – Monevator
From the archive-ator: The secret to investing when markets are falling – Monevator
News
Note: Some links are Google search results – in PC/desktop view you can click to read the piece without being a paid subscriber. Try privacy/incognito mode to avoid cookies. Consider subscribing if you read them a lot!1
Inflation hits a 40-year high of 9%, says ONS – BBC
Bank of England governor issues ‘apocalyptic’ warning on food prices – BBC
UK consumer confidence at lowest level since 1974 – Guardian
Bank of America clients hoard cash at highest level for two decades – Yahoo Finance
New statistics show levelling up isn’t happening in the UK – Bloomberg via Twitter
Analysis: why does the UK have the highest inflation rate in the G7? – Guardian
Lessons from 2022’s tech stock sell-off – Morningstar
Products and services
What should you do with your money with inflation at 9%? – Which
UK banks pull mortgage deals as borrowers rush to lock-in rates [Paywall] – FT
How to get the best deal for home insurance, with premiums at record lows – Which
Open a SIPP with Interactive Investor and pay no SIPP fee for six months. Terms apply – Interactive Investor
Bank switching Q&A – Be Clever With Your Cash
Top cash ISAs: up to 1.15% easy access or 2.2% fixed – MoneySavingExpert
1980s homes for sales, in pictures – Guardian
Comment and opinion
What should accompany stocks: cash or bonds? [US but relevant] – Morningstar
Low returns ahead: the harsh reality facing investors [Podcast] – T.E.B.I.
Things you see in every bear market – A Wealth of Common Sense
Four horsemen – Humble Dollar
Don’t panic on sequence of returns [Note: US market data/returns] – Morningstar
Doubling down – Banker on FIRE
What are real yields and why do they matter? – Morningstar
Q&A with Brian Feroldi, author of Why Does The Stock Market Go Up? – Abnormal Returns
Should Gen Xers keep or toss the word retire? – Next Avenue
The moment is now – Indeedably
Three years of FIRE – Stop ironing shirts
How high fee funds add up to trillion-dollar opportunity costs for investors [Research] – SSRN
All change mini-special
Markets are always in turmoil – A Teachable Moment
The rise after the fall – Collaborative Fund
Easy money is over and the VC world needs to adapt – Protocol
Where are we in the cycle? – The Irrelevant Investor
Fear and loathing in the markets again – Simple Living in Somerset
How to bear it – Humble Dollar
Naughty corner: Active antics
What are the odds of making a good investment? – Behavioural Investment
The gamma of levered ETFs – Party at the Moontower
Small caps, stock picking, and index trackers [Podcast] – Maynard Paton
Crypto schadenfraude mini-special
“I lost money in crypto so you don’t have to!” – Get Rich Slowly
The crypto crash feels amazing – The Atlantic
The problem with investing in Bitcoin miners – Paul Butler
What kind of financial asset is Bitcoin? – Noahpinion
Ric Edelman: what you need to know about Bitcoin [Okay, this one is bullish] – Think Advisor
Kindle book bargains
The Great Mental Models Volume 2: Physics, Chemistry, Biology by Shane Parrish – £0.99 on Kindle
Two Hundred Years of Muddling Through: The surprising story of Britain’s economy from boom to bust and back again by Duncan Weldon – £0.99 on Kindle
Human Frontiers: The Future of Big Ideas in an Age of Small Thinking by Michael Bhaskar – £0.99 on Kindle
Why You?: 101 Interview Questions You’ll Never Fear Again by James Reed – £0.99 on Kindle
Environmental factors
How climate change is making Australia more unliveable – BBC
Why African demography should matter to the world – Adam Tooze
Off our beat
The Kafkaesque housing scam that’s tearing through London – Vice
Welcome to the age of the ultra-realistic ‘art robot’ – Dazed Digital
It’s 10pm do you know where your cat is? – Hakai
The 79-year old world champion powerlifter – Guardian
Trying too hard – Morgan Housel
How to stop procrastinating and tackle that big project – Harvard Business Review
Who owns Einstein? The battle for the world’s most famous face – Guardian
And finally…
“There’s no better tool for building wealth than the stock market.”
– Brian Feroldi, Why Does The Stock Market Go Up?
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If this is really the end of the run, it’s the dullest turn of them all. What’s the big story this time? In 2000 it was the dot coms, in 2008 we thought it was the end of capitalism, in 2022.. it died of old age / rising rates / inflation? What a snooze 🙂
It’s definitely time for hoarding cash. Until the stock market gets it’s solid footing back im sticking to cash investment. Straight Treasury Bonds. Taking Robert Kessler advice. Long term 20 year, 30 year treasury bonds.
This economy seems less Goldilocks and more the Emperor’s New Clothes.
But markets don’t really look cheap do they? S&P 500 CAPE ratio is still nudging 30 vs a median of 15 odd – granted the CAPE has serious flaws but it’s one indicator. US dividend yields still fairly low and just eye balling US charts – S&P 500 / Nasdaq are still well up on 2020. Average bear market lasts around 18 months. There doesn’t feel too much fear and loathing in the market just yet outside the tech type sectors. Feels like if this is a proper bear market there’s (a lot?) more to come. Not a prediction as I’ve not got a clue.
S&P 500 down 20% with inflation at 8% that’s a negative real return so far YTD of nudging 30%, which hasn’t been seen since 2008 time I think. Inflation will help markets nominally in the coming years although a real return may be harder to come by.
Closer to home, it’s nice to see the FTSE 100 for once bucking the losing trend although it doesn’t make up for years of underperformance. The FTSE 250 is starting to look quite interesting valuation wise albeit could easily go a lot lower. Again who knows.
Shocker for Rishi Sunak. People taking real pay cuts of >5%, very low unemployment so no spare capacity to build economic growth, trade barriers through self inflicted pain of brexit increasing inflation more than other countries (Brexit is clearly working as intended), pensioners demanding 9% state pension rises as are trade unions increasing the state bill, housing market probably going to come off so the chimera of wealth creation disappears, mutterings of possible civil unrest later in the year as the poorest can’t afford to eat and heat, a govt & society which has no clue or appetite to do the tricky things necessary and he get’s named in the rich list this week. It’s not exactly winning politics. At least he didn’t get fined. Oh hang on. More relevant Monevator has banged on about tail risk in the UK and I continue to think it’s nudging a bit higher – maybe 10%…Spread it around…UK feels in a more tricky position economically than many other countries.
Monevators and others advice stands true. If you are investing for the long term, just keep buying monthly, don’t sell and don’t look at the portfolio for too long. If you are retired and can’t stand another 20 – 30% fall in your risk portfolio you need to dial down the risk or improve your emotional detachment. Or maybe buy an annuity – rates have improved!
@TI. Are we really that surprised. It’s 2022, 1y1y goes avove 3%, and the S&P is off almost 20%. Roll back to Sep 2018, 1y1y goes above 3%, S&P comes off 20% in 3 months. Snap! Equities, especially tech, struggles with higher rates.
The markets have not been impossible. The’ve been hard for active equity types who typically own positions that act like levered longs and get smashed up in fast falls. Beyond equities though, people are actually seeing some light at the end of the tunnel. For rates investors, in the last few years, we are seeing some volatility, some inflation, some monetary policy action. Yields above zero! Back to some fun after years of boredom.
Nonetheless, the S&P is still 19% above it’s pre-COVID peak. It’s not as though the world is a better place now! If you’d asked people when the S&P was 3385 in Feb 2020, and told them how COVID would pan out, and offered them 3900 in May 2022, I reckon at least 80% would have bitten your arm off. If you’d offered them 3900 when the S&P was 2250 a month later, 99% would have bitten your arm off (the other 1% had already thrown themselves off a bridge).
Those wailing need to get a grip. So some off that massive unearned wealth increase, created by the response to COVID disappeared as fast (or faster) than it appeared. Oh the horror. At least you are only losing unrealized gains. Those with no wealth are just taking it right on the chin.
@ZX, well that made me laugh. The world of instant news which demands an instant action looks like a game of kick and rush football with the crowd surging from one end of the pitch to the other. If we were on a dinghy it would capsize. That’s enough mixing of metaphores. One thing that seems to off the front page is QT. End of QE fine but QT I can’t see happening any time soon. Perhaps the closest they can now get to a greenspan put is to postpone QT. Maybe this time things really are different ( well on a 10 year timeframe anyway). My investment goal of cpi +1% suddenly looks immodest.
Timely advice as ever. This isn’t the first bear market and there will be bigger ones in the future.
I was also investing 20 years ago, and I will keep doing what I’ve always done – drip feeding our Isa allowance and SIPP contributions into a portfolio that matches our risk profile.
Slow and steady….boring doesn’t make it untrue!
I agree with Seeking FIRE’s points. I don’t mean to sound harsh, but it sounds to me like you might be letting your own active investing colour your view of the overall market overly darkly, TI.
The fact remains that a global tracker is 11% off the top. YoY we’re not even down yet (nominally).
Yes, that’s boosted by Sterling’s weakness, but so what? Most people here live in the UK and if you want to consider your investments purely in $ for some reason, then, well, you’ll have had a higher high last year for the same reasons to compensate.
Don’t get me wrong, I’m not optimistic about all of this, but am just watching what has unfolded so far. I do follow the active side very closely despite not partaking myself, and it seems less of a minefield and more of a field where nearly every single blade of grass is a mine. I cannot believe just how much tech growth stocks have been pummeled.
Market sentiment-wise though, I also take the same view as seeking-FIRE. I just don’t feel yet that we’re in ‘proper’ crisis mode yet – thus far this is flesh wound territory for passive investors, and it’s barely made a dent in the mainstream press. I have some more funds to deploy when I feel the time is right (naughty, naughty), and thus far I’m not particularly tempted.
On a separate note, you mentioned the Ritholz guys – A lot of respect for them on their passive investing analysis, and Ben’s work in particular, but if I may add to the Crypto schadenfreude special, I do wonder though how they’re feeling about their new crypto index fund.
Even for crypto fans, last December seemed a rather brave time to launch it, and it also has/had a 7.5% allocation to LUNA.
I was really disappointed to see them support this direction frankly and felt it would be a big mistake, and told them so (crypto in general this is, not LUNA).
I think they were trying to chase what customers said they wanted rather than offer them what they needed. Whilst that might have won them some customers short term, and who knows crypto might well bounce again, I still don’t think it will serve them well long term unless that scene changes dramatically.
Morning all 🙂 I’m away with family this weekend so might not get the chance to reply much in detail, but I’ll get a few early words in before letting the interesting discussion continue.
I can already see the same fault lines opening up this week as last week (perhaps not surprising since my article mostly focusses on the same thing!)
So I’d better repeat myself again, too, haha. 🙂
I am definitely letting my perspective as an active investor sway my commentary. It is this perspective which is enabling me to let readers know that the churn in the underlying markets has been absolutely incredible since Spring 2021. If you’re just looking at an index fund return, you’re not seeing it — even in the US until this year. If you’re looking at at through pound-weakened eyes, doubly so.
To me that’s interesting. It doesn’t mean the world is ending, or that I didn’t think shares were frothy in early 2021 (I’ve linked to about a gazillion valuation articles and wrote about the meme stock madness etc) or that I think passive investors should be doing anything different suddenly. (Indeed this post was meant to emphasize how keeping on for 15 years since the last bear market worked fine).
I see Weekend Reading as a commentary on everything we talk about here, from the perspective of someone who is very engaged with the market and who readers can study a 15+year record of commentary from for perspective. It’s always a bit tricky given the site serves two masters. A pure passive investing Weekend Reading take on market turmoil would be dull fare — “markets will fluctuate, carry on.” 😉
Perhaps an issue is that readers understandably try to see how what I’m saying maps to their situation. Of course that makes sense, but equally I’m writing for everyone, and for myself.
I do think Josh’s perspective is a bit over-egged — this doesn’t feel existential like 2008 and it hasn’t got the ‘stomach through your feet’ feel of the huge falls in early 2020 — but for almost anyone with an active share portfolio, this has been interesting times, as the Chinese say. To me that’s comment-worthy; there’s lots more I could speculate and comment on (and doubtless have my share of being wrong about) if Monevator was a purely active site. But anyway, it’s happened.
I’ve been investing for 20 years or so and it’s not normal for me to see so many numerous examples of what I think are great companies down 70% in 12 months; in fact it’s never happened before. Yes, I fully accept and understand this was because they went up a lot the year before! (I owned a bunch of them remember.) But it’s still interesting and tells us something is going on when they plunge like this. (Yes, I know it’s because of rate rises and inflation which is why I’ve been writing about both since late last year. But — stuck record — that is still interesting).
I don’t think it’s fair to say only a over-levered stock jockey types have been hit by these falls. The extremely well-regarded Nick Train and Terry Smith have both seen big declines in their portfolios, too, for example. (They often invest in what a few years ago we called ‘bond proxies’, which are higher rated and so have had that rating notch down).
As I mentioned last week, the average hedge fund is down nearly 20% year to date, according to the FT, and that is with the ability to short. Of course some will have done much better, but that doesn’t negate the maths of ‘average’.
As for me, I’ve done worse than a world tracker in sterling terms in 2022, and perhaps over the past 12-18 months too. Obviously that’s on the back of strong gains in 2020 and earlier though. If I was the kind of blogger (or blog comment writer…) who only tooted my trumpet I’d remind readers about how I sold my largest tech holdings in March 2021 (documented here) or how I moved a bunch of money earlier this year into what I call my ‘low volatility’ portfolio, after writing those regime change posts on Monevator. (Mentioned in comments but not documented. @TA can vouch though as he was on the call when I made the decision haha).
I am just sharing this not to brag (I think I’ve done badly personally, given how Ukraine-aside I’ve pretty accurately read the macro changes — I underestimated the extent of the disruptive growth falls though, and started putting money back in far too soon) but just to say that I’m trying to give an even-handed account from someone on the front line, not as a ‘hysterical’ YOLO trader who ‘needs to get a grip’.
Again, readers can take from this what they like. Somebody active might have read my post in December about how the froth being blown off in the market looked like what usually happens before a bigger fall, and acted. Others might have (and did) say “I don’t see anything here, my tracker is down just 2%, I’ll just keep automatically investing”. Both are totally fine responses, and more than fine with me.
Again, we are inching towards having some sort of membership / (cheap) paywall for active stuff on Monevator. When that’s created my market commentary might well go behind there entirely, and the Weekend Reading intro will be more focused on its original aim of highlighting other good articles on the web etc, although I’m sure 20-30% will still discuss the markets because I personally think it’s interesting.
If you don’t, skip to the links, no harm no foul at all! 🙂
Monevator is a bit of a schizophrenic blog, I know. So we should expect myriad responses to articles, too. Personally I see at as a strength for those who read (and write) here but it’s probably not the best from a clear brand and message perspective. Ho hum, 15 years in it’s a bit late to change.
Have a great weekend all! 🙂
Have cash sitting in an offset mortgage saving account and have been starting to get itchy fingers about putting some of it into the market. Going to hold fire for a little I think.
> Monevator is a bit of a schizophrenic blog, I know. So we should expect myriad responses to articles, too. Personally I see at as a strength for those who read (and write) here but it’s probably not the best from a clear brand and message perspective. Ho hum, 15 years in it’s a bit late to change.
This is a feature, not a bug. The variety of perspectives displayed is one of the things that sets Monevator apart from the one-eyed perspectives so often found elsewhere.
Weekend Reading in its current guise works pretty well. The weekly essay at the start is usually thought provoking and topical. The links provide a curated collection of what is being said around the internet. Your efforts on both fronts are greatly appreciated.
Perhaps as a contrarian indicator, the FT money section is screaming buy [growth] this week….
@TI , all very well said and don’t get me wrong, if you were only preaching passive dogma each week then it would make for a very dry read indeed, I much prefer the schizophrenic approach with occasional dives into Brexit-bashing too. Enjoy your weekend!
Long time reader, first time (I think) commenter….just to say to TI that I think the different perspectives and investment strategies that this site offers are a real strength, not a ‘schizophrenic’ weakness.
Who is writing each article is clear and the different voices/aims/themes/life stages are wonderfully enriching for the site. Anyone who finds it off-putting or confusing is simply not paying attention!
Interesting times and comments. I started investing seriously in the market chaos of Iraq invasion of Kuwait and we’ve had a few market tumbles since…
The problem is we don’t know where it goes from here, up, sideways or down, we never have and never will. ( If it was knowable, it would have happened)
In ‘99 tech stocks were overpriced but it was equally arguable markets were overpriced in ‘96 and getting it right early is pretty much the same as calling it wrong.
I ditched all my active investments in March and solely have trackers. However…
Investment Trust discounts are always informative, not yet but maybe soon we see people really panicking.
Conversely we might just bounce along and panic subsidies, China changes policy re Covid and a compromise is reached over Ukraine, the market slowdown tames demand etc
Opportunities may arise and if not the passive investments will do their thing over time.
Plus 1 for a (cheap) active paywall.
@TI Another lover of the schizophrenic approach here, absolutely a feature and not a bug. It is the sites niche, its identity. The sum of the site wouldn’t be nearly the same if the active half was further restricted or removed.
As you mentioned in you comment these posts are of particular interest for someone like me. Index investor with an arms length interest in the active side of life. Without this type of post I’d be in danger of missing an awful lot.
I have had a UK index linked gilts fund for years and frankly it’s performance over the past few weeks and months has been pants (technical term). Ok, interest rates are rising and that’s not good for bonds or ILGs. I get that. But seriously, with inflation running at 9% or whatever the latest figure is, could it not at least have shown a bit of an upwards trend? Like Ian Woosnam’s caddie, it had one job.
I strongly disagree with the popular advice that you should avoid checking your portfolio frequently, specially when markets are tanking. I think that it is very important to check it regularly. My frequency is once a week, no matter what, like clockwork. If you want to be an evidence based investor, you must measure and gather evidence regularly. It will make you feel a lot calmer and dispel any worries: a bit like looking through the window of an aircraft during takeoff and landing can make any worries disappear and bring peace and calmness 🙂
Overall, I am less than 2% down from my latest all time peak (reached about three weeks ago) and this week hasn’t been too bad for me either. My total portfolio was roughly flat in sterling and up in USD for the first time in a while. The best performers are my physical gold ETFs, my global value ETF, the Vanguard’s global high dividends fund, property ETFs, the Vanguard’s global small cap ETF, the Vanguard’s Lifestyle 100, and the Vanguard’s Developed Europe ex UK. My bond funds on the other hand have been tanking every week. The worst one is the Vanguard’s Long Duration Guilts fund which fortunately only constitutes a small percentage of my total portfolio.
nice response Monevator and it’s a good article
I think the historical data shows a 10% decline happens every couple of years, a >20% decline every 4 or 5 years and 30% decline every 6 years. So what we’re seeing is not unusual historically. It’s just a return of volatility which has been dampened for some time and was unusual. Given where valuations still are, my betting, if I had to is that we’ll see a >30%% decline in the S&P 500 before we’re done. But I just continue to invest monthly given I don’t have a huge amount of conviction.
I don’t see a >20% or 30% fall in the FTSE 100 given it’s so lowly valued anyway but the FTSE 250 could do (we’re already at 18% odd I think) at which point it would be cheap and I think would look pretty interesting with a 5 year view on it. Over the last 5 years the FTSE 250 has returned around 0% which in itself is quite interesting.
It’s all good news though if you putting in fresh capital and cheaper valuation levels…..
What is also interesting is the number of stocks that have plummeted within the S&P500 which your article really does highlight and I don’t pay much attention to. I just don’t see much fear and loathing in the market yet.
Where I really got things wrong is I hoped by now we’d be getting back to where we were pre-pandemic or at least having sight of that end state, which clearly we’re not anywhere near. Events dear boy…events!
As I’m now living off my DC pension, which is mostly in a Vanguard 80/20 fund, it’s hard not to gulp as the markets go the wrong way. I do have two years of my annual budget in cash though, a piece of good advice I took from trawling MSE forums. However, even if I was in drawdown, I can choose to cash in shares to the equivalent of one month’s expenses at a time, so you can cushion or chrystalise losses on a marginal basis in this way. I have to resist the temptation to take some of that 2 year cash fund and buy the market, however, which is what I would have done while I was earning a wage. Keeping it steady for me now seems to mean that I don’t panic sell, but I don’ t panic buy either.
I dunno. I get excited when the markets really crash. It’s like the sales but better. Not that excited at the mo’ though.
I think things are going to continue to decline.
Heating or eating will extend into not being able to pay the mortgage, council tax, credit card debt etc.. Increasingly number of people going bankrupt.
Apart from Sri Lanka more countries will default creating multiple sovereign debt crisis.
Global warming is now happening. The two poles are melting and things are going to get bad. Temperatures will soar and crops fail, water disappear.
Brexit is like an evil curse, destroying everything it touches. It’s sucking the life out of the economy and destroying farming.
Global food & fuel shortages will create starvation and unrest.
Hard to see a way out. Feels like Putin has a much bigger plan, to destroy the planet
Sad times.
@Robin Wow! I think you need to take a break from newspapers, the TV news, social media, and head out for a walk in the beautiful fresh air! The best things in life are free……:-)
“In ‘99 tech stocks were overpriced but it was equally arguable markets were overpriced in ‘96 and getting it right early is pretty much the same as calling it wrong.”
This is a really great comment – I wasn’t involved, but was reading about it so remember when the likes of The Economist were saying this in ’96. And it was more brutal than now in some ways, as some fund managers lost their jobs in ’99 because they refused to participate and so had massive underperformance for 3 years and were considered idiots.
Similarly, as I recall it, markets were considered pretty expensive by some at the start of 2020, so that makes me feel like the current situation isn’t really a bargain time like 2008.
And let’s also not forget that markets can take 3 or more years to unwind (00-03) with the worst coming at the end. So this could carry on until 2024. I think it’s very hard to remember (e.g. in 2008) that ultra blue-chip stocks can be on single-digit P/Es.
Of course, I’m not saying any of this WILL happen, just that it CAN – and so one should always try & factor that in to your decision-making.
Jan 2020 getting ready to retire in 2021 I plunged quite a few Bob into the market, then in Feb 2020 covid hit us.. Result my portfolio was about 40 percent down from the top. I’ve now watched the market for two years and my portfolio got to within 1 percent off its 2020 level and now bang its down again all be it only 15 percent down but still 15 percent, as for my pension, I’m in a glide path pension with Scottish widows which until April this year was doing great but is now down about 15 percent from the top. Mmm what’s the point .
Plus one for schizophrenia. Personally, with all this “news” half my brain is desperate to fiddle/rebalance, but my “let’s me sleep at night” asset allocation hasn’t really shifted. But that’s because stocks and bonds have both gone down, and a house move took my cash down in roughly the same proportion. It’s frustrating, but it feels like it wasn’t “real money” for those of us with at least some wealth. Now we’ll see if the central bankers and governments can do anything for the rest of the population.
Another for the schizophrenic approach – not sure that weekend reading would remain a staple without the commentary and below the line discussion, as well curated as the links are. Albeit I am more an interested observer than active participant.
With three young kids and a 300 grand mortgage I am realistically at least 22 years away from early retirement (at 58), though hopefully with a degree of financial independence in advance of that. That is partly because my retirement savings are 1) largely in a workplace DB pension and 2) largely insulated from the market though not inflation (uprated at CPI, capped at 5% annually). I’m also not currently able to save hard enough beyond that – so the extra £500 a month I can put away just now goes into my shared cost AVC. The preferential tax treatment with that makes it much more attractive than ISAs so until such time as I can earn more and save more then putting some medium term money into an ISA isn’t particularly likely. Given DB pension is effectively a bond proxy I’ll be 100% in equities with the AVC in trackers and ISA a bit more speculative (ITs and the odd individual share hoping for a unicorn), which is a long way of saying bring on the long overdue bear market. I do however wonder the extent to which markets here are overvalued and whether markets will tank given the indexes are already at 2017 levels in any case.
@TI. Schizophrenia is under-rated. With paranoia, it’s a key plank to any decent trading strategy. The issue here is that you cannot invest in tech stocks that trend 25% higher on an annualized basis over the last past five years and not expect a 25-50% retracement. It’s inbuilt into that volatility cone.
Changes in market structure since 2008 have caused a clear bifurcation in the volatility profile. You regulate out of existence all the natural mean reversion players (bank market makers, prop desks, RV funds etc) at the expense of more momentum players, (systematic funds, passive investors, retail speculators). So we are bound to trend for longer upward and then gap more violently downward. Aggregate volatility is still conserved but kurtosis and skew change.
As an active investor though you should be enjoying this (ok once you get over the initial losses). What tends to hurt active investors is unexpected volatility but active investors generally perform better in a higher aggregate volatility environment. It just creates more and bigger dislocations = more opportunities.
The low yield, low vol environment (2014-18) was always a form of purgatory. It felt sort of ok since every asset was going up fast in real terms. Really, though, all that was happening was we were borrowing returns from the future. Lower dividends, lower coupons just being transformed into capital gains.
The problem is to get out of this purgatory you do need to go through hell! The risks are substantial. We may just end up back in low inflation purgatory again, we may die in a fiery hell (hi Putin, Trump etc). For younger people though, they need asset prices to fall to allow them to get on the ladder. It was that wealth transfer in the 70s/early 80s, that put boomers in such a good financial position.
Point of order. Hedge funds are not down 20% this year. The Global Hedge Fund index is down 3.9%. It’s only equity long-short funds that are down around 20% this year. This is no surprise given that most are 75% long stocks with a beta of 1.5 and 25% short stocks with a beta of 0.5, which results in a beta of around 1! Of course, it follows if they are down 20% and make up the majority of the funds in the index, then that means the rest are doing rather well.
@griff genuinely curious, what were you invested in?
Even with your very unfortunate timing, a global tracker in £ had a maximum drawdown of 22%, fully recovered by Sept 2020, and then between Sept 2020 and Dec 2020 was up by approx 30%.
The riskier stuff, which I’m guessing you were in to see a 40% drop, did even better than that subsequently. Did you sell when it dropped or something?
Anyway, this is a great site to absorb info from about passive index investing to hopefully avoid those troubles going forward..
*up 30% between Sept 2020 and Dec 2021, that should be.
Hi far_wide
I initially typed in my doomed portfolio but then the little guy on my shoulder said I shouldn’t really put to much info on the Web so I deleted it, it wasn’t really speculative(except the gold miner maybe but I was hoping for a geared investment as the gold price went up) But the rest are just mainstream ftse100 250 stocks. I’m probably just rubbish at it, incidentally my trackers are all down. On the plus side Sunday dinner today.
@Pungus — Why not dollar-cost average in? (Not personal advice, general thought). It’s rarely profitable on a longer term view to sit in cash versus getting money working. Of course this could be one of those times, but the falls in the US markets and elsewhere make it statistically less likely (not more) looking five years out.
@Indeedably @Kamae @others — Thanks all for the feedback re: the content and perspective mix on Monevator. It is appreciated, though of course there’s a survivorship bias here. (The people most likely to be reading and commenting are those who like this mix. We might be a tiny slice of the overall population. 😉 ) As I say the active / market commentary won’t disappear. However I’d like to write about, for example, opportunities in SaaS companies popularly (and erroneously) labelled as ‘money losing junk’. That sort of thing will be behind a member wall, not least so I don’t have to caveat every third sentence about the risks of active investing.
@Hariseldon — The discounts on the likes of Scottish Mortgage and its sister US growth trust are at levels not seen in the past decade except for a few days in the initial Covid plunge. UK equity income stuff has narrowed a tad, though you can still get the likes of EDIN cheap. Private equity trusts probably still have some blowing out to do, given how laggy private market valuations can be in comparison to public.
@Willy — Yeah, I put about 10% of my sub-allocated ‘low volatility’ sub-fund into the iShares index-linked gilts ETF and it’s by far my worst holding out of 15 or so. I genuinely suspected it would fall, and thought I’d average in over time as the other stuff did better (and indeed that is what I will do) but I didn’t expect to be getting such a ‘bargain’ so fast haha. Ideally this whole low volatility fund would just be intermediate and index-linked gilts, but think it’ll be a while and a new bull market before I see that so plenty of time and reshuffling to come. 🙂
@ZXSpectrum48k — Yes fair correction on hedge funds, I recall the FT was referring to long-short. Lazy/fast writing on my part. Still, I don’t think the average commentator seeing that the average long-short active manager with the ability to actually profit from falling share prices being down 20% in five months would say that statistic takes away from my point that these really are febrile markets. (Again, I understand they don’t actually hedge much, that markets are volatile every few years. I’m simply stressing this is one of those times, even if a UK passive investor hasn’t felt it until recently).
You’re right it should be a good time for me, big picture. As mentioned I went back into growth too soon. I also haven’t shorted shares for years. On a 12-month view I’m fine (and longer obviously) but my drawdown from my ATH is much more than even the likes of me would prefer. I do believe I’m slowly rotating my equities into stuff that will profit, but as always it’s a waiting game for that to out. I make most of my return from multi-year holding periods. I do trade a lot with a minority of the portfolio, but that’s almost picking up pennies to fund the interest that (hopefully) has me getting in the right stuff on a longer-term view, if that makes any sense.
But regardless, I’m not particularly upset or whatnot. I am describing the market as I find it. Whether I have/will profit from it is surely a factor in my perspective – I am only a flawed human / economic agent like anyone else – but the market doesn’t care. 🙂
@Tom-Baker — I don’t know. The trouble is we feel pain much worse than gains, psychologically. From that perspective, one look when it’s down needs to be offset by more looks when it’s up. Or you can try not to look so much when it’s down. It’s hard for me because I’m engaged via this site and other stuff. If I was the average reader who had some confidence in my portfolio I would be tempted to ignore it for months at a time again tbh. The short-term can mislead you decision-wise, but it can also just upset you. Which is not nothing.
@tom_grlla — Price-to-sales ratios have been the most incredible in this respect. Plenty of commentators were saying 20x or more was now the new normal 18 months ago. Well it was normal in that this was what people were paying, but it was very hard to justify for all but a tiny handful of growth companies. It’s interesting listening to some of these people misremembering their own commentary about such companies after the huge retracement. Same old same old. 😉
@all — Thanks for the other comments, all read and enjoyed!