With UK interest rates now down to 0.5% and the dubious-sounding quantitative easing moving from a standing joke to official Bank of England policy, there’s no doubt we’re living through enduring historic times.
If like me you ever wondered what it was like to work through the 1970s Winter of Discontent, let alone the Great Depression, you may soon be repenting your curiosity at your leisure.
Only today we learn that the UK Government is upping its stake in Lloyds (a company whose shares I once prized for their stability, before selling prior to the HBOS merger) to 65%, in return for insuring £260 billion of toxic debt.
When a 200-year old bank has to be repeatedly bailed out by the Government, you know you should be keeping the newspapers for your grandkids.
Yet let’s not get too downhearted.
For those still building up their savings for retirement (and I suspect that’s most Monevator readers), low prices for assets are a net positive if the world doesn’t end.
Warren Buffett has said this many times, and he said it again this week in his 2009 letter to shareholders:
We enjoy such price declines if we have funds available to increase our positions. Long ago, Ben Graham taught me that “Price is what you pay; value is what you get.” Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.
“Funds available”, eh Warren? Ah, but there’s the rub.
I’ve been invested throughout most of the bear market, even as my income has been hit by some fun yet unprofitable side projects (not least, this very blog!) and a slight drying up of the consultancy and freelance income that pays my bills.
My hope is that the renewed misery that pushed the FTSE 100 below 3,500 this week will last until April 6th, and the start of new ISA season.
I’ll be putting in my full £7,200 ISA allowance and keeping my faith in shares for the long-term.
As for the short term? Pick a number, any number…
To have got into the NASDAQ at these levels!
In 2009 the UPRO LETF launched in the US giving 3x daily S&P 500 returns and in 2010 TQQQ LETF launched stateside doing 3x the daily return for the NASDAQ.
Each product was near perfectly timed in its introduction.
Rock bottom rates – the lowest ever – meant that the cost of leverage was dirt cheap. Starting prices on the underlying indices were also low, although it didn’t seem that way at the time. The possibility of very powerful positive momentum existed, sustained first by mean reversion and later by profitable network effects and economies of scale finally coming through for big tech.
Both factors meant that an investor in 2010 buying dumb alpha, in the form of leveraged beta on the NASDAQ, could have done 80x with TQQQ from 2010 to the bull market peak in November 2021. Neither skill nor stock selection required, nor for that matter any concentration risk assumed beyond the index level. And no market timing needed in between 2010 and 2021. Just buy and hold and the capacity to endure with equinimity the truly bone crushing volatility of the leverage.
I don’t think that another opportunity as promising as 2009-10 will come to pass for some while yet. 2022/23 doesn’t feel like it. More a modest pause, normalisation and reset to accommodate higher rates than a proper full on crash seeding the next bull market run.