What caught my eye this week.
There are some writers who can knock out zingers worthy an entire article from a rival hack, and one of investing’s is Jason Zweig.
In fact it’s a good thing Zweig is so pithy, because most of the piece the following quote is from sits behind a Wall Street Journal paywall.
If I ask you in a questionnaire whether you are afraid of snakes, you might say no.
If I throw a live snake in your lap and then ask if you’re afraid of snakes, you’ll probably say yes – if you ever talk to me again.
Investing is like that: On a bland, hypothetical quiz, it’s easy to say you’d buy more stocks if the market fell 10%, 20% or more.
In a real market crash, it’s a lot harder to step up and buy when every stock price is turning blood-red, pundits are shrieking about Armageddon, and your family is begging you not to throw more money into the flames.
Then risk is no longer a notion; it’s an emotion.
If you do have a subscription to the Journal you’ll find the rest there. (Do tell us if there’s anything else to beat that opener.)
All else I can do is point you to a sample from Zweig’s Devil’s Financial Dictionary and a few wordier pieces we did on assessing your own risk tolerance:
- The Devil’s Financial Dictionary: An ABC for Passive Investors
- How to estimate your risk tolerance
- Know your own risk tolerance
- Why I’m looking at my portfolio more as the news gets worse
Have a great and snake-free weekend!
From Monevator
What is a master pension trust? – Monevator
From the archive-ator: Financial calculators and tools collected – 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
Bank of England forecasts lower interest rates for longer – BBC
1-in-3 parents with stay-at-home adult children are tapping pension pots to cover £5K a year costs – ThisIsMoney
What 2019 seed funding data says about our collective future – Crunchbase
London slips further behind New York in financial centre rankings [Search result] – FT
If you’re getting into angel investing, understand that venture capital returns are hit-driven – Medium
Products and services
Hargreaves Lansdown follows Fidelity and Interactive Investor in dropping exit fees – ThisIsMoney
Merryn S-W: Wealth management could soon cost less than you think [Search result] – FT
How fraudsters syphon away eBay money to copycat PayPal accounts – ThisIsMoney
Total credit card spending overtakes cash for the first time – Guardian
Seedrs will give you a £50 free investment credit [and me a cash bonus] when you invest £500 or more – Seedrs
Where to get the new iPhone 11 at the lowest cost – ThisIsMoney
Homes for sale with blue plaques [Gallery] – Guardian
Comment and opinion
[Psychology aside] If you have cash on-hand, it’s best to get it invested ASAP – Of Dollars and Data
Tackling climate change: An investor’s guide [Search result] – FT
Financial markets are made of events, not things – A Teachable Moment
Why we love to call everything a bubble – Bloomberg
What number? – Humble Dollar
How to escape the ‘motherhood penalty’ at work [Search result] – FT
What is the value of financial advice? – Pragmatic Capitalism
The pros and cons of sacrificing pension index-linking – Simple Living in Somerset
What rugby union can teach us about investing – The Evidence-based Investor
Yes, the stock market is going to crash – A Wealth of Common Sense
Will the government end up losing money on Help To Buy? – ThisIsMoney
How to retire before you turn 50 [Missed this last week – h/t reader J.] – Evening Standard
Naughty corner: Active antics
TR Property trust: A real estate superstar – IT Investor
Insights on VC Pricing: Lessons from Uber, WeWork and Peloton – Musings on Markets
Venture capital, private equity, and… tennis – CFA Institute
Brexit
UK Brexit plans fail all basic backstop tests, warns EU [Search result] – FT
Kindle book bargains
ReWork: Change the Way You Work Forever by Jason Fried and David Hansson – £1.99 on Kindle
The Year of Magical Thinking by Joan Didion – £0.99 on Kindle
One Last Job: The true story of Brian Reader, the man behind the Hatton Garden heist by Tom Pettifor – £0.99 on Kindle
Elon Musk: How the Billionaire CEO is Shaping our Future by Ashley Vance – £1.99 on Kindle
Off our beat
Feel the air fully – Raptitude
Google claims to have reached quantum supremacy [and I for one welcome…] [Search result] – FT
Finance memes are running rampant across Wall Street via Instagram – Institutional Investor
The climate crisis explained in 10 charts – Guardian
How mobile phone battery icons shape our perceptions of time and space – Phys.org
What if Donald Trump [or Brexit…] just happened by accident? – Yahoo
And finally…
“We don’t need to outsmart everyone else. We need to stick to our investment discipline, ignore the actions of others, and stop listening to the so-called experts.”
– James Montier, The Little Book of Behavioral Investing
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Comments on this entry are closed.
I find it easy to buy when the market is down 20% or more from it’s high. I’m usually running close to 100% equities and ged t a bit frustrated when the market rebounds quickly so I don’t get enough time to accumulate at prices. Buying “high” is annoying, because I feel like I’m one of the herd of sheep, but I have a long term plan and buy I must no matter what the market is doing.
Mildly amused by the ES article in which a prospective father said that Children don’t all need PlayStation 3s. Classic FIRE, slightly out of date 🙂
Your Of Dollars and Data link is pertinent to me, but also muddying the water.
So what to do with a lump sum? Invest today, locking in crappy exchange rates. Lump sum after October 31st, could be a win either way, as at least the markets know what’s happening? But then we’ll most likely be having an election, and then a possible 3 month extension will be running out….
So trickle it in over the next 6 months? This article would seem to suggest not, my 2 big problems with that are A. ODaD are taking a much longer time frame than I’m proposing. B. Bonds are really low. Going into bonds for 6 months feels more like a gamble than an investment.
Automated investing works for me!
I do have spare to bung in from time to time, but during the past 8 months or so when considering it:
‘down 7% – not gonna invest, too dangerous!’; ‘up 17% – not gonna invest, too expensive!’
Seems like I should slightly up my direct debit instead and then ignore the news. Hmm, sounds like a familiar mantra 🙂
@Ben , for what it’s worth, I’ve had this dilemma for a while. Made my first purchase in yonks the other day though – went with some VEUR.
My justifications:
1) CAPE at 18.3 represents good value compared to dev mkts (24) or USA (30).
2) I’m afraid of further GBP falls, yes this locks in a poor rate, but it also provides a hedge against any further falls.
3) In the case that all becomes startlingly rosy with Brexit, the £ will rise and VEUR will fall, but the fall would be offset somewhat by improvements in the UK market (25% of VEUR).
4) Dividend Yield currently quite attractive at 3.5%
Ultimately, I’m resigned to being potentially hit by currency headwinds in the short-medium term, but hope that long term it will deliver enough value to have made the purchase worthwhile.
Needless to say, this is not advice.
I await the general opprobrium for my investing decision 😉
I think that peoples perceptions of risk and understanding are very different things.
One example is “gordon Brown’s tax grab on pensions” funelling your average investor into lower risk btl 15-20 years ago.
Lower perceived risk but no appreciation that the leverage made it a big gamble.
It paid iff thanks to zirp – but many are still true believers that property is the royal road to pension riches – not thanking their lucky stars or thinking that returns are now lagging other investments.
Where is there risk these days? And where isn’t there.
Finally we have a good word and even calculations for risk (severity x probability) but not so much for the opposite of risk – what if everything turns out super?
Two sides of the same coin maybe.
I’m old enough to have been through two crashes, the dot-com one and the 08-09 one.
During the 08-09 crash my husband said to me “don’t you think you should start selling out?” and I replied ” I’ll sell out when you and all your friends stop spending your money!”
I continued to buy shares throughout that period as usual and the value of our investments recovered by 2010. I’ve maybe got a very thick skin but it never feels nice while the markets are dropping like a stone.
But my premise is that until we’re all bartering and growing all our food ourselves we should be invested into our economic system.
Ben raises the conundrum for us UK-based investors at the moment faced with political turmoil, high asset valuations and a volatile currency.
@Far_wide
Thanks for sharing your reasoning. In the case of (3), however, the larger part of the VEUR UK allocation looks to be in large-cap FTSE100 stocks which get most of their earnings overseas – in which case wouldn’t a rising pound result in falling valuations (i.e. the opposite of what happened after the 2016 referendum)?
I worry too that the Euro will be negatively affected by a chaotic no-deal scenario (conceivably no-deal could also nudge Germany into recession) in which case might not be the best currency to hedge against falling GBP. VEUR does have a decent dividend yield though which would help to offset some of the pain.
Perhaps therefore also worth holding some assets in USD or JPY to diversify the risk?
I like to buy when valuations are attractive. Having taken very early retirement & considering market valuations, I have reduced the equity percentage from 91% to about 75 % over the last 18 months.
What I’m not going to do is to chase yield via P2P lending, as I don’t trust the lenders. For instance: Ratesetter managed to lend money to an overseas student resident at my property. When he predictably went back to Asia leaving a debt, Ratesetter keep writing to him in the UK, ignoring all correspondence about him having gone back to Asia.
@faustus, thanks for the comments. Yes I fully expect VEUR to fall if GBP rises. However, as I live abroad for much of the year, I can at least take solace in the rest of my portfolio ‘going further’ in foreign currencies. The larger part of my equity allocation is in VWRL or equivalents, and that pretty much reacts inversely to GBPUSD.
@Jeff I’m also not convinced about the long-term future of P2P, however I do lend via Ratesetter and Assetz Capital currently. Ratesetter aren’t doing as well (stats-wise) as their headlines would suggest, but do ostensibly appear to be doing better than some of their rivals (Funding Circle notably suffering at the moment, and not surprising given that they chose to hide most of their statistics in their rush for trash pre-IPO gambit). Still, a total minefield.
There can be an attitude that loss aversion is just emotional weakness. In fact it’s highly rational if you are in a situation where your payout function is asymmetrically skewed between losses and gains.
That’s my situation. I only care that my wealth can fund my forward liability curve. My career only has, at most, another 5 years and, outside of it, I’m completely unemployable. So my income stream is probably limited to another 15-25% of my current wealth. Against that, liabilities are increasing, due to rising school/uni fees and potential nursing costs for my parents. Spending could rise over the next fifteen years to peak at 1.3x to 2.7x the current level, before falling back to 0.75x.
So my sequence of return risk is very high. My response is a defensive asset allocation that minimizes peak-to-trough drawdowns to 5%, at least until I’ve got more visibility on big ticket liabilities. I care far more about minimizing downside that maximizing upside. A major drop of 30%+ in my net wealth would snatch defeat from the jaws of victory.
So asking what I would do if the market fell 20-30%+ is not a useful question. At that point it’s already far too late. I’ve lost. This is what many financial blogs seem to miss. They seem so focussed on growing wealth that they miss the fact that at some point it becomes more about preserving what you already have.
everybody has a difference need, willingness and ability to take “risk” with equities.
For me: Need – low(ish), Willingness – very high, Ability – very high
I suspect I’ll probably be 90 – 100% equities until I die, but I’ll also have a DB pension that will cover all basics when I retire.
When the market tanked in the last crash, I was halfway through my MBA program. Thankfully I had a job offer a year ahead of graduation so I took whatever money I had, maxed out my student loans (~3% interest) and bought up US small caps and value indices (IJR and IWN). Other than my real estate investments, it was the best trade I’ve ever made. Then again, I didn’t have a family back then. Can’t guarantee I’ll be just as aggressive the next time around.
> I’ll also have a DB pension that will cover all basics when I retire.
But that means you have a significant amount of bond-like assets, so you won’t actually be 90-100% equities if you take a 360 degree view of you whole financial position. I take a similar line, I currently only have some bonds in my portfolio due to valuations being high and the Brexit madness, I have been and expect to return to 100% equities, for the same reason as you. It’s the overall balance of the asset classes that you own that matters.
During the dot-com crash my only exposure was buying 34 Lastminute.com shares, day to day it didn’t impact me.
With the 2008 crash it was more visable, most of my savings were with icelandic banks, I tried and failed to chase a falling banking sector with Northern Rock and later Lloyds Bank. At work we had a few years of no pay rises, while the public sector ignored what was going on and continued enjoying their pay rises for a few more years. Some of our departments were given stark choices – work extra hours (temporarily) for no extra pay or risk the company having to make redundancies. Getting my savings back was abit of a wakeup call that I was too risk-averse and it changed my mindset, over 5 years I flipped from 10/90 investments/savings to 90/10.
I did buy into falling markets in 2001-2002 and 2008, but I think the key thing is not to sell at such times. It was a useful experience for me to see a loss of a third of my small investment portfolio in October 1987 when I was in my twenties. It prepared me for what was to come in 2001-2002 and 2008.
> the key thing is not to sell at such times
^ This.
I failed that test in 2000-3 and bought in 2008. But I have come to the conclusion that error for me come in the form of wanting to sell. WB’s 20 hole punch card has much to be said for it
If you were an adherent of John Bogles Index Fund Investing you had
Established your Asset Allocation
You stayed the course ie just held on
If retired-do nothing
If accumulating-keep buying
Seems to work-easy and cheap-to follow and do
Worked for me through 2002 and 2008
xxd09
I guess that´s the reason that the weak willed amongst us should invest in Life Strategy equity/bond type funds which will automatically re-balance selling stocks when high and buying when low.
@Max — I don’t think it’s a matter of being weak-willed, it’s a strong decision to take into account behavourial tendencies.
I am forever trying to get friends to go into LifeStrategy to avoid seeing how the sausage is made. Those who don’t complain that this or that is down, or at least the other was up.
Those who do just shrug and say they have set a direct debit up, and talk about the cricket/rugby/Brexit.
Indeedy. Appreciate what you were intending there Max, but it takes a lot of willpower up front to sign up for a Lifestrategy type account and then to leave it. I have a good chunk of my stash in one, and even having it for 2 years and totally buying into the theory; it still takes all my willpower not to meddle! You’re right though – if my set up was more active in nature there’s no way on earth I’d be able to resist!
Out of interest – I’ve always wondered, and never found a clear answer: how often does vanguard re-balance their Lifestrategy funds – how does it work exactly? Do they effectively dollar cost average using new funds going in and funds coming out?
MoMo
@momo, my understanding is that it’s daily rebalancing. I’ve no idea how it really works though, probably all sorts of complex maths as I know they do share loans as well. I prefer not to think about that
I rather enjoy being an investor rather than a gambler
Of course there always those gamblers that score the big one -never met one -rather like knowing a lottery winner-you sure hear a lot about them!
I base my Portfolio on a different premise/values
Actually in gambling terms I like to back winners-Index the stock and bond market-leave well alone and play golf
xxd09
@ermine and Marco
Someone without a DB pension can take two alternative courses in my view. Try and replicate the pension through being fairly conservative and investing in bonds etc or just go for the risk of equities and take a gamble. For those on lowish incomes the second course of action is probably the only realistic shot at FIRE unless they are into extreme frugality.
Like Marco, I am in my accumulation phase and could really do with a market crash – OK, maybe the UK is already held back and has a partial crash build in!
The painful thing now is buying knowing there must be a top near by. At some point what I am paying in now may be worth 30% less, that makes me jittery. In a crash I’d do everything I could to make early pension contributions and then pay in less later years.
rather a smug couple of posts from xxd09 there? I appreciate the sentiment, but at the same time, with the greatest will in the world sometimes market timing is thrust upon you? If you live a completely benign financial life then fine, but most have to deal with big ticket items from time to time – house purchases, redundancies, illnesses, deaths which can beggar up the best laid plans.. a little humility and realism wouldn’t go amiss?
Sorry if I give that impression. If your investments are not for dealing with life’s curveballs -what is are they for?
Why would anybody bother learning about markets and investing if it was not to give one a better chance to cope with life’s vicissitudes to which we are all subject to one degree or another
As an older investor-73- retired 16 years -any help or advice I can give is only to hopefully be of some help to those at earlier stages in their investment careers and is posted here in that spirit
xxd09