What caught my eye this week.
Donald Trump’s antics finally tipped the US stock market into a correction this week, defined here as a 10% fall from the highs in the S&P 500.
The median US stock did even worse, posting a 20% decline.
According to Bloomberg, this 16-session losing streak was the seventh-fastest such plunge since 1929.
However the US market bounced on Friday. And personally, I’m seeing few signs of real panic.
Indeed why should there be? Investors de-rating US shares by a modest 10% to reflect the wildly unpredictable Washington mob ripping up the rulebook seems reasonable to me.
Besides, anyone who’s been invested in US equities for a while should still have some very fat gains to bolster their nerves.
Bear necessities
On that note: have we forgotten what a proper bear market feels like?
The Covid crash was a shock but short-lived – and there was lots else going on to distract us.
The 2022 growth stock rout largely passed UK investors by. The weaker pound that year boosted global portfolios in Sterling terms and the biggest shares soon recovered.
Most of you probably don’t even remember 2018’s ‘taper tantrum’.
It’s been a while since investors really got the willies.
You’ll be fearful when others are fearful
I even read in the Monevator comments this week a suggestion from a smart and well-regarded reader that one could avoid volatile and arguably expensive markets now, and then after a crash buy leveraged ETFs to doubly profit on the bounce.
Now each to their own and I’m all for creative thinking, but this sounds to me like bull market fatigue speaking.
We’ve had it too good for too long, maybe? Bridgewater says the most recent 15-year stretch for US stocks was the best since 1970…
…so I’m here to remind you that in a proper bear market, people aren’t thinking about piling into two- or three-times levered ETFs to earn outsized returns in some undated recovery.
They’re wondering if they’ll ever get their money back at all.
Or they’re feeling guilty about their gran who gave them £1,000 when they went to university which she saved by going without for years, and which they just vapourised in five minutes playing Gordon Gecko in the midst of a global meltdown. (Been there, got that T-shirt.)
They’re saying never again.
In a proper bear market it’s hard enough just to not sell and to get through the terrible daily news.
And when the bottom does come, few people will be listening, believe it, or even care.
Survival is the name of the game in bear markets. If you must try to market time your way through one, I’d say keep it as simple as possible and keep gearing at bay with a barge pole.
Leveraged ETFs are for bull runs and for risk-takers who really know what they’re doing. Most of us should just keep on keeping on.
Have a great weekend!
From Monevator
No Cat Food retirement portfolio Year 2: Withdrawals are go – Monevator [Members]
Hetty Green and the timeless appeal of market timing – Monevator
From the archive-ator: Asset allocation rules of thumb – Monevator
News
Note: Some links are Google search results – in PC/desktop view click through to read the article. Try privacy/incognito mode to avoid cookies. Consider subscribing to sites you visit a lot.
UK economy shrank unexpectedly in January – BBC
Housing market losing momentum says RICS – Property Wire
What will be in the chancellor’s Spring Statement? – BBC
No cash ISA shake-up apparently, but Reeves still pondering cuts – Guardian
Poorest Britons now poorer than the poorest in Slovenia and Malta – NIESR
Secret millionaire pensioner, 98, leaves £1.4m to community – Yahoo News
Toy train maker Hornby to quit the London Stock Exchange – Morningstar
FCA abandons plans to ‘name and shame’ firms under investigation – This Is Money
Why the government is seeking to cut the benefits bill – Guardian
Products and services
Fixed mortgage rates take their biggest fall in six months… – What Mortgage
…and the lenders offering sub-4% fixed mortgage rates – Yahoo Finance
Get up to £4,000 when you transfer your ISA to InvestEngine our link. (Minimum deposit of £100, other T&Cs apply. Capital at risk) – InvestEngine
Natwest launches £150 cash bonus switch offer – Be Clever With Your Cash
Price gap between flats and houses hits 30-year high – Which
Luxury lounges: credit card perks “we are all paying for” – BBC
You can get up to £3,000 cashback when you transfer your pension to Interactive Investor. Terms and fees apply. – Interactive Investor
Have you got your Monevator mug yet? – Monevator Shop
Care home costs rise to £1,400 a week – Which
Homes for sale in urban villages, in pictures – Guardian
Comment and opinion
The importance of temporal diversification – Cullen Roche
How the pension freedom ‘class of 2015’ [maybe] doubled their money – T.I.M.
Never root for a recession – Of Dollars and Data
Are US tariffs on goods a prelude to tariffs on money? [Search result] – FT
The dirt tells no lies – Fortunes & Frictions
The colossal tax raid that explains why high earners don’t feel rich – This Is Money
Trump trades and European exceptionalism – Behavioural Investment
A two-tier housing market will result from half-baked leasehold reforms – Guardian
Should you ‘reset’ retirement withdrawals in a bad market? – Best Interest
How to use commodities in your portfolio [US but relevant] – Morningstar
Is a Lifetime ISA or a SIPP best for retirement saving? – Which
How the gold bullion boom sent a US recession alarm blaring [Nerdy] – FT
Naughty corner: Active antics
Better angels – Humble Dollar
The Squid Game stock market – Acadian
Charting: value or voodoo? – Larry’s Substack
The risks to equities are tailwinds to infrastructure – Institutional Investor
In geopolitics, words speak louder than actions – Klement on Investing
Stock-picking in volatile environments – Albert Bridge Capital
Hedge funds paying up to £1m for weather modellers – Bloomberg via Yahoo
Kindle book bargains
Poor Charlie’s Almanack by Charlie Munger – £0.99 on Kindle
How to Run Britain by Robert Peston and Kishan Koria – £0.99 on Kindle
Invisible Women by Caroline Criado Perez – £0.99 on Kindle
Chip War by Chris Miller – £1.99 on Kindle
Environmental factors
The great British sewer dump – Reuters
Scientists learn how migrating baleen whales transport nutrients globally… – Nature
…but why are more of them getting tangled up in ropes? – BBC
The Chinese project that led the way in water and soil conservation – Guardian
How plants are responding to a warming world – MIT Press Reader
Supertrawlers spent 7,380 hours fishing in UK protected waters – The Grocer
Robot overlord roundup
Read a story from OpenAI’s new creative writing model – Guardian
Robotaxis are here – Unchartered Territories
AI means the end of the web as we know it – Spyglass
Who needs revenue when you’re a multibillion dollar AI startup? [Search result] – FT
Not at the dinner table
‘Knowingness’ and the politics of ignorance – The Garden of Forking Paths
The new global divide makes Brexit an anomaly – Chris Grey
EU defence fund to be spent on European weapons – Semafor
How much do I really need to know? – Kottke
Trump boom versus tariff doom – Faster, Please
The real problem with tariffs – The Edgy Optimist
Short-term pain for…long-term malaise? – Drezner’s World
Why America betrayed Europe – Noahpinion
Off our beat
Rembrandt to Picasso: Five ways to spot a fake masterpiece – BBC
Woman who lived to 117 had genes keeping her cells ‘younger’ – Guardian
How to learn a language like a baby – The Conversation
Top ten Scandi life lessons after a decade living in Denmark – Guardian
Pure independence [A couple of weeks old] – Morgan Housel
And finally…
“There is a limit to how much you can cut but there is no limit to how much you can earn.”
– Ramit Sethi, I Will Teach You To Be Rich
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This video from Ezra Klein interviewing economist Gillian Tett on the Trump administration’s econmic world view is incredibly interesting. It really makes sense of the madness https://youtu.be/3PXVrLH4zSU
I’m still hoping for the S&P 500 to drop another 25% – even at that level it’s still done well over the last 10-15 years. I’ve still got too much cash especially since Aviva want to cancel all their preference shares – leaving me with plenty of ammo for 4000 level S&P…..
Aside.
Some possibly useful info with interactive investor:
1
requested my PCLS on 7th March and received it on the 12th March.
2
requested my first one-off taxable withdrawal, this came on 14th.
3
Emergency tax was applied and was in line with this handy online calculator
https://www.hl.co.uk/retirement/preparing/tax-matters/emergency-calculator
4
Apparently emergency tax is always applied on the first taxable withdrawal as it’s not possible to get a tax code until a payment has been made. It also appears to make no difference when to get the money. I (incorrectly) thought taking the money in March would result in less emergency tax (month one) than April.
5
I had enough cash in the sipp to cover both payments, this may have helped speed things up a little – but still impressed.
6
The online paperwork was more than I expected but still reasonable, probably 30 mins to read and check everything 3 times
Thanks @boltt – my rough strategy is to let my iweb sipp become fully ajbell. Take the few years fee holiday. Then try and migrate to II for a few k kick back. It sounds like they aren’t too bad? Embark on other hand sound shocking. Had a little flutter on vwrp on Friday but may have been catching a falling knife
Not sure why the fund platforms etc ( apart from wanting the fees i guess) or the Govt. are convinced that people who have been happy to save cash but have been unwilling to trust the stock market over the years will suddenly decide they want the risk after all. But guess there will be plenty of articles about MMF and the likes of the RL Short Term Fixed Income Fund type products in the money pages/blogs but which hopefully mention the step up in risk over cash ISA if it does happen.
For the amateur investor the first market correction of a reasonable size is a valuable lesson to him/her of their actual ability to cope with market drops in their portfolio
It will set their own sleepless nights tolerance /stomach acid levels
They should then using this information set up their very own personal asset allocation which will then allow them to stay invested in the market through thick and thin ie stay the course throughout their hopefully long investment career
A reassessment would probably be needed as savings reach a reasonable level and then again also 6-7 years from retirement
xxd09
Yes, reading here and on Bogleheads it seems a) many investors have never experienced a crash; and b) expect one to be a couple of years max until the bull market resumes. I’d put the GFC in that bracket too. Saved by massive intervention of all the major central banks.
The slow grind down of the dotcom was unrelenting…
@Boltt (#2):
Recognise the too much cash situation you describe.
I started my monthly update earlier today and biggest drawdowns set me back c. 6 months, but I also had some winners too vs last months overall all time [nominal] high [at c. 3 pp off my all time real high]!
IIRC, those Aviva prefs had a generous [fixed] coupon – will losing that hurt?
Very quick SIPP turn-around; and I note your rider re having it all in cash – possibly one to watch!