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Weekend reading: Summer rally edition

Weekend reading: Summer rally edition post image

I am almost fully invested, so you might think I’d be glad to see the Dow over 9,000 and the FTSE tickling the 4,600 mark again.

Certainly it’s a relief after 18 months of seeing my net worth evaporate week by week.

I’ve written many times on Monevator that bear markets don’t last forever, but even I have to pinch myself when I find myself materially richer at the end of the day.

Yet I’m frustrated, too. I’ve only a strategic reserve of around 15% in cash after buying throughout the market slump – and that cash may be needed for a new Macbook or even a house deposit as much as for a cheap share.

I remain convinced that this is an amazing time to put your money in the stock market on a ten-year view. I’ve written before about the excellent stock market returns we may see after this lousy decade.

Normally you have to hold your nose when you buy because of equity valuations. For the past six months, you’ve instead had to close your eyes and ears to bad news headlines.

Over the long term, the valuations you invest at will make much more difference than long-forgotten scare stories and volatility, in my view.

The end-of-the-world threat was really over by November 2008, and certainly by January 2009. March 2009 was likely the buying opportunity of a lifetime.

Don’t get me wrong – there are no guarantees. Shares could yet fall again or stagnate for years. But history and valuations suggest an upswing is more likely. Hence my frustration at not having more free cash available.

The recession is really hurting my income. I came back from my recently holiday to discover I’d lost another long-term client. (This is the reason for the rather erratic posting schedule on Monevator recently).

As long as I can avoid eating into my capital I’m not too worried, but I’d far rather be diverting excess cash into knocked down shares.

I’d bet than in a few years we’ll get a lot less for our money. Perhaps even in a few months. I’ve tilted my portfolio somewhat aggressively to try to outperform, but around half of my money remains in stock market index trackers.

I think government bonds are poor value and corporate bonds will suffer from inflation without offering the government security, but I quite like commercial property, which has edged up only a little since I bought.

This week’s money blog post round-up

  • Elsewhere, Oblivious Investor quite rightly takes on those who think a home is not an investment. (I’m paying at least twice in rent what friends who bought in the mid-1990s are paying on their mortgage, and they’re going to end up with a capital sum. That, my friends, is the power of investing. See my money mistakes post from yesterday).
  • Moolanomy considers the best response to stock market volatility. (My argument would be dollar cost averaging solves most problems, most cheaply).

A few mainly UK-focused articles from the big boys

  • The Independent now hides its investment coverage under ‘spend and save’ instead of ‘invest and save’. How is that for a contrarian signal? Anyway, Mark Dampier looks at China.

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{ 4 comments… add one }
  • 1 pkora July 25, 2009, 8:51 pm

    Disagree somewhat with your view on corporate bonds and commercial property as inflation and economic recovery are a long way off so in the mean time i prefer corporate bonds over any inflationary bets like property. Plenty of time to get in to inflationary assets if it and ever it arrives. I believe Japan is still waiting for its inflation and economic growth the last time i checked, hopefully it comes a lot sooner for us.

  • 2 The Investor July 25, 2009, 11:56 pm

    @pkora – A perfectly respectable point of view, of course… inflation or no inflation is one of the big questions of the next 12-24 months. Personally I don’t see much upside potential from government bonds even now the price has come down a bit, whereas I see big risks from inflation. Corporates I think are as much about the credit crunch /recession story as the inflation / interest rate outlook. A respectable play perhaps, but most times when corporate bonds do well, equities should overall do better IMHO. We’ll see – thanks for your thoughts!

  • 3 The Digerati Life July 30, 2009, 1:58 am

    Still arguing with my spouse about being invested in the markets. He believes it will still backtrack. I think there may be signs of recovery. We are invested, but can afford to put in more in the markets. Just a little hesitant about it still. Thanks for the mention btw!

  • 4 The Investor July 30, 2009, 10:19 am

    Anything could happen in the markets (and has over the past 12 months). But personally, I think with the US market like the UK one still down 30% over the past decade as well as over more recent time periods, you have to say if you’re not going to invest in equities now then when? Historically, returns after periods of big busts have been excellent.

    The danger is waiting until it feels comfortable because the market has been going up for a year or two. It feels safer, but it’s actually riskier. “You pay a big premium for a cheery consensus” as Warren Buffett says.

    Thanks for stopping by and commenting — your blog is great, and a super-slick model that I should really be studying to see how you do it! 🙂

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