Current Affairs Stocks and shares and stuff
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I see another 30% ish drop is possible here. "Fair value" for a conservative value guy is 2200-2400 ish. If you want to get technical it's the 200 week EMA. That was a useful spot in 2008/2002.
In the the last couple of recessions it has bounced off this number. Theres nothing to say we dont go the other way and go beyond that.
It still feels some way off real, bear market fear. Retail investor are still net inflows etc.
I have a bias on this mind. I'm sitting on cash, as is my partner. Happy to wait it out. Sounds cruel but hope it gets worse. I hope the fed dont stop in and buy equities if we see a continual big drop (which could happen like in Japan).
Big story in all of this of course, valuation matters.
evilwebby
Player Valuation: £50m
As a contrarian, the point where everyone is pessimistic is the point where I start looking for bull arguments.
Personally I don't think its gonna be that bad. The median addition drawdown one the market hits -20% is roughly another -12% (mean is slightly higher at -14%)
So I think we may well be much closer to the bottom than the uber bears are pencilling in.
some good analysis here, from a channel that I have followed for a long time:
I think that's a perfectly reasonable instinct.
My own view, with a PE of 18 for the SP500 is we still have more to fall.
I'm still buying certain equities, but my sense is that we crash a little bit more than average this time. But honestly, I dont really know. I DCA into businesses each month, but will probably hold some cash back!
I thought a PE of around 20 was considered normal?
It depends really mate.
The average in America, is around 15, although that has slowly been moving up.
If we move into a recession though, it will go lower.
I'm quite cautious, and would personally consider 20 high.
I watched the video mate. It was certainly interesting. To me though, it seemed to support the idea there is more pain to come.
Typically post 1970 the drawdown have been bigger. The MA are not showing many signs of recovery. And from a macro "fundamental" standpoint, we are still going to have both inflation, and potentially recession. I dont think the market has fully, or in some ways partially factored a lot of that in.
We have also had a long bull run from 2010 onwards, with a flash crash and a couple of small corrections. So it's due. On a phsycological level, you've got a lot of new money, often on leverage, who have little idea what they are doing, and havent as yet blinked. I think at some point they start to.
But I am at my core quite a cautious, deep value guy, who might be called a contrarian/uber bull. I'm happy with the short position I have currently, and wont be moving it off.
The pattern of this feels like the dot com bubble to me.
evilwebby
Player Valuation: £50m
Yeah, its certainly possible that this is going to be a bigger than usual downturn.
However, a word of caution is warranted - people who sit in cash waiting for the most opportune time to stick their money into the market rarely make good investors over the long term. I know lots of people who were waiting for -40% or even -50% during the March 20 crash which never came - and so missed out on 100%+ upside.
At some level you should always have some of your money working for you, even if you think the market is going lower, because:
1) nobody rings a bell at the bottom
2) ask yourself what if I'm wrong
3) Cash is the worst place to be over the long term
Personally I'm have about 2% cash on the side, otherwise I'm fully invested. But I'm now beginning to buy stocks more aggressively with my monthly purchases. This itself will bring my equity allocation higher over the next couple of years, ready for whenever we're through the worst of the bear market and fully primed for the next bull market.
Mrk
Player Valuation: £40m
True, but even so, in a market like this, the best solution is to dollar cost average - even if you think it's going to go down another 20%. It's tempting to stay in cash in the hope that it does go down another 20% and you can catch the bottom, but it very rarely works.
You certainly trade optimal returns for waiting for key moments. Given my age profile, it doesn't make an awful lot of sense for me to take the position I have, but in general I couldnt imagine being in a position where I wasn;t at least 25% in cash or equivalent short term equivalents (short term bonds). I like it as a safety net position, and allows me to buy more in declines. It is a bit of a drag, but I'm happy enough with it.
I don't know your net worth, but I like to keep 3-6 month emergency cash on hand. I think as long as you have that, investing the rest in equities is fine. Everyone has different risk tolerances, so it's about adjusting for what works for you.
In terms of the specificity of each point, I would answer:
1) No they don't. I don't really think there's any sense in trying to buy the bottom. That's not really my aim. I still buy individual equities if they make sense and ignore a lot of the noise at a macro level.
2) In all likelihood I expect to be wrong on tha macro and expect to be wrong a lot on individual stocks. I try to have a large margin of safety, and essentially am quite cautious in terms of when I allocate capital. That's both in terms of price, but also in trms of assumptions.
3) Long term that is right. I can't make a case against that, and that equities are the best place long term.
All I would say, is sometimes we sacrifice a little of what is rational to do what is reasonable.
My own approach is a version of DCA. I buy x amount of equities each month, and have a mechnical formula as to how much I invested depending on how muh the market has declined. It hopefully lets me invest more when it's cheaper.
In the lead up to the 2008 crash I got very worried and generally timed my stock position exits near highs and was in cash for the worst of it.
However I absolutely stank on reinvesting that money and new savings - I did some OK trades but for long term reinvestment I was way too cautious.
Overall I probably came out more ahead than if I’d just closed my eyes and rode it all out (especially in terms of stress levels) but it wasn’t a slam dunk by any means.
I’m trying to remind myself of that and your “at some level you should always have some of your money working for you, even if you think the market is going lower” point as I look at the sea of red in my portfolio ytd performances!
Seems like not alone at looking at the statements!
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