Clammy hands, feelings of paranoia and twitching at every news report starting with the word economy....
Yes I caught contagion flu last night after switching off at the FTSE's capitulation and seeing the Dow Jones continuing to look over its shoulder where the Chinese and Europeans might be lurking in the shadows.
Continuing drama regarding the collapse/imminent collapse/rescue of Dexia and the potential wildfire impact from Italy's downgrade had me geared up for a further collapse this morning.
But, catching the early morning news I see that the Dow Jones surged 400 points in the last hour and that the FTSE is back above 5000 this morning as a result of - wait for it - rhetoric. Yea!
That would be the same rhetoric that has driven the markets down then!
Bernanke's speech is no different to the words he has spouted over the last few months ie. that the Fed is willing to do more (but not yet).
In the Eurozone, the French and Belgium governments will allow Dexia to create a toxic bank of its Greek assets whilst ministers talk once again about re-capitalising the banks, and Greece continues to be shut for business.
In the Eurozone, the French and Belgium governments will allow Dexia to create a toxic bank of its Greek assets whilst ministers talk once again about re-capitalising the banks, and Greece continues to be shut for business.
The market is officially illogical and when it is like this I have no understanding of it!
Bottom line that I can see is still no actual solutions so I don't understand the markets steadying after weeks of brinkmanship with politicians.
And, looking at Dexia and banks in general you have to ask the question what have they been doing in the 3 years since the collapse of Lehman's as its starting to look like it has been business as usual in terms of salary and bonuses, and lip service to regulation (or self regulation). Perhaps I am doing them a disservice and their capital position less Greek debt is satisfactory. I still think that poachers will be poachers without any gamekeepers though!
That is just throwing your hands up in surrender and giving in to market fears, isn't it?
Why don't Moody's follow S & P and downgrade the US for the same "sentiment".
Where is the logical model on the GDP trend with growth discounted by inflation and an incremental increase in interest rates to illustrate a closing or widening gap in its ability to meet its liabilities? Something that at least has a little basis to it.
I still feel that they should downgrade everyone to keep it a level playing field which would be in line with the real "market sentiment" and contagion fears.
But, as I mentioned earlier I have to hold my hands up, or put my head in my hands, and say that I don't understand it at all.
Hi MA
ReplyDeleteI agree , there is usually too much to take in and make sense of. I think that these bear markets are a lot more nasty than the bear from 2000-2003 in which many shares rose. In part that is due to the difference between a credit induced failure broad failure and a much less broad selling off of many (not most) over priced stocks. The other part is that it is easier now to short stocks and that makes for choppy unforgiving markets.
You must believe in part that markets will rise from here or am I wrong ?
Regards
Fenchurch
Hi Fenchurch,
ReplyDeleteagreed. Markets often overreact and appear irrational and 2000 - 2003 was arguably specific to investors and markets rather than affecting the money supply and the position of Government as a lender of last resort.
Amidst that, as you suggest, the use of leveraged instruments on margin compound the situation enabling speculators to make money whilst wreaking havoc on markets with artificial volumes. However, as they are often used in a contrarian manner they are still dependent upon the market having a direction even a weak one. And, as rogue traders show us the chasing of bigger profits often leads to bigger and bigger leveraged positions but also that they can implode when there is no underlying value.
I do believe that fundamentals will eventually come through in share prices once uncertainties around individual politics and economic policies have been resolved.
I also feel that the current situation is providing opportunities to restructure a portfolio with the potential for long term outperformance based upon depressed valuations and resulting high yields with the yields themselves contributing significantly on an ongoing basis.
However, I accept that this itself is a contrarian view when markets are falling and investors are heading for the exits.
Best regards
Hi MA
ReplyDeleteI too believe that the cumulative fundamentals are reflected in the share price however as Keynes suggested it can take some time.
I have been trying to be more on the right side of the market as its quite depressing to be holding a lot of decent stock only to see it decrease in price with the broader markets.
I feel I can be a better contrarian if I do not have too many losses annoying me.
Do you not find that markets rattle your judgement of them ?
Fenchurch
Hi Fenchurch,
ReplyDeleteyes I can certainly relate to that. It is easy to talk about being contrarian in a bull market and hoping for the next dip to buy into but it always seems "different this time" when one gets into something that feels like a bear market and media sensationalism always gives the impression that the world is about to end, so it is often a real test of your resolve to hold, never mind invest more. As is making an investment and it not immediately appreciating.
I note that around 3% of my consolidated position YTD is down to dividends received and if I add historic dividends onto the relative share price losses it justifies almost all of those investment decisions with the potential of more capital and dividend gains to come.
I know that the fear is that this could turn into 2008 all over again but can you recall how you felt during last year's 1000 point pull back, I know I can't.
"Being on the right side of the market" does that complement an earlier comment ie. that you have been building up a war chest? If so, do you have targets and suitable entry points identified? Your focus on manageable debt/accessible funds is obviously the right approach in this market as is your discipline to skip those that don't meet what should be a stringent criteria.
Best regards.
Hi MA
ReplyDeleteForgetting things is quite a worry to me. I keep records of all of my trades and notes etc in the hope that I do not repeat mistakes but its all quite subtle. I think that my perception and evaluation of the situation changes and I often go on to not see I make similar mistakes of the past.
I was buying during Summer 2010 and it was a nice feeling as the market rose. I think that I even sold a lot too soon.
2008 was quite interesting. The drop in the broad markets was about 45-50% at the worst but in 1929 the market drops were nearer 75%. They were 75% or so in 74/75. One could be forgiven for thinking that more was to come as the economics were said to be as bad. That would make a considerable dent in ones confidence.
I sense that the market is more nasty now , some of the market moves do not conform to "move-retrace-move" giving you time to consider but can be too quick to do much about. Its easy to buy stock for £1 that you can get for 80P now !
I am targetting companies that I like but its the "beauty parade" aspect thats a problem. The markets may not value these things and one holds losses so for me I try to balance the fundamentals with the charts. Impossible to get right but possible to do better I wonder ?
Regards
Fenchurch
Hi Fenchurch,
ReplyDeleteI know what you mean it also seems easier to me to be dragged along with the market sentiment and momentum (telling yourself its different this time) than to actually relate and learn from past experiences.
The nastier I can agree with and is possibly due to the mistrust sown by 2008 and its aftermath when such as RBS reported increased profits and dividend and then asked for it back (almost immediately)in a second rights issue before eventually imploding. Corporate greed has resulted in a mistrust of the fundamentals and fundamentals has always been my foundation.
I like your beauty parade analogy and feel I am in the same boat. I risk being over diversified as a result. I keep adding and have 17 holdings at present but am starting to think that is enough whilst still seeing gaps in terms of sectors/geographical spread etc.
Regards
Hi MA
ReplyDeleteTo not be dragged about by the markets would be good. Sometimes I think that it would be better to be a bit further away from them.
The beauty parade analogy is a Buffet/Graham thing where the market is likened to a weighing machine in the long term but a voting machine in the short term. (You may have read that somewhere). The sad thing is that one can get the company fundamentals right and have to wait a long time for any result. I seem to recall reading about "Campbells Soups" in the 50s and 60s somewhere , possibly Peter Lynches book. One decade it was in selling on a PE of 15 the next it was on 6 , same soup though.
I think that the number of holdings that is sensible varies. 12-13 is supposed to be a minimum. I have friends who have 100s but they cannot keep an eye on them like that and I wonder if its meaningful as you get a market return. I am aiming for about 15 ish because its a compromise between keeping an eye on them / if one went bust then it would not wipe you out and I am comfortable with that sort of monetary loss. Personally I think more concentrated portfolios are a better idea as unloading them is easier if you decide that he market is going down. However I usually end up with some investments that have not done well and that I should just sell. That is not good.
I believe that this market had some downside in it and I am unwilling to fill my boots etc.
I have been trying to visualise what the market could do. I read about the idea of a two tier market (possibly Woodfords idea). Some stock will keep its value but some will collapse reflecting the overly endebted nature of our current world situation.
How would you feel about that ?
regards
Fenchurch
Hi Fenchurch,
ReplyDeleteyes I recognise the weighing/voting machine analogy.
At present I am working very hard to buy and hold (unless obvious mistakes are in there) but can always seem to see a gap in the portfolio's desired coverage but in theory I am well into the "tail" of my top 20 choices (unless I can see an obvious sale)so each further purchase should be less attractive and I risk diluting performance as well as risk. Probably means I need to find a better means of swapping one for another.
I'd like to think that I would be comfortable with the 2 tier market as that would seem to conform to the natural order of things and means that quality will win out. I wonder how many sick and injured companies are being propped up artificially and therefore continuing to suck in investors monies.
Regards
Hi MA
ReplyDeleteI think that the hard bit is buying a share at a decent low. It hard work & I never seem to quite do it.
There are value traps about in this environment that will dent a portfolio. I think that they will constitute the lower tier in time. The retail sector is a case in point at present.
Did it take long to build up this portfolio ?
Regards
Fenchurch
Hi Fenchurch,
ReplyDeletedifficult to say how long it has taken to shape this portfolio but I would have to say that with the exception of R-R, BG/SSE/Centrica/Invesco, and an initial investment in NG, the remainder have all been part of a churn and rebuild post credit crunch.
Through most of the last 12 months I have had around 5/6% of the portfolio in cash (building up with dividends) but have become fully invested over the last 2 months.
Regards
Hi MA
ReplyDeleteI feel a lot more relaxed at seeing holdings fall in price if I paid a lot less for them in the first place.
To have a portfolio that is more usually 'out of the water' is my current goal. I feel that some shares bought now must drop just because the markets have risen. So its a bit of a dilemma as there seem to several attractive situations that I do not hold but think they may be cheaper in a while.
I am more wary of buying into a share that is attractive but it falls due to either something I had not appreciated or the market has just dragged it down with some perception that it has.
Would you say that your general portfolio is usually in profit ?
Regards
Fenchurch
Hi Fenchurch,
ReplyDeletetricky one. I have tried to focus on the saying - that time in the market is more important than timing the market, but the last few years (or ten) tests this somewhat.
About half of my portfolio swung into loss with the FTSE at 5000, but in most cases when dividends are added back in then they are generally still ahead or flattish with the exception of a few bad eggs of course.
Overall the value has just about stayed ahead YTD although there were a couple of dips into the red when the FTSE played with 4800. Over 2 years it is now comfortably ahead.
In terms of buying I have tried to accept that I am more likely to miss the bottom than find it. I say tried as I am still trying to accept it against my competitive instinct.
Logic dictates that quality will come through in the end so if I am right about the shares then the gains should comfortably outweigh missing the bottom.
However, I do still find it disconcerting to watch a share go down after I have bought it which gives rise to self doubt and thinking that others know something I don't.
Its not perfect but the situation is never going to be when I am trying to go against the rush towards the exit. But, we are told that going against the herd is one aspect of the successful investor.
The current madness really doesn't help me sleep either.
Best regards