FTSE at 3700 and no winners.

Generali

My belief is that we're nowhere near a bottom. Yields are going to start falling fast as most UK banks can no longer pay dividends and so pension funds are likely to start selling stocks and buying up preference shares or bonds. Also, the fact that the FTSE is plummeting will not have been missed by the public at large and it coming so soon after the dot com bust may mean that people are inclined to take their money out of stocks for the short term and possibly for good.

posh*spice

Generali wrote: »

and it coming so soon after the dot com bust may mean that people are inclined to take their money out of stocks for the short term and possibly for good.

Might agree with you but if interest rates go to 1% where else will there be to go? People will go back to the stock market 'cos their savings will be being eroded..IMHO

sabretoothtigger

People will just invest indirectly or like those guaranteed ftse bonds

posh*spice

Yo - 3 -1 to the Arsenal:T:T:T

oh carp 3-2........

StevieJ

posh*spice wrote: »

Might agree with you but if interest rates go to 1% where else will there be to go? People will go back to the stock market 'cos their savings will be being eroded..IMHO

Also the amount of stimilation going into the economy may rekindle inflation, so the places to be will be stock market and property - again.

Generali

posh*spice wrote: »

Might agree with you but if interest rates go to 1% where else will there be to go? People will go back to the stock market 'cos their savings will be being eroded..IMHO

If we have deflation then cash will be the best place to be. Even at an interest rate of 0% (eg 1st National Matress Bank) you're making money!

If we have inflation and interest rates are at 1% then BTL will be a cracking investment.

posh*spice

posh*spice

oh pants - 4-4:rolleyes:

Laughing_man

Dithering_Dad wrote: »

Low risk perhaps, but in the current market, had I taken the 'low risk' and left my money with the fund managers, I would be £13.5k light in my pension pot.

I'm sorry laughing_man but I just don't agree with you. In a normal market I'd say that it was prudent to leave the funds as-is and let the fund managers do their job. However, the fund managers are constrained by their fund types - an overseas equity fund or a European Equity Tracker fund cannot move 100% into cash, even if they believe a large market correction is on the card - their hands are tied by the very nature of their fund types and the best they can do is to buy more rubust stock that might not fall as badly as others and to try and pick up decent bargains once the dust has settled.

My hands, on the other hand are not tied and I can make the choice to temporarily move into a cash fund until the market crashes and then move back to the funds when I think that the market is going to rise after an over-reaction and catch some of these gains. When the rises peter out, then I'm back into cash in case they crash again. I'm not making a fortune doing this, a thousand here and there, but it all adds up, especially when one considers I have over 25 years for these few thousands to compound.

There are two 'bad' things that can happen. 1) I am in my equity funds when the crash happens - but as this is what you are advising me to do anyway(passively manage my funds) then obviously this isn't high risk. 2) I am in cash when the market rises and I miss the rise - however, I don't see the market staging a miraculous recovery any time soon (quite the opposite), so I don;t really see this as a risk.

This is perfectly sound reasoning and I didn't disagree with it, only with the percentage of your net worth that you're willing to risk on it. My point is more to do with managing randomness.

Again, I have to say that I don't see where I am going to lose everything unless the pension funds go under, and then I won't be alone in this and there isn't really any way to avoid it - even in a cash fund.

If you have the time/inclination I'd be very interested in hearing your 'worst case' scenario.

I think you missed my point about ROR (risk of ruin), there is a HUGE difference between having a ROR >0 and actually going broke.

For example my poker game: I have a large bankroll for the stakes I play and a statistically significant sample of hands with a positive winrate and do not ever expect to go broke (again). Nevertheless, my ROR is still about 1%.

This doesn't mean I am certain to go broke at some point in the future, but that if you take 100 accounts with my exact style of play and bankroll, playing at my stakes one of them will go broke entirely due to randomness in thier lifetime, and on the other side some of them will make far more than thier expectation. In reality I would drop stakes, switch games or alter my style of play long before the situation became critical, but this only alters the paramaters of the calculation and gives me a new ROR.

The smaller your bankroll is, the higher your susceptiblity to random swings, the higher your ROR. This is also why sample size is so important, the larger the sample the smaller effect of variance, giving you a better idea of your long term expectation.

Fortunately amatuer players are unaware of all this and usually focus on short term results when trying to determine thier expectation and bankroll, so if they deposit £500 and make £1500 in a month by running £3000 over expectation, they expect to do the same every month on the same £500 they started with, and redeposit if they go broke. Giving me an easy life and plenty of time for posting on forums:j.

How does this apply to you? Well, your results are influenced- perhaps significantly- by randomness, too. From the horses mouth:

Generali wrote: »

Part of the problem is that the FTSE100 isn't a thing at all, it's a collection of other things in this case the average value of 100 shares*.

What happens when oil prices rise for example? Well oil shares might go up and retailers might go down (as consumers have to spend more on oil so have less to spend on other things). But what happens to the FTSE? Well it depends on the relative impacts of the two lots of movements.

The other thing is that much of the day-by-day movement is just noise IMO. Having seen markets working it's funny the impact things have. The FX market used to die when there was an England football match on during UK hours for example. Volumes would collapse and liquidity with it.

It may be less obvious than the turn of a card, but its definately there.

Therefore, if I were to try and play the market by moving cash/stocks I would define a bankroll I could afford to completely bust and make a significant number of trades to filter out the effects of randomness as much as possible and determine my approximate expectation. If it turns out to be good I would then invest more. If you think about it the only reason to not do this if you're certain variance plays almost no part in the outcome and that you're +ev on each trade.

In your exact shoes I would stay mainly in cash set a re-entry and leave it, and make the same play you are with maybe 20% of available funds (the 14K you're up would do me) until I had a thousand trades, then play the balance the same way for the next 25 years when I knew I was good.

Anyway, here are today's results:

Closing Price Monday 27th October
£60,564.39 - Amount my pension pot would be if I had left it alone.
£73,537.29 - Amount in my Pensions Pot now (Equities).

Closing Price Tuesday 28th October
£61,307.95 - Amount my pension pot would be if I had left it alone.
£74,892.98 - Amount in my Pensions Pot now (Equities).

Difference between leaving pension alone and actively managing: +£13,585.03

Thus far your results are good, but from a statistical standpoint you have no idea to what extent this is due to ordinary variance or what your expectation was.

Worst case then: Your expectation is negative, say -1% per trade (i.e on average stocks fall or rise 1% in the opposite direction to your prediction), but you run well above that for the first 200 trades. Once your results begin to regress to the mean you continue to trade into the long run in the false belief your expectation is positive and end up losing any gains the fund would make naturally, swinging around a pyschologically critical breakeven number without really going anywhere, eventually finishing a long way behind a passive contributer.
Its very easy to get http://en.wikipedia.org/wiki/Fooled_by_Randomness.

going to zero isn't really an option unless you have a complete breakdown or become addicted to gambling.

Best case: your +ev by 1% per trade and get to retire ten years early on more money:T :j :beer: . This outcome makes the risk worth it and you should go for it IMO, but take the time to find out how likely it is first.

sabretoothtigger

That book is by the guy who predicted the 1987 crash, but I think that crash was different to this one and perhaps not as severe even (the market regained its high in 20 months).

However again he seemed to show foresight on this one, in 2006:

The government-sponsored institution Fannie Mae, when I look at its risks, seems to be sitting on a barrel of dynamite, vulnerable to the slightest hiccup. But not to worry: their large staff of scientists deem these events "unlikely".