Market Collapse

JEC

Tiggs wrote:

and its hardly a collapse!

So.. stupid question maybe... but when does a correction become a collapse?

dunstonh

Well, the current position has only put us back about 5 months. If it put us back 3 years, then you could consider that a crash. A 20-30% drop would be a crash. A 5% drop is not.

http://finance.yahoo.com/q/bc?s=^FTSE

If you look at the above chart, at the time of this post, it shows that a rolling 12 months still gives a 10% profit. Drops in May and October are not uncommon. You can see a similar one last October.

EdInvestor

This correction is needed because there are a lot of people out there who have been punting the markets "on margin" ie using borrowed money.For instance, you may have heard of the "yen carry trade"?This involved people borrowing money in Japan at an interest rate of 1% and then putting it on deposit -or in the stockmarket - in some emerging market like India - or Iceland - at 10% or more. This then pushes up the currency of the country against the dollar and the stockmarket itself.

Some of this money has gone into mining shares - pushing up the price of raw materials, because of the perception that China has an inexhaustible demand for them. Yet more has gone into oil companies and Mideast and Russian stockmarkets.The oil price is very high.

Eventually all this got to the point where people in America decided it was all getting to far out of line and the higher prices caused by all this speculation would feed through into higher inflation in America, forcing interest rates up, and thus causing its economy to go into recession.

That was it. People started selling.

By now it looks like a lot of this speculative money has been shaken out, so a return to normality may not be far off.

As DH says, we had something very similar last October.Those investors do tend to get a bit over-enthusiastic about making money at times

margaretclare

baldbloke wrote:

I have probably invested to date as a 'partially sighted' investor. Still I can swap funds or managers as the year goes on and no doubt my future investments will be better informed. It is a steep learning curve for a new boy!

Here's another who's on a learning curve. It may be thought of as being a bit late in the day for me, but I find it absolutely fascinating and I'm prepared to sit back and watch. I just transferred my stakeholder of £8400 into a SIPP and I've just got £600 in an equity ISA, both with Hargreaves Lansdown. At the present moment absolutely everything is losing money, apart from the Aegon Ethical Corporate Bond, which isn't.

Margaret Clare

Debt_Free_Chick

Over the years, I've put £13,000 into funds via Stocks & Shares ISAs.

Three weeks ago, the value topped £20,000.

Now it's at £18,200, which is approximately where it stood in December 2005 ... when I was chuffed to see it had grown to that value.

You tell me .... is that a market collapse?

Debt_Free_Chick

EdInvestor wrote:

This correction is needed because there are a lot of people out there who have been punting the markets "on margin" ie using borrowed money.

I guess it depends on your definition of "market correction" but I don't see this as any kind of correction at all.

To clarify .. to my mind, a market correction is when there is a consensus that the markets are overvalued i.e. that buying stock at what is considered to be a high price, is not supported by a valuation of the companies concerned. In particular, that the dividend yield is either not likely to be supported in the future as forecast profits are unlikely to be borne out in practice or that the dividends will take too long to repay the capital outlay for buying the stock.

That has not happened here. Selling seems to be based on fear and sentiment - NOT a fundamental downgrading of market valuation.

There is a herd mentality going on .... and not following the herd is often a pretty sound investment strategey!

Interested on the thoughts of others, as this is just my view

meanmachine_2

Debt_Free_Chick wrote:

There is a herd mentality going on .... and not following the herd is often a pretty sound investment strategey!

Interested on the thoughts of others, as this is just my view

Bingo! Now you've nailed the definition of a contrarian.

And that's why I'm steering clear of property. A big risk, granted. But I wouldn't feel comfortable going with the herd. The herd are stupid.

whiteflag_3

Debt_Free_Chick wrote:

Over the years, I've put £13,000 into funds via Stocks & Shares ISAs.

Three weeks ago, the value topped £20,000.

Now it's at £18,200, which is approximately where it stood in December 2005 ... when I was chuffed to see it had grown to that value.

You tell me .... is that a market collapse?

Hi DFC

Just checked and my ISA is down £1850 from where it was at the begining of the month! Still up £2000 for the last six months .

Hopefully the markets will recover from this "collapse" by the time I (plan) to retire in 2027:D

whiteflag_3

Debt_Free_Chick wrote:

I guess it depends on your definition of "market correction" but I don't see this as any kind of correction at all.

To clarify .. to my mind, a market correction is when there is a consensus that the markets are overvalued i.e. that buying stock at what is considered to be a high price, is not supported by a valuation of the companies concerned. In particular, that the dividend yield is either not likely to be supported in the future as forecast profits are unlikely to be borne out in practice or that the dividends will take too long to repay the capital outlay for buying the stock.

That has not happened here. Selling seems to be based on fear and sentiment - NOT a fundamental downgrading of market valuation.

There is a herd mentality going on .... and not following the herd is often a pretty sound investment strategey!

Interested on the thoughts of others, as this is just my view

Spot on....as usual

EdInvestor

Hi DFC

To clarify .. to my mind, a market correction is when there is a consensus that the markets are overvalued i.e. that buying stock at what is considered to be a high price, is not supported by a valuation of the companies concerned. In particular, that the dividend yield is either not likely to be supported in the future as forecast profits are unlikely to be borne out in practice or that the dividends will take too long to repay the capital outlay for buying the stock.That has not happened here. Selling seems to be based on fear and sentiment - NOT a fundamental downgrading of market valuation.

Quite agree.I was using the term "correction" in the simple sense of losing value, stepping down to a lower level, as opposed to "collapse", as in wholesale rout.

I agree with you that the fundamentals of the UK market are fine. BUT there were significant imbalances elsewhere - in commodities and emerging markets, in the bond and currency markets, with the yen carry trade etc and thus London has experienced additional buffeting as all these various imbalances are unwound.It is a much more international market than Wall Street so this is to be expected.

In particular it's been energy, mining and financials which have borne the brunt of it - you can't avoid the latter getting hit for obvious reasons in any bout of volatility. [And that of course means the tracker funds are in the firing line because of their concentration in those sectors, so some inexperienced people will get hit.]

But I do think that it all amounts to a lot of froth being blown off and some people getting taught a few lessons about punting on margin.I guess we shouldn't forget that memories are short: the peak of the tech boom was more than six years ago - possibly some of those margin punters were still at school then

Those with longer memories may feel it's a bit ridiculous talking about a bull market when the FTSE100 is still underwater from that time..

Just checked my own portfolio - as of today it's down about 3% over a couple of weeks ago. That's not a crash or even a correction - it's just noise.

And a buying opportunity,of course