Staying in the markets during an recession?

nxdmsandkaskdjaqd

I was hoping to understand from other investors their views on why they say you should stay in the markets during an recession. To me the logic just not make sense and I do fully appreciate that it impossible to time the precise start and recover of an recession. However, if you consider the last recession, there were enough indicators to say that things were going to be bad, and whilst you may have missed the start of the fall, you could have taken some action to limit your loss. On this occasion I was unable to take any action, however, in the future, I now have the ability to change my investments.

Am I the only one that doesn’t support this ‘rule of thumb’? What do others do?

Note, I am thinking in the context of Stocks and Shares ISA's.

Regards

Robert

dunstonh

I do fully appreciate that it impossible to time the precise start and recover of an recession.

That is key point one against your argument.

However, if you consider the last recession, there were enough indicators to say that things were going to be bad

Was there? You had people claiming recession for over 7 years before it happened. That 7 year period before it actually did happen saw many people double their money.

Key point 2 is that you also seem to be missing the fact that recession and stockmarket do not go hand in hand. They do not. The stockmarket went through one of the biggest growth spurts in history whilst we were in recession.

Looking back it is always easy to say you would have done this that or the other but at the time its impossible to say or guess these things. The reality is that at the time you have no more clue as to what is happening or going to happen than the next person.

You are just as likely to lose more money by trying to time the market than you are just seeing it through. Also, if you rebalance your investments through a volatile market you can actually do quite well out of it in the long run. When you invest, all you know is that there will be corrections and crashes and there will be growth and recessions and there will be unknown events that occur. You just don't know when or how much. You should always invest on that basis.

gozomark

markets don't move on the expected, but on the unexpected

opinions4u

Brilliant graph!

I built up a lovely collection of HBOS shares worth £36k.

I nearly sold at 1100p but a mixture of greed and laziness meant I didn't.

When Northern Rock crashed the HBOS price dropped by 30%. So I decided to sit tight. Then the shorters came in, so I threw a bit of spare cash at it for 530p a share. And more at 280p a share. Current value converted from the LBG share price is 29p a share.

Now I was stupid on a number of fronts. Over exposure to one share. Believing it would go back up because it always had done. Believing I could profit from the market. Failing to understand that wholesale funding not being renewed was the
same as a run on the bank. Catching the falling knife.

Trying to guess the high points and low points of the market is a mugs game for the layman. Playing for short term gain is like playing roulette. £40k in total is a big lesson to learn.

Invest for the medium term and spread the risk. Rules I knew before the event, but ignored.

rockitup

opinions4u wrote: »

Brilliant graph!

I built up a lovely collection of HBOS shares worth £36k.

I nearly sold at 1100p but a mixture of greed and laziness meant I didn't.

When Northern Rock crashed the HBOS price dropped by 30%. So I decided to sit tight. Then the shorters came in, so I threw a bit of spare cash at it for 530p a share. And more at 280p a share. Current value converted from the LBG share price is 29p a share.

Now I was stupid on a number of fronts. Over exposure to one share. Believing it would go back up because it always had done. Believing I could profit from the market. Failing to understand that wholesale funding not being renewed was the
same as a run on the bank. Catching the falling knife.

Trying to guess the high points and low points of the market is a mugs game for the layman. Playing for short term gain is like playing roulette. £40k in total is a big lesson to learn.

Invest for the medium term and spread the risk. Rules I knew before the event, but ignored.

I had a similar experience when just starting with a little bit of investing on a much smaller scale then yours, a grand to be exact.

Put it into Edinburgh New Tiger Investment Trust round about 1993 IIRC, but the !!!!!! tanked and I kept throwing £500 in here and there but it lost more and more till I threw in the towel when a holiday beckoned.::o

We all have to learn somewhere:o, still do today....

ruperts

My first real investment was £1k in Bank of Ireland when it was at about 70p in October last year. I'd been watching it for months and had made a fortune on it in a practice account. There were even some 'respectable' articles knocking around online talking about how much of a bargain it looked. So I took the plunge quietly confident of my first multi-bagger. Less than a year later... 14p.

Lesson learned - even the experts don't know which way things are going to go and even if they do, they're not going to tell me. Rule No 1: Never lose money. Rule No 2: Don't forget No 1.

Although, I have to be honest, I am sorely tempted to add to my position at 14p....

rockitup

nxdmsandkaskdjaqd wrote: »

I was hoping to understand from other investors their views on why they say you should stay in the markets during an recession. To me the logic just not make sense and I do fully appreciate that it impossible to time the precise start and recover of an recession. However, if you consider the last recession, there were enough indicators to say that things were going to be bad, and whilst you may have missed the start of the fall, you could have taken some action to limit your loss. On this occasion I was unable to take any action, however, in the future, I now have the ability to change my investments.

Am I the only one that doesn’t support this ‘rule of thumb’? What do others do?

Note, I am thinking in the context of Stocks and Shares ISA's.

Regards

Robert

Were you meaning the 2008 crash when you mentioned the indicators showing? I started reading in quite a few articles in second half of 2007 about an impending decline being expected in stock markets, but my share holdings were at not such a high level as I had this year.

Luckily enough I missed being in equity or housing market in 2008 due to selling up and travelling for a year, I saw the blood on the streets watching CNBC & Bloomberg when I was travelling through the US.

But really analysts and others have been calling a top for some time now but this move up in markets since Spring 2009 has been rather strong, as you say it is damn hard to call a top or bottom with any precision.

Depends really what your plans for the years ahead are? If thinking of making regular purchases of shares/funds for a good few years ahead then I would be tempted to stay in and ride the waves.

In my situation, I was holding two-thirds of my net worth in shares and funds and have retired so I have decided to take time out and try:o to buy on a dip maybe towards end of this year. I did this in early 2010 though and missed a good bit of the growth. Disappointed with doing that but still the year went far better than a savings account so I can't grumble

rockitup

gozomark wrote: »

markets don't move on the expected, but on the unexpected

Just like in mid-March with the catastrophe in poor Japan

ermine

I loved dunstonh's graph In answer to the OP's query there are some schools of thought that look for some type of long term valuation of an index such as the long-term historical PE ratio and thenr compare the PE10 with it to determine if the market is overvalued (Google Robert Shiller for the data and methodology) and perhaps one of Rob Bennett's many diatribes agains buy and hold index investment. The latter should come with an extreme wealth warning; he might be right but it's not that clear how you use the information effectively in the face of a changing world.

nrsql

It's all about having confidence about which point in the market cycle you are at. Sometimes it's not too difficult.
The dot com bubble and recent fall/rise are cases in point.
Wasn't too difficult to realise that texh stocks were bubbling - but get out of that sector and you would see massive gains being missed. Easy to decide to dip back in and then get caught badly.
For the fall (remember it was preceded by a rise) - again was a choice between total disaster and a recovery. Not too difficult to spot there were issues - but how the market would react before the fall? And once it had started falling, how far would it go? Once quantitive easing was announced it wasn't too difficult to guess that sterling valuations would have to rise - but by how much and when?

The problem comes when you start having doubts and decide to cover yourself - can lead to big losses. These situations don't happen very often and you need liquidity and confidence to be able to take advantage of them.

sabretoothtigger

Markets are ironic

I was hoping to understand from other investors their views on why they say you should stay in the markets during an recession

Its not just a company share its also currency So its Company / Currency

If the currency is weak, a poor store of wealth it can mean the company is worth owning instead especially if they have foreign income and therefore foreign currency
Some think even better are the miners because gold silver even copper can be used as a store of wealth.
All those rely on global demand staying strong which I believe is the case and this mostly why you should stay invested


o4u I made similar mistakes but I think the main one in your example is owning only or mostly one share. Spread it around a bit and make the idea of which company is more deserving of the cash compete.
This can make you more aware of one companys weakness

That or just use trackers


Lloyds weakness or main point is its mostly UK based. Icing on the cake is Ireland debt also but its mostly a UK trade and the other banks arent so much.
I think Lloyds are too cheap now, they can afford to pay 4p div for last two years but have been banned from doing so. I think its fair to say that potential is within the price, making them even cheaper then they appear

My target is over 60p for them, best case would be 80 say