MSE News: 'Don't panic', investors are told, amid market slump

Reaper

According to that graph property has shot up in value since 2008. Where?

Credit-Crunched

Reaper wrote: »

According to that graph property has shot up in value since 2008. Where?

I thought that originally, it must include commercial (which has done very well over the past 2-3 years, 25% of my portfolio is in commercial collectives and returned around 11% gross each year.

poppy10_2

This is exactly the time to panic. Next stage of the great crash is upon us.

SnowMan

The best judge of tomorrow's price is today's price.

So the position is the same as it has always been that there is an even chance that the market will go up or down. So I don't believe the lazy argument that it is a good buying opportunity because you can get more units or shares for your money now.

So when I read 'What's more, many with their pension tied up in the markets, who continually buy units with their cash each month, will now be buying them at cheaper rates given the slump' my thought is no no no no no no no no, that really doesn't help people's understanding.

What that misses is that the market isn't any cheaper now (rather than a few weeks ago when stock market indices and prices were higher) in relation to future expectations on whether those investments will subsequently go up or down. And after all what determines whether shares or markets are 'cheap' is whether they go up in the future not whether they have gone up or down in the past. The best judge of tomorrow's price is today's, so better to think of it as equities are not cheaper or more expensive after all most people read 'cheap' as meaning 'good buying opportunity at a discount' (but see the last paragraph)

What is different this week is that volatility is higher and volatility is likely to continue higher for a bit. That is the swings in the prices of shares and markets are more than they have been in recent months. People who get scared and sell equities and buy back later, for example, are further increasing their volatility because of the uncertainty as to the difference in price they sell and buy back at. That is not to say they will not do really really well but then again they may do really really badly. Much better to stick in there and do either really well or really badly (with the single not double 'really'). There is no obvious gain in expected return by selling and buying back later just an unwanted increase in volatiility of the value of the portfolio.

Hence the message for investors to recognise investments are for the long term and stick in there, and not to panic by selling up or stopping regular contributions.



That all said the separate question is, is there some sort of market hysteria, some market herd mentality, that has currently brought the value of equities (either as a whole market or individual companies) down below a level which reflects their true value based on fundamentals, and so eventually an upwards market correction will reflect that. It feels to me that this is the case. But in saying that I am saying I know better than the market as a whole, so it is arguably silly for me to say that. And of course you can argue that the market should have fallen further to reflect recent events. However it does feel pyschologically like a good time to put some money currently in savings back into the equity market, and provided I understand the risks, and my thinking process in deciding to do that, and the limitations of that thinking process, that seems a reasonable thing to do.

cepheus

Reaper wrote: »

According to that graph property has shot up in value since 2008. Where?

There are some places, but it does seems strange. Perhaps it includes rental returns, these have shot up here? These are just house prices.

cepheus

SnowMan wrote: »

The best judge of tomorrow's price is today's price.

So the position is the same as it has always been that there is an even chance that the market will go up or down. ..... The best judge of tomorrow's price is today's.

Hence the message for investors to recognize investments are for the long term and stick in there, and not to panic by selling up or stopping regular contributions.

Snowman

How do you reconcile these statements? Isn't the whole point of Investing for the long term is that there is an assumption that there is a better than even chance the market will go up rather than down? Admittedly dividends would need to be counted as well, but these often only cover inflation.

My view is that civilizations rise, mature, become decadent then fall. To invest in the developed world you have to be convinced their monopolies and brands will be enough to stand the onslaught of cheaper, harder working societies. To invest anywhere in equities or bonds you need to convinced that we haven't reached our resource or/and waste limit potential. I suppose that might be a good argument for diversifying into commodities and possibly gold.

SnowMan

cepheus wrote: »

Snowman

How do you reconcile these statements? Isn't the whole point of Investing for the long term is that there is an assumption that there is a better than even chance the market will go up rather than down? Admittedly dividends would need to be counted as well, but these often only cover inflation.

Equities should in the very very long term go up in value, sorry I wasn't try to suggest they wouldn't.

Just for argument sake let's put a figure of 7% pa on it and assume investment in accumulation units in an equity fund (so dividends can be roughly ignored).

So in any one day we would expect the unit price to go up by about 0.019% (=7%/365).

What I am saying is that in any one day there is a roughly even chance that the price will go up by more or less than 0.019% because of market movements and developments and the analysis of new information publicly available or not.

The relatively big movements in recent days completely swamp the 0.019% underlying daily increase. It is the big movements I am talking about.

Historical evidence suggests that over very very long periods shares outperform savings by between 2% and 5% (we can argue about that figure and that range).

It is quite possible that this trend will not continue and that nuclear war, global warming or some other event etc will mean in our lifetime savings will outperform equities.

By not investing in equities we take the risk that the historic trend repeats itself.

And by investing in equities we take the risk that the trend doesn't continue or that we through bad luck get our timing wrong and invest over an 'unlucky' period.

Roland_Flagg

Do people think that the market has already accounted
for the U.S credit downgrade (knowing it would happen),
or will we see another big slide on the FTSE and DOW
on Monday because of it?

Ark_Welder

Roland_Flagg wrote: »

Do people think that the market has already accounted
for the U.S credit downgrade (knowing it would happen),
or will we see another big slide on the FTSE and DOW
on Monday because of it?

Some will sell because they didn't know that it would happen because they do not keep abreast of events. But will markets fall overall? Don't know - I try not to second guess what short sellers and stort-term traders might do!

ses6jwg

Anyone in the know would have known that a downgrade was coming, so I would hazard a guess and say its mostly priced in.