The Stock Market Takes Another Dive - Steer Clear ?

1echidna

dunstonh wrote: »

How is that the wrong advice? No-one has a crystal ball and all you can do is invest knowing that there will be periods like this. Investments will go down as well as up. You dont know when. You dont know by how much. Typically, you find that 2006 investments are now valued at or above what cash interest rates would have paid.

If like me you had kept you money in savings at high interest rates and invested at the low point like me you would have made more money. Is now the time to be carefull where one investments lie and converting some back to cash, albeit on losing real rates of return. We will see.

srcandas

Following this thread that throws up some real gems and understanding at times, and entertainment at others, I am beginning to side with IFA thinking (which is not my natural position ). The posts from the IFA side of the house seem to be logical and based on fact, those on the other side of the house seem to use an awful large amount of hindsight.

Perhaps I'm being hoodwinked by the eloquence of our highly educated IFAs

But do keep going, very entertaining :beer:

dunstonh

Perhaps I'm being hoodwinked by the eloquence of our highly educated IFAs

I hope not. I mean I hope its not hoodwinking

<Donald Rumsfeld alert>
You need to know what you do know and what you dont know. You know that it WILL go down as well as well as up at times. If you cant handle that then dont invest. You dont know when it will go down. you dont know when it will go up. You dont know how much it will go down by or how much it will go up. You know it will happen.

Sometimes you get lucky with timing. Sometimes you dont.

Its like the fleet street publications that every year say there is going to be a crash. They will be right every now and then. We laugh at them when they are wrong but they are treated like gurus when they get it right. A broken clock will be right twice a day.

Bottom line is that you need to accept the risk of what you are doing and know that it will go down as well as up. You may get lucky with some timing (not a bad idea to phase money in after a drop. Regular payments do better in volatile periods) in the short term. However, You wont know if a 5% drop is all it is going to be or will it be 10%, 20%, 30% etc. And if it goes up a bit is that time to invest or will 6 months later come a double dip which is bigger than the first.

Crystal Ball required or know your limitations and accept that.

Radiantsoul

1echidna wrote: »

If like me you had kept you money in savings at high interest rates and invested at the low point like me you would have made more money. Is now the time to be carefull where one investments lie and converting some back to cash, albeit on losing real rates of return. We will see.

There is nothing really wrong with having an attitude to risk that makes it impossible for you to accept even a small capital loss over a 5 year timescale. Or requiring instant access. In these cases cash is probably the right asset to hold.

But a lot of people are prepared to accept a bit more risk.

I think the reality is the stock market is violatile and can spend years in a slump. Even reinvesting dividends has not produced stellar returns since the last peak in 1999, and this may continue. If reading this in the papers every morning will distress you then you need to find a more stable investment and there is nothing wrong with that. For me an IFA should attempt to identify a clients attitude to risk and match investments to that profile.

1echidna

Radiantsoul wrote: »

There is nothing really wrong with having an attitude to risk that makes it impossible for you to accept even a small capital loss over a 5 year timescale. Or requiring instant access. In these cases cash is probably the right asset to hold.

But a lot of people are prepared to accept a bit more risk.

I think the reality is the stock market is violatile and can spend years in a slump. Even reinvesting dividends has not produced stellar returns since the last peak in 1999, and this may continue. If reading this in the papers every morning will distress you then you need to find a more stable investment and there is nothing wrong with that. For me an IFA should attempt to identify a clients attitude to risk and match investments to that profile.

I'm glad you have it all sorted.

1echidna

The kind of thing the good investor has to take into account:

Analysis: Marine insurance: the stranglehold on Iran?

IronWolf

1echidna wrote: »

The kind of thing the good investor has to take into account:

Analysis: Marine insurance: the stranglehold on Iran?

Interesting piece. I personally dont invest in oil or commodities companies, unless the material prices are obviously depressed, but do have holdings in a reinsurance company.

I'm not sure there is enough of a reinsurance market to cover this outside Europe. Insurers have to spread their risks, and a large concentration of Iranian tanker insurance is most likely far too high risk for any of them to accept.

Radiantsoul

1echidna wrote: »

The kind of thing the good investor has to take into account:

Analysis: Marine insurance: the stranglehold on Iran?

How can a good investor take that into account? Questions are: -

What is the impact on world oil consumption? And on future oil prices?
Or companies that produce energy intensive goods versus less energy intensive goods?
What impact does it have on the discounted future cash flow from BP dividends?
Etc...

I doubt anyone can really know and there is no way a private individual could reasonably adjust their portfolio in the light of such news. Today it is Iran, tomorrow trouble in Syria spreading across the Middle East, the day after Russia cuts off European gas, a new flu in South Asia, debt crisis in Europe, etc...

IronWolf

And you couple that with the long term oil issues, like the huge potential increase in supply from tar sands, how expense will it be to extract this, what government regulations will there be around it, how much can they even produce from tar sands per day?

All leads to the conclusion that the future price of oil is unknowable. So all you can do is think, how well will this company do with high or low oil prices and am I willing to take that risk? For most companies this will be fairly low impact, but for oil producers obviously its high impact and too risky for my liking. Now if oil was at an all time low, that would be a different story....more upside than downside makes a more inviting investment.

1echidna

Radiantsoul wrote: »

How can a good investor take that into account? Questions are: -

What is the impact on world oil consumption? And on future oil prices?
Or companies that produce energy intensive goods versus less energy intensive goods?
What impact does it have on the discounted future cash flow from BP dividends?
Etc...

I doubt anyone can really know and there is no way a private individual could reasonably adjust their portfolio in the light of such news. Today it is Iran, tomorrow trouble in Syria spreading across the Middle East, the day after Russia cuts off European gas, a new flu in South Asia, debt crisis in Europe, etc...

As I said in post #92, taking a broad brush approach.