Sanity Check

Linton

srcandas wrote: »

....
If one is tempted to jump ship on say 15% profit because it seems like a big mustn't loose profit perhaps the funds are too volatile for the investor's risk tolerance. They might also like to ask if they would jump ship if the 15% was a loss and not a gain?

Very good point - I hadnt thought of that one.

grey_gym_sock

15% is not a very big move for a fund or market. there could be reasons to sell - depends what your strategy is - but there's no requirement to respond to every market event.

if your strategy involves using technical analysis to predict short-term market movement, then 15% may be enough to change your predictions.

if you thought a fund was fundamentally good value a few months ago, then it's presumably slightly less good value now (unless you think there's been enough positive newsflow meanwhile to justify the rise), but only slightly.

if you not trying to do any of the above, but just trying to diversify and benefit from being invested for the long term, then doing nothing or rebalancing are the logical options.

it would generally be a mistake to sell purely because something is showing a profit, however. especially if it's combined with a reluctance to take losses. that can turn into holding onto all your worst investments.

(incidentally, japan is only up about 10% or 15% if you haven't hedged the currency, because the yen has been falling while the nikkei rises.)

sabretoothtigger

Japans index could see 12k this year and it wouldnt be a big move necessarily even though nominally thats +40%.
Depends on how much Yen has dropped and their revenue externally, in nominal terms steady business with lower yen is a boom condition but quite easy short term.
Long term lower yen could go from boom to melt down I guess, they import some real major basic stuff, oil, food and water even

JohnRo

thanks for comments folks, much appreciated one and all.

I'm happy with the investments I've made, in response to some of the replies I would welcome a 15% drop, the question of profit taking isn't anything to do with panic or greed. I'm just trying to assess in a reasonably balanced way, whether taking profits at lets say 50% given the comments would be a more optimal and efficient way of proceeding with a view to maximising return.

I know the future is unpredictable and rises could go on for several months or years and that profit taking would stifle the rewards from that advance but I wouldn't be looking to start chopping and changing funds only to hit the reset button periodically and continue on in the same fashion.

I wanted this portfolio to be high risk, I don't fear large price movements and losses would look like golden opportunities to me not disasters.

The cash taken from selling up a fund in profit would be used to continue feeding in regular amounts with perhaps increased contributions as the cash balance allows.

gadgetmind

I did do some opportunistic buying and selling in 2012, mainly with European and property ITs that were on huge discounts, and I have now sold these. However, this has just taken me back to my target weighting regards Europe and property.

I'll overweight a sector that I think is good value, underweight anything that I regard as over-valued (gilts!) but generally tend not to go silly in either direction.

JohnRo

gadgetmind wrote: »

I'll overweight a sector that I think is good value, underweight anything that I regard as over-valued (gilts!) but generally tend not to go silly in either direction.

I think I'll try and develop a similar approach, the issue I have with some of these funds is that I expect significant volatility which I am looking forward to, however it just seems intuitive to take some profit when it presents, albeit at the risk of missing out on further potential gains.

I also realise funds aren't the ideal vehicle for this sort of "trading" but the costs are non existent since transactions are effectively free within the (currently) fixed platform cost and the transaction delays I'll just live with as they could work for or against me.

I'll probably take the same approach you're talking about, certainly not itching to sell. I just perceive cashing in a set % profit as taking two steps forward, consolidating, then perhaps one back on reinvestment if the price marches on or another forward on reinvestment if I get lucky with the timing and prices fall and start to look good value.

Thanks for the thoughtful replies though, it's really good to get a balanced perspective on such things.

gadgetmind

There have been lots of studies into what frequency is best for rebalancing.

http://www.mymoneyblog.com/how-often-should-i-rebalance-my-investment-portfolio-a-brief-article-review.html

https://personal.vanguard.com/pdf/icrpr.pdf

As you can see, there is no clear answer, but it's best to decide your strategy and stick to it.

roxannafy48

Seems reasonable, I'll put it with my virtual portfolio with rplan to give it a go and see how it works.

Thanks!

Jegersmart

Linton wrote: »

You shouldnt get annoyed when people disagree with you nor immediately assume that what they are saying is rubbish.

I would say that worrying about market conditions is what a trader should do. But trading is for individual shares and perhaps indices. Many funds are very different beasts, it makes no great sense to trade them in my view. One doesnt rebalance to get average returns, one rebalances because one has pre-decided that a given proportion of funds in different areas gives the desired overall risk/return and diversification. Having done this it makes sense to rebalance when the actual %s vary significantly.

In any case rebalancing is very different to selling at a specific gain. If all funds increase at the same rate then one wouldnt rebalance but presumably the OP would sell some of all of them and buy something different.

Sorry, I was not clear. It doesn't annoy me that people don't agree with me or the assumption that you made that that was the case, what annoys me is that a lot of people will always give the same advice to whoever asks - along the lines that massive diversification is needed at all times.

My view is that there are times for diversification, times for a defensive position and times for non-diversification and that the approach should be flexible according to one's own goals. It also depends on the level of expertise and experience and interest of the individual course. All I am saying is that always advising someone that diversification is prudent or similar is wrong in my view, it depends on many factors which a lot of people do not seem to consider relevant.

J

JohnRo

Index tracker funds...

Is there any accurate way to find what index value the specific unit price relates to exactly?

I'm using income units so there is no complication with accumulation unit values. I realise charges will impact the relationship between index value and unit price to some extent.

I tried a few online price guides and cant see anything specific stated in relation to index values, is it perhaps just a simple case of matching a daily unit price with the corresponding index figure on the same day. Sounds blindingly obvious but just wanted to see if anyone had more info on this.

I'm about to start setting up a spread sheet to detail levels required to hedge the US and UK index fund values rather than profit take by selling up when a percentage is reached and the time feels right to cash in.