Is the stock market over heating?

Pobby

Now it has reached over 67000, I am wondering, as are others others, is it yet yet another meaningless bubble? The real economy is still going nowhere. I can see, with low interest rates, that people may choose to pile in but I am yet to be convinced that it has any sustainability.

Apart from a bit in S and S isas, we have decided to surrender all our investments this coming week. Having been caught up in two crashes in the past, I don`t feel confident that we should still be involved.

It is certainly difficult in these times to find any real yield, in fact we will put the money aside and review later.

Just wondered what other folk think about where we are going regarding the UK stock market.

dealer_wins

I am going to consider selling at 8000 - 8500. Inflation adjusted its a modest target nowhere near its all time adjusted high.

grizzly1911

If it had reached 67000 I would say yes;)

I take the view that nothing is really going to change in the foreseeable future, world economies seem intent holding the status quo balancing things here and there and churning out QE.

I don't see stimulus/low interest rates being withdrawn here any time soon.

Banking is under micro management in many countries.

Like you I have made some losses in the past luckily they have recovered - it is me that may run out of time if there was to be a big correction. Wouldn't be surprised to see some flat lining.

racing_blue

I reckon a fair inflation adjusted level for the FTSE is 7864. This is based on historical data corrected for RPI. May be wrong for all sorts of reasons, but there you go

poolforever

Just watched the Bankers programme on BBC I Player - it's all about your understanding of "risk" - people basically gambling billions on jackshit - scary stuff

zugzwang

If you take account of inflation, ftse lost 40% of it's value between 2000-2012.

Cant post link, google 'Over the past 12 years the FTSE 100 index has lost 39% of its value' and you'll see graph.

So ftse, dow not really at the highs but you may still think it's overbought for now.

sabretoothtigger

grizzly1911 wrote: »

If it had reached 67000 I would say yes;)

I would still say no. Its likely the currency or index units would each buy ten times less when you cashed it in, so it wouldnt make much difference.

Its not overheating when interest rates are this low, its still too cheap long term

marathonic

One would have to wonder whether calculating an inflation-adjusted level based on its all-time-high makes sense though - did the all-time-high represent good value (likely not).

In saying that, the P/E levels at the moment look relatively cheap. It's difficult to judge how companies will manage when interest rates eventually do rise though - I suppose the smart ones, like Apple, are issuing bonds at the moment.

gadgetmind

zugzwang wrote: »

If you take account of inflation, ftse lost 40% of it's value between 2000-2012.

And if you take into account dividends as well as inflation, it lost nothing.

redbuzzard

Pobby wrote: »

Now it has reached over 67000, I am wondering, as are others others, is it yet yet another meaningless bubble?

No, it's not a bubble. Not yet. Not with yields still well ahead of interest rates and good companies growing dividends. But it could still drop, a lot, at some point, and of course I think it will be lower at some point in the future - maybe by a lot, maybe not.

If you think you can time the market, good luck.

As a trader, you must, but as a long term investor it's a real challenge.

You miss the rise before the crash. You miss the rise after the crash (or you buy back in while the market is still falling), and you miss the dividends while you are out of market.

I had a chat with myself a couple of weeks ago about this, and decided to make some changes that would make me feel happier with holding at this level. I sold down the European index, which has has a few good months and made good earlier losses, but still has the unresolved eurozone problems hanging over it. I "banked" some of the over-expectation performance of UK & Japan equity index funds and increased defensive funds, mixed funds, and hedge/AR funds which should fare better in a major reversal.

The effect has been that my gains over the last couple of weeks have been a bit lower than they would have been, but still moved forward quite well (I got the Japan reduction wrongest, I thought that had run out of steam, though I held 50% of what I had so still captured some of the later rise).

Of course that feels like a bit like a loss, but what I have done is to reduce risk. If there is a major "correction" then I will reverse the process.

If I was 50, not 60, I wouldn't have been as risk conscious - certainly for somebody like my son, investing monthly, I wouldn't discourage him from continuing with his regular payments into a 60:40 equity index fund. The lower it goes, the more he's buying. I am just trying to preserve the real value of what I have, since I am now just about retired and no longer adding money.

I spent an hour on the phone yesterday with a close friend who starting buying monthly in January 2012 from a large cash transfer (his entire pension funds) into a SIPP. He suspended his purchases in December because he was nervous and has of course missed a further substantial rise.

Timing the market is not easy. It's also very stressful. The desire to do it even against advice stems mainly from the famed human trait of "loss aversion" where more significance is attached to losses than to gains. Striving too hard to avoid the losses means missing out on capital gains, and on income too unless you have a reliable crystal ball.

That's a ramble, not advice, but you did ask

grey_gym_sock

gadgetmind wrote: »

And if you take into account dividends as well as inflation, it lost nothing.

you can't take both of them into account! that's cheating. if you think the market's done badly, you ignore dividends. if you think it's done well, you ignore inflation.