Is the stock market over heating?

Perelandra

I was a little taken aback when I saw the drop, as I (like many others!) have become used to increases every day.

Good news though- the shares'll be 2% or so cheaper now.

Glastoun

A_Flock_Of_Sheep wrote: »

I'll PM you when it updates this time tomorrow and tell you. Bloody annoying thing about funds is the lag in price changes. Not real time like shares

That's very kind, but I was more referring to the fact that it doesn't really matter what the price is on any given day, because the next day will either be higher or lower. Or the same. Arguably, the only price that matters is the day you NEED to sell it - e.g. if you're retiring or need to buy a house or something - although the prices leading up to that could also be pretty important.

That's if you've got a long-term goal to aim for though - if you're aiming to trade and make as much money as possible in the short term then you'll probably make some mistakes. If you're looking to trade and have reasonable profit targets after which you'll sell up and start again then you might be okay.

And I couldn't handle the real time changes in shares, drove me up the wall when they dropped by 0.01%, so once a day is plenty for me.

Jegersmart

A_Flock_Of_Sheep wrote: »

OK so after today's experience on the markets I am still not clear on reasons. I will explain what I mean.

Man in USA opens gob and china slow down = Nikkei down by over 7% :eek: and FTSE 100 down by 2.10

What I am missing is why this should cause this downturn and what caused it.

Sorry if I annoy you with my questions!

I guess you could call it "sentiment".

Another example of this sort of price action was when Obama released around 60 million bbls of crude into the market from the SPR in mid 2011, which caused an immediate price volatility into the high single digit percentage on the day, despite the fact that 60 million bbls is barely 18 hours of global consumption so would have zero fundamental impact on the market overall.

One factor as to why this happens in that market is that the value of positions in the futures markets are probably a million times larger than the actual physical supply - or what can actually be traded in the physical market on any one day. The tail wags the dog perhaps.

All markets work on fear and greed, coupled with a certain amount of "herd mentality" - which is why the price generally tends to overshoot in both directions over time.

I am not sure that there is a definitive answer to this type of phenomenon, the reasons in specific cases can vary. In the case of Japan, to have a shock down move of 7+% in one day is a danger signal in my mind. It may not be time to close all positions immediately, because it could be some large sells designed to test the water to gauge buying strength at the new level, but personally if I find myself in a market susceptible to that sort of drop in a very short time I will normally take steps to protect myself and my profit sooner rather than later. Some will recollect that I had about 25%+ in Japan through the beginning of this year, and I still have around 5% left which I will decide what to do with over the next few weeks.

all imho ofc.

J

Glastoun

grizzly1911 wrote: »

Last year?

http://www.telegraph.co.uk/finance/personalfinance/investing/shares/9544548/Buy-again-St-Leger-Day-It-didnt-work-this-year.html

It was as clear as mud then too.

[/naiveinvestor]

And how much would they be missing out on in dividends?

[maturinginvestor]

coastline

gadgetmind wrote: »

More explanation of why looking at non-inflation-adjusted figures means little.

http://www.investmentweek.co.uk/investment-week/news/2253535/inflation-impact-shows-uk-equities-still-20-off-recent-peak

FTSE 100 was introduced in 1984...the base line was set at 1000.
The same 1000 loaded into an inflation calculator gives a result around 2800 today.

http://www.thisismoney.co.uk/money/bills/article-1633409/Historic-inflation-calculator-value-money-changed-1900.html

http://www.bankofengland.co.uk/education/Pages/inflation/calculator/index1.aspx

marathonic

marathonic wrote: »

As I said earlier in this thread, I put a request to transfer my pension fund to 100% cash last Thursday and the request was only processed at the close of business Monday. Getting back in will take a similar amount of time.

I've just put my transfer forms in to transfer from L&G to Aegon - but it's a bank holiday next Monday.

I don't want to overstay my welcome in cash but don't expect the transfer to be complete until next Thursday or Friday. Hopefully we get a bit more of the downturn next week and I can avoid taking part in about 5% of the pullback.

I don't claim to have any ability to time the market and this is the first time in 7 years that my pension has been in cash - purely through luck.

Trying to avoid downturns like this isn't something I intend to do with my pension given that I've 30+ years to retirement.

srcandas

marathonic wrote: »

Hopefully we get a bit more of the downturn next week and I can avoid taking part in about 5% of the pullback.

Well even the very bullish will see this as a correction of sorts now so hopefully you will be lucky.

That said it is patchy. And any good news might reverse it

And of course a long weekend gives the buyers time to find the bargains - or in your case find their re-entry strategy

marathonic

srcandas wrote: »

And of course a long weekend gives the buyers time to find the bargains - or in your case find their re-entry strategy

Yeah, that's true.... And we all remember what happened the last bank holiday weekend - regarding the Cypriot deposits!

I'll be watching with interest but it's out of my hands now.

My Aegon plan is already set up to divert the funds towards:

US Tracker: 20%
EU Tracker: 20%
UK Tracker: 20%
Pacific Rim: 20%
Emerging Markets: 10%
UK Smaller Companies: 5%
JPM Natural Resources: 5%

gadgetmind

marathonic wrote: »

I don't want to overstay my welcome in cash but don't expect the transfer to be complete until next Thursday or Friday.

I've never known a pension transfer happen that quickly.

cepheus

There is an total index return for the FTSE100 (UKX.TR) which provides the returns plus dividends. I have adjusted for inflation in the blue line below.