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FTSE Pessimism
Comments
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gadgetmind wrote: »Well, quite, and particularly because the markets are no-where near previous highs in real terms. Inflation at 3% pa means that you need £1.40 to buy a year 2000 pound, so let see what that tells us.
FTSE at 6700 now = FTSE at 4785 in 2000. Was 4785 a scary number then? If not, why is 6700 scary now?
FTSE at 6950 in Dec 2009 = FTSE at 9450 now. Yes, that would be rather high and nicely puts 6700 ish into context.
Better get the order book out.
Presume you mean December 1999?
What about the weak ones dropping out and new ones coming into replace them ?"If you act like an illiterate man, your learning will never stop... Being uneducated, you have no fear of the future.".....
"big business is parasitic, like a mosquito, whereas I prefer the lighter touch, like that of a butterfly. "A butterfly can suck honey from the flower without damaging it," "Arunachalam Muruganantham0 -
grizzly1911 wrote: »Presume you mean December 1999?
Yes, thanks, now fixed.What about the weak ones dropping out and new ones coming into replace them ?
Does that really make any difference in practice and how?I am not a financial adviser and neither do I play one on television. I might occasionally give bad advice but at least it's free.
Like all religions, the Faith of the Invisible Pink Unicorns is based upon both logic and faith. We have faith that they are pink; we logically know that they are invisible because we can't see them.0 -
gadgetmind wrote: »Yes, thanks, now fixed.
Does that really make any difference in practice and how?
I hoped you might know I thought I read about survivorship basis or something similar where the weak ones drop out and get replaced so the index as a whole should only go forwards, all things being equal. GFC and eurozone bring the whole thing down I accept,"If you act like an illiterate man, your learning will never stop... Being uneducated, you have no fear of the future.".....
"big business is parasitic, like a mosquito, whereas I prefer the lighter touch, like that of a butterfly. "A butterfly can suck honey from the flower without damaging it," "Arunachalam Muruganantham0 -
grizzly1911 wrote: »I hoped you might know I thought I read about survivorship basis or something similar where the weak ones drop out and get replaced so the index as a whole should only go forwards, all things being equal
There are some "edge effects" around the promotion and relegation that theoretically allow active management to benefit from index trackers having to buy/sell. However it works out to such a tiny fraction of a percent that it doesn't add much to the cost of trackers or help offset the high fees of active.
As for whether the index itself reflects what an index investor would have experienced, any different is shown as "tracking error" and good index funds have very low such errors.I am not a financial adviser and neither do I play one on television. I might occasionally give bad advice but at least it's free.
Like all religions, the Faith of the Invisible Pink Unicorns is based upon both logic and faith. We have faith that they are pink; we logically know that they are invisible because we can't see them.0 -
Common sense would indicate that after a prolonged steady rise there will be some sort of correction at some stage - estimates vary between 5% and 60%.
It all depends on money printing and interest rates - the cause of the rise.
If you know what the politicians are going to do there you can make a very good guess at where share prices will go.
Why do you think Banks (like Morgan Grenfell) pay millions to hire (ex) politicians like Blair
“It is difficult to get a man to understand something, when his salary depends on his not understanding it.” --Upton Sinclair0 -
gadgetmind wrote: »There are some "edge effects" around the promotion and relegation that theoretically allow active management to benefit from index trackers having to buy/sell. However it works out to such a tiny fraction of a percent that it doesn't add much to the cost of trackers or help offset the high fees of active.
As for whether the index itself reflects what an index investor would have experienced, any different is shown as "tracking error" and good index funds have very low such errors.
This is the piece I was thinking of extracted from Peter Comley - Monkey with a pin. Chapter 5. (available free on kindle or as amobi download) http://monkeywithapin.com/
You first need to understand what major stock market
indices are. Let’s take the FTSE 100 as an example. It
comprises the top 100 companies registered for trading in
the UK as measured by their market capitalisation
(calculated simply by multiplying the number of shares in
circulation by their share price).
The index itself first began in January 1984 at a base value of
1000. Weights were created for each company in the index
dependent on their size. This meant that movements in the
larger companies would have more
impact on the overall index. The index is calculated and republished continuously.Every quarter, there is a reshuffle of the companies in theindex. About three companies might typically leave and join
each time – ie, you could potentially see 10 or morenewcompanies join per year, but it is often less as some yo-yo in
and out. At each reshuffle, they also alter the weighting to
allow for changes in market capitalisation and also to
include the new up - and - coming companies. However, theyalways ensure that the index starts a new quarter at the same
number as it finished the previous one.
So, let’s stop, recap and think about this. You have a system
where you are perpetually measuring the increasing performance of the UK’s fastest - growing companies only.
Any company that has below - average performance will soon
get relegated and stop dragging the index down and will be
directly replaced by one that is growing.
The result: an ever - increasing index over a long period of
time.
A decade of losers
Does this matter, you may ask, especially if you are investing
in specific shares or a fund that may have just 10 shares in its
portfolio. The answer is yes, because not only will it set
wrong expectations for you regarding what happens to
individual share prices, but it can also lead you to follow
strategies like buy and hold, which may not perform quite as
well as you expect.
Say 90% of the top companies in the FTSE 100 are going
nowhere and their share price does not change over a year.
The remaining 10% of companies are
“dogs” and get relegated and are replaced by new entrants that increase in price over the year. These new companies will cause the FTSE to go up. But, hang on a minute, let’s remember that
90% of the old index has not moved and the other 10%
dropped in value (and got relegated) –yet the FTSE has goneup?
To illustrate this in practice, let’s look at the top 20 constituents of FTSE a decade ago and see what has happened to them
(GRAPH THAT DOESN'T COPY)
Over the 10 - year period from January 2001 to 2011, the
published FTSE index barely moved (down–3%). In
contrast, the average underperformance of these top 20
shares versus the index over this time period was –23%.
Indeed, 16 of the 20 shares declined and one even went bust
(Marconi). On an annual basis, the loss versus the index is
equivalent to – 1.8% pa if you’d followed a strategy of buying
and holding the top 20 shares over this time period.
This is not a scientific measure of the true value of
underperformance, as it just happens to be data for the last
decade I had to hand when doing the analysis for this book.
However, it does give you a feel for the effect this can have
on investments in particular shares.
"If you act like an illiterate man, your learning will never stop... Being uneducated, you have no fear of the future.".....
"big business is parasitic, like a mosquito, whereas I prefer the lighter touch, like that of a butterfly. "A butterfly can suck honey from the flower without damaging it," "Arunachalam Muruganantham0 -
A_Flock_Of_Sheep wrote: »I am more interested in receiving advice and recommendations and then acting on that advice say buying through HL based on advice that pay an advisor on an ongoing basis to manage it all for me.
That seems a bit counter-productive IMHO.
At the moment HL are charging around 0.6% on average above the clean class price. Platform fees are around 0.25%/0.35% so you would be paying HL an extra 0.35%/0.25%pa for ongoing servicing you are not getting.
It would make more sense to pay an IFA for upfront advice on a transactional basis, use their platform and then not pay any ongoing fee for servicing if you don't want or need it.
However be prepared for the IFA to offer advice based on the fact that you don't want servicing which would probably mean a simpler portfolio fund.0 -
grizzly1911 wrote: »Are IFAs recommending hold/wait and see or are they still suggesting investments and taking orders?
An IFA's job is not timing the market. They are there to advise based on the client's current situation and to make recommendations based on that.
Look what happened when an IFA tried to time the market - or at least suggested that's what he was doing.
https://forums.moneysavingexpert.com/discussion/44513010 -
grizzly1911 wrote: »If based on all information you decide not to invest will the fee be the same?
Yes.
You are now paying a fee for the advice not a fee from the commission on the sale of an investment. Whether you choose to use or ignore the advice the fee will still be the same.Remember the saying: if it looks too good to be true it almost certainly is.0 -
An IFA's job is not timing the market. They are there to advise based on the client's current situation and to make recommendations based on that.
Look what happened when an IFA tried to time the market - or at least suggested that's what he was doing.
https://forums.moneysavingexpert.com/discussion/4451301
Some classic quotes in that thread, specifically the ones that suggest the market was too high and not to invest. That high level was 10% lower than it is now.Remember the saying: if it looks too good to be true it almost certainly is.0
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