What's happened to my portfolio in the last 2 weeks?!

Ryan_Futuristics

beancurd wrote: »

Here's one http://www.moneychimp.com/features/dollar_cost.htm

There's a rather obvious flaw with the maths of looking at it like that:

- If you're averaging lump sum returns over multiple goes/dates (thereby cushioning the occasional big loss) what you're actually getting is all the advantages of cost averaging with the compounding effect of a lump sum

bowlhead99

So, to summarise the thread
POST 1 from our OP, El Selb:

El_Selb wrote: »

Not sure whether I've been very unlucky or there's been a bit of a slump in the last couple of weeks...but regardless pretty annoyed at losing £200+ off my previously £6k portfolio.
...
It's basically wiped off the earnings above cost since I started investing in Feb.
...
I know investings a long term game, I shouldn't be too concerned and they'll come good. But still....!

POST 2 onwards from Everyone

Everyone_on_this_thread_was_saying... wrote:

You're right, investing's a long term game and movement in both directions is to be expected. Haven't you been watching the news? This is completely normal. You can't predict what will happen next. I suppose you could invest in shares with lower volatility if minor movements downwards make you nervous. All of those peripheral holdings could drop 50% in a 6 month period.

[Noting that all Selb's holdings beyond the LS fund are single shares, single country funds or traditionally volatile markets...] Avoid single shares, single country funds or traditionally volatile markets if you don't want volatility. Or simply look at the portfolio less frequently and don't tinker.

POST 263 from El Selb

El_Selb wrote: »

Anyway who cares - I've got £330 of the £400 back now anyway! and I'm well up (well at least vs inflation) since I started investing at the end of Feb

Sigh of relief heard all round!:)

Everyone_in_this_thread_is_thinking... wrote:

Phew, the boy gets it! Shares can go up and down and the ones that just went up the most can often be the ones that go down the most next. But sometimes they can carry on going. It is far easier not to tinker and not to take wild punts. Investing is unpredictable so you are better just to get a balanced set of holdings and sit on it, putting more money into the existing balanced holdings as it becomes available to you...

Then:

El_Selb wrote:

So what to invest in next! JPM India is on my mind again, up about 15% since I started looking at it.

:rotfl:

Everyone_on_this_thread wrote:

:doh:[head in hands]

FWIW, I have the JPM India investment trust. Up 60% since the low at the start of last September.

Or, up pretty much exactly 0% in the 4 years since the start of November 4 years ago.

It is hardly a smooth ride. What it's up since you "started looking at it" is entirely irrelevant. Because you might have "started looking at it" two weeks ago, or two months or two years. If you are considering any fund, that short term is not useful.

What you should look at for any fund is what it has done in the last 15 years plus. JII lost 60% in less than a year during calendar year 2008. It then gained enough (150%) in less than two years to fully recover, so that a lump sum new investor in Jan 2008 would have broken even again, before the end of 2010. Then it lost enough for it to need to have a prospective change of government driving a recovery of 60% in the last year or so, to be at break even again.

- Any decent Emerging Markets fund should have exposure to India.
- Your core Lifestrategy fund has an exposure to Emerging Markets and you have a separate Emerging Markets fund on the side.

So, sure, you could add further Indian exposure with another directly managed fund that specialises purely in that region, forsaking all other emerging and developed markets. But unless you know something that we and Lazard don't know about the direction of Indian markets it would seem to be just a gamble.

Unless perhaps you are going to buy a specialist fund for every country in the world, so that when India drops 60% again something else will go up, and you won't need to come crying to us, "aargh help what is happening to my markets"...
:beer:

Ryan_Futuristics

masonic wrote: »

Well I would certainly agree with all of that.


"Market timing is the strategy of making buy or sell decisions of financial assets (often stocks) by attempting to predict future market price movements. The prediction may be based on an outlook of market or economic conditions resulting from technical or fundamental analysis."
http://en.wikipedia.org/wiki/Market_timing

It seems like tactical asset allocation fits the bill quite well.

People confuse tactical asset allocation with market timing, but with the latter you're not trying to predict where markets go next: only where they stand relative to historic valuation

You generally wouldn't call anything with a 5-15 year window on returns "timing"

I wouldn't say being 100% in equities is gambling or naive faith in some situations. For example, if you are investing monthly from income over a few decades, starting out with 100% in equities for the first few years before gradually building up defensive assets seems like a fine strategy (Edit: of course I am not including a suitable emergency fund in cash, which everyone should have).

In terms of "the herd", I think the vast majority of people are still investing in active management strategies based on trying to value individual companies (or doing so via managed funds), so I don't quite get your last comment.

Oh yeah, if you're drip-feeding you're removing some of the volatility from returns ... So you can think about it differently

Well it's been exactly the same for active funds - to quote Gordon Gecko in Wallstreet:
"Ever wonder why fund managers can't beat the S&P 500? 'Cause they're sheep -- and the sheep get slaughtered."

Look at how many UK equity funds have exactly the same top holdings ... It's not that fund managers don't do a great job of buying the right opportunities, and sheltering capital - it's that there are too many trying to fit through the same door

A FTSE 100 tracker has a great built-in ability to pick up a lot of really unpopular stocks, at high weightings, which are just *there* ... When only 5% of people were buying trackers, they were 50:50 between sheep and contrarian ... As they become more popular, the ratio inevitably swings towards sheep ... Only difference from an active fund is no one's driving

bowlhead99

Ryan_Futuristics wrote: »

People confuse tactical asset allocation with market timing, but with the latter you're not trying to predict where markets go next: only where they stand relative to historic valuation

:rotfl:In your case you are very definitely trying to predict where markets go next. You have specifically told us you feel your 2% exposure to US is too high because the US is likely to have a poor return over the next decade. You are using your comparison of current price vs 'historic valuation' of that market to determine whether now is a good time or a bad time in terms of returns going forwards from here, based on analysis of the past. You determined now was a bad time for the US market and a good time for certain peripheral European markets, for example. And you allocated more assets into the stock markets or asset classes that you thought would have the best chance of going up, based on your analysis.

You are absolutely engaging in market timing in the same way as a naive little old lady might look at the FTSE100 graph and say, "well, it usually goes up towards 7000 and back down towards 4000 so I will wait until it is cheaper and meanwhile invest somewhere else". You have decided other places are cheaper and will invest somewhere else until the US becomes cheaper. Whether the decision is based on CAPE or a more meaningful measure or gut feel. You are timing your entry to, and quantity of investment in, US markets and other markets, based on your model.

We don't need you to patronise us by saying we don't understand and fools like us 'often make the mistake of confusing an effort to allocate capital based on a price and valuation model of the market at a point in time, with timing the markets'. Get real.

You generally wouldn't call anything with a 5-15 year window on returns "timing"

Yes, we would. You generally wouldn't because you want to be perceived as someone who uses science to make his returns, and are using that science to educate others how to make returns, and you acknowledge that your returns might take a long time (5-15 yrs) to come through because investing is a long game(which is same for anybody).

So, you have followed one theory and discarded others in determining where to put capital at a point in time. Thus timing your entry to and exit from individual markets in various quantities based on your model. Timing the market.

beancurd wrote: »

Ryan_Futuristics wrote: »

There's a rather obvious flaw with the maths of looking at it like that:

- If you're averaging lump sum returns over multiple goes/dates (thereby cushioning the occasional big loss) what you're actually getting is all the advantages of cost averaging with the compounding effect of a lump sum

Rubbish. Dollar cost averaging is pure myth, gimmick, fallacy. I'll let you do the further research or we can agree to disagree. This article cited a number of academic papers.

Clearly if you have money and only drip it into the market over time you are only half exposed to the ups and downs. If by delaying your investment now to make more investment later, you end up investing at a weighted averagely lower price, you may be better off (though will have foregone income). If you end up at an averagely higher price, you may be worse off (and will have foregone income). There is no 'magic' of investing in drips. You are just getting the average return between the investment market you ultimately buy into and the alternative market you hold while waiting to drip across.

Without wanting to put words into Gadgetmind's mouth, who originally raised the dripfeed subject upthread, he was simply saying that while a 2% annualised return over a long period peak to peak is not spectacular, it doesn't mean that US markets or UK markets have been particularly poor investments despite the fact that the US market has had a CAPE over 15-20 for most of the last two decades.

Cherrypicked data can prove anything, but the reality is that people tend to deploy capital as it becomes available to them over time and hence would have bought in at a whole mix of prices and made very decent returns despite high continuing CAPE values. If they were in the fortunate position of having a lump sum available at the last peak, the large lump sum probably came from buying and holding a high valued market for a few years to get there, and so overall they still have a reasonable return.

Clearly it is ideal to buy every low and sell every peak but it is difficult to do this except with the hindsight that comes from looking back at data and seeing what returns could have been achieved if you had taken an approach that was demonstrably good with hindsight. You can get good returns through ongoing investment at all levels of CAPE or P/E or P/B.

You may get better returns by being a contrarian and selling when you see more and more people buying. However a high CAPE or high P/E or high P/B is not a reliable signal that you should take a tactical decision to switch NOW into markets with lower indicators as markets can be leviathans that change direction with the turning circle of Titanic rather than a footballer.

I think there are many people here who are not as gung-ho about equity markets in general (or specific equity markets) as they once were, and will have trimmed back allocations to certain sectors or overall. But tactical allocation is about projecting for yourself what will happen next and how you want to prepare for it. It is 'tactical' like chess because there are a range of outcomes possible and things you may need to react to on the horizon. Everyone has a strategy and some people will use a more fluid strategy than others, timing their moves between slow advance, defence, and outright assault based on what they observe. There is no one-size fits all approach.

Ryan_Futuristics

beancurd wrote: »

Rubbish. Dollar cost averaging is pure myth, gimmick, fallacy. I'll let you do the further research or we can agree to disagree. This article cited a number of academic papers.

http://mindyourdecisions.com/blog/2012/05/16/the-myth-of-dollar-cost-averaging-dca/#.VFindnL46JI

And I could write a blog - but try and use your own brain and see if you understand what I'm saying

We know if you invest at a bad point, it may take you over 20 years to break even (every market has had these points) - in the case of the Nikkei, it's not been close to its market peak since the 80s (meaning - as many investors did - you simply lost most of your investment)

So how do you compare the two? What your research does is it compares the strategies at a number of different 'entry points' - and the flaw is that in real life you never 'average' a lump sum investment like this ... If you could, there'd be no reason to cost-average ... So a good mathematical model needs to take volatility into account - and we ALL place a value on volatility

e.g. we *pay* for insurance (we take an average loss on a house insurance policy to protect us from a larger potential loss)

However if we used your simple mathematical model, we'd conclude insurance policies are "myth, gimmick, fallacy", etc. (Unfortunately a lot of so-called 'research' in investing is funded by people trying to sell you things - much as with the pharmaceuticals industry)

Ryan_Futuristics

bowlhead99 wrote: »

:rotfl:In your case you are very definitely trying to predict where markets go next. You have specifically told us you feel your 2% exposure to US is too high because the US is likely to have a poor return over the next decade. You are using your comparison of current price vs 'historic valuation' of that market to determine whether now is a good time or a bad time in terms of returns going forwards from here, based on analysis of the past. You determined now was a bad time for the US market and a good time for certain peripheral European markets, for example. And you allocated more assets into the stock markets or asset classes that you thought would have the best chance of going up, based on your analysis.

You are absolutely engaging in market timing in the same way as a naive little old lady might look at the FTSE100 graph and say, "well, it usually goes up towards 7000 and back down towards 4000 so I will wait until it is cheaper and meanwhile invest somewhere else". You have decided other places are cheaper and will invest somewhere else until the US becomes cheaper. Whether the decision is based on CAPE or a more meaningful measure or gut feel. You are timing your entry to, and quantity of investment in, US markets and other markets, based on your model.

We don't need you to patronise us by saying we don't understand and fools like us 'often make the mistake of confusing an effort to allocate capital based on a price and valuation model of the market at a point in time, with timing the markets'. Get real.
Yes, we would. You generally wouldn't because you want to be perceived as someone who uses science to make his returns, and are using that science to educate others how to make returns, and you acknowledge that your returns might take a long time (5-15 yrs) to come through because investing is a long game(which is same for anybody).

So, you have followed one theory and discarded others in determining where to put capital at a point in time. Thus timing your entry to and exit from individual markets in various quantities based on your model. Timing the market.


Clearly if you have money and only drip it into the market over time you are only half exposed to the ups and downs. If by delaying your investment now to make more investment later, you end up investing at a weighted averagely lower price, you may be better off (though will have foregone income). If you end up at an averagely higher price, you may be worse off (and will have foregone income). There is no 'magic' of investing in drips. You are just getting the average return between the investment market you ultimately buy into and the alternative market you hold while waiting to drip across.

Without wanting to put words into Gadgetmind's mouth, who originally raised the dripfeed subject upthread, he was simply saying that while a 2% annualised return over a long period peak to peak is not spectacular, it doesn't mean that US markets or UK markets have been particularly poor investments despite the fact that the US market has had a CAPE over 15-20 for most of the last two decades.

Cherrypicked data can prove anything, but the reality is that people tend to deploy capital as it becomes available to them over time and hence would have bought in at a whole mix of prices and made very decent returns despite high continuing CAPE values. If they were in the fortunate position of having a lump sum available at the last peak, the large lump sum probably came from buying and holding a high valued market for a few years to get there, and so overall they still have a reasonable return.

Clearly it is ideal to buy every low and sell every peak but it is difficult to do this except with the hindsight that comes from looking back at data and seeing what returns could have been achieved if you had taken an approach that was demonstrably good with hindsight. You can get good returns through ongoing investment at all levels of CAPE or P/E or P/B.

You may get better returns by being a contrarian and selling when you see more and more people buying. However a high CAPE or high P/E or high P/B is not a reliable signal that you should take a tactical decision to switch NOW into markets with lower indicators as markets can be leviathans that change direction with the turning circle of Titanic rather than a footballer.

I think there are many people here who are not as gung-ho about equity markets in general (or specific equity markets) as they once were, and will have trimmed back allocations to certain sectors or overall. But tactical allocation is about projecting for yourself what will happen next and how you want to prepare for it. It is 'tactical' like chess because there are a range of outcomes possible and things you may need to react to on the horizon. Everyone has a strategy and some people will use a more fluid strategy than others, timing their moves between slow advance, defence, and outright assault based on what they observe. There is no one-size fits all approach.

Re: market timing (and I'll try and respond to the rest later)

There is some debate around this - how Michael Kitces defines it is:

“The stereotypical market timer moves in or all out of investments at their whim…Tactical asset allocation typically implements changes in a far more modest fashion, typically in the 2-5% range, which 10-20% as the outer limit…[and] have a much longer time horizon, spanning months or even years.”


Personally I find the term "market timing" losses meaning when it's applied too broadly (to anything other than passively recreating a global index) because a great deal of research into 'market timing' is looking at it in terms of predicting short-term movements

Benjamin Graham wasn't a market timer by any stretch, but he set his asset allocations using valuation (meaning he was weighted higher in companies more likely to grow, and sold when they'd reached fair value) ... This clearly isn't market timing - it is tactical asset allocation

Now for me, I come from a mathematical model-building background, where market timing models are very different beasts ... In a timing model we'd be switching asset classes using triggers (such the SMA 50 crossing the SMA 200), whereas in asset allocation models we'd be changing weightings relative to an asset's potential for growth

bowlhead99

I think you are both making a fuss about nothing.

On average, money invested as soon as possible and left for a long time, will produce greater returns than investing less up front and more later, when the 'more later' is left for less of a long time. This presumes that despite all possible returns and sequences of returns (over 20, 40, 50 years) the market general direction is up. If you didn't have faith that the general market direction was up, you wouldn't be investing anyway.

I don't think that is in dispute.

The counterpoint is that the best long term result might be achieved by investing little and often, because markets are volatile and the sequence of returns unknown. It is feasible that with a single lump sum followed by some heavy early losses, *after also considering the fixed annual cost of your platform admin or your transactional fees for annual rebalancing*, you could have an extremely poor return that in some cases could wipe you out with no chance of recovery.

I don't think that is in dispute either.

So, while in the long run, we can see from historic actual returns that you should get a generally better result if you buy-and-hold rather than dripping in over 20 years, it is not as clear cut as that. It is obvious that if the lump sum investor has the right sequences of return he can beat the drip feeder and vice versa. With a harsh series of returns the lump sum investor could face total wipeout after a few years before he gets anywhere near the end of the 20 year timeframe, while the daily dripfeed investor would at least have his last day's contribution in his hand, whatever the weather.

So, people buy insurance to guard against unpredictable events.

I can afford to buy a £10k car every 10 years when I crash the old one. I could put savings into a piggy bank at £1k a year and over 20 years I can buy 2 new cars. At the expected time of crashing the car, years 10 and 20, I will have the money. Alternatively I could buy insurance at £1100 a year, costing me £22,000 instead of £20,000 over the 20 years. Optimally I should never take insurance, I should just self insure and invest my money in whatever the insurance company would have invested in, saving myself their profit margin. In the real world, I know a car crash (or worse, two car crashes) in the first five years would bankrupt me, so I take the insurance.

Similarly, it might be 'optimum' to invest a lump sum of your life savings on day one but many people would not be able to handle the risk, and would instead drip feed. Even if they *knew* the market would be above today's level in 20 years' time, they don't know the sequence of market moves to get them there which could cause undue distress and actual financial loss.

Ryan_Futuristics

beancurd wrote: »

Sorry, but I feel your stubbornness here is doing you a disservice. It doesn't work, unless you feel you can time the market, or unless you're in the market for a short period.

Educate me: if I had 100k to put into fund which I felt was a fair price, what would be the optimal drip feed for this sum? 10k a month? 5k a month? 20k a month? Double points for an answer that doesn't use the words low or high.

Drip-feeding's outcome is clearly less dependent on market timing than lump-summing

An *optimal* drip-feed would be market-responsive ... What you want is a way to be "all in" quickly if the market bottoms, and otherwise spread your drip-feed over an acceptable time-frame (in your 20s, I'd say you want to be drip-feeding over at least 5 years) ... And one method to do this is to buy the difference from market peak

Here's a very simple model showing just capital appreciation of three investment strategies entering at market peak (you can shift the Lump Sum line along the vertical axis to simulate entering at different points)



- Clearly the best returns would come from a lump sum entering at a good point, however the drip-feeding methods' returns are much more consistent (you're insuring against entering at a bad point)

- Buy-the-peak is interesting here because this is a pure sideways market - there's no long-term growth trend at all here - yet it's consistently able to grow capital

- Dividends aren't modelled here, but for argument's sake let's say the money not in the market in the drip-feeding strategies is earning 3-4% in savings or bonds

TCA

PenguinJim wrote: »

I was pleased to get some BP for 408.7725, but slightly kicking myself for missing BlackRock World Mining Trust in the 340s, as I had them on a vague watch-list but just didn't look at them last week. I should be holding off and saving my current available cash for future dips, but I'll keep an eye on BRWM this week in case it gets into the 340s again (371 at close Friday).

Jim, BRWM closed today at 334.50 in case you're still thinking about buying. BRCI is starting to tempt me but it's still on a 3% premium.

System

bowlhead99 wrote: »

Similarly, it might be 'optimum' to invest a lump sum of your life savings on day one but many people would not be able to handle the risk, and would instead drip feed. Even if they *knew* the market would be above today's level in 20 years' time, they don't know the sequence of market moves to get them there which could cause undue distress and actual financial loss.

Absolutely spot on. Usually the thought of losing big chunks of capital far outweighs the potential gains for most people. Most people just want steady growth to comfortably beat inflation.