What exactly is going on with the stock market at the moment?

pamaris

So, what is causing the FTSE to tank? Is it the US credit bubble? The UK credit bubble? What exactly is going on? Just curious. I am a newbie to investing so for all I know this happens "all the time" but I am wondering how "normal" it is for it to drop 200+ points in a week?

Browntrout_2

Summertime lethargy, high oil price, sub-prime credit failure, rising interest rates are all weighing on sentiment.

200 points is 4% and takes the FTSE100 back to levels seen in June & May.

However the bigger picture is a market that's been in steady uptrend for 4 years. The trading range is approx 6950 to 6280, presenty ~6450.

IMHO could drop another 200 points before resuming uptrend.

However could drop 1200 points just as easily!!:eek:

Buy long stay happy.

dunstonh

Nice. Mid caps are down 3% today. 3 drops in a row. Time to put a bit more money in.

edit, just as i finish typing that, it has recovered 0.5% in a few minutes.

pamaris

Thanks guys... It seems like every time it drops, it recovers by the time I can put more money in. If it's like this next week I'll be OK. Maybe there is an ideal time of the month to make systematic purchases? (Like, maybe the market's higher at the beginning of the month, because that's when everyone buys?? I dunno)

I have to say though, being inexperienced, it is really hard to see drops as buying opportunities. Perhaps human nature says "get out now- it's dropped!" even though logic dictates otherwise. It is a discipline to retrain my brain.

Perhaps it will be easier once I see it all in practice.

Browntrout_2

The market makes a fool of most as it can be a whipsaw especially if you look at it too often!

Trying to time the market is not easy and I've given up trying. If you pound cost average over the long term, 5+ years, daily fluctuations are neither here nor there.

However what tends to happen, again and again, is that the market sucks in money from new investors right at the top of a cycle, then it drops for a couple of months or a year, sometimes steadily or very quickly, and the newbie investors panic and take it on the chin, right at the bottom!

They swear they'll never trust the market again and go back into 'safe' premium bonds and cash etc.

However the market then steadily rises again, and new money jumps back in again, and on and on and on.....

£10k invested in a popular income producing Unit Trust, in 1986 was worth £129k in 2006, and it was producing a growing income of £2.5K pa

cheerfulcat

pamaris wrote: »

Thanks guys... It seems like every time it drops, it recovers by the time I can put more money in. If it's like this next week I'll be OK. Maybe there is an ideal time of the month to make systematic purchases? (Like, maybe the market's higher at the beginning of the month, because that's when everyone buys?? I dunno)

Technical analysis enthusiasts will tell you that they can see patterns in share movements but for ordinary mortals it's best IMO just to choose a regular date and stick with it.

I have to say though, being inexperienced, it is really hard to see drops as buying opportunities. Perhaps human nature says "get out now- it's dropped!" even though logic dictates otherwise. It is a discipline to retrain my brain.

Perhaps it will be easier once I see it all in practice.

Look at it this way - if you are a long-term, regular buyer of equities do you want to them to be cheap or expensive? If you're buying shoes or iPods or holidays you look for a good deal, why not do the same with shares?

dunstonh

I buy monthly and I often wait for days like this in the month to make my buy. It may go down another 5 or 10% but its 5% cheaper than 3 days ago so I would rather buy today.

Attempting to time the markets is futile Its only when you make regular contibutions that you can really benefit over the long run.

Equally, you can miss a good growth period if you wait until it drops and you may have missed a 20% growth spurt before a 5% drop occurs.

This is why you invest for the long term and take the ups and the downs as par for the course. Its also why you rebalance your holdings. The low risk stuff may not be great on returns but you pocket your gains periodically allowing you to reinvest them after a drop.

kedj

I invest through fundsnetwork and it goes out on the 17th every month. I was aware of buying at a bit of a peak this month and last month. Looking at a FTSE 100 chart, I seem to have bought at or near a lot of peaks lateley.. Jul, Jun, Apr, Feb, Dec, Nov! Oct was near the end of a sharp rise too.
http://www.iii.co.uk/investment/detail?code=cotn:UKX.L&display=javachart&it=li
So try to avoid the 17th!
Dunston's idea of trying to pick a day every month sounds pretty good - trouble is, I think I would probably have bought yesterday! And I might not have the discipline to monitor the market every day anyway, so I will probably stick with what I am doing.

nrsql

There's been a long period of growth (rather than recovery) in many markets including the UK so you would expect the odd wobble every now and again.
The question is "is this a correction or a crash"
Another "how should that affect your strategy"

Last year I started to move into more defensive areas and spread investments over a period i.e. monthly rather than lump sums.
Whether this was a good idea only time will tell but whatever happens I doubt if it will be too bad.
I value my assets daily and am happier when they increase than when they decrease but it doesn't really matter until I decide to cash them in - which I suspect will never happen with stockmarket investments.
It's like the value of a buy-to-let property doesn't matter unless you sell.

The only problem will be if there is little growth for an extended period (a decade or two) - corrections/crashes don't really matter too much but it's nice to make use of them.
You just need to make sure you are in a decent fund/share to take advantage of recovery. Better to get a tracker fund than a dog.

That is unless you only want to invest for a short time, if so good luck to you.

si1503

Pretty big correction today. FTSE 100 down over 200 points! FTSE 250 down nearly 400 points!! Dow down over 300 also.

Luckily I cashed in £3k of shares on Monday this week, £1k of which was a UK midcap fund. I'd love to say its because I read the market and predicted this correction, but TBH I didn't, just withdrew for a holiday, and didn't mind dipping in as all my holdings were nicely up.

I am confident the market will recover swiftly, this bull still has good legs on it (despite the scaremongers), however I do feel returns may be slightly more muted over the next 12-18 months as the credit bubble gets squeezed.

I am considering adopting a more cautious approach myself going forward, I currently hold a good 40% in emerging markets, with china, LA and korea being my main areas of choice, and a fair bit in commodities. Having said that I am young and pretty much risk 'immune' only ever really knowing a bull-market since I started investing, so wouldn't recommend anyone copy my antics.

Time to go check my H-L portfolio and see what the damage is!

pamaris

Well, I'm young so I can ride out the risk... currently I am testing 2 strategies... 1) My ISA: Ishares index trackers through selftrade; systematic purchases... £650 in FTSE 100, £900 in IUKD FTSE high yield index (UK Dividend plus), £300 in IDVY (Euro stoxx high yield index). I was considering buying the IH2O next, the global water index... very intrigued by that (the one commodity always in demand, and drying up!) but I am not sure if I should just buy some more FTSE shares since they are down.

2) OH's ISA: £1000 in Inv Perp High Income fund, £620 in Neptune Global and £400 in Rensburg UK select.

I just wanted to test a tracker strategy against a managed strategy... who knows, maybe they will both turn out all right.