Stock Market crash-not if but when?

masonic

puk999 wrote: »

I have a question for the long term mainly index investors here. At some stage you decided upon an asset allocation; e.g. 75% equities, 10% bonds, 15% cash. You then split the 75% equities into global equity, EM, small cap, etc at specified percentages. If you follow Tim Hale, Monevator and the like, the idea is that you stay with this asset allocation through all weathers and rebalance. My question is are you actually doing this, or are you moving the equity:bond:cash ratio away from the initial setting? Do you hold more cash because you perceive we're nearing the end of this bull market?

I'm making use of CAPE valuation to make modest adjustments to my asset allocation, using similar rules as those employed by RIT, so for example, since the US market is looking a little overvalued at the moment (CAPE 27 vs. average 16), I've taken my allocation down by a third, from 32% of my equities allocation down to about 24% and invested the difference in defensive assets (mostly strategic bond funds). Most other markets look around average value so I haven't made any significant adjustments to those. Of course, there is certainly scope for the US to experience further growth and become significantly more overvalued, but I still have a fair bit of exposure and scope to adjust my allocation downwards even further as we approach pre-Dotcom crash valuations without ever taking all of my money out of the region.

That brings me to another thought/question. We all hold some emergency cash, right? If the market does plummet, would you throw some of that emergency cash into the market?

I would try to reallocate from my bonds etc first, but would consider using up to 50% of my emergency fund if and only if at the time my job was still looking very secure and I had no anticipated exceptional spending on the horizon. I have a >50% savings rate, so could therefore replenish this money within 3-4 months.

[Deleted User]

masonic wrote: »

If I did that, I'd just be exchanging my worries that markets will fall while I'm invested with worries that the markets will rise while I'm sitting in cash. Given that even experts are awful at predicting what markets will do in the short term and markets rise more often than they fall, it doesn't seem rational to think I can predict when I'd be better taking my money off the table,

That is because you would be subjective, I trade with detachment and purely on TA and a bit of gut feeling. I never use the word `if`. Sometimes I get it wrong, of course I do but mostly not. These days I only ever choose stocks that are not going to disappear overnight, as did happen when I started. Predicting is massive overuse of `if` and is gambling unless based on sound facts, like what the charts are saying eg if there is a positive diversion on certain indicators and the stock is still going down, then I might buy. I always keep an eye on ukx charts and am aware of whether a stock is a massive multi national or uk based.

However never ever use money that you cannot afford to lose

masonic

kittie wrote: »

That is because you would be subjective, I trade with detachment and purely on TA and a bit of gut feeling.

It is not subjective to realise that there is equal discomfort on both sides of a decision.

Of course subjective thinking is driven by what is going on in the mind, but what sort of thinking is driven by what is going on in the digestive system? Seems to me that would be a little worse than subjective

I am a long term investor, and I make only minor adjustments to my asset allocation in accordance with pre-defined rules. No subjectivity, there, nor any input from the gut.

I never use the word `if`. Sometimes I get it wrong, of course I do but mostly not. These days I only ever choose stocks that are not going to disappear overnight, as did happen when I started. Predicting is massive overuse of `if` and is gambling unless based on sound facts, like what the charts are saying eg if there is a positive diversion on certain indicators, when the stock is still going down, they I might buy. I always keep an eye on ukx charts and am aware of whether a stock is a massive multi national or uk based.

So you mean to say that you are buying and selling with complete disregard for the future prospects of your investments? Come on, pull the other one. TA is the astrology of the investment world. All those cups and handles and crossing of bollinger bands are about nothing other than prediction.

"sound facts, like what the charts are saying" :rotfl:

[Deleted User]

masonic, we are fortunately entitled to trade or invest how we like. My personal way is probably not your way but it works for me in that I increased the sipp pot by a good 80% in 6 years, just nice and steady. Like I said I use TA and no ifs and buts but then I was a physicist so charts comes naturally I suppose. Anyway I hope to continue increasing the sipp for my children and their children, then all they will have to do is watch the dividends drop in to pay their pensions

Best to read my posts properly if you want to garner some information about the type of stocks I trade at the moment. Having vested the pension several years ago, I had to become risk averse. I do however take into account asset allocation and also risk/reward on every trade

There are hundreds of TA indicators, I only use very few and certainly not cups and handles and bollinger bands. I cut my teeth trading indu and ukx and indu especially is a very good training ground but one to respect

Just out of interest, all 5 stocks bought this morning have increased in price

masonic

Don't misunderstand me, people use all sorts of data to try to give themselves an edge and with varying degrees of success. If something appears to be working for you then of course you would continue to exploit it.

However, you are doing yourself a disservice if you don't acknowledge you are in the business of trying to predict the future when doing so. All methods of using past performance data to inform investment decisions are imperfect, whether they are based on patterns in short-term volatility or long term averages and trends. What I am doing with market valuations has its flaws too and I accept that (and it is the reason I don't let it have too much influence on the make-up of my portfolio). In the same fashion, "gut feelings" are just another type of subjective thinking. So by all means go on doing what you are doing, but be honest with yourself about what that is.

Kendall80

I'm using the current correction to top up my ISA funds. A 5% or 6% drop = buying opportunity


I'll top up some more if they get 10% down.

tejero23f

noggin1980 wrote: »

If the conservatives win the election, greece gets sorted and uk and europe markets end up 10% or so after the summer what do you do? are you going to buy back in anyway? in which case you can't relax over the summer because you still have the risk of losing (just on the opposite result) or are you going to stay out till a crash/correction? what will you do if markets go up for another 2 years and when the correction comes the market is still priced higher than today.

Timing the market is more likely to lose you money than make it and produces more stress and worry not less as you are always making decisions which may or not be right.

Thanks Noggin, well i've been going in and out of the market for a while and yes it is stressful and i have been burnt once or twice. But on the whole i've made and been satisfied with it. i would rather sell too soon than wait for the inevitable, which is like feeding a crocodile knowing that it will eventually bite your hand off!(or eat you completely)
I work off my gut feeling, reading between the lines, and a dose of luck. At the moment it tells me that the markets are overheating, US stocks are too high, and to look east for future gains...who knows?
Thanks for all your comments

[Deleted User]

gosh I am not here for an argument masonic, I am as I am and I trade as I see fit to increase my sipp and isa holdings. It is a personal thing so no need for me to explain. I use a charting eod package to help me keep track of my portfolio and also a live charting package which costs £220 a year and is very worth it to me. There are some free charts out there, live ukx one http://www.livecharts.co.uk/MarketCharts/futsee.php

I bought more stocks today and am now about 25% in cash. All the buys gave me more shares for my selling total, on average about 100 more shares on each stock and yet again, all are large caps, all but one in ftse 100. The other one is in ftse 250 but that was harder to sell and so I halved the amount I spent. I like to be able to sell fast if needed. I do make large trades

Yes Kendall80, good buying ops are out there

mike88

"Buying opportunities are out there"

Maybe but.........................On the basis that markets don't like uncertainty I would hesitate buying anything now unless buyers are prepared to gamble on a Conservative win. A Labour victory will see shares fall and a hung Parliament will produce even more uncertainty which is generally bad for shares.

I can't see any reason to buy now.

Glen_Clark

Currently 73% equities. I think the greater proportion you have the harder it is to resist selling them when the price is falling