Current market carnage - anyone selling or buying?

bowlhead99

EdGasket wrote: »

Well I have thought about selling all the bombed out stuff like gold, oil, resources, and supermarkets but tbh I have already taken the hit so wouldn't raise much on them now. And I know for sure if I were to sell, they'd all recover in double-quick time!

It's obviously galling to take a big loss on the chin, especially as we are taught that markets go up and down in cycles and what goes down will later go up. But the likelihood of those sectors having a massive rebound - without also being accompanied by a rebound in other broad investment sectors that you could have shifted to - is not something I'd get too worried about.

Take oil for example. Sure, $35 for Brent Crude sounds like a screaming bargain because we haven't seen that price since 2004. It will probably go back up a bit. But oil equities markets know that it will probably go back up a bit and have priced that in so you are not on the cusp of oil companies doubling overnight from their historic prices.

For example, one of the things that happened to drive down oil and gas prices to a "new normal" lower level was that the US discovered and embraced fracking to a much larger extent than ever before and in doing so, lost their long term dependence on energy imports. It changed global demand. At the same time, China which was growing at an unsustainable 10% a year, cooled its demands for materials and energy with a big dampener on global demand.

If you fear that as soon as you exit oil and commodities, they will massively rally, what's the likely driver of that. Is US going to UN-discover fracking? Now China has decided to focus on supporting a consumer led growth environment -rather than just building empty buildings for building building's sake... are they now going to scrap the idea and revert back to ridiculous unsustainable industrial growth again? I doubt it.

China is not going anywhere and its economy is coming off the boil to cool a bit, not shut down. It will be simmering for a long time and 5%+ GDP growth is a large proportion of global growth. When it's cooking, the numbers are big. Some estimates said the Chinese poured as much cement in the 2011-13 building boom as the US in the whole of the 20th century. Big big numbers if true. But not measured sustainable growth which everyone needs from them. So they're letting it cool while doing something more sensible instead, with some QE as necessary here and there so the bottom doesn't completely fall out of the market and have the growth curve fall off a cliff.

But that doesn't mean there's anything to suggest they are suddenly going to find 10% compound growth while the market only prices for 5 or 6. So there's nothing to suggest the prices of your EM funds will suddenly double if you reduce your exposure.

FWIW I think there will be some growth/recovery in a number of EM countries over the next year or two, despite US raising rates. So I will be keeping EM exposure. But what I won't be doing is betting the farm on EM exposure, nor oil, gold, etc etc.

There is certainly an argument to say, if we all comment with hindsight that you *should* have taken a nice broad exposure to sectors over the last decade but didn't, and lost, then you should take notice for the next decade and put that sensible exposure in place. The alternative - to think that what goes down will go up and two wrongs make a right, so you can fix the losses by gripping tight and holding on to a badly diversified exposure while it takes is turn to beat everything else - seems a bit like what an ostrich might do.

gadgetmind

tl:dr version of above: "You don't have to make your money back in the same way that you lost it."

JohnRo

Fracking has been around for decades, it's always been far too expensive a method of extraction as I understand which is why it's never been a significant factor in past production.
It was oil prices at $100 plus and the consequential rise in natural gas prices that made it an attractive proposition which combined with helicopter money has made for a massive debt fuelled expansion in US oil production. It'll be interesting to see how that ends with oil prices at a third of what they were 18 months ago.

EdGasket

All well and good Bowlhead99 but if I'm selling my bombed out resource stocks because they have been a bad investment to date and might continue to be so then someone else must be buying them because they see that they are now good value and might give above average returns. So surely we can't both be right and I am just as likely to do well by hanging on than by selling and buying something else?

Obviously my exposure to resources is less than it was because the value of those investments has fallen. Chances are if I move into something else it will tank and I'll incur double dealing costs to switch for my troubles.

Sam_J12

EdGasket wrote: »

All well and good Bowlhead99 but if I'm selling my bombed out resource stocks because they have been a bad investment to date and might continue to be so then someone else must be buying them because they see that they are now good value and might give above average returns. So surely we can't both be right and I am just as likely to do well by hanging on than by selling and buying something else?

The rational behaviour would be to try to objectively assess what the best stocks or funds to invest in are, ignoring what you already hold and your previous results. If your pension was held entirely in cash equivelents at the moment, would you invest it in those bombed out resource stocks? At what point in the future do you wish to draw your pension? That will also affect your decision - if you are close to retirenment then you may well just have to accept that you won´t have as comfortable a reitrement as you hoped and hold you assets in safer funds (e.g. bonds).

JohnRo

I've used some price falls in certain assets to reassess their value (to me) and allow the fall in price to act as a natural reduction in their allocation percentage of the total.

Perhaps use this opportunity to do the same with your resource stocks and up the relative percentages of assets in other less volatile sectors as already suggested.

nb73

re: "don't try to make it back the way you lost it"

I take this to mean don't buy more of a falling share, because individual companies can go bust.

I don't take this to mean change asset allocation after a losing streak - quite the opposite

Thrugelmir

EdGasket wrote: »

Well I have thought about selling all the bombed out stuff like gold, oil, resources, and supermarkets but tbh I have already taken the hit so wouldn't raise much on them now. And I know for sure if I were to sell, they'd all recover in double-quick time!

If you reviewed your investments in detail. Read the latest annual accounts etc. You'd be able to work out which share went worth holding at all. Taking losses on the chin is part and parcel of investing. Hanging onto poorly performing shares is a cardinal sin.

I took a 76% hit on Thalassa last year. Fortunately I only speculate on a small scale so the loss in £ terms was manageable. With the current level of uncertainty globally my approach is now highly cautious. No point in taking excessive risk. Far easier to lose money than make it.

EdGasket

Yes, I take all that on board but I did all of that in the first place and it turns out I was wrong. What I thought were good investments have turned out to be the opposite; I really see no point going through that excercise again as I'll likely as not get it wrong.

I say again, if I am selling then someone else is buying and taking the opposite view to me. The current market price represents the balance point between those views so all things being equal, I am just as likely to do as well/bad by holding as by switching.

It seems pointless advising 'The rational behaviour would be to try to objectively assess what the best stocks or funds to invest in are'. Don't you think I did that first time round? Why would I have any better success now?. I've tried individual shares, sectors, and funds, all are significantly down except for property but i just don't fancy selling property to buy more miners, supermarkets, or asia focused funds. if any money comes to hand, it will probably go in a FTSE tracker if the market is below 6000.

'Hanging onto poorly performing shares is a cardinal sin.' - and if I sell someone would have to be buying and may know more than me. I'm sorry but I just don't get it. Shares can turn around anytime and my 'poor performing share' could be someone else's 'snip' or 'double-bagger' if I sell.

Sam_J12

EdGasket wrote: »

It seems pointless advising 'The rational behaviour would be to try to objectively assess what the best stocks or funds to invest in are'. Don't you think I did that first time round? Why would I have any better success now?. I've tried individual shares, sectors, and funds, all are significantly down except for property but i just don't fancy selling property to buy more miners, supermarkets, or asia focused funds. if any money comes to hand, it will probably go in a FTSE tracker if the market is below 6000.

What I´m trying to say is that everyone makes mistakes, but it is important you don´t let past mistakes force you into new mistakes. If you feel you are better off buying a FTSE tracker then why not switch your current investments to a FTSE tracker? It is not rational to own your current companies just because your money happens to be invested in them already, if you feel a FTSE tracker is a better bet.

I don´t invest in it personally, but I would highly recommend you switch all of your current holdings to something like a Vanguard Lifestrategy fund or developed market trackers. That has to be better than keeping your current holdings that you clearly have no confidence in.