Current market carnage - anyone selling or buying?

Sam_J12

EdGasket wrote: »

'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.

You have no idea why that individual is buying the share from you. They may be a day trader looking to sell the share in a few hours time. They may be an institution looking to hold the share for a far longer period than you. They may be purchasing because of the dividend and are not interested in the potential growth. It may be a company CEO making an ill advised buyback at a poor price (which happens all the time).

Your argument is an argument for literally never selling or buying any share ever, in case the other party knows more than you.

bowlhead99

When you did your rational assessment first time around you ended up with a lopsided allocation. You bet the farm on certain geographies and sectors, rather than just taking a sensible broad approach and tilting it towards those sectors. As a consequence, now you have a small farm. You admit that you did lots of research and it didn't protect you. So one might infer that your research skills are poor, or perhaps they're OK but you were unlucky and you needed both solid research and a health chunk of luck to win.

Deciding that the best way to now grow your small farm into a large farm is to again use a lopsided allocation skewed significantly towards emerging markets, oil, materials/resources etc, seems blinkered to me. Especially if your rationale for using these particular sectors or companies is not that you are prescient or that you or they are due a bit of luck or they are really remarkable businesses for the money - but simply "should be fairly priced because the market is fair and both buyers and sellers can be found".

To me, it does seem sensible to consider what the sensible sectors are. Your stocks do not have a memory and the directors of the companies or funds do not owe you a living or even know your entry point, so do not have an objective of clawing back your lost money. So, as others say, imagine you already accidentally sold everything in a fit of blind rage, told HMRC about your tax losses so you can use them in the future, and now your money is all in cash and you would like to invest in a portfolio from scratch.

An irrational person would load the portfolio up with oil and EM and resources at the expense of everything else because they had a lot of emotion connected to those sectors and some specific companies, even if they can't find a better reason than "the market thinks the prices are fair today". By contrast a rational person would buy a decent bit of everything and only overweight a sector within some reasonable limit -and only if they had a sound reason for doing so, rather than doing it by default because " why not "...

I am not saying sell property to get in even deeper with the miners. I am saying sell everything and buy everything a rational person would buy for a diversified portfolio that can produce growth while withstanding shocks.

crux

I think the direction this thread has taken is a classic example of risk and what it actually means in the real world.

IMO, too often the temptation is to try and push for outperformance – to be active and to beat the market return – to time the market - to overweigh the risky sectors in expectation that they will grow faster... After all we all fancy ourselves as just a little smarter and better than the average and we so badly want just that extra 1% annualized!

Too many people believe risk is volatility and the more volatility they take on the bigger the long term return they should eventually net, or even that by reducing volatility with bonds they reduce that risk.

But risk of what?

Risk is actually not meeting the objectives you should have been investing for in the first place… Things like preserving and hopefully increasing the buying power of your invested money – having enough saved to fund your retirement.

The real risk is that our active opinion driven punts will destroy the small real terms gain that equities should provide us over the very long term. That’s just what? Historically 4-5ish percent after inflation – and to be honest we will be very lucky if that continues in our lifetime – I’d be real happy to see 3.5% real personally – currently after 17 years total my investments are running at 2.9% real and that after a multi-year bull run!

The risk of the market is not the current carnage in prices, the main risk is ourselves and our behaviour.

bowlhead99

Sam_J12 wrote: »

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.

My thoughts exactly. Given FTSE100 is a specialist index and poorly diversified in terms of the sectors to which it provides exposure, I wouldn't use that particular index for my sole UK exposure nor my sole equities exposure. We're only referring to it because the OP did. But the philosophy should be, if that's how I want to allocate all new money going forward, why is it such a significantly different allocation from how the existing money is allocated ?

gadgetmind

I just took a look at a few portfolios and did some minor tweaks. This was mainly top ups to UK, EM and miners (BRWM). However, VUKE is only 15% of my total allocation, VFEM under 8% and BRWM only 5%. All that I trimmed was RIT, which I bought when on a very good price, and the top ups were mostly funded by dividends having pushed my cash allocation beyond 5%.

Total time about 20 mins for all four portfolios (though I left one untouched) due to the power of portfolio download to XLS, and spreadsheets that pull this data to the right places, show me under/over allocations by holding and asset type, and let me just address anything that's red.

Sam_J12

Back to the original question in the title, this week I am probably going to...

Switch out of a smaller Japanese companies fund and invest some additional money in:

JPM Europe Smaller Companies.
Man GLG Continental European Growth Fund

BrockStoker

Sam_J12 wrote: »

Switch out of a smaller Japanese companies fund and invest some additional money in:

FWIW I wouldn't just yet. I think the rally in Japanese smaller companies still has further to run. I could be wrong of course!

Sam_J12

BrockStoker wrote: »

FWIW I wouldn't just yet. I think the rally in Japanese smaller companies still has further to run. I could be wrong of course!

I agree with you, and I think Japan and Japanese smaller companies in particular are a really good bet for the next six months. I´m still invested in that, but also think European smaller companies are quite nice too

Glen_Clark

Thrugelmir wrote: »

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. .

Even if you could fully understand the accounts of a complex international company like Shell, and they were 100% accurate, it still wouldn't give you any idea of whats affected the share price most - like OPEC falling apart, or Shells bid for BG.
I'm not buying more diesel because the price has gone down, I'd be using the same if the oil price halved or doubled. As someone else put it, you don't make 2 journeys to work because petrol is cheap. Our demand for oil is very inelastic, so it wouldn't take much lowering of the supply to bring the oil price back up again. The cause of that is likely to be political, with no warning of it to be found in company accounts.

gadgetmind

I just never get the same vibe from Japan when I visit now compared to Taiwan, Korean, USA or Israel. Or even compared to Japan ten years ago.