Current market carnage - anyone selling or buying?

Glen_Clark

JohnRo wrote: »

BRWM is my worst performer, current valuation stands at -65%, -55% overall. Disappointing but not entirely unexpected.
Rather than fretting, I want to hold that sector in my portfolio and so the next scheduled rebalance, at today's prices, will reduce the average cost by 40%. Something to look forward to, if the valuation goes lower in the short term then the better the result in the end.

BLT / S32 is my worst with a capital loss of 67% since I bought in March 2013 - (haven't counted dividends). As the world's biggest and probably most diversified miner, well below its peak price by then, it seemed like a good idea at the time. But its only 0.5% of my portfolio now so I won't be selling it. I follow Warren Buffet's advice not to buy anything I wouldn't be prepared to hold for at least 10 years.

gadgetmind

Glen_Clark wrote: »

BLT / S32 is my worst with a capital loss of 67% since I bought in March 2013 - (haven't counted dividends).

My wife is down 63% on BLT since buying in August 2011. Since buying she's had 17% of her initial capital back as dividends.

Fortunately, she has 25 individual shares in her portfolio, all bought at about the same time. I don't have a great way to measure performance of this portfolio, but I do have a bad way. If I add up all purchases (including costs), subtract all of the income from sales (I tinker), and add on all of the capital distributions, I get what the portfolio cost. Kind of. More or less. Stick with me!

Comparing this with prices today, she's 51.63% up on capital value and has had 29.51% as dividends. Of course this is bogus because as she sells more, her total return will soar percentage wise, so I really need to fix it!

I guess I need to compare total purchase price to returns from sales, returns from distributions, and returns from dividends. However, some shares have been bought and sold multiple times (and BAE Systems sold and then rebought within 30 days at a much lower price!) so it's complicated.

gadgetmind

OK, spreadsheet data plenty good enough to do it properly, more or less.

Cost of portfolio (all purchases) = X.
Returns from sales = 33% of X
Current value (despite sales) = 100.5% of X
Dividends = 19.55% of X

On the face of it, I seem to have beaten the FTSE 100 TR rather nicely, but I haven't pulled recent figures for the latter. That TR also reinvests whereas most of our returns (from this unwrapped portfolio) feeds into ISAs.

Thrugelmir

Glen_Clark wrote: »

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.

Supply is increasing.

grey_gym_sock

EdGasket wrote: »

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.

which is a good argument for going for as opinion-free a portfolio as is possible. if you put money behind your opinions, and try to do better than average, you can also do worse than average. if you go for a boring, middle-of-the-road, passive portfolio, you will get average-ish returns. that is the smart choice when backing your opinions isn't working out. i said you'll get average-ish returns, but in the longer term, a passive portfolio will beat most active investors.

i think you're tying yourself in knots, coming up with reasons why you shouldn't change anything. you need a clean slate. pick any sensible portfolio - it doesn't have to be lifestrategy - e.g. look at monevator's "slow and steady" portfolio, or their article on "9 lazy portfolios", or there are many other sensible options.

if you like, pick a portfolio that allows you (perhaps after slightly altering it) to retain some of your existing holdings. e.g. you mentioned having a global high-yield ETF - that can count as a tilt to (big-cap) value.

but do ditch all the individual companies and sector funds. if you must to keep a heavier weighting in oil & resources, then perhaps do that by having a relatively large allocation to a FTSE 100 or FTSE all-share tracker, since the UK has plenty of those sectors.

grey_gym_sock

i topped up my holding in the vanguard developed europe (incl. UK) ETF (VEUR) yesterday, using dividends accumulated within my SIPP.

this was a purely mechanical decision. i have target allocations for each holding, and rebalancing bands. no holding had moved outside its bands, but VEUR was the nearest to falling under its lower rebalancing band, so it got topped up.

my non-SIPP portfolio is not so mechanically run. no action taken there this year yet.

racing_blue

EdGasket - I'm in the same boat as you with holdings in supermarkets, energy companies, emerging markets, oil and other commodities.

Supermarkets: demand for food unlikely to reduce over time; defensive stock, steady income (ha!)
Energy companies: rising global demand for energy over time.
Emerging markets: likely to "emerge" over time.
Oil and commodities: seemed cheaper than before, provide diversify in portfolio, expect to recover over time.

I think, all we can say is that those bets have not yet paid off.

But some people are saying "sell everything and reinvest in a sensible portfolio". Here lies danger. Would we be considering selling everything if our portfolios had performed well last year? If not, then we should certainly not consider selling everything just because they have performed badly.

Like you I am now looking at a "small farm", although not quite as shrunken. One reason: I work with a defined asset allocation, at the core of which is a world stock market tracker & fixed income products (making up in total 50%).

For me, this "current market carnage" is, as someone else has said, a "January sale" and a change to buy a little more of some of these things to maintain target asset allocation.

bowlhead99

racing_blue wrote: »

But some people are saying "sell everything and reinvest in a sensible portfolio". Here lies danger. Would we be considering selling everything if our portfolios had performed well last year? If not, then we should certainly not consider selling everything just because they have performed badly.

Yes! Yes we SHOULD effectively consider selling everything whether our portfolio had performed well, or badly, or indifferently.

For example, lets say my portfolio is about £70k and consists of :
25% USA equities
20% UK equities
10% Asia equities
10% Europe equities
10% global emerging equities
5% global smaller equities
10% real estate
10% bonds

After a year it has put on 40% and I have a £100k portfolio, with most areas up but some areas very strongly up. Fantastic. But in growing, the portfolio will have become distorted away from the target ratios, perhaps to something like

35% USA equities
16% UK equities
12% Asia equities
5% Europe equities
7% global emerging equities
11% global smaller equities
8% real estate
6% bonds

Although the total pot has risen substantially it is not smooth and even. I realise I now have over a third of my portfolio in the US; I have less than a fifth in the UK where I live and only a token 5% in Europe. My smaller companies allocation is now more than double the proportion of my portfolio that I had intended, my developed asia and emerging markets are now heavily skewed to the developed stuff, and my downside protection which was supposed to be 20% in real estate and bonds is now only 14%.

What would I do? Just what we are telling Ed to do. Sell everything and buy back the proportions that I actually want for a reasonably balanced allocation.

Now of course I am not literally going to sell my £35k USA funds and £11k smaller companies funds to give me the money to buy back a portfolio which includes £25k USA funds and £10k smaller companies funds. I will "rebalance" and sell out of some to top up others.

But my RESULT is that I end up with a fresh clean balanced portfolio. Just like if I was coming onto the market with £100k of new money and went and bought a balanced portfolio.

Sure, it's nice to 'run your winners' but *if* I believe a sensible portfolio has 75-85% equities and 20-30% of its overall allocation to USA equities, and my portfolio has developed into something with 86% equities and correspondingly less in all other asset classes, and over 33% allocated to US equities, my portfolio is no longer fit for purpose.

So whether I literally sell out and rebuy from scratch, or I make incremental adjustments here or there, what I should aim to do is periodically end up with a new portfolio that fits my objectives. Even if the funds in the 'new portfolio' are the exact same and just different proportions. It's the balancing of the proportions to something that meets my risk profile, which I'm aiming for. I should do that whether my £70k portfolio just turned into a £100k one, or just turned into a £50k one.

A £100k portfolio or a £50k portfolio which grew or shrunk from a £70k one will not have the same proportions as something the average person would have set up as a £100k or £50k one from scratch.

Ed started off with a portfolio, and it's now been subject to the vagaries of the market and some top ups here and there and is now a different portfolio. It is time to rip it up and put the proportions back to what he would have selected if starting from scratch, and that advice would be the same if it had grown rather than shrunk. Start again. Just like many of us do every year, without realising it, as we go through our reblancing.

The problem for Ed is that last time he set it up from scratch, it was wildly different from something the average person would have done from scratch, and it performed badly. So his choices are, leave it, put it back to how he had it, or put it back to how the average person would have had it. I favour the latter.

bowlhead99

On a lighter note, a 'market carnage' thread is always made better if we see the light at the end of the tunnel and know what to buy next.

Knowing what to buy can be tricky. In that respect, I refer you to what is reportedly RBS's take on it, per the australian press:

http://www.theage.com.au/business/markets/rbs-tells-investors-sell-everything-20160111-gm3ssa.html

tl;dr - hold on tight.

Glen_Clark

gadgetmind wrote: »

OK, spreadsheet data plenty good enough to do it properly, more or less.

Cost of portfolio (all purchases) = X.
Returns from sales = 33% of X
Current value (despite sales) = 100.5% of X
Dividends = 19.55% of X

On the face of it, I seem to have beaten the FTSE 100 TR rather nicely, but I haven't pulled recent figures for the latter. That TR also reinvests whereas most of our returns (from this unwrapped portfolio) feeds into ISAs.

Obviously doing better than me. I haven't recorded dividends (as I didn't need to declare them for extra tax until Osborne decided to tax them twice next year) just capital gains/loss for my tax return. Currently sitting on a 5% loss, but if I include the last 2 years gains booked, it brings it to a 1% gain. The dividends must have been higher than interest rates, so I guess its still a bit better than savings accounts. So whilst its lost about 14% (a guess) since last May, its not a disaster - so far.