Current market carnage - anyone selling or buying?

Superscrooge

If you are a long term investor just stick to your plan. Buy and Hold is generally more successful than trying to time the market.

The game on the below link demonstrates just how difficult it is to time the market.

http://qz.com/487013/this-game-will-show-you-just-how-foolish-it-is-to-sell-stocks-right-now/

bigfreddiel

This is just short term noise.

Research has shown by back testing that if you had invested just before any major crash, you would be just as well off as if you had drip fed or timed the market.

Ignore what's going on and stick to your plan.

fj

Sam_J12

bigfreddiel wrote: »

Research has shown by back testing that if you had invested just before any major crash, you would be just as well off as if you had drip fed or timed the market.

That simply can't be true. Investing your money at the worst possible time (i.e. a stock market high directly before a crash) by definition has to be worse than investing at any other time. Somebody investing on either side of that high will own more shares for the same amount of cash.

BrockStoker

I really don't get it. On one hand we are told it's noise, and it makes no difference in the long run, whilst on the other hand the same camp insists that chasing after 0.X% less fund charges will make a huge difference.

I completely understand that timing the market is not easy and hit & miss at the best of times, BUT, I don't see why trying to buy when prices are low is WORSE than just blindly buying at an arbitrary time?

Sure your timing might not be perfect every time, but in the times I've tried to buy when the market has been low I've paid significantly less for shares than I paid when I first started buying/selling (and did not wait for a better opportunity) even when my timing has not been perfect.

Granted high management charges will eat away at your returns significantly over the long term and so is an important consideration, but it seems to me that if you get an initial boost by timing the market, even if you do not get it perfect, there's a high chance you can begin your investment with an extra few % at least, which over time should significantly add to your returns thanks to compounding, and much more so than 0.X of a percent difference in management fees. So why is one tactic frowned on whilst the other is encouraged?

Yes I know that too much buying/selling can be detrimental to returns also, but even with the frenzy (relatively speaking) of buying selling I have been through in the past year, without the strategically timed buys/sells, I would probably be down quite a bit more than I am now(over the year).

Edit: I see Sam got in there before me while I was typing - Well said Sam!

Snakey

I'm wondering whether to jump in.

I was finally in a position in April last year to move funds from Cash ISA to an S&S ISA. And then the market dropped, so I changed my mind. Ever since then it's been more of the same... I have it on my To Do list, and just as I'm thinking of getting around to it there's another mini-crashlet and it makes me shaky.

I got as far as printing out the application forms before Christmas with a view to having the funds in there by the New Year!

So this is the first time in my life that my natural laziness has served me well. In some ways it takes the pressure off - if I go in with a tracker when it's <6,000 and it drops, I'll be able to say to myself "at least you didn't do it at 7,100 when you were planning to". In other ways, it makes me want to keep waiting.

Bazofts_Revenge

If you were already comfortable with your past purchases and they are now cheaper and you have the money to spare then buy more and lower your average cost per unit/share.

Sam_J12

BrockStoker wrote: »

I completely understand that timing the market is not easy and hit & miss at the best of times, BUT, I don't see why trying to buy when prices are low is WORSE than just blindly buying at an arbitrary time?

Sure your timing might not be perfect every time, but in the times I've tried to buy when the market has been low I've paid significantly less for shares than I paid when I first started buying/selling (and did not wait for a better opportunity) even when my timing has not been perfect.

I think you are absolutely correct. A fundamental part of investing is to make sure the price you are paying is reasonable (or cheap) for the asset you are buying. This is the reason that market volatility is the friend to investors, as it present opportunities to buy parts of companies at a cheaper price while the intrinsic value of the company remains the same. It also presents opportunities for a well run company to buy back shares at bargain prices, to the benefit of the remaining shareholders. In the long term, the volatility does not really affect the shareprice, and the intrinsic value of the company dominates. I think Ben Graham said that in the short term the stock market is a voting machine and in the long term it is a weighing machine. I think that sums it up pretty well.

BrockStoker

Sam_J12 wrote: »

I think you are absolutely correct. A fundamental part of investing is to make sure the price you are paying is reasonable (or cheap) for the asset you are buying. This is the reason that market volatility is the friend to investors, as it present opportunities to buy parts of companies at a cheaper price while the intrinsic value of the company remains the same. It also presents opportunities for a well run company to buy back shares at bargain prices, to the benefit of the remaining shareholders. In the long term, the volatility does not really affect the shareprice, and the intrinsic value of the company dominates. I think Ben Graham said that in the short term the stock market is a voting machine and in the long term it is a weighing machine. I think that sums it up pretty well.

Yes, that does seem to make more sense. Also, making use of the volatility at times like this, when most asset classes have basically been going sideways (rather than up/down) for significant periods of time (1 year), seems to be the only way to get some growth, unless you have been lucky enough to pick assets/funds that have been doing well and that make up a greater proportion of you portfolio than the assets/funds that are doing badly, which is very difficult to do at times like this.

I think the key to enabling this strategy is finding a balance between diversification and diworseification, something I have been attempting to do over the last year or so, and I have made mistakes along the way, so I'm sure my returns over that last year were muted compared to what they could have been if I had not been assembling/"fine tuning" my portfolio.

After you have a suitably diversified portfolio it's just a matter of aggressively re balancing when buying/selling opportunities pop up. Of course, once things settle down you can more or less leave your portfolio to do it's thing, only rebalancing occasionally, so your funds have more of a chance to grow without interference. I think it makes sense to adapt your strategy according to how the markets are behaving. Perhaps there might be an extra element of risk following a strategy like this (if you have very bad luck with timing), but I think most people who can stay on the ball and keep an eye on the markets they are invested in should be able to get close enough with their timing that the gains should outweigh the risks.

The one thing I would say though, is don't use up all your cash as soon as an opportunity opens up - In my experience, it's better to "dip your toe in" first, wait a bit, and then if you have not already "called the bottom", try again, and possibly again to hedge your bets. For example, I had 50K available, of which I've spent 12K, so I have two 19K shots left should the price dip significantly lower over the next few days/weeks.

I should caution anyone reading this that this is what seems to be working for me so far, and I can not guarantee it will work for someone else, so don't blame me if what I say ends up not working for you. My investing experience is very limited and I'm still learning/making mistakes!

zolablue25

I opened my first S&S ISA in March last year and put in a fairly large chunk of my available cash then and again in April - that hasn't done so well for me to date! Anyway, since April I have been investing a monthly sum on the first weekend of every month, using the new cash to balance the portfolio. I decided to buy at the weekend when the markets are closed so as to take out any emotion regarding what may be happening in the markets on any given day. I'm now getting more funds for my money but overall the value of my finds is considerable lower than the cost to buy. Fortunately I realise that funds are long term not short term and I also realise that falls are an opportunity to buy - but I still don't like the thought of being in negative territory! I guess I'm just human and I try very hard to accentuate the positives when I look at the market "turmoil", but nagging in the back of my mind is "You should have waited to start the S&S ISA" even though I know its impossible to pick the peak and someone has to buy at that point. Hopefully, in the next 5-10 years my portfolio will swing round into green territory and I will marvel at my astuteness!

Sam_J12

zolablue25 wrote: »

I opened my first S&S ISA in March last year and put in a fairly large chunk of my available cash then and again in April - that hasn't done so well for me to date! Anyway, since April I have been investing a monthly sum on the first weekend of every month, using the new cash to balance the portfolio. I decided to buy at the weekend when the markets are closed so as to take out any emotion regarding what may be happening in the markets on any given day. I'm now getting more funds for my money but overall the value of my finds is considerable lower than the cost to buy. Fortunately I realise that funds are long term not short term and I also realise that falls are an opportunity to buy - but I still don't like the thought of being in negative territory! I guess I'm just human and I try very hard to accentuate the positives when I look at the market "turmoil", but nagging in the back of my mind is "You should have waited to start the S&S ISA" even though I know its impossible to pick the peak and someone has to buy at that point. Hopefully, in the next 5-10 years my portfolio will swing round into green territory and I will marvel at my astuteness!

I think it is a really good idea to have a fixed trading time each month to take the emotion out of it - I reassess and trade only on the 14th of each month and according to a predefined strategy that I am confident in to take out any of my own biases.