Current market carnage - anyone selling or buying?

Sam_J12

I think there may be something to what RBS says. There has to be a chance of a really bad year for the markets - if China continues to implode and oil/commodity prices continue to plummet then bad things will certainly happen. My personal opinion is that the worst has passed in China and oil prices will continue to remain as they are, and the markets will be ok. But I think the warning signs are certainly there. I´m considering increasing my bond allocation this month (from 0%).

bowlhead99

gterr wrote: »

If such a big concern tells its investors to 'sell everything' do we take heed? Or is there some other motive to them issuing such a start warning?

To suggest there was an ulterior motive would imply that one half of them knew what the other half was doing

You should take heed by doing whatever you normally do when you hear economic or market forecasts. For some, that might be seeking some more of them and attempting to evaluate which ones are more likely and which ones have hidden agendas and ulterior motives, and then act. For others, that might be just ignoring the noise and going with gut instinct.

If nothing is cheap and everything has downside risk, why buy or hold anything? Answer, because of the risk of things going up in value without you. You might assess that between all the different outcomes, the 'most likely' is a fall in value of 5%. If so, you might decide that you will sit this year out in cash because inflation will not cost you as much as 5%.

However, if a possible outcome is an increase in value of 50%, ask yourself how you would feel if all your friends and neighbours - with whom your money will compete for goods and services in the future - grew their wealth and future pensions by 50% while you stood still. By contrast what if you stayed in and lost 50% while they stood still. Both painful outcomes if you think that your pound is going to be competing with their two pounds over who gets to buy the loaf of bread.

So, either take heed of the economists who say sell or the ones that say don't. You're probably screwed either way.

A_Flock_Of_Sheep

It's all going south. I keep telling people.

But they don't listen.

Gadfium

A_Flock_Of_Sheep wrote: »

I keep telling people.

A_Flock_Of_Sheep wrote: »

But they don't listen.

Its very possible that both are related. Are you familiar with the morale in the story of Chicken Little? Or familiar with Confirmation Bias?

As I look at the moment, the FTSE, Dow Jones, Nikkei and Nasdaq are all slightly up.

racing_blue

bowlhead99 wrote: »

If a possible outcome is an increase in value of 50%, ask yourself how you would feel if all your friends and neighbours - with whom your money will compete for goods and services in the future - grew their wealth and future pensions by 50% while you stood still. By contrast what if you stayed in and lost 50% while they stood still. Both painful outcomes if you think that your pound is going to be competing with their two pounds over who gets to buy the loaf of bread.

Bowlhead your post makes me wish I had enough zen to commit to a 2 fund portolio, 50% stocks, 50% bonds, with annual rebalancing.

gadgetmind

I think it was Bernstein who suggested sticking with 50:50 unless you had a good reason to do otherwise.

Personally, I'm at 70% equities, 10% bonds, 15% property+infrastucture, and 5% cash.

tg99

gadgetmind wrote: »

Which is (partly) why I won't use such funds.

Ok. But doesn't that vastly reduce the pool of funds you can invest in to virtually zero since most funds, whether we are talking index trackers to active equity / bond funds, will use or are permitted to use derivatives for efficient portfolio management purposes (i.e. to manage risk, including some of those I've highlighted in earlier posts)?

A_Flock_Of_Sheep

Even the much cliched, slow and steady, let's be careful, we will get there in the end, Vanguard LS funds use derivatives

tg99

gadgetmind wrote: »

Perhaps, but they have gone *very* wrong even in the hands of professionals, including those with huge office blocks crammed full of PhDs.

True, with the collapse of LTCM being possibly the prime example here! That said, in such cases it is usually the result of leverage which makes it go very very wrong.

InvestInPoker

tg99 wrote: »

e most funds, whether we are talking index trackers to active equity / bond funds, will use or are permitted to use derivatives for efficient portfolio management purposes

A_Flock_Of_Sheep wrote: »

Even the much cliched, slow and steady, let's be careful, we will get there in the end, Vanguard LS funds use derivatives

Yes exactly, it is my understanding that pretty much all funds use derivatives to some degree.

Certainly the much championed (by myself as well as others on here) Neil Woodford does (source, fidelity interview he gave before WEI launched).

Didn't his old employer Invesco Perpetual get into trouble for their use of derivatives in some of their funds?

Edit - Yep http://www.telegraph.co.uk/finance/personalfinance/investing/funds/10796297/Invesco-Perpetual-fine-should-investors-be-worried.html