Current market carnage - anyone selling or buying?

gadgetmind

tg99 wrote: »

But doesn't that vastly reduce the pool of funds you can invest in to virtually zero

I avoid open ended funds as much as possible and ditto active management. Those trackers I do use aren't synthetic and their use of derivatives and securities lending is very minimal and they are open about their policies in these areas.

This isn't some religious thing, just that I've seen these overly-complicated approaches that rely on a lot of PhDs to show how it's not actually risky at all and "can't go wrong", go so very wrong.

I have no need to take on the risks of complications and counter-parties, no need for fancy absolute return strategies, no need to take on gearing, and no need to invest in things that I don't understand. Some may say that I'm missing out on thrills, spills, and potentially higher returns, but my simple strategy has worked well so far.

I even keep looking at our holdings in Personal Assets Trust, Ruffer, etc. and seriously consider giving them the boot. Of course, the dirty secret is that I probably wouldn't part with RIT Capital!

gadgetmind

InvestInPoker wrote: »

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

And so they should. Taking risks and investing outside of your mandate isn't providing the service the customer asked for and accepted, so doing it to try and generate more returns just isn't on.

tg99

On the RBS note, there will always be some major bank/economist/etc calling such a bear market as it gets you in the news and not many remember if you are wrong but they do if you're right so there is not as much downside risk getting it wrong compared to if you are investing hard money alongside such views. That's not saying they don't have any valid points as I have not yet read their note in full. However, having a quick glance at their summary / front page, calling for 10-20% downside in equity markets hardly strikes me as cataclysmic as being portrayed by the headlines and articles of the various mainstream press covering this story. Falls of such magnitude are par for the course for long term equity investors, if they weren't then the equity risk premium would be lower. And what they are pushing - going into high quality government bonds - is not exactly risk free either. Anyone recall the spike in Bund yields last year?

tg99

gadgetmind wrote: »

and no need to invest in things that I don't understand.

That's probably the best piece of advice that could be given to a retail - or indeed any - investor as from my experience that is very often the underlying cause of incurring large losses relative to one's investment objectives and what one thought was his/her intended long-term strategy. Unfortunately people often get tempted by seeing a long run of smooth and steady returns with little vol which therefore looks good on paper especially when looking at historic standard deviation of returns etc. Classic cases - Bernie Madoff hedge fund, and one closer to home: life settlement funds.

And same goes for investors using derivatives / spread betting / investing in vehicles that use them. Whereas I myself am very comfortable and experienced in utilising these tools, one should imo never use them unless they fully understand how they work and the risks involved. Unfortunately many don't but still get tempted by the apparent returns on offer. And I would speculate that a lot of investors and/or their advisers do not totally understand some of the risks and derivative-based strategies being employed in mainstream bond funds that sit within the IMA sectors. Could go very wrong in a bond bear market with a rush for redemptions especially given the lack of liquidity these days in the cash bond market and the size of some of these funds.

racing_blue

FWIW, my answer to the original question: buying.

On 31st December 2015 I totted up. My asset allocation had become cash heavy because during the last 6 months everything else had gone a little way down the swanee. It was 30%, 28%, 25%, 17% (VWRL, other equities, cash, commodities).

To bring "other equities" back up to 30% I just bought VUKE, Vanguards FTSE 100 tracker. Reason? It is cheaper than last year & I feel good about the portofolio tilting a little towards UK, where I live and spend.

To bring "commodities" back up to 20% I just bought Blackrock World Mining Trust, of this parish. Reason? perhaps I like a little more risk than the average cat.

Asset allocation now back to 30%, 30%, 20%, 20% & that's me done until Easter at the earliest.

Good luck to all

gadgetmind

tg99 wrote: »

That's probably the best piece of advice that could be given to a retail - or indeed any - investor as from my experience

Agreed, but people tend to equate complicated with better, which is an image the investment industry does all it can to maintain.

Classic cases - Bernie Madoff hedge fund, and one closer to home: life settlement funds.

People want the return without the risk.

And same goes for investors using derivatives / spread betting / investing in vehicles that use them. Whereas I myself am very comfortable and experienced in utilising these tools, one should imo never use them unless they fully understand how they work and the risks involved.

I understand long and short, calls and puts, negative duration, and the like, but am less than convinced that they have a role for anyone who doesn't particularly care for cornering on two wheels.

And I would speculate that a lot of investors and/or their advisers do not totally understand some of the risks and derivative-based strategies being employed in mainstream bond funds that sit within the IMA sectors.

All of my bond holdings are also passive. Capital could be knocked by short term volatility, but bond prices have maths behind them, and TBH I'm quite happy to gain from looking for mispricing by those desperate to sell.

I picked up a lot of bank paper back when credit was crunchy, including some bank preference shares that have done *very* well for us.

Perhaps the fact that I find fixed interest fascinating, coupled with zero desire to use CFDs, shows that I have a mathematician's brain rather than that of a gambler.

Glen_Clark

gadgetmind wrote: »

I picked up a lot of bank paper back when credit was crunchy, including some bank preference shares that have done *very* well for us.:D

A good example of the importance of politics in investment, and I guess why people pay so much to hire (ex) politicians. If you knew the insolvent banks were going to be so well bailed out by their (solvent) competitors and the taxpayer, you would know their paper was going to be a great investment. Something you couldn't find out from reading their accounts, even if you could understand them all and they were all 100% accurate.

racing_blue

Gadget Mind (and anybody else with a view) please may I ask what do you think about this:

A UK investor, with portfolio held in ISAs, sets out to create a passive portfolio. Their starting point is 60% equity, 40% bonds.

They could simply dripfeed into a lifestrategy fund & sit back.

But hang on, at their starting point interest rates (and bond yields) are historically low. They are concerned that if they invest in a broad market government bond fund, then if interest rates rise the value of their fund may fall.

Rather than risk a capital loss, they look for another sort of safe, fixed income vehicle. Do fixed rate cash ISAs fit the bill?

Thrugelmir

A_Flock_Of_Sheep wrote: »

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

But they don't listen.

Overdue a good shake out. Must be a few fair zombie companies out there.

gadgetmind

racing_blue wrote: »

They are concerned that if they invest in a broad market government bond fund, then if interest rates rise the value of their fund may fall.

Yes, it might. However, interest rates aren't going to rocket and the response of bonds to these (or more strictly inflation) is complicated and depends on duration.

Research something called "convexity".

https://en.wikipedia.org/wiki/Bond_convexity

Rather than risk a capital loss, they look for another sort of safe, fixed income vehicle. Do fixed rate cash ISAs fit the bill?

If it's not in the same portfolio, it's hard to rebalance. However, we do have some interest bearing accounts (not ISAs, these are all S&S) and some NS&I linkers.

I also decided to reduce my bond holdings to 10% and instead hold more property and infrastructure. The latter two are now moving to large premiums, though property ones have unwound a bit lately.