stockmarkets -are we nearing the bottom or is there further to go ??

Glen_Clark

I thought Government debt and money printing normally leads to hyperinflation, where the worst place to be is in cash?

Thrugelmir

Glen_Clark wrote: »

I thought Government debt and money printing normally leads to hyperinflation, where the worst place to be is in cash?

Banks (Western at least) are contracting balance sheets. So on the other side of the equation money supply is contracting. BOE used QE and the other measures to maintain liquidity, stability and confidence in the banking system.

EdGasket

Glen_Clark wrote: »

I thought Government debt and money printing normally leads to hyperinflation, where the worst place to be is in cash?

Well I thought that too but hasn't happened so far. Gold making good gains at the moment though so who knows.

BananaRepublic

The FTSE 100 is currently at 5,536.97, so in answer to the original question, it has 5,536.97 further to fall.

I happen to think it will bound up once the market traders have washed their underwear, calmed down, and released their grip on theit teddy bears. In five years current investments will be cushty.

Thrugelmir

BananaRepublic wrote: »

The FTSE 100 is currently at 5,536.97, so in answer to the original question, it has 5,536.97 further to fall.

I happen to think it will bound up once the market traders have washed their underwear, calmed down, and released their grip on theit teddy bears. In five years current investments will be cushty.

Chinese New Year at the mo. Await next Monday.

grey_gym_sock

Linton wrote: »

It all depends on what you mean by active and passive investing. If you define active investing as frequently trading shares with the objective of beating the market I would agree with you. However active funds can do other things. For example:

- investing in a subset of the market
- investing in particular shares that meet some criterion
- allocating investments by some other criterion than market capitalisation.
- invest to meet some other objective than maximise performance

the basic arithmetic argument applies to investing, within a defined market, in any way other than weighted by market capitalization. (though note that the defined market could be e.g. small-cap UK shares.)

within a given market, the returns of the non-cap-weighted investors, averaged by amount of money employed, will be equal (before costs) to the returns of the cap-weighted investors. therefore, if the non-cap-weighted investors have higher costs than the cap-weighted investors, then they will have lower net returns. and interestingly, this is true in all market conditions: non-cap-weighted investors do not have any advantage in falling markets, as is often claimed.

now, it is not really as simple a knock-down argument as that might sound like, because it is possible that investors don't look at "the market" in the same way. for instance, if we defined "the market" as all global investable assets - including both equities and bonds - then that is not a very good way to look at it - it makes sense at least to look at equities and bonds as separate markets, and to decide how much to put in each based on your risk tolerance, not on their market capitalizations.

and it's at least plausible that the same applies within equities - i.e. that some kinds of equities are higher risk than others, and offer higher average returns, but bigger falls when things are bad. this might apply to small-cap shares, value shares, etc. if this is so, then it is reasonable that investors will use their risk tolerance to decide how much to put into these specific kinds of equities. however, if you can define such an area clearly, then the same argument applies within each area: i.e. if i can buy UK small cap value equities either via a cheap tracker, or via some more expensive active funds, then i will on average get higher returns by using the tracker.

In general these cannot be done effectively by the current set of passive funds.

in some cases, agreed. since i can't buy UK small value equities via a tracker, i'll use an active fund.

now, it is not entirely clear which subsets of equities do offer higher risk along with higher returns. probably some of these: small, value, momentum, profitability/quality, low volatility - but there is better evidence for some of those than for others. and even for the more solid ones, there are different ways they can be defined. so there is certainly some room for judgement about what effects it is even worth trying to capture. and then about whether there are adequate vehicles to do so. these vehicles can of course be active or passive.

i would strongly question active management either when there is a cheaper passive fund that appears to capture about the same effect as the active fund, or when the active fund doesn't appear to be aiming at any of the plausible known effects. for instance, if the manager says that they pick companies by meeting the management and judging whether they sound good, or by jumping in and out of sectors according to the point of the market cycle, then those are very implausible methods.

Procrastinater

Ok perhaps we just misunderstand each other a little - Thanks for taking the time to explain your perception of my imputs.

bowlhead99 wrote: »

Because it is difficult to know where to start with giving someone an education in finance. My own 'expertise' comes from a variety of sources - academic courses and practical career experience over a period of decades, together with taking an interest in economics, markets and financial matters and absorbing a lot of information as I go; I have been using the internet for 20+ years. I didn't just 'read a decent book' to give me a rounded view of the financial world. I doubt such a book exists.

I observed that you didn't seem to understand financial management, as you had not shown much insight in the posts made since joining the board; being able to link marketwatch articles which are not very in-depth, or a light-hearted book which 'exposed' some Wall Street practices three quarters of a century ago, is not what I call 'insight'.

I commented that the Customers Yachts book is becoming out of date because people have so much access to information and education and research, and they can easily make decisions or get into cheap products without having the wool pulled over their eyes. In this age of enlightenment, people can put a little effort in to learning and get results, without needing twenty years of expensive experience. But, I noted, it was easier to bash bankers, investment managers and advisers, as you and Berbastrike would prefer to do through throwaway comments, than actually get educated.

You then demonstrated your ignorance by saying that people are not educated and don't realise that if they had invested in a FTSE tracker in Jan 2000 they would still be down 20%. Which is completely false, because even investing all their money into that one poorly-performing market on the very worst day, they would likely have broken even by easter 2006 and now a decade later be sitting on substantial gains.

Ok you linked to a FTSE all share index. The FTSE tracker I meant was a simple tracker of the FTSE 100 - as per :

https://uk.finance.yahoo.com/q/bc?s=^FTSE&t=my&l=on&z=l&q=l&c=

Which clearly shows a triple top at just below or about 7,000. with two bottoms (so far ) at just below 4,000. In fact there are 3 lesser "bottoms" in the 2011- 2013 era. This support is what the guy who is talking of "below 5500" is looking towards when anticipating a bottom in thsi range. My own view is that the Time element of the chart is such that a fall right down to the previous major support levels around 3800 is a distinct possibility.

bowlhead99 wrote: »

So, you seem to be ignorant of basic facts when it comes to investments and markets. With that lack of comprehension, should I presume that means you do or don't understand the marketweek articles and 'intermarket analysis' book on Amazon that you linked? Maybe you don't. So where do we start? Do we need to go back to square one and start off with an A-level economics textbook? GCSE business studies? My First Ladybird Book? They all formed part of my education which means I now know what the FTSE represents and how investment products work.

I already have a grade 1 in "A level" Economics, which was my favourite subject at School and derivatives of Economics was a significant portion of my degree course.

The one thing I found universally surprising was that none of this learning and stuidying produced anything which even vaguely purported to explain the "Business cycle" ! In fact I have since found a convincing explanation, but it's not from a source you would apprieciate !

bowlhead99 wrote: »

That is why I linked you to the free online course from Futurelearn, a joint venture between the Open University and The True Potential Centre for the Public Understanding of Finance. It has been linked on this board before; "This course is intended for those with an interest in developing their personal financial skills to make good decisions when managing their investments and buying investment products. The course does not require any previous experience of this subject."

I appreciate the link, but have not actually followed it as yet. In about 1998/9 - I was arguing with the "consensus" of my share club, that the proposed increases in buying of "Computer related" shares and their propensity to buy Northern Rock, were both ill-advised.

bowlhead99 wrote: »

I don't know that it will be any good to you. What sort of a book do you want? You seem to think that bankers and investment professionals are all bad guys. But I'm not sure there's a book that devotes itself exclusively to saying that investment professionals are not all bad guys, in the same way there is probably not a book called 'not all politicians are criminals' or 'not all football players are rapists'.

You probably just need to read more widely around the subject to find out what investment products are out there and which ones could be useful for you. This board already has several threads on reading materials and useful financial blogs so there is no point turning this into one.

Shortly after making a few grand (quadrupled my "Bet" ) on MFI by buying in their hour of crisis and waiting for them to turn around, I tried to do it bigger on a firm called Marconi and lost £5k. At that point I decided that "If I'm going to do this thing I need to know what I'm doing" and borrowed everything I could find in the Library on "Investing" specifically in shares. Most if not all of spoke of "Fundamentals" and "News". It seemed to me that these were people who really didn't know what drives the markets or causes prices to move. The case is that people who "Can" - do. Those who "Can't" teach (or in this context - write books). Many, many scores of books later, there are only a tiny proportion that I would recommend, including those I linked to. There are several on behavioural finance, which I find helpful and also things like "How we know what isn't so" and "Inevitable illusions" - The old classic "Popular delusions and the madness of Crowds" and the one about Jesse Livermore and his manipulation of the markets (can't remember the name off-hand) - I just had a look and I think probably around 300 "trading or trading related books" - so several thousand quid's worth.

So I do make decisions about my gambles and over a lifetime, I've lost a few - but Won a great deal more than I've lost !

bowlhead99 wrote: »

And it wasn't the fact that people invested in a FTSE tracker for 15 years have been making money instead of losing money? I would have thought that revelation would have been quite interesting, given that it turns your world view on its head?

We've been through that haven't we ?

bowlhead99 wrote: »

When you hit Reply, at the top of the edit box there is a little icon that looks like a landscape. If you hover over it you can click to insert image. Provide the link of the image you want.

Thanks for that, I was going to use the knowledge to submit photos of my book shelves - but perhaps not.

In conclusion, I entered this thread, to respond to the OP's original question and perhaps save some of MSE members a considerable amount of cash, but got dragged in (partly my fault ) to a ping pong about "Investments" rather than the OP's simple enough question.

Before I get shot down again about "trading" - being "Gambling" perhaps it is worth reflecting that this is exactly what most of the "Investment professionals" do when "Managing" their funds !

AN IFA I had a meeting with a year and a bit ago showed me his wonderful chart of "Past performance" and was very proud that the "Technical team" used "Supporty and Resistance and Flags" to produce the results for the fund he was trying to flog me !

Clearly his "results" were based on a few recent year (The upside ones ) of the FTSE 100 and he was Gobsmacked that I recognised it and didn't feel that "Investing" £200.k in something which we calculated slightly underperformed a straight tracker and then paying hiom £4k to set it up and 2K a year after that !

When I produced the chart I linked to earlier, and said that I could not possibly take an Up bet at 6850 (ish) when the risk was there for all to see ! [But few ever look any deeper taht the most recent couple of years]

Anyway, I've answered the Op's original question in enough detail for people to make their own decisions and hopefully I can save a few a few quid !

x

grey_gym_sock

Aegis wrote: »

There's also a further issue that different investors making up the market are playing different "games". The goals of an income investor might well be different to those of a growth investor, and where you have multiple games going on in a single space it is much more complicated the determine which are positive sum and which are negative even if at first glance the entire system seems to be one large zero-sum game.

i do agree there is an issue with defining the market (or "game"). my comments in my previous post about small, value, etc, would fit within that.

OTOH, i think the income vs growth idea is questionable - at least, if we're talking about within equities. there is a strong argument that you should only worry about total return from equities. safe withdrawal strategies are a tricky area, but you don't achieve real safety by drawing the "natural" income. (it's not really "natural", when you are excluding shares buy-backs, which have an equivalent effect.)

grey_gym_sock

BananaRepublic wrote: »

If by active investing you mean purchasing shares in a unit trust which is actively managed, then you are repeating an idea that is widespread, and which the Blair government promoted. The truth is that some fund managers do consistently beat the market, and my own experience is that my actively managed funds have all bar one beaten the market, quite substantially too. The exception is a Japan fund, but my other gains have more than compensated.

i hope you mean that your japanese fund failed to beat a relevant japanese index, and not just that you lost money on your japanese fund? you do always need to compare to a relevant index - you can't just compare everything to the ftse all share.

some fund managers outperform, even for long periods. but there are so many fund managers that this is to be expected, even if performance is all down to luck, not skill.

but can the outperforming managers be identified in advance? the evidence generally says no. past outperformance is not a good predictor of future performance. low charges, however, are a good predictor of future performance.

grey_gym_sock

on predicting crashes ...

nobody can predict the exact timing. i wouldn't pay much attention to ppl who try to.

what is possible is to identify when there is something unsustainable going on - e.g. an asset bubble inflating - and to discuss some of the ways it could turn out.

for instance, steve keen - see http://www.debtdeflation.com/blogs/ - identified, long before the GFC, the issue of exponential growth of private debt in western countries. and has relevant things to say now about the still-high level of outstanding private debt. as he argues, that's our main problem - not the level of public debt, which is a symptom.

most economists still ignore private debt, i.e. they use economic model which pretends that private debt doesn't matter. but there are more sensible ideas out there, if you look for them.

on issues with growing debt in china, micheal pettis - see http://blog.mpettis.com/ - is interesting, and again he's been talking about this for a long time.