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

_CC_

nb73 wrote: »

Yeah, that will happen. Or maybe it won't. What should I do?

Not sure, maybe take my post as tongue in cheek like it was intended?

Like you say, no-one precisely knows what the future holds, hence the importance of an investing strategy that is suited to your own needs, tolerance etc. Predicting the bottom/top is a fools game.

coastline

I read this article a while ago from March 2015.

http://www.bloomberg.com/news/articles/2015-03-30/s-p-500-profit-reversals-hard-to-stop-after-bad-quarters-pile-up

today..

http://humblestudentofthemarkets.blogspot.co.uk/2016/02/if-i-had-to-watch-just-one-thing.html?

Drip feeding or lump sum at least you are buying around 15% off peak but who knows what happens next.
China will re open on Monday and play catch up I'm guessing.

Rollinghome

bowlhead99 wrote: »

Because that is demonstrably false. Below is a graph of the performance of the FTSE UK All-Share index, and a graph of athe UK FTSE 100 index since 1/1/2000. You can buy index tracking funds which charge under 0.2% a year in fees.

A minor point but, afaik, there weren't any FTSE trackers at 0.2% in 2000. The cheapest I can recall was from L&G at 0.5 or 0.75%. Prices began falling when Vangard entered the market in 2009 followed by HSBC slashing their charges to 0.28%.

Also, it obviously makes no sense to exclude dividends from returns but equally no figure is particularly useful without taking the rate of inflation into account, which I'm not sure your graphs do.

Or still more interesting would be a comparison of total returns over an alternative such as the best available savings accounts rather than the less satisfactory approach of the Barclays Equity and Gilt Studies. It's what we might expect from an investment compared to the available alternatives that's generally most relevant.

bowlhead99

That's true - you're right that the fees for trackers structured as oeics and unit trusts have come down quite a bit with the various changes in the platform markets and competition generally, but if you find a fund available for the whole 15 year period like HSBC it will have started off underperforming the pure index by more than it currently does, especially on the expensive retail class. Not enough to make your gain into a loss though.

ETFs have been relatively cheap right from the start though - for example Barclays launched iShares in early 2000 and had substantially lower fees than the 0.75% Literally piling into an index and holding it has generally been pretty cheap.

I don't usually bother trying to "inflation adjust" historic returns when getting a performance chart. Yes the fact that my beer or petrol or bread or rent or internet connection costs more, means i should target a high return to be able to afford those things. Inflation means I demand a higher return from what I'm investing in. But it is the same with anything I invest in. Cash, gold, gilts, oil, FTSE, private equity, whatever. The headline total return needs to meet my target and however I make my money (or hoard cash and not bother to try to make money), inflation costs me the same because my beer costs me £4 instead of £1 so I need to have generated a nominal £3 sterling over the period.

No real point trying to put that on a graph. Just make sure the graph for my FTSE return and my gold return and my cash return etc etc etc show whatever actual return they delivered.

You are right that consumers get access to high quality savings or current accounts (though perhaps only on limited amounts of principal) which are usually better than base rates or risk free short dated bonds. So yes it is worth comparing them with the returns from equities.

But we all know that the cash return may beat or be beaten by equities in any specific year. Over a long enough period, ignoring arbitrary cherry picking, it will get beaten, so people shouldn't use cash deposits for long term aims that rely on decent [nominal or inflation-adjusted] growth. They might quite feasibly hold a portion of their portfolio in good cash accounts and periodically rebalance the proportions, to reduce the volatility of their overall wealth, albeit with a probable cost to long term returns

talexuser

I'm surprised (although may have missed it) no one has commented on the news that markets think interest rates will not rise till the end of the decade. Personally I have been pretty contemptuous of the various predictions of interest rate rises, I think any recovery has been somewhat illusionary so far, debt has increased, our economy has not re-balanced, QE is an experiment not a proven success, if many banks really were bust can you really put off the day of reckoning forever?

On the other hand this could just be a normal downturn and growth will start again but I just can't see this is normal capitalism with normal checks and balances.

Rollinghome

bowlhead99 wrote: »

I don't usually bother trying to "inflation adjust" historic returns when getting a performance chart. Yes the fact that my beer or petrol or bread or rent or internet connection costs more, means i should target a high return to be able to afford those things. Inflation means I demand a higher return from what I'm investing in. But it is the same with anything I invest in. Cash, gold, gilts, oil, FTSE, private equity, whatever. The headline total return needs to meet my target and however I make my money (or hoard cash and not bother to try to make money), inflation costs me the same because my beer costs me £4 instead of £1 so I need to have generated a nominal £3 sterling over the period.

No real point trying to put that on a graph. Just make sure the graph for my FTSE return and my gold return and my cash return etc etc etc show whatever actual return they delivered.

Well, yes, but provided there is some form of comparison either on the chart or given elsewhere.

To say that the return on something, whether it's equities, property, savings or whatever, over a certain period was x% but that the inflation rate was unknown makes the figure meaningless. Getting a return of x% with an inflation rate of x% means you get your money back and no more. In real terms the return is zilch.

Those savings rates of 16% and more on offer from our high steet building societies in the 70's didn't make us rich when inflation was even higher.

Certainly, inflation rates can be problematic but there has to be some form of reference to have any meaning. If there's no comparison of the rate of return with an inflation figure, or with returns from alternative investments/savings, or with Mars bars, then the figure really doesn't tell us very much.

But we all know that the cash return may beat or be beaten by equities in any specific year. Over a long enough period, ignoring arbitrary cherry picking, it will get beaten, so people shouldn't use cash deposits for long term aims that rely on decent [nominal or inflation-adjusted] growth. They might quite feasibly hold a portion of their portfolio in good cash accounts and periodically rebalance the proportions, to reduce the volatility of their overall wealth, albeit with a probable cost to long term returns

Quite true, but as I read it, it was with reference to a very specific period, even though taking from peak to below peak did look like cherry-picking.

Thrugelmir

talexuser wrote: »

On the other hand this could just be a normal downturn and growth will start again but I just can't see this is normal capitalism with normal checks and balances.

Hardly a normal situation when Central Banks are trying to engineer the direction of the global economy on a daily basis. As I heard one person say today. They need to go back to their day jobs. As they have no idea what they are actually doing. Lowering interest rates further is merely adding further pressure onto the banks (falling lending margins). While encouraging people to simply borrow more.

BananaRepublic

grey_gym_sock wrote: »

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.

I made an error, apologies. The Japanese fund didn't do badly compared to the index, but the index fell badly, hence my fund did poorly.

grey_gym_sock wrote: »

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.

That was the prevailing view. I recall a study not so long ago which showed that some fund managers do indeed outperform the index, consistently, and far more than would be expected by chance. In my own case active funds have performed very well. My best has turned £6,000 into £40,000 over 15-20 years. My others have not done quite so well, but they have far outshone trackers, and the usual pension funds. I have had some trackers for ~7 years, just after the big crash, they doubled the money, but not as good as my active funds. I was taken in by the mass swoon over trackers, and the idea that active managers were over-rated. In fact some active funds are really hidden trackers, but charge more. But choose active funds wisely, and spread money over multiple managers. It pays not to put all your eggs in one basket in case the chap in red braces loses his mojo. Low charges do not predict high gains, they simply predict low charges. Just as high charges do not predict high gains.

As an aside, one pension soaked up £4,000 of salary, and after 20 years was worth £6,000. Quite why I did not transfer it sooner is beyond me. Perhaps due to the lack of online tools to closely monitor it, and the large number of funds I have.

bowlhead99

Rollinghome wrote: »

Well, yes, but provided there is some form of comparison either on the chart or given elsewhere.

Well yes, some form of comparison *is* 'given elsewhere'.

All the other funds you could have invested in, whether in UK equities or overseas equities or in bonds or gold or oil or property or overnight money market have their nominal numbers published. I wouldn't put them on the chart though because there are 5000 of them and i don't know which one you'd like to compare. Similarly, RPI inflation is published, as is RPIJ, CPI, CPIH, TPI, HICP (60 different excel data tabs accompany each monthly announcement) and you probably have your own personalised inflation measures in your own head. Cash under the bed is not published but you could imagine a flat line at zero return (or negative due to security costs, or actual fire or theft). Cash in the top paying selection of savings accounts each month - minus the time and shoe-leather costs of keeping moving it - is probably the only common 'investment' choice that does not have an easy source, though some of the raw data is dotted around the place.

So, if you want a comparison of FTSE100 to FTSE UKallshare, FTSE 250, or to FTSE All-World, or to IA European Smallcap... gold, RPI, CPI, cash in the attic, your personal inflation index for a 4-way equal split inflation basket of apartment rental, petrol, cheese and wine... basically any of these lines you can add to a graph if you want. Did I beat the FTSE250? Did I beat gold? Did I beat RPI? Did I beat cheese and wine? Did I beat the GBP price of Chinese smartphones or Nepalese trekking holidays?

I think they're all things that you overlay on a graph if you want them, rather than adjust the line of your asset's nominal return to change its shape. It is way more practical.

The reason being, that everyone looking for a GBP return has different reasons for seeking it, so it is not particularly useful to discount the line that's trying to show the FTSE100 total return by the rate of CPI or RPI or the rate of return of FTSE 250 or the return of SP500 or the price of cheese. Because any user that wanted to compare the FTSE100 performance with literally anything else (e.g. CPI or cheese or SP500, instead of RPI), would first have to 'unpick' the discount factor to unwind and get the raw data. Or alternatively, discount his real comparator by the same arbitrary factor before he can compare his comparator with your return.

To say that the return on something, whether it's equities, property, savings or whatever, over a certain period was x% but that the inflation rate was unknown makes the figure meaningless. Getting a return of x% with an inflation rate of x% means you get your money back and no more. In real terms the return is zilch.

But the figure isn't meaningless - because the inflation rate, or other target rate, is out there. That doesn't mean i should go get it, and bake it into the figures on my (e.g.) FTSE graph, because I don't know what inflation rate, or other rate, you would consider to be your target. *You* know what your targets are, so *you* can consider my nominal return in the context of those targets which are presumably also published as nominal numbers. Only once you've done that will you know whether I gave you a 'break even' return or 'positive real' return, because the quality of the return is in the eye of the beholder and is not consistently viewed from person to person.

Certainly, inflation rates can be problematic but there has to be some form of reference to have any meaning. If there's no comparison of the rate of return with an inflation figure, or with returns from alternative investments/savings, or with Mars bars, then the figure really doesn't tell us very much.

Let's say the return from the investment fund is 40% nominal. You want me to discount it by some factor to give that nominal return some sort of real world context. But what specific context?

You, the first person on the forum to see the chart, *might* be interested in having the FTSE100 return and the FTSEAllshare return and the sterling equivalent of other rival index returns, all rebased by CPI, because you happen to be trying to beat CPI which went up (say) a quarter in the period under review. But person #2 on this forum is not bothered about CPI. He thinks the CPI books have been cooked, and what he's interested in is trying to beat RPI which went up by a third instead.

Person #3 might be trying to beat the price of monthly retirement home rent, which went up by 45%; or the price of year two of a bachelor's degree course which went up by 65%. Or the return of emerging markets which went up by 72% and is what you would have bought if you had made the investment decision you really wanted instead of your wife telling you to invest locally. Or maybe the 36% return of cash accounts which your granddaughter would have told you to use because she doesn't want you to put her future inheritence in the markets because she doesn't understand them and thinks you're to old to be playing games with the stockmarket.

So should I scale back the graph of the FTSE chart by 25% for CPI? Or by RPI? Or retirement home rent, or private education costs, or emerging market returns, or cash returns?

The answer is logically that I shouldn't scale back anything and should just speak in nominal terms and not try to spoon feed the impartial listeners or readers by scaling something by an arbitrary factor that they may not even agree with and confuses the 'pure' story.

- In nominal I might be up (say) 30% or down (say)20% over 3 years: so I graph that.

- In your version of 'real' I might be up by only 14% or down 30%, because you're discounting my closing assets by a factor of 1.14 for your view of what inflation does to the buying power of my initial £10,000.

- But in someone else's 'real' I might be up by 20% or down 26%, because they're only applying a factor of 1.08 for how they perceive inflation.

- In my own little world I might genuinely feel like I was up 117% or *up* 33% - because actually if I hadn't bought the FTSE fund I would have invested it in a caravan park venture which tanked in value by 40% to turn my £10k into £6k . In the context of that alternative, my nominal FTSE loss of 20% is a pretty good win and a nominal FTSE gain of 30% is a stunning one.

But people making comparisons don't typically scale returns of FTSE by the return of caravan parks and blend them into one line to show the FTSE 'outperformance' in that manner. If they want the context of caravan ventures they draw that as a separate line on the graph.

So, this is how it should be with your view of inflation. If you want to use it as a comparator for the FTSE you can draw your view of inflation on my graph with your own pen. Person #2 will draw his own view of inflation with his own pen. Meanwhile I have my own projection which I will keep in my own head because I'm perfectly capable of working with nominal values and deciding if the return is satisfactory compared to other opportunities.

There is literally no point in me discounting all of the nominal returns of all those opportunities which I found on Trustnet or Morningstar or on a government bond yield or Libor website, by an arbitrary 2.43592% per annum to account for average inflation that would have hit every asset class or savings opportunity on the exact same way.

Sorry to labour the point but I think it is an important one. I will never look to "inflation adjust" figures on a graph. Only when you get to hyperinflation and Zimbabwe producing trillion dollar notes, do you need to artificially rebase for a sense of proper scale.

BananaRepublic

bowlhead99: you and a few others are having a good old barney, but do any of you practice what you preach? Is your investing record respectable, or is this academic squabbling over details for details sake?

I guess while you are expending huge energy into squabbling, others are researching, or planning how to spend their 'ill gotten' gains.