No Santa Rally

6022tivo

Seems to me you have the option of either posting stuff on here (in your own thread, not this one) about your financial circumstances..

Sounds good, but I don't fancy becoming a target for a fraudster, or something similar..

Who wants a free coffee?

Prism

itwasntme001 wrote: »

Who cares what interest rates are in 2019?? Oh dear. You do know the stock market levels and future expectations of the returns are a function of the TERM STRUCTURE of interest rates?


Not suggesting anything if its a good or bad time to buy. But to look at stocks as an investment without even considering one of the main drivers - interest rates - is very foolish.

So tell me then how the US interest rate increases in 2019 are going to affect the value of my fund holdings in Fundsmith or SMT in 2030? It is really not worth worrying about since nobody knows what the interest rates will be next year never mind what effect that will have on the mix of companies in my funds over the next 10-15 years.

If the rest of the market wants to panic about next year then let them - I will buy more (cheaper) each month just like normal, without the slightest worry about short term events.

itwasntme001

Prism wrote: »

So tell me then how the US interest rate increases in 2019 are going to affect the value of my fund holdings in Fundsmith or SMT in 2030? It is really not worth worrying about since nobody knows what the interest rates will be next year never mind what effect that will have on the mix of companies in my funds over the next 10-15 years.

If the rest of the market wants to panic about next year then let them - I will buy more (cheaper) each month just like normal, without the slightest worry about short term events.

You do not have to look at interest rates if you do not want to - no one is forcing you to! Luckily someone like fundsmith probably does take this into account to some extend as i think he tries to avoid rates sensitive sectors like real estate and banks.



All i am saying is that stocks are a function of the term structure of interest rates and not to at least recognize this fact is foolish. If suddenly interest rates spiked in 2019 (all else being equal), stocks would probably fall quite a bit as expectations would have changed. Believe me, you would start caring about interest rates then.

Prism

itwasntme001 wrote: »

All i am saying is that stocks are a function of the term structure of interest rates and not to at least recognize this fact is foolish. If suddenly interest rates spiked in 2019 (all else being equal), stocks would probably fall quite a bit as expectations would have changed. Believe me, you would start caring about interest rates then.

I certainly recognise how rising rates affect equities in general. Weaker companies struggle with debt. Stronger companies struggle less, but still do worse since their customers have less to spend. Investors shift slightly to bonds due to the better yields. This has happened over and over throughout the years.

If interest rate increases suprised the market next year then sure, there would likely be a big sell off. I'm still not sure why you think I would care? I am investing for my future not next year.

System

Prism wrote: »

So tell me then how the US interest rate increases in 2019 are going to affect the value of my fund holdings in Fundsmith or SMT in 2030? It is really not worth worrying about since nobody knows what the interest rates will be next year never mind what effect that will have on the mix of companies in my funds over the next 10-15 years.

If the rest of the market wants to panic about next year then let them - I will buy more (cheaper) each month just like normal, without the slightest worry about short term events.

I get the impression that some investors on this forum only have experience of the recent bull market, and have no experience of a bear market. Also, the same investors seem to be happy to invest in a market that they think is irrational. Thinking that interest rates have nothing to do with share prices shows a complete lack of understanding about finance.

itwasntme001

Prism wrote: »

I certainly recognise how rising rates affect equities in general. Weaker companies struggle with debt. Stronger companies struggle less, but still do worse since their customers have less to spend. Investors shift slightly to bonds due to the better yields. This has happened over and over throughout the years.

If interest rate increases suprised the market next year then sure, there would likely be a big sell off. I'm still not sure why you think I would care? I am investing for my future not next year.

You are missing the point. Changes in interest rates change expectation profiles in other assets due to discount factors changing (i.e. opportunity cost). As a long term investor sure you probably should not even consider it when risking your money, and i am sure most on this forum are not aware or care. But to say (implicitly) big changes in interest rates next year wont change future stock market expectations (and therefore returns in the long run) is being complacent.


either way if we do get this hypothetical scenario actually happen with rates spiking then i am willing to bet all my money i have invested int he stock market (which is quite a lot) that you will be caring a a lot about interest rates and how much further they can go up.

Prism

Economic wrote: »

Thinking that interest rates have nothing to do with share prices shows a complete lack of understanding about finance.

I didn't say that they are not related. I said that it makes no difference to me in the slightest. I invest on the way up and invest on the way down as am I sure nearly everybody who contributes to a monthly pension or yearly ISA does.

Alexland

itwasntme001 wrote: »

By this reasoning, why not just buy into markets that have underperformed? You should be having a significant overweight (compared to global market cap weightings) in EM and Europe right? I'm guessing not.

Whilst in the short term, markets can (but may not) behave irrationally, in the long term they usually don't. The problem is in your assumption that the market is indeed behaving irrationally now.

It might be a good strategy and you would be buying more EM and Europe fund units if you were following a fixed country allocation strategy which might give you some 'rebalancing alpha'.

I am not suggesting any significant movements to take a high risk position just subtle adjustment to the asset allocation to take advantage of where there may be opportunity. I have no idea when market prices might ever be entirely rational and work on the basis that short term prices are probably driven by primative emotional responses with a 2-3 year outlook.

itwasntme001 wrote: »

Whilst the world has known growth has been slowing (and hence probably the main reason for the peak in the summer), it appears the market anticipated the FED to be more dovish, hence the recent sell-off. Because of this announcement (as well as a host of other information that is continuously released day by day), this changes the future expectations for the stock market and hence we see the correction. This is what Economic is trying to say i believe.

Yes but the Fed rate hike, trade wars, yield curve, decline of the european PMI data, etc isn't going to cause investment performance to be outside the range of long term (15+ year) expected outcomes. It's just noise from the process of the markets getting to where they were going anyway. We are just seeing how what we expected to happen will happen.

Alex

Prism

itwasntme001 wrote: »

You are missing the point. Changes in interest rates change expectation profiles in other assets due to discount factors changing (i.e. opportunity cost). As a long term investor sure you probably should not even consider it when risking your money, and i am sure most on this forum are not aware or care. But to say (implicitly) big changes in interest rates next year wont change future stock market expectations (and therefore returns in the long run) is being complacent.

Maybe it will, maybe it won't. Maybe the interest rates will drop next year. Maybe the market has already priced them in and equities will rise as before. Regardless, it will likely have no impact on the long term idea that the stock market will increase gradually upwards. Too many unknown factors to make any real opinion on - so why try.

either way if we do get this hypothetical scenario actually happen with rates spiking then i am willing to bet all my money i have invested int he stock market (which is quite a lot) that you will be caring a a lot about interest rates and how much further they can go up.

Having seen my investments going through the dot.com crash and financial crisis I think I can safely say I can cope with an interest rate surprise or two. If I couldn't then I shouldn't be almost 100% equities should I?

I honestly think that trying to make any investment choices based on politics or central banks is almost impossible. I stopped trying to second guess it years ago

itwasntme001

Alexland wrote: »

It might be a good strategy and you would be buying more EM and Europe fund units if you were following a fixed country allocation strategy which might give you some 'rebalancing alpha'.

I am not suggesting any significant movements to take a high risk position just subtle adjustment to the asset allocation to take advantage of where there may be opportunity. I have no idea when market prices might ever be entirely rational and work on the basis that short term prices are probably driven by primative emotional responses with a 2-3 year outlook.



Yes but the Fed rate hike, trade wars, yield curve, decline of the european PMI data, etc isn't going to cause investment performance to be outside the range of long term (15+ year) expected outcomes. It's just noise from the process of the markets getting to where they were going anyway. We are just seeing how what we expected to happen will happen.

Alex

A rate hike wont change much nor will a trade dispute, however if these lead to major changes in the US economy, corporate profits, inflation etc then it sure will change expectations in the long term and potentially quite a bit.


You are investing according to the belief that in the long run the stock market will produce the best risk adjusted returns. That is perfectly fine. However you have a subjective opinion about risk and future stock returns. Do not think that there can not be any forces, be it interest rates or trade deals, that could not alter the return profile for equities and therefore your opinion on risk and returns could well be very wrong.