Markets - Minor Correction? (Edit: Question Answered)

EdGasketTheSecond

NedS said:

Well, my gilts did really well today

As per Mr Buffett, I did get a little greedy as others got fearful, and took a little punt on RDSB as the 8% dividend yield was just too good to pass up for my income portfolio. I'm planning on adding more equities if things deteriorate further.

Dividend barely covered and now oil price crashed, what could possibly go wrong?

JohnRo

I expect there will be a slew of hindsight heroes crawling out of the woodwork over the next few weeks.

bowlhead99

EdGasketTheSecond said:

NedS said:

Well, my gilts did really well today

As per Mr Buffett, I did get a little greedy as others got fearful, and took a little punt on RDSB as the 8% dividend yield was just too good to pass up for my income portfolio. I'm planning on adding more equities if things deteriorate further.

Dividend barely covered and now oil price crashed, what could possibly go wrong?

A common problem in buying something with price/earnings or dividend yield 'too good to pass up' is falling to notice that the ratio you're looking at is based on what profit or dividends the company *did* make against the share price that the market *currently* ascribes.

If the company makes its revenue from drilling up a product which it sells at $50-100 a barrel and then the price on the world market drops to $30-40 a barrel, perhaps the profits (and dividends it can afford) might change.

womble_87

I lost £800 off my pension but it is only relatively small and a couple of years old. I assume those who have been in it years lost a lot more depending on how close to retirement they are.

AlanP_2

womble_87 said:

I lost £800 off my pension but it is only relatively small and a couple of years old. I assume those who have been in it years lost a lot more depending on how close to retirement they are.

Until you sell up and cash in you haven't lost anything. What you have is a lower valuation of an asset you own. 

Do you view a reported fall in house prices as a "loss"?

coastline

aesthetic said:

JohnRo said:

The fear and panic in some posts is tangible, odd really as nothing unusual is happening. Markets are simply reacting to current information as they always have and always will.

At the very least newer investors are being taught a valuable lesson about their own attitudes to investment risk, loss aversion and tolerance.

I read this article this morning, very sobering:
northmantrader.com/2020/03/10/destruction/
"What a chart like this basically says is that every buyer in the past 13 months (who didn’t sell) is under water. That’s a lot of buying. Anybody that has bought stocks in the past year has been taken to the cleaners. ETFs, pension funds, institutions, hedge funds, buybacks, retail, you name it."

I looked at a chart on Monday and bookmarked it as I was going to post it in this thread. Anyway what I noticed ,  there's been 4 or 5 periods in the last 10 years where a full year of gains has been wiped out. Considering this is a bull market it shows corrections are normal.
https://pbs.twimg.com/media/ESrZ6t7WkAAstB8?format=jpg&name=large

m_c_s

A further 20% reduction is needed in markets to get back to historical average earnings based on P\E (S&P 500). One could consider that if there is a major impact on global economic activity then a further 30 or 40% drop is not inconceivable to go below the historical average P\E. The US stimulus will have to be enormous to reduce any further major drops but like most economic measures the full benefits will not be seen for another 12 to 24 months.
The UK interest rate drop will take time to filter through and the infrastructure spending will take years to start to generate growth. 
Europe will be interesting. Italy is still a large economy and will likely take a big economic hit. What about France and Germany? 
Still much is unknown and we will have to wait for 3 to 6 months to know some of the true impacts.

womble_87

AlanP_2 said:

womble_87 said:

I lost £800 off my pension but it is only relatively small and a couple of years old. I assume those who have been in it years lost a lot more depending on how close to retirement they are.

Until you sell up and cash in you haven't lost anything. What you have is a lower valuation of an asset you own. 

Do you view a reported fall in house prices as a "loss"?

Yes, because if I sold a house I would get the money. If the value falls I would get less money. So I class it as a loss. Forgetting fees etc.

My pension is now worth less, if I were to retire today I would get less than I would have done a few weeks ago. How can one not see it as a loss, even if technically I haven't lost anything. 

adonis10

womble_87 said:

AlanP_2 said:

womble_87 said:

I lost £800 off my pension but it is only relatively small and a couple of years old. I assume those who have been in it years lost a lot more depending on how close to retirement they are.

Until you sell up and cash in you haven't lost anything. What you have is a lower valuation of an asset you own. 

Do you view a reported fall in house prices as a "loss"?

Yes, because if I sold a house I would get the money. If the value falls I would get less money. So I class it as a loss. Forgetting fees etc.

My pension is now worth less, if I were to retire today I would get less than I would have done a few weeks ago. How can one not see it as a loss, even if technically I haven't lost anything. 

Because it isn't a loss until it is crystallised. My investments are down 10k (largely pension) in the past fortnight but I only consider them to be paper losses as I have no intention of selling. I am 36 so have another 30-35 years for them to level out/increase before I retire (if ever!). If I was 66 and had lost that %age I'd be more worried but the likelihood is I wouldn't have as at that stage they would be in much lower risk funds.

All that happens until you sell is your spreadsheet looks a lot more depressing (as does mine currently) which is a low but is balanced out by the 6-12 months of highs where it has been steadily increasing.

MarkCarnage

How can one not see it as a loss, even if technically I haven't lost anything. 

Answering your own question. Make it a loss if you want, sell the holdings and crystallise it. Or do what most long term investors do, sit it out, perhaps reallocate at the margin.

This thread has been quite a revelation in terms of the true attitude to risk displayed by quite a number of people, who may fall into the category of Warren Buffet's naked bathers.

It's also quite revealing to see some of the comments around investing as if it were day trading. Sometimes from the same people as those in the category above. 

Various studies have revealed that there is an asymmetry in terms of utility between 'losses' and 'gains' for many, perhaps most investors (I use 'losses' and 'gains' advisedly, as shorthand). Typically, aversion to declines is such that these people 'value' one negative unit about the same as two to three positive units, therefore there is quite a skew towards 'loss' aversion. Usually after the event of course....