Jeremy Grantham’s Bubble Predictions

ChilliBob

Yeah I have those concerns, as they are heavily US weighted and also heavily weighted to MS/AWS/Google/Facebook too.
From a bit of a noddy perspective it feels like a basket of index funds with different characteristics is a good idea, and shifting the eggs between them as and when you feel necessary. 

MaxiRobriguez

ChilliBob said:

2. If I should hold off for a few weeks before doing so really

Markets can be irrational for long periods of time. Even if we are in a bubble, it's unlikely to be weeks until a crash, more likely will be months, maybe years. People were calling the housing bubble in 2004 for example. This time round there's not many alternatives to get good returns and with interest rates low people can leverage to invest. Valuations are stretched for a reason - that doesn't mean immediate impending doom.

You have choices if you want to proceed but want to reduce volatility: Multi-asset investment funds, equities which have low volatility and pay consistent enough dividends, holding a large cash allocation that you can use to buy any big dips in your equity allocations...

itwasntme001

BananaRepublic said:

I am sure he is right that the values of many US stocks are excessive. The problem is that a correction might occur tomorrow, or in five years time in which case pulling out now means you lose five years gains. Many years before the 2008 crash people said that the markets had irrational exuberance. In my view the sensible approach is to have some exposure to the US markets, but not too large an amount unless you are prepared to take high risks and have a long outlook. There are many who say just buy a global fund and you'll be fine, but those typically have 60-70% US exposure.

A global equity tracker is perfectly fine and IMO the best way to gain exposure.  It will automatically adjust weightings and there is no need to trade in and out of funds (which you would need to do if you went for a style/active funds - in order to keep up with the market over the long term).

Once you have decided a global tracker is the right way to gain exposure, then it comes to how much you want to allocate.  That is where it becomes more complicated, I feel having anything close to 100% is just too much because equities can suffer long periods of bad performance.

It is better to take a multi asset approach.

ChilliBob

MaxiRobriguez said:

ChilliBob said:

2. If I should hold off for a few weeks before doing so really

Markets can be irrational for long periods of time. Even if we are in a bubble, it's unlikely to be weeks until a crash, more likely will be months, maybe years. People were calling the housing bubble in 2004 for example. This time round there's not many alternatives to get good returns and with interest rates low people can leverage to invest. Valuations are stretched for a reason - that doesn't mean immediate impending doom.

You have choices if you want to proceed but want to reduce volatility: Multi-asset investment funds, equities which have low volatility and pay consistent enough dividends, holding a large cash allocation that you can use to buy any big dips in your equity allocations...

That all makes sense, except I don't follow your last part (sorry, not really with it today). Are you suggesting using cash reserves if you see a dip in equities and expect them to then rise? - i.e. have cash on hand to take advantage of opportunities you perceive?  - e.g. hospitality focused funds must be awful now but they'll get better in time etc.

Also what would your definition of low volatility equities be?  I'm sure my reading will tell me in time, but I don't get why a global tracker wouldn't be classed as lower risk than it is

Sailtheworld

ChilliBob said:

Yeah I have those concerns, as they are heavily US weighted and also heavily weighted to MS/AWS/Google/Facebook too.

A global tracker is US weighted and further weighted towards MS / AWS etc. because those weights are a function of the World's investors putting their money where their mouth is.

If you choose a different US weighting you're very clearly saying you have better foresight than the average investor. This is possible but the chances are you're a better investor than average in the same way you're a better driver than average.

itwasntme001

Sailtheworld said:

ChilliBob said:

Yeah I have those concerns, as they are heavily US weighted and also heavily weighted to MS/AWS/Google/Facebook too.

A global tracker is US weighted and further weighted towards MS / AWS etc. because those weights are a function of the World's investors putting their money where their mouth is.

If you choose a different US weighting you're very clearly saying you have better foresight than the average investor. This is possible but the chances are you're a better investor than average in the same way you're a better driver than average.

The world also allocates about 40% to public equities, so if you do have all of your public equity allocation at 40% of your portfolio, then you will only have roughly 25% allocated to the US.

bowlhead99

ChilliBob said:

I'd intended to dip my toes into equities via a global tracker, still with some research to do first mind, so not next week. I guess this sort of thing just made me think if:
1. That was the right choice, or if I should choose something different
2. If I should hold off for a few weeks before doing so really

The global equities index has had a good last decade or so, with lots of growth and the corona-induced crash last March only being a peak-to-trough drawdown of about 34% for the FTSE All-World.  But don't kid yourself that a global tracker is solid and stable and low volatility just because it covers a lot of countries.

Between late 2007 and spring 2009, in the global financial crisis / credit crunch, the FTSE All-World Index dropped 57.9% when measured in USD. You can see that by pulling old factsheets from FTSE archives:
(https://research.ftserussell.com/Analytics/FactSheets/Home/DownloadSingleIssueByDate?IssueName=AWORLDS&IssueDate=20170929&IsManual=false ) whose data tables cover a ten year period including the GFC. Near the bottom of the page you can see the maximum peak to trough 'drawdown' in the 10yr column showing as 57.9% for the 'All World', with 57.4% for 'FTSE Developed' and 64.5% for FTSE Emerging'.  

To me it seems a bit ludicrous to 'dip your toe' into something that has the potential to be exceedingly volatile while holding everything else in cash. Why not invest in something less volatile - a mixed asset portfolio of funds? This would make more sense than gradually moving chunks of money from cash at one end of the risk spectrum to international equities at the other.

So yes, for (1) I would suggest something different.

For (2) on timing, there's usually not a lot to gain by deferring the start of an investment by a few weeks, because the investment market has already priced in what it knows about what might happen (good or bad) in the next few weeks with a 'fair' price for the probabilities. And in a few weeks there will be some more uncertainties anyway. However if you are trying to avoid a 'cliff edge' of investing all the money at once then splitting into a few big chunks and spreading over a few months may be easier psychologically than simply delaying the start date which could end up dragging indefinitely.

Alexland

Alexland said:

I think you would still do fine over the long term with a global tracker but a few weeks ago before the brexit deal was announced I moved to having some home value bias due to concerns over unattractive valuations of some US growth companies compared to the relative cheapness and style diversity being offered by the UK market. I also expect to see the pound continuing to creep up against the dollar this year.

Haha, monevator just published an article that calls me a 'naughty active sort' and points out in the first week of trading this year the UK market has done 3.6% better than a global tracker. It also touches on the currency risk to global investors.
https://monevator.com/should-you-sell-your-global-tracker-fund-for-uk-shares/

Albermarle

Asset allocation comes after assessing appetite for risk.

Yes and I do not see in the OPs comments what this appetite might be, or any indication of what their objectives are and what is the end goal for their impending investments of hundreds of thousands of Pounds ?

But don't kid yourself that a global tracker is solid and stable and low volatility just because it covers a lot of countries.

Often in this forum , people sometimes do give the impression that they are lowish risk.

I think really what they mean is that if you are in it long term and you can put up with the volatility , then they are lower risk than individual shares or highly focused managed funds etc but they are still well above average risk for most people. 

MaxiRobriguez

ChilliBob said:

MaxiRobriguez said:

ChilliBob said:

2. If I should hold off for a few weeks before doing so really

Markets can be irrational for long periods of time. Even if we are in a bubble, it's unlikely to be weeks until a crash, more likely will be months, maybe years. People were calling the housing bubble in 2004 for example. This time round there's not many alternatives to get good returns and with interest rates low people can leverage to invest. Valuations are stretched for a reason - that doesn't mean immediate impending doom.

You have choices if you want to proceed but want to reduce volatility: Multi-asset investment funds, equities which have low volatility and pay consistent enough dividends, holding a large cash allocation that you can use to buy any big dips in your equity allocations...

That all makes sense, except I don't follow your last part (sorry, not really with it today). Are you suggesting using cash reserves if you see a dip in equities and expect them to then rise? - i.e. have cash on hand to take advantage of opportunities you perceive?  - e.g. hospitality focused funds must be awful now but they'll get better in time etc.

Also what would your definition of low volatility equities be?  I'm sure my reading will tell me in time, but I don't get why a global tracker wouldn't be classed as lower risk than it is

Yes you've got it. If you keep a cash allocation rather than going 100% invested, then if stocks (or bonds, or whatever) do fall in value then you can use the cash, which never goes up or down, to buy more of the investment at the lower price. Not only is this good over the long term as you're buying more units than previously for the same overall cost, it is also likely to reduce impact of emotions on your investing. For example, I had a small investment in MnG going into this year and it went down 60% in March. With the cash in my portfolio I used it to buy 2x as many shares as I already had, which immediately reduced my net overall loss to 20%, and rightly or wrongly probably made me less likely to panic about it, or sell too quickly if there was a quick rebound. I still hold all those shares and I'm back in the green now and getting decent dividend yields with them. Having cash on hand is a nice easy way to artificially reduce losses by buying more at the lower price. The drawback of carrying the cash allocation is that in growth years your portfolio isn't doing as well as it could have been (as your cash could have been invested).

And in regards to low volatility equities - think of a company whose business model never changes and never is impacted by any world events. My favourite is Unilever, I will likely own their shares until I die. They're not particularly exciting but you can expect small single digit % price rises every year and currently a dividend yield of 3% or so - so total returns of 5% every year, and as far as equities go, very small chance of being disrupted.