Preparing for the Crash

Bobziz

Thrugelmir said:

valiant24 said:

If one believes, as do I, that an almighty stock market crash is coming, what is your opinion on the necessary defensive action?

Be selective in your choice of investments. Not all share prices react in a similar fashion. 

Value with strong balance sheets?

HansOndabush

Short-dated gilts would be a good place. Check iShares funds for an easy way to buy a gilts ETF. US treasuries would also be good as people would flock to the USD in a crash.

bd10

My alarm bells went off when the whole gamestop episode played out. This is 2000 tech bubble all over again. This time on steriods with social media, mobile "trading" (or dare I say betting), too much time and spare cash in our hands as we're locked up at home. But here we're looking at specific segments in global equities markets: US tech/lockdown stock bubble, some Asian and small-cap valuations getting extreme. But there're more to the world economy than the FAANGS every man and his dog are long of. UK equities are back in the game a bit post trade deal, yet still undervalued esp large caps, more value style. Very much out of fashion.
The bond market has already started to shift. As much as the Fed wants to keep rates expectations next to nothing, the US 10ys keep picking up. Sooner or later this get's noticed by mainstreet and all this punting on the next illiquid penny stock or the next Tesla 2.0 is will become all a bit silly. I expect the rates market to keep moving, by summer most of us are back in offices, no time anymore to daytrade, and then, yes, I can see a sharpish correction of some corners in the equities market.

So, Ways to hedge?

(1) "Boring" stocks, more towards value than growth. When the tech bubble burst 20 years back, plenty of those papers did quite alright, either did hardly lost value or they gained a little as invested shifted out of growth en masse.
(2) Bonds? Rates expectation is picking up, add to that some inflation fears, neither are good for bonds, esp. long dated ones.
(3) Gold? Maybe right at the time of a crash. Impossible to forecast.
(4) Cash? Loses value.
(5) Corporate bonds? Hmm, if Treasuries get sold off, they'd come off too. Way to play: floating-rate notes. PM me if anyone knows a platform to get access to those.
(6) Commodities? Trade futures on the Merc but don't "invest" in them in the long term. Energies aside, mostly a supply-shock story.
(7) Buy puts? That'd be some expensive insurance policy. Implied vol is high and to roll them, not cheap at all, plus of course you're not hedged 100% but depending on strike etc. Practical? I have my doubts.
(8) Diversify: broadest of index, such as MSCI World for equities, keep away from the sectors that are dearly priced, add some inflation linked bond funds or FRNs.

At the moment I do (1) and (8): quality stocks (more towards value, outside US, more "unloved" industrials than lockdown-tech stocks) and let my growth papers run with a stop loss.

NorthernJoe

If we're in for a stock market crash at the same times as a failure of major high street bank(s) despite years of reform & increased capital reserves, we're all stuffed

But then there's always Bitcoin to save the day. . . 

ChilliBob

I've yet to experience one, however, I'd guess the best ideas:
1. Don't panic, don't sell
2. If you have resources available, use it to buy stuff you want at reduced prices!
3. If you feel something is looming, based on what you have read, and you want to cushion your fall, consider defensive equities, defensive funds/IT's and bonds.

As regards this idea of 85k limit, this has come up before, I think if its all invested the idea is, eventually, another platform would come in and take over the accounts from the failed platform.

This may take some time though, so if you have all of you assets tided up in one platform it might be a bad idea
Guess it depends how much cash you hold in different High Street banks etc too

Thrugelmir

Bobziz said:

Thrugelmir said:

valiant24 said:

If one believes, as do I, that an almighty stock market crash is coming, what is your opinion on the necessary defensive action?

Be selective in your choice of investments. Not all share prices react in a similar fashion. 

Value with strong balance sheets?

During a correction some company share prices still rise. Even if the vast majority fall. Companies undertake a whole range of different activities. During volatile markets stock picking is worth the trouble. 

Steve182

ANGLICANPAT said:

Dont actually know about this, but  somewhere in my mind i thought Id briefly read  something about a  method of setting  up your investments  to allow the platform to  auto buy or sell at a price you set .   Is there, and how useful could it be for situations being discussed above ?

That's not usually a sensible approach. In my case I have around 20 or so shares and investment trusts, ignoring 2 funds. 

Let's say I set up stop loss orders with all 20 shares and IT's. Where should I set that?  10% below current prices, 20% below, 30% below?

When the market dips, is it just a dip or the beginning of a crash?

Scenario 1 - 10% stop loss. Market drops say 11% one month resulting in most of my investments being automatically sold as my stop loss was at 10% below their current value. The following month there is a relief rally. I'm stuck with a load of cash from shares sold automatically at depressed values, I've spent a fair bit in fees and FX charges and I've missed much of the relief rally.  When I realise it was not a crash I reinvest, but I've lost a lot of money.

Scenario 2 - 20% stop loss to allow greater margin for market fluctuations. Market drops say 22% over a month or so, again resulting in most of my investments being automatically sold as my stop loss was at 20% below their current value. The following month there is a relief rally. I'm still stuck with a load of cash from shares sold automatically at depressed values, I've still spent a fair bit in fees and FX charges and I've also missed much of the relief rally.  When I realise the market's on the way up again I reinvest, but I've lost a lot of money.

etc etc...

It would reduce losses when there is a real crash and market are falls are much larger, 30%, 40%, 50% even, but there is absolutely no way of being sure what's just a market correction or what's the start of something much more serious.

Bobziz

Thrugelmir said:

Bobziz said:

Thrugelmir said:

valiant24 said:

If one believes, as do I, that an almighty stock market crash is coming, what is your opinion on the necessary defensive action?

Be selective in your choice of investments. Not all share prices react in a similar fashion. 

Value with strong balance sheets?

During a correction some company share prices still rise. Even if the vast majority fall. Companies undertake a whole range of different activities. During volatile markets stock picking is worth the trouble. 

In order to pick the right companies would you not need to second guess the reason for the correction the first place, or are you saying that there are some companies that will rise regardless ? 

valiant24

BrockStoker said:

Hedge your bets.

The best strategy IMHO, and it's one that many here including myself use, is simply to hold some cash (usually between 10-20%), and when the crash comes, fill your boots.

I'm worried that cash itself, within a platform, is subject to some risk.

valiant24

wmb194 said:

Outside a Sipp, the easiest, relatively low-effort place to park hundreds of thousands of pounds in a single account is with NS&I i.e. pseudo-gilts. Otherwise just spread it across multiple ordinary institutions.

Hi.   Thanks for being one of the few responders who actually addressed the question.
However, most of the assets I am talking about are within a SIPP or ISA.  Unless I take the cash outside the wrapper, I can't invest in NSandI, at least to my knowledge.  And obviously I don't want to take the money outwith the wrapper.