Is the stock market even real anymore?

GeordieGeorge

graeme16 said:

I have been an avid saver over the past 5 years whilst I have researched investing. I have primarily sat on the side lines and observed whilst dabbling every now and then. I have managed to save £100K over this period currently sitting in a S&S ISA ready to invest into a global tracker when the time is right . . . .

I appreciate this strategy isn't favourable amongst the intelligent on here, however since 2015/16 when I started looking at the markets, I felt as though I was late to the party and have been watching various fundamentals such as the bond yield curves etc. in an 'attempt' to predict the best time to 'dump' my money. I am by no means advocating this strategy and historical data would suggest this is not the one to use. 

It would 'appear' that this opportunity came and went in the blink of an eye in 2020 and the markets are continuing there relentless vertical climb into the stratosphere . . .  Now, to any one who hasn't been living in a cave, it should be obvious that this 'recovery' has been fuelled by Rishi cranking the money printers, as we did in 2008. Obviously this story has been repeated around the world by various leaders. 

I worry that the stock market has become less about investing in quality companies and more about an investment 'vehicle' being propped up by QE and passive investors. What happens when this QE stops? 

Which sticks are you referring to? An awful lot of UK companies earn their money overseas, so the Chancellor’s policies here don’t have a major effect.

You’re seeing a facet of the old adage that time in the markets matters more than timing the markets. If you were waiting for the dip then why didn’t you buy when it happened?

Alexland

graeme16 said:

I worry that the stock market has become less about investing in quality companies and more about an investment 'vehicle' being propped up by QE and passive investors.

If you want to selectively buy into quality companies at reasonable prices look no further than the UK market. US share prices have been growing beyond their fundamentals and I have concern they will become a drag on the performance of a global portfolio during the next decade. To some extent I accept that as it was never expected that all regions would do well at once and I wouldn't want to lose the diversification benefit of holding US shares but I have started tilting away from them which is hard as the capital growth has been so fantastic but it's important to have a portfolio that you can believe in. Once you find a portfolio you feel comfortable with then maybe you will see that it's likely to be much better than cash over the long term.

graeme16

grumiofoundation said:

graeme16 said:

It is easy to say that you have the better strategy over me because the markets have rebounded and everyone who was stood on the side-lines have been left with there jaws on the floor in a puddle of regret, 

No people with a better strategy than you would have invested as and when the money comes in, rather than sitting in cash waiting for 'the' crash (and then not investing when 'a' crash came).

You picked a strategy in 2015 which backfired. You have to decide if you are going to continue with the same and potentially miss out on the next 5 years of returns or change tack now and potentially see your investment drop (or middle ground as suggested above).

We haven't historically had this level of intervention outside of war time, let alone over a bad round of the flu. 

Well with this level of analytical thinking why do you need us? Your interpretation of figures and graphs is clearly superior to the 'experts'. Where did you do your PhD and postdoctoral research out of interest?  And did you specialise in epidemiology, virology, statistics etc?

I will reply with the courtesy that you should have shown me. I could not have spelt it out any clearer that I know historically this has been the best strategy. When have I ever claimed to be an expert in anything? I simply take an interest in a subject and I have questions . . . . .

How long has this strategy of passive investing been around? It seems a very recent one to me. Stock markets have historically always moved in the right direction (at a much slower rate than now) so this strategy works. 

What I am asking is where would we be right now without any QE in 2020? We haven't even begun to pay off the money we borrowed from 2008 and yet here we are borrowing 3X as much. I talk here mainly as the US and UK collectively as they account for approx. 60% and 10% respectively of the global markets they represent a large part of the world. 

You say I should passively invest without worrying about any fundamentals so I guess you can tell me the future of QE? as that seems to be the only driving factor for the markets at the moment. Going forward, can we always borrow our way out of any events that will cause severe depression of the markets? Are interest rates always going to stay this low? Say you are 40 now and have been passively investing for the past 15 years with good returns., right now with a sensible portfolio you could be still 100% equities looking at starting to purchase increasing amounts of bonds until retirement at 65 with a 80/20 bond/equity portfolio. Well if we suffered a major crash that wiped out your equity portfolio now you may never recover before your retirement. 

So I think it is worth thinking about and asking questions . . . 

Tolteca87

If you didn't buy when the markets crashed or even when they started to recover why would you think you would do it next time?

Its not as if you have to lump the whole amount in at once. Chose some funds/ETFs/ITs and suitable platforms be it ISAs, SIPPs and pound cost average into them monthly so you buy more when prices are lower and less when they are higher. Then you will benefit from actually being in the market not sitting back and losing the value of your cash to inflation.

graeme16

Tolteca87 said:

If you didn't buy when the markets crashed or even when they started to recover why would you think you would do it next time?

Its not as if you have to lump the whole amount in at once. Chose some funds/ETFs/ITs and suitable platforms be it ISAs, SIPPs and pound cost average into them monthly so you buy more when prices are lower and less when they are higher. Then you will benefit from actually being in the market not sitting back and losing the value of your cash to inflation.

Good question. At the time the S&P had dropped only approx. 25-30% but given the recent bull run this still did not seem a good discount. the FTSE 250 had dropped closer to 40% and yes I should have invested then.

My point is all that is only in hindsight. At the time there really was little to stop the markets sliding further. However, the money printers were fuelled up and recovery began. This is my big concerns, can we continue this going forward or at some point do the cows have to come home?

MX5huggy

1975

National Debt is not a credit card it does not need paying off.

Why would a 65 year old hold a 80/20 portfolio, at that point you still have potentially 40 years of investing ahead? 

As long as you hold your nerve in a “major crash” there’s never been one that was not recovered from. 

If I had £100k sitting in cash would I be scared on putting it all in yes. Today the market is down put £5k in today then £5k every month for the next 20 come rain or shine. 

lozzy1965

graeme16 said:

My point is all that is only in hindsight. At the time there really was little to stop the markets sliding further. However, the money printers were fuelled up and recovery began. This is my big concerns, can we continue this going forward or at some point do the cows have to come home?

You will only ever have hindsight to KNOW whether you were right or wrong.  Markets are run on sentiment, they will go up and down despite events sometimes.  My view is that the current QE is worldwide, if it affected just one, or a few, countries then it could be a problem, when it is worldwide, everyone is in the same boat = no problem.

As others have said, it really is 'time in the market' rather than 'timing the market'.

coastline

The agony of your first lump sum. It's not nice when it goes wrong I've been there. The only solution is to drip feed and see how it goes. What about 2 or 3 grand a month into that global tracker . After two years you'll be around 50/50 in shares and cash. 
What about a multi asset fund which hasn't been explored ? In the link below history suggests you'll end up between the two in general. I've added the inflation links as it highlights cash in the bank currently well below those levels and also Gilts in recent years. What the answer is I'll leave that to another poster. 

Chart Tool | Trustnet

Tolteca87

You might put it all in and there is a giant earthquake in California the next day. Life happens. Markets usually recover. If there's an apocalypse your cash becomes worthless anyway.

As it is - by overthinking and not actually committing to a contrarian strategy by buying when there actually was blood on the street - you have certainly lost 6 years of market returns - be it dividends or capital growth. Therefore, that is not a strategy you are clearly able to actually carry out.

So do one that fits better with you as an actual real investor not a theoretical one. Know your customer = Know your actual risk tolereance - and invest accordingly.

george4064

Sounds like OP's risk tolerance isn't suitable for investing and hence they should stick with cash savings. Perhaps fixed term and notice accounts plus Premium Bonds.