Attitude to drops in market

anonmoose

I have heard lots of people say they panic when the value of investments drop and they have to fight the urge not sell. 

When I look at my portfolio and see the drops I just think ooh there is a sale on! I think this mindset is even more dangerous than the panic sell one. I guess my MSE attitude is I love a bargain but I have to tell myself we might have a lot more falls before things stabilise.

Is the best thing for an amateur like me to keep drip feeding and not even look at my portfolio during instability to prevent irrational decisions?

Or how do you get through periods of uncertainty without making emotional decisions? Just wondering what the smart money does?

Thrugelmir

What you need to remember is that in buying shares you are buying a share of future profits. When prices fall. Market expectations for profits have fallen. You aren't getting more for your money as you would in a sale as such. You might own a bigger slice of a company (i.e.%) but this doesn't equate necessarily to anything tangible. As the break up value of a company can be a fraction of it's market value. Companies do wax and wane as the years pass. 

Attempting to catch falling knives isn't advisable. Drip feed into broad divesified funds or be very targetted in selecting individual shares (after performing due diligence). Taking punts is a sure way of getting savaged in a bear market. 

anonmoose

OK that's a really useful way to look at it. I have looked at some shares that at first glimpse look a bargain but when I look at the future prospects for that company/market things don't look so rosy.  So I understand that thinking.

But does the same apply to broad market trackers?

anonmoose

Sorry you mentioned broad market trackers. I don't feel experienced enough to do due diligence properly on niche areas so will keep it broad and dripfeed.

adindas

anonmoose said:

I have heard lots of people say they panic when the value of investments drop and they have to fight the urge not sell. 

When I look at my portfolio and see the drops I just think ooh there is a sale on! I think this mindset is even more dangerous than the panic sell one. I guess my MSE attitude is I love a bargain but I have to tell myself we might have a lot more falls before things stabilise.

Is the best thing for an amateur like me to keep drip feeding and not even look at my portfolio during instability to prevent irrational decisions?

Or how do you get through periods of uncertainty without making emotional decisions? Just wondering what the smart money does?

I share my personal opinion in here

https://forums.moneysavingexpert.com/discussion/6342280/upside-gains-vs-downside-protection#latest

To summarise you have various option depend on which one you strongly believe

- Hedging it

- Going Short including open an inverse ETFs

- Construct an all Weather portfolio (take sometimes and for the future benefit, not now)

- Selling it for a loss. This is a certain money losing strategy. Your loss is only a paper loss if you have not sold it. But it is different if your portfolio comprise a lot of Pump and Dumb penny stocks and you have not done a good DDs when bought it. In this case, selling it for a loss might be the best option.

- Doing nothing

- Drip feeding it, especially during the red days if you believe the market is already near the bottom.

Doing hedging, going short right now will only make sense and make profit if the current market have more in the downside compared to the upside. I personally believe that market especially high growth stock is already very close to the bottom and due for reversal. This is also the views of many wall-street strategists / analysts if you regularly watch the stock market news.

The high growth stock even the very good one has been battered recently going down 50% or even more as 70%+. The downside is 30%, the upside is 100%+ which one is bigger ??. Let alone many of these high growth stocks are highly unlike to go bankrupt as they do not have comparable substitute.

Noone has a crystal ball. The bear make could take years before turning into the bull market and might still moving up slightly  and down further in a prolonged period. But from the history of the stock market, in the long run the stock market has only gone up.

anonmoose

That's very interesting. I will do more research on high growth stocks.

Trouble is a little knowledge can be a dangerous thing! I think a bear market can be a bit like being thrown into a bear pit for novices like me. It could go horribly wrong if I make bad decisions.

Malthusian

When I look at my portfolio and see the drops I just think ooh there is a sale on! I think this mindset is even more dangerous than the panic sell one. I guess my MSE attitude is I love a bargain but I have to tell myself we might have a lot more falls before things stabilise.

Depends how likely you are to overcommit, and put in money that you will need to access in the next few years in the rush to get a bargain.

It is now 15 years since we last had a proper crash that took years to recover from, and the speed at which the markets recovered from the Covid/lockdown crash of 2020 could create a false impression that buying investments during a dip means free money. It can be a long hard slog even if you buy near the bottom of the market.

The other risk is to assume that because a certain area has dropped more than the rest (a region or even an individual share) it must therefore be a bargain.

I think this mindset is even more dangerous than the panic sell one.

Can't agree with that. Even if "I'm going to shovel every spare penny into the markets before they rebound" is a bad idea, it's an individual delusion whereas "The world is ending" is a mass delusion which automatically makes it more dangerous.

Someone who overcommits to the market may, in the worst case, have to cash in only the overcommitted part of their investment at a loss to pay their bills. Someone who panics will typically cash in their entire investment. That tends to generate a much larger permanent loss.

An overconfident investor will be buying during a fall in the market (not necessarily at the bottom, as that takes extreme good luck on top of moral insanity), whereas the typical panicky investor will have bought in at the top of the market when the herd mentality was at its most confident. If the two of them cash in at the same time, the panicky investor will therefore make a larger loss having bought in at a higher price.

anonmoose

I wouldn't be overcommiting as such because if I put it in then I would keep it there for 10-15yrs.

But it would be partly money earmarked to pay off the mortgage. With uncertainty over interest rates I might be best just paying off the mortgage in full. If I did put a lump sum into stocks it wouldn't be yet but it does feel tempting.

Notepad_Phil

You could always pay off the mortgage and then commit the monthly savings from having no mortgage to a regular monthly investment with your favourite platform.

Thrugelmir

anonmoose said:

That's very interesting. I will do more research on high growth stocks.

Trouble is a little knowledge can be a dangerous thing! I think a bear market can be a bit like being thrown into a bear pit for novices like me. It could go horribly wrong if I make bad decisions.

As much as you perform research you'll unlikely to know more than someone paid paid to do the same function full time.  Unless you target the more risky segments of the market eg. micro and smaller companies. Taking Amazon as an example. There are 53 analysts who are employed by investment banks to monitor Amazon. They'll be digesting every single piece of news and adjusting their forecasts accordingly. 

anonmoose

Yes NotepadPhil that is the plan I intended on taking in order to retire early. The money that would go on the mortgage will be going into my pension in order to benefit from the tax relief. 

I think it is the right thing to do as I won't have the worry of interest rates and I will get the hmrc relief on a good chunk monthly.

It will take patience dripfeeding monthly and resisting the urge not to scrap the plan and pile in to the stock market. 

Noted what thrugelmir is saying though. The experts are working full time on this and I am never going to reach that level of understanding. I find it easier working out what is probably a very bad investment than understanding what might be a good investment.