with all the coverage of impending market crashes, what are you doing?

VNX

Altior said:

I don't necessarily disagree with that strategy, if it suits you.

My argument is that we need to experience another time when the markets crater, but this time, don't bounce back in the short term. That's when conviction will be tested. 

It's very easy to put forward the advice to ignore all the chatter about crashes when the US is continually bouncing into all time highs. But I do recommend opening the bonnet and looking at what's underneath, and the cost of what you are adding into it. What are you buying when you purchase more FWRG? It's future earnings isn't it. Well, they are currently typically trading at one of the most expensive prices in the history of global markets.  At the moment, market makers are carrying on, regardless. 

Fair points. How are you approaching the predicted incoming crash? 

Albermarle

michael1234 said:

dunstonh said:

with all the coverage of impending market crashes, what are you doing?

Nothing.     

There is a crash coming 365 days a year every year.  There is never a time when a crash is not coming.

Statistically, you are better off closing your eyes and punching through the volailtiy and coming out the other side rather than trying to time the markets.

If 40% of your portfolio was in csh2 or similar (maybe you just inherited it), would you dump the lot on Monday into the rest of your portfolio ? Or might you pause for a few months to a year recognizing that now seems to be a wilder time politically and economically than usual?

There is always a feeling that events happening now are somehow worse than past events, and possible future ones. It is called 'recency bias'.
Personally I would not change my investing strategy around what I see in the news, as financial markets are only loosely connected to events in the outside world.
I might take a view on where I think financial markets might be heading, but that would only be a guess and quite possibly a wrong one. 

Altior

VNX said:

Altior said:

I don't necessarily disagree with that strategy, if it suits you.

My argument is that we need to experience another time when the markets crater, but this time, don't bounce back in the short term. That's when conviction will be tested. 

It's very easy to put forward the advice to ignore all the chatter about crashes when the US is continually bouncing into all time highs. But I do recommend opening the bonnet and looking at what's underneath, and the cost of what you are adding into it. What are you buying when you purchase more FWRG? It's future earnings isn't it. Well, they are currently typically trading at one of the most expensive prices in the history of global markets.  At the moment, market makers are carrying on, regardless. 

Fair points. How are you approaching the predicted incoming crash? 

I don't necessarily couch it in terms of a predicted crash. There will inevitably a downturn of some sort. WB explains it better than I ever could at the recent AGM. 

I do analyse things in the context of the main headwinds as I see them, which are significant. Plus, the pricing of equities compared to historical highs, and the cost of future earnings, pay back if you like. Exposure to US assets is simply something I don't wish to have right now. 

Predominately I'm sitting in domestic MM, but I am also purchasing and holding high yielding equity, especially when they get cheaper for whatever reason, as the short term nav is not very important to me. 

As I alluded to in other posts, my objective isn't to maximise total return ie predict tops and bottoms, but I do wish to be able to have options. If and when things start getting cheaper, I will start buying them. I did maybe 20% back in April, but back out again a good while ago. 

Alexland

Altior said:

I do analyse things in the context of the main headwinds as I see them, which are significant. Plus, the pricing of equities compared to historical highs, and the cost of future earnings, pay back if you like. Exposure to US assets is simply something I don't wish to have right now. 

I agree it's worth being mindful of how good future earnings growth would need to be to justify current valuations however I wouldn't go as far as to completely exit the US market as we have seen elevated valuations before (and the US tends to usually have higher valuations because of the type of companies that list there) so there's always the possibility that the future returns will be OK in the medium term or even quite good in the long term.

Right now there are plenty of good things to invest in so the cost of being diversified isn't as high as before.

Deec

Bobziz said:

Deec said:

The market is certainly due a correction, it never rises in a straight line. We've had a number of crashes over the years, as well as smaller technical corrections. At the time of the hurricane in 1987. The Major/Lamont one in 1992. The tech bubble 2001. 2008 was really bad. Then COVID. There was a sharp blip when Trump went all "tariffs" earlier this year. The AI bubble has continued to inflate and bitcoin is pulling money out of the markets. I was mightily relieved that the markets rebounded so strongly after Trump's tariffs and I have been happy to lock in a lot of those profits over the last few weeks. I'm about 50% cash right now. My wife and I have been spending hours over recent days rigourously examining our holdings and looking to see where and when we'll start drip feeding money back in to shares and investment trusts. (As well as planning a couple of holidays) I'm in my late 70s, so my horizon will be different to younger people.

I'm guessing your going to 50% cash is more about your need to take risk than timing the market ? Would love to hear more about how you invested during the 2000 - 2010 period. Presumably you were in accumulation phase.

Haha. During 2000-2010 period I was recoveirng from a bad divorce.

chiang_mai

It's worth noting that recency bias has two planes: 1) the fear that recent negative events will extend or be repeated, and 2) the belief that current positive events will continue forever. It might be argued that ignoring the likelihood of a forthcomming crash is the latter.

aroominyork

Monevator members might have seen The Accumulator's piece today. "Many Monevator readers tell us they’re feeling nervous about the markets. Me too. The perils on my personal Venn diagram of risks seem to overlap like unattended coffee rings." He then talks about options for reducing risk, especially thinking of high US valuations. So it's not just the nervous folk who are thinking about it!

Linton

chiang_mai said:

It's worth noting that recency bias has two planes: 1) the fear that recent negative events will extend or be repeated, and 2) the belief that current positive events will continue forever. It might be argued that ignoring the likelihood of a forthcomming crash is the latter.

If that was argued it would be incorrect.   If you configure your investments so that an equity market crash would make no difference to your ongoing or planned future lifestyle you can totally ignore its likelihood.   Why should it bother you? Your estimate of likelihood could well be very wrong anyway leading you to make poor investment decisions.

It is simple really: any wealth needed in the next 5-10 years should be held as safe investments or reasonably secure future income.  Anything needed much more than 10 years into the future can be held as 100% highly diversified equity.  At some point you have to accept that a very long term global economic crash cannot be mitigated by your investments - some other strategy (bars of gold?) would be necessary.  
 

chiang_mai

Linton said:

chiang_mai said:

It's worth noting that recency bias has two planes: 1) the fear that recent negative events will extend or be repeated, and 2) the belief that current positive events will continue forever. It might be argued that ignoring the likelihood of a forthcomming crash is the latter.

If that was argued it would be incorrect.   If you configure your investments so that an equity market crash would make no difference to your ongoing or planned future lifestyle you can totally ignore its likelihood.   Why should it bother you? Your estimate of likelihood could well be very wrong anyway leading you to make poor investment decisions.

It is simple really: any wealth needed in the next 5-10 years should be held as safe investments or reasonably secure future income.  Anything needed much more than 10 years into the future can be held as 100% highly diversified equity.  At some point you have to accept that a very long term global economic crash cannot be mitigated by your investments - some other strategy (bars of gold?) would be necessary.  
 

Maybe not entirely, it applies equally to negative and positive events:

https://www.investopedia.com/recency-availability-bias-5206686

wmb194

chiang_mai said:

Linton said:

chiang_mai said:

It's worth noting that recency bias has two planes: 1) the fear that recent negative events will extend or be repeated, and 2) the belief that current positive events will continue forever. It might be argued that ignoring the likelihood of a forthcomming crash is the latter.

If that was argued it would be incorrect.   If you configure your investments so that an equity market crash would make no difference to your ongoing or planned future lifestyle you can totally ignore its likelihood.   Why should it bother you? Your estimate of likelihood could well be very wrong anyway leading you to make poor investment decisions.

It is simple really: any wealth needed in the next 5-10 years should be held as safe investments or reasonably secure future income.  Anything needed much more than 10 years into the future can be held as 100% highly diversified equity.  At some point you have to accept that a very long term global economic crash cannot be mitigated by your investments - some other strategy (bars of gold?) would be necessary.  
 

Maybe not entirely, it applies equally to negative and positive events:

https://www.investopedia.com/recency-availability-bias-5206686

In both directions, humans definitely have a tendency to extrapolate uncritically.