FTSE100 best single year return since 2009.

OldScientist

chiang_mai said:

Veloflyer said:

I simply meant you seemed to invest in markets which are less exposed to the US. 

I don't see much volatility in the price of my tracker funds over the past 15 years or so. Does volatility apply here anyways? I also don't invest in individual stocks or risky markets so perhaps volatility is not much of consideration for me. Pleasingly - and luckily perhaps - they all trended upwards with little volatility and all were heavily US weighted. They continue to do similar. 

Will that be the case over the next 6 months? - I have no idea and neither does anyone else, save that I believe putting my faith in the US is not completely barmy and I still believe it has growth potential. It may all implode, but folk have been saying that for years. All I can do against that is mitigate the risk as best I can by diversifying more into global trackers/ROW or by buying IL gilts.    

[snip]
The volatility of your tracker fund will tell you how far, historically, the price has moved per day/week/month/year, plus and minus, and how long it has stayed at the new level. If for example the S&P500 fell 10% and it took a month to regain lost ground, volatility measurements will help you to understand that. You may not think that you haven't seen much volatility in your trackers but their value has changed, over time, in line with the index. Comparing the volatility readings help investors compare different trackers and against the performance of managed funds. The bottom line here is that if the S&P500 were to fall by say 20%, the value of any S&P tracker would fall by a similar amount and your tracker would not recover until the S&P recovers.

A potentially useful solution, to help mitigate US markets risk is, as you suggest. A global tracker that contains anywhere from 60% to almost 80% US markets exposure will potentially help dilute the impact of any falls in the US market. By deploying that global tracker you will be investing in other markets around the world, non-US markets such as Europe, the UK Asia, Japan etc.

Lastly, "will that be the case over the next six months", you ask. Physics and history confirm that what goes up, must come down, the higher it goes, the longer it continues going up, doesn't change the ending. The US CAPE is over double its historic average, the only question that remains is, when will it return to norm. You may not think that historic metrics are worth anything but they will tell you what has happened since Day One. If of course you think that this time things are unique and different from anything that has ever happened before in the history of investing, you would be right to disregrd historic metrics.   

    

Just to add to this. An interesting (YMMV!) article on historical US returns and volatility (i.e., standard deviation) can be found at https://retirementresearcher.com/historical-market-returns-part-one/ . Since 1926, the nominal mean geometric return of the 'SP500' has been about 10% (real return~6.9%) with a standard deviation (volatility) of 20% (both nominal and real). Although not dealt with in that article, IIRC, historically other equity markets have a more or less similar standard deviation. The expectation (hope?) is that non-US markets are sufficiently uncorrelated with the US that when the the US zigs, international zags and vice versa. That was to a great extent true historically, but may be less true in the future given the current economic dominance of the US.

As for CAPE, the high price to earnings ratio is an expectation that US firms (particularly the tech stocks) will fulfil their potential in AI and other breakthroughs (e.g., quantum computing). What will happen if they fail to do so is not easy to predict (I also note that the way earnings were calculated in the US was changed about 20 years ago which had a measurable effect on PE and, hence, CAPE. I think Shiller may have adjusted for this, but I'm not certain).

chiang_mai

OldScientist said:

    

Just to add to this. An interesting (YMMV!) article on historical US returns and volatility (i.e., standard deviation) can be found at https://retirementresearcher.com/historical-market-returns-part-one/ . Since 1926, the nominal mean geometric return of the 'SP500' has been about 10% (real return~6.9%) with a standard deviation (volatility) of 20% (both nominal and real). Although not dealt with in that article, IIRC, historically other equity markets have a more or less similar standard deviation. The expectation (hope?) is that non-US markets are sufficiently uncorrelated with the US that when the the US zigs, international zags and vice versa. That was to a great extent true historically, but may be less true in the future given the current economic dominance of the US.

As for CAPE, the high price to earnings ratio is an expectation that US firms (particularly the tech stocks) will fulfil their potential in AI and other breakthroughs (e.g., quantum computing). What will happen if they fail to do so is not easy to predict (I also note that the way earnings were calculated in the US was changed about 20 years ago which had a measurable effect on PE and, hence, CAPE. I think Shiller may have adjusted for this, but I'm not certain).

FWIW, I think that if the zag is only 10% better than the zig, diversification will have been a worthwhile effort.

Section62

The BBC are joining the trend....

The FTSE 100 has hit a record high. Is now the time to start investing?

https://www.bbc.co.uk/news/articles/cy0958w1y1go

"But, in general, long-term investments can be lucrative. The rise of the FTSE 100 is evidence of that. Shareholders may also receive dividends, which they could take as income or reinvest."

No mention of the events of 2016 or the 'B' word though.

booneruk

Section62 said:

The BBC are joining the trend....

The FTSE 100 has hit a record high. Is now the time to start investing?

https://www.bbc.co.uk/news/articles/cy0958w1y1go

Read this headline earlier and rolled my eyes (though the article isn't terrible). How many times has the FTSE 100 reached record highs in the last 10 years? (80 times according to my favourite AI). That people think record highs are an unusual thing in a capitalist inflationary world is odd.

Also it really isn't the trigger to decide it's the time to pile in. Repeated, steady investing wins.

masonic

The magic 10,000, which of course is an arbitrary number, and excludes income. It was started at 1,000 points, so 10x in capital value since 1984, but it has an unusually high income component.

Veloflyer

chiang_mai said:

Veloflyer said:

I simply meant you seemed to invest in markets which are less exposed to the US. 

I don't see much volatility in the price of my tracker funds over the past 15 years or so. Does volatility apply here anyways? I also don't invest in individual stocks or risky markets so perhaps volatility is not much of consideration for me. Pleasingly - and luckily perhaps - they all trended upwards with little volatility and all were heavily US weighted. They continue to do similar. 

Will that be the case over the next 6 months? - I have no idea and neither does anyone else, save that I believe putting my faith in the US is not completely barmy and I still believe it has growth potential. It may all implode, but folk have been saying that for years. All I can do against that is mitigate the risk as best I can by diversifying more into global trackers/ROW or by buying IL gilts.    

Just so we both have the same understanding of the terminology and framework: The main US equities markets are, for all intents and purposes, the S&P, the Dow, the Nasdaq and the Russell, they are the major US exchanges where US companies are listed. Anyone wanting exposure to US equities must buy stocks or funds that are listed on those exchanges, or the index/indicies that track them.

Trackers track those exchanges/index or segments thereof, an S&P 500 Index Tracker tracks the S&P 500, which in turn lists the 500 largest US companies listed on the exchange. The individual value of each of those companies listings varies, potentially, minute by minute, which means the value of the Index and any thing that tracks it changes also. Those changes represent the volatility, or price movements, of the companies and the overall index. You ask if voltility applies to your tracker, the answer is yes.

The volatility of your tracker fund will tell you how far, historically, the price has moved per day/week/month/year, plus and minus, and how long it has stayed at the new level. If for example the S&P500 fell 10% and it took a month to regain lost ground, volatility measurements will help you to understand that. You may not think that you haven't seen much volatility in your trackers but their value has changed, over time, in line with the index. Comparing the volatility readings help investors compare different trackers and against the performance of managed funds. The bottom line here is that if the S&P500 were to fall by say 20%, the value of any S&P tracker would fall by a similar amount and your tracker would not recover until the S&P recovers.

A potentially useful solution, to help mitigate US markets risk is, as you suggest. A global tracker that contains anywhere from 60% to almost 80% US markets exposure will potentially help dilute the impact of any falls in the US market. By deploying that global tracker you will be investing in other markets around the world, non-US markets such as Europe, the UK Asia, Japan etc.

Lastly, "will that be the case over the next six months", you ask. Physics and history confirm that what goes up, must come down, the higher it goes, the longer it continues going up, doesn't change the ending. The US CAPE is over double its historic average, the only question that remains is, when will it return to norm. You may not think that historic metrics are worth anything but they will tell you what has happened since Day One. If of course you think that this time things are unique and different from anything that has ever happened before in the history of investing, you would be right to disregrd historic metrics.   

    

Just so we both have the same understanding of the terminology and framework: The main US equities markets are, for all intents and purposes, the S&P, the Dow, the Nasdaq and the Russell, they are the major US exchanges where US companies are listed. Anyone wanting exposure to US equities must buy stocks or funds that are listed on those exchanges, or the index/indicies that track them.

Agreed

Trackers track those exchanges/index or segments thereof, an S&P 500 Index Tracker tracks the S&P 500, which in turn lists the 500 largest US companies listed on the exchange. The individual value of each of those companies listings varies, potentially, minute by minute, which means the value of the Index and any thing that tracks it changes also. Those changes represent the volatility, or price movements, of the companies and the overall index. You ask if voltility applies to your tracker, the answer is yes.

Yes agreed, but I would perhaps assert that trackers are not particularly volatile compared with individual stocks

The volatility of your tracker fund will tell you how far, historically, the price has moved per day/week/month/year, plus and minus, and how long it has stayed at the new level. If for example the S&P500 fell 10% and it took a month to regain lost ground, volatility measurements will help you to understand that. You may not think that you haven't seen much volatility in your trackers but their value has changed, over time, in line with the index. Comparing the volatility readings help investors compare different trackers and against the performance of managed funds. The bottom line here is that if the S&P500 were to fall by say 20%, the value of any S&P tracker would fall by a similar amount and your tracker would not recover until the S&P recovers.

Yes agreed and I understand that such trackers may take years to recover for sure. A cash buffer may be useful here. The point I was making is that perhaps the trackers I have invested in have relatively low volatility compared with individual stocks, developed markets, etc. Given any equity has volatility, in the relative scheme of things, the volatility of large diversified index trackers is surely pretty low and I am not sure volatility of same is thus worthy of much consideration.     

A potentially useful solution, to help mitigate US markets risk is, as you suggest. A global tracker that contains anywhere from 60% to almost 80% US markets exposure will potentially help dilute the impact of any falls in the US market. By deploying that global tracker you will be investing in other markets around the world, non-US markets such as Europe, the UK Asia, Japan etc.

Of course....

Lastly, "will that be the case over the next six months", you ask. Physics and history confirm that what goes up, must come down, the higher it goes, the longer it continues going up, doesn't change the ending. The US CAPE is over double its historic average, the only question that remains is, when will it return to norm. You may not think that historic metrics are worth anything but they will tell you what has happened since Day One. If of course you think that this time things are unique and different from anything that has ever happened before in the history of investing, you would be right to disregrd historic metrics.   

I am simplistic in my view. For instance - the S&P 500 is a stock market index weighted by market capitalization that is made up of 500 of the largest public companies in the United States. For me this takes care of much of the validity of investing in so far as one is investing in companies which are pretty sound, have a decent track record, are reasonably well managed etc. For sure there are always exceptions, but in general, my view is that most companies who make the S&P are a reasonably sound investment bet - and yes I view investment as a bet - albeit a sort of educated one. One should not of course disregard the latest news on such companies, the huge weighting the magnificent 7 has, the US economic outlook etc. and all these are relevant to sound decision making, but I I don't concern myself too much with dancing on the head of a historical metric pin for the S&P as I cannot see much additional benefit in so doing.  As you say the CAPE is double the norm - but so what? Nobody knowns when it will return to normal so not much point worrying about it. Investment - for me anyways - is not an exact science. I appreciate the sense in investing in sound companies, diversification, perhaps even under-valued companies, but after that I don't see much point in further analysis as there is no formula for what will happen tomorrow.

Bobziz

Some interesting figures from Fidelity on the FTSE100 and the time taken to gain 1000 points:

https://www.ajbell.co.uk/news/why-uk-stock-market-gaining-new-fans?utm_source=bloomreach&utm_campaign=ajb_26_bau_investment_insight_persona&utm_medium=email&utm_content=ajb_25_bau_investment_insight_email_cg

masonic

Bobziz said:

Some interesting figures from Fidelity on the FTSE100 and the time taken to gain 1000 points:

https://www.ajbell.co.uk/news/why-uk-stock-market-gaining-new-fans?utm_source=bloomreach&utm_campaign=ajb_26_bau_investment_insight_persona&utm_medium=email&utm_content=ajb_25_bau_investment_insight_email_cg

Dan Coatsworth has clearly overlooked the fact that going from 9,000 to 10,000 is an 11.1% gain, whereas going from 1,000 to 2,000 is a 100% gain. A 20% return (5000 to 6000) in 229 days is a higher rate of return than an 11.1% return in 171 days. So is a 100% return in 1,156 days.

booneruk

masonic said:

Bobziz said:

Some interesting figures from Fidelity on the FTSE100 and the time taken to gain 1000 points:

https://www.ajbell.co.uk/news/why-uk-stock-market-gaining-new-fans?utm_source=bloomreach&utm_campaign=ajb_26_bau_investment_insight_persona&utm_medium=email&utm_content=ajb_25_bau_investment_insight_email_cg

Dan Coatsworth has clearly overlooked the fact that going from 9,000 to 10,000 is an 11.1% gain, whereas going from 1,000 to 2,000 is a 100% gain. A 20% return (5000 to 6000) in 229 days is a higher rate of return than an 11.1% return in 171 days. So is a 100% return in 1,156 days.

You beat me to saying that   1997/1998 were bangers

chiang_mai

Veloflyer said:

Yes agreed, but I would perhaps assert that trackers are not particularly volatile compared with individual stocks

The volatility of your tracker fund will tell you how far, historically, the price has moved per day/week/month/year, plus and minus, and how long it has stayed at the new level. If for example the S&P500 fell 10% and it took a month to regain lost ground, volatility measurements will help you to understand that. You may not think that you haven't seen much volatility in your trackers but their value has changed, over time, in line with the index. Comparing the volatility readings help investors compare different trackers and against the performance of managed funds. The bottom line here is that if the S&P500 were to fall by say 20%, the value of any S&P tracker would fall by a similar amount and your tracker would not recover until the S&P recovers.

Yes agreed and I understand that such trackers may take years to recover for sure. A cash buffer may be useful here. The point I was making is that perhaps the trackers I have invested in have relatively low volatility compared with individual stocks, developed markets, etc. Given any equity has volatility, in the relative scheme of things, the volatility of large diversified index trackers is surely pretty low and I am not sure volatility of same is thus worthy of much consideration.     

A potentially useful solution, to help mitigate US markets risk is, as you suggest. A global tracker that contains anywhere from 60% to almost 80% US markets exposure will potentially help dilute the impact of any falls in the US market. By deploying that global tracker you will be investing in other markets around the world, non-US markets such as Europe, the UK Asia, Japan etc.

Of course....

Lastly, "will that be the case over the next six months", you ask. Physics and history confirm that what goes up, must come down, the higher it goes, the longer it continues going up, doesn't change the ending. The US CAPE is over double its historic average, the only question that remains is, when will it return to norm. You may not think that historic metrics are worth anything but they will tell you what has happened since Day One. If of course you think that this time things are unique and different from anything that has ever happened before in the history of investing, you would be right to disregrd historic metrics.   

I am simplistic in my view. For instance - the S&P 500 is a stock market index weighted by market capitalization that is made up of 500 of the largest public companies in the United States. For me this takes care of much of the validity of investing in so far as one is investing in companies which are pretty sound, have a decent track record, are reasonably well managed etc. For sure there are always exceptions, but in general, my view is that most companies who make the S&P are a reasonably sound investment bet - and yes I view investment as a bet - albeit a sort of educated one. One should not of course disregard the latest news on such companies, the huge weighting the magnificent 7 has, the US economic outlook etc. and all these are relevant to sound decision making, but I I don't concern myself too much with dancing on the head of a historical metric pin for the S&P as I cannot see much additional benefit in so doing.  As you say the CAPE is double the norm - but so what? Nobody knowns when it will return to normal so not much point worrying about it. Investment - for me anyways - is not an exact science. I appreciate the sense in investing in sound companies, diversification, perhaps even under-valued companies, but after that I don't see much point in further analysis as there is no formula for what will happen tomorrow.

Yes agreed, but I would perhaps assert that trackers are not particularly volatile compared with individual stocks

I don't think that observation is particularly useful or helpful to you since you own a tracker and don't own individual stocks, it's like saying, I could have made a higher risk choice but didn't!  The obverse is that you could also have made a lower risk choice, which is what my original post was all about and that by investing solely in the US index you have defaulted to the higher risk option, albeit not the highest possible.

If you remove the Mag seven from the S&P performance of the past year, the S&P has grown by around 1%. That means your bet on the US market is really a bet on the Mag. 7. If you are unsure about the accuracy of that statement, compare the perfomance of the market weighted S&P Index, against the equal weight version of the same index. 

I am simplistic in my view. For instance - the S&P 500 is a stock market index weighted by market capitalization that is made up of 500 of the largest public companies in the United States. For me this takes care of much of the validity of investing in so far as one is investing in companies which are pretty sound, have a decent track record, are reasonably well managed etc. For sure there are always exceptions, but in general, my view is that most companies who make the S&P are a reasonably sound investment bet.

Whilst the companies in the S&P are mostly all the things you say they are, the fact remains those companies are not responsible for increasing the value of the index and your investment, the Mag 7 is, the earlier comparison confirms that. IF and when the Mag 7 were to fall, they would drag down the index as a whole, just in the same way that the Mag 7 has caused the value of the Index to increase. The risk today is that any falls in Mag 7 value, and the entire Tech sector, would not only cause the S&P to drop but contagion would probably cause indicies in other countries to fall also. If 100% of your investments are in the US Index, you are at the top of the risk pyramid and the fact you think your tracker is not volatile by comparison to other instruments, doesn't change that.