Time to retreat to cash?

GeorgeHowell

gozomark wrote: »

sorry, but thats nonsensical - its either right or it isn't

No the situation is different. Anyone with investments is likely to have taken a paper loss recently. The loss is not realised until and unless the investments are sold, whereupon is is irrevocable. By hanging on there is a chance that all or some of the paper loss may disappear over time, when the investments can be sold for a smaller or zero loss. There is of course a chance that the loss will not be recovered or will become greater, but in the medium/long term, but I don't think so. Compared with the value of the original investment I believe it is better to stay put and hope for a recovery rather than take a loss and switch to cash now. Although I believe that cash will deliver at least as good a return as equities over the long term, starting from now, it may not deliver enough to offset losses arising from equity performance in the past.

In terms of investing new money the issue is about what will provide the better return over time, starting from now. As I said above, I happen to believe that cash will provide at least as good a return as equities from now into in the foreseeable future, with minimal risk.

There are so many unknowns that it's all a matter of psychology. It's easier to be optimistic about equities faced with a paper loss, which might come back, than faced with the decision to invest in them now, on the basis of buy cheap, sell higher later. If the share recovery does not happen, someone can always sell later and take the loss, if and when they need the money.

gozomark

I worked for 15 years in finance both as a trader for a bank and as a fund manager, and one of the biggest mistakes private investors make is to worry about their purchase price when they come to decide when to sell - its irrelevant, its history - all that matters is what happens after you sell. Paper losses are real. If its right to keep holding, its right to buy.

I believe that cash will deliver at least as good a return as equities over the long term - in that case sell

it may not deliver enough to offset losses arising from equity performance in the past. - irrelevant - its already happened

GeorgeHowell

gozomark wrote: »

I worked for 15 years in finance both as a trader for a bank and as a fund manager, and one of the biggest mistakes private investors make is to worry about their purchase price when they come to decide when to sell - its irrelevant, its history - all that matters is what happens after you sell. Paper losses are real. If its right to keep holding, its right to buy.

I believe that cash will deliver at least as good a return as equities over the long term - in that case sell

it may not deliver enough to offset losses arising from equity performance in the past. - irrelevant - its already happened

I think the misunderstanding is that you were looking for a response which predicted whether equities or cash are going to be the better bet going forward. But because let's face it, none of us have a clue, I was describing what I would do in this climate of total uncertainty, given a few hunches. Not all behaviors (and therefore financial markets) are rational -- much depends on trying to secure a decent night's sleep, or to defer bad news or disadvantage. People's attitude to risk and reward has been demonstrated by psychologists to vary according to whether they are chasing gains/advantages or avoiding losses/disadvantages. Sorry if my reply was not completely rational, but I would not take a loss now for the sake of it if I had some reasonable expectation of getting some of it back. But equally I would not plunge into equities now given the pain of the recent past.

gozomark

one of the biggest lessons I learnt as a trader was - which is more important to you, your pride or your pocket ? pride = heart, pocket = head

not selling at a loss even though you think cash will outperform equities - thats your pride talking

cheerfulcat

GeorgeHowell wrote: »

Sorry if my reply was not completely rational, but I would not take a loss now for the sake of it if I had some reasonable expectation of getting some of it back. But equally I would not plunge into equities now given the pain of the recent past.

I have seen this kind of thinking displayed from time to time and it still baffles me. Either you think that you will recover some or all of your losses - in which case you should be buying now, because obviously you think that the market ( or your portion of it anyway ) will go up - or you think that the value of your holdings will stagnate or drop, in which case surely you should switch it all to cash, which you say you think will be the best performing asset for the foreseeable future?

This is not to say that sitting on one's hands is the wrong thing to do, but the reasoning behind the decision in this case is ( please forgive me, not meant personally ) utterly daft!

As gozomark says, tying yourself to the purchase price will only cloud your judgement ( it leads to a lot of " I'll sell when I get my money back " type decisions ).

black_taxi_2

watching equity fund managers on tv

when market is a bull---buy shares dont miss the boat

when market is bear---dont sell--plenty value shares out there

basicly never sell--always buy----i wonder why

hedger

jez this is gettin more worrying and confusing by the day. Im 3 years into the investment (SJPP - invesco perp high income etc) which was a 5 year plan. I put in £215k, have took £20k as income and the bond, ISAs, unit trust etc is sitting at approx £180K. I havent a clue whether to cut my losses or sit tight. 3% penalty to withdraw from the bond too !!!!!!

cheerfulcat

Oh, dear, hedger; I can see why you're worried. Is the income being produced by the underlying investments directly or are you cashing in units regularly? And do you need the income?

wombat42_2

black_taxi wrote: »

watching equity fund managers on tv

when market is a bull---buy shares dont miss the boat

when market is bear---dont sell--plenty value shares out there

basicly never sell--always buy----i wonder why

Yes !
Share prices high - Join the herd and a dont miss out :eek:
Share price low - Buying opportunity and a chance to buy stock much cheaper than if it was a bull market :eek:

Milarky

No.... It's too late. 90%(?) of the falls have already occurred. Leave it in there (But review individual stocks/investment funds???) When the market turns there will be sustained rises - and much better opportunities to exit than from here

(Just IMO)