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  • FIRST POST
    • k6chris
    • By k6chris 12th Oct 18, 7:20 PM
    • 326Posts
    • 532Thanks
    k6chris
    Your correction strategy?
    • #1
    • 12th Oct 18, 7:20 PM
    Your correction strategy? 12th Oct 18 at 7:20 PM
    Let's assume, for the sake of this thread, that the current market wobble becomes a larger correction and let's assume you have some 'cash' waiting to be invested in the market. What is your strategy for investing and why? All in now (time in the markets)? Drip feed it in (cost averaging)?? Wait until an xx% pullback and then all in (buy low, sell high)??? Curious as to people's investment strategies at such a time!
    "For every complicated problem, there is always a simple, wrong answer"
Page 2
    • MK62
    • By MK62 13th Oct 18, 12:10 PM
    • 341 Posts
    • 248 Thanks
    MK62
    Currently:

    19.5% Polar Capital Biotechnology R Inc
    15.7% Polar Capital Technology Trust
    15.5% Baillie Gifford Japanese Smaller Companies B Acc
    11.5% Artemis Global Energy R Acc
    7.9% Worldwide Healthcare
    7.4% Schroder Recovery Fund Z Inc
    6.5% Stewart Investors Indian Subcontinent A Acc
    5.2% Guinness Asian Equity Income Fund X D
    5.0% The Biotech Growth Trust PLC
    4.2% A certain ETF which has done well for me but not included in my TN portfolio/the charts I posted in my previous posts
    2.0% Cash
    Originally posted by BrockStoker

    Wow....that's pretty high octane tbh......strap yourself in!......
    • AnotherJoe
    • By AnotherJoe 13th Oct 18, 12:29 PM
    • 11,864 Posts
    • 13,842 Thanks
    AnotherJoe
    Currently:

    19.5% Polar Capital Biotechnology R Inc
    15.7% Polar Capital Technology Trust
    15.5% Baillie Gifford Japanese Smaller Companies B Acc
    11.5% Artemis Global Energy R Acc
    7.9% Worldwide Healthcare
    7.4% Schroder Recovery Fund Z Inc
    6.5% Stewart Investors Indian Subcontinent A Acc
    5.2% Guinness Asian Equity Income Fund X D
    5.0% The Biotech Growth Trust PLC
    4.2% A certain ETF which has done well for me but not included in my TN portfolio/the charts I posted in my previous posts
    2.0% Cash
    Originally posted by BrockStoker

    Wow ! And i thought my active portfolio was high risk !


    16 % SMT
    14 % HSBC MSCI World ETF
    13 % Fundsmith
    12 % Int Biotech Trust
    9 % Apple
    9.0% Legal & General
    9.0% Vang Emerging Mkts
    8 % Astra Zeneca
    4 % BYD
    6.0% Cash
    Please dont criticise my spelling. It's excellent. Its my typing that's bad.
    • Audaxer
    • By Audaxer 14th Oct 18, 10:31 PM
    • 1,495 Posts
    • 922 Thanks
    Audaxer
    What would be the point in trying to time the market for only a 3-4% gain? I'm usually looking for at least around a 10% boost initially, with hopefully plenty more gains to follow (if I picked right).
    Originally posted by BrockStoker
    Most people would say there is no point in trying to time the market at all.
    I should also say that the aim of this portfolio is to double my initial investment over the course of 5-10 years (then repeat), as well as provide me with some income, so it (and the constituent funds) need to be super-aggressive.
    I would think even with an aggressive portfolio, to double your investment over the next 5-10 years, as well as taking income, seems very optimistic in my view after such a long bull run, but good luck.
    • Thrugelmir
    • By Thrugelmir 14th Oct 18, 10:40 PM
    • 61,352 Posts
    • 54,597 Thanks
    Thrugelmir
    For comparison, TN tells me that the combined FE risk score for that portfolio (not including the ETF) is 119, which is comparable to the FTSE 100 index, but my portfolio leaves the FTSE 100 in the dust in terms of performance, at least in the short time I've had this strategy implemented.
    Originally posted by BrockStoker
    You appear to be comparing apples with pears.
    Financial disasters happen when the last person who can remember what went wrong last time has left the building.
    • BrockStoker
    • By BrockStoker 14th Oct 18, 11:19 PM
    • 208 Posts
    • 97 Thanks
    BrockStoker
    Most people would say there is no point in trying to time the market at all.
    Originally posted by Audaxer

    Each to their own. I'd rather try to use the volatility to my advantage, than leave it to random chance when I re-balance.



    I would think even with an aggressive portfolio, to double your investment over the next 5-10 years, as well as taking income, seems very optimistic in my view after such a long bull run, but good luck.
    Originally posted by Audaxer

    Thanks. I agree. I purposefully gave myself a tough target. It does not matter to me too much if I achieve the target or if I fall short, since I have a longer time horizon than 10 years. If the bull run ends, then so be it, but I want to make the most of it while the going is still good.



    I also want to diversify my portfolio further with slightly more defensive assets (as the portfolio grows, assuming OFC that the bull run has not already ended), but not quite sure exactly what yet.
    • BrockStoker
    • By BrockStoker 14th Oct 18, 11:27 PM
    • 208 Posts
    • 97 Thanks
    BrockStoker
    You appear to be comparing apples with pears.
    Originally posted by Thrugelmir

    I realized that was the case, but not sure what else I could compare it to. Any suggestions?
    • username12345678
    • By username12345678 15th Oct 18, 12:05 AM
    • 249 Posts
    • 134 Thanks
    username12345678
    I re-balance twice a year with the next one due in December.

    What is giving me more pause for thought is if I should increase my equity holdings gradually in line with market falls should they continue.

    Given the average bear market drop is c35% and we have had two nudging 50% since 2000 then it 'feels' like it makes sense to start lifting the equity percentage in my pf by (for arguments sake) 5% for each 5% fall beyond 30%.

    When I floated this idea on another forum I was linked to a presentation showing that this was a questionable approach. The actual phrase used as I recall was "that's a stupid idea".

    I still find it counter-intuitive that raising your risk as a market falls towards its extremes of historical volatility is a sub-optimal course of action. If you were happy to buy at the peak why wouldn't you be happy to be buying even more at 40% off that peak?
    • Linton
    • By Linton 15th Oct 18, 10:25 AM
    • 10,082 Posts
    • 10,416 Thanks
    Linton
    I realized that was the case, but not sure what else I could compare it to. Any suggestions?
    Originally posted by BrockStoker

    A Global Index. Ideally the FTSE Global All Cap


    See https://markets.ft.com/data/indices/tearsheet/summary?s=GEISAC:FSI though this is based on $ prices so you will need to modify it by the then current $/£ price. Or there is the Vanguard tracker, but that has not be going for long enough for useful historical data.
    • Malthusian
    • By Malthusian 15th Oct 18, 11:58 AM
    • 4,995 Posts
    • 8,075 Thanks
    Malthusian
    I still find it counter-intuitive that raising your risk as a market falls towards its extremes of historical volatility is a sub-optimal course of action. If you were happy to buy at the peak why wouldn't you be happy to be buying even more at 40% off that peak?
    Originally posted by username12345678
    Because that is the exact opposite of how markets work. When markets are 40% off that peak nobody feels happy about buying, they feel bloody miserable about buying, they'd rather gouge their eyes out with a rusty spoon than buy. That is why markets are 40% off the peak in the first place.

    Let's say you started with 60% equities. If you weren't happy to hold 70% equities when markets were up and everyone was optimistic, you won't be happy to hold 70% equities when markets are down and everyone is panicking and saying that it's the worst time to invest ever.

    If you were happy to ignore the market consensus then you would have been holding 80-100% equities right from the start.

    Buying more equities purely because the market has gone down is chasing your losses. (Buying more equities because cash has just become available is totally different.)

    So the market has gone down by 40% and you're feeling rotten, but you grit your teeth and raise your equity exposure to 70% saying to yourself "when markets go up I'll be laughing". Then markets fall by another 10%. Now you're in over your risk tolerance, you're feeling even worse about your investments, and you've just made a bad call that has exacerbated your losses. What now?

    If you're one of the 10% of investors that ignores market sentiment and takes the long view, you can increase your equity holding to 80% and you'll be laughing when markets go up. Except you can't, because if you were in that 10% of investors, you would have been holding 80% equities from the beginning.

    If you're one of the 90% of investors that doesn't, you'll say "this time it's different", you'll say "I made one bad decision but I'm not going to make another", you'll say "this isn't like 2009 when everyone could see it was the bottom of the market, this is 2020 when the debt bubble has finally burst for good and all the experts predict a decade of recession and the far right/left are taking over Europe, it's time to hold what I have". You'll listen to the experts and sell everything.

    You can tell me "I'll do no such thing" and I'll believe you. I have no reason to doubt a person. However, people that follow this strategy will achieve only one thing, which is to go in over their risk tolerance at the worst possible time to be in over your risk tolerance, make themselves more likely to panic, and make themselves more likely to sell at the bottom of the market and lose money.

    Luckily, this is a largely theoretical scenario because most people in that 90% would not increase their equity holding in the first place - it would take all the efforts of this forum or their financial adviser to persuade them to hold onto their 60% equities. The other 10% will not increase their holding as they already hold 80-100% equities.
    "People are smart, they can handle it."

    "A person is smart; people are dumb, panicky, dangerous animals and you know it."
    - Men In Black
    • Zola.
    • By Zola. 15th Oct 18, 12:47 PM
    • 1,355 Posts
    • 586 Thanks
    Zola.
    Our monthly contributions to our S&S ISA come out on the 1st of every month, and will continue to do so, so I am trying not to login / pay attention to the news of drops etc.

    I am young in the game, a very long way to go yet.
    • pip895
    • By pip895 15th Oct 18, 3:36 PM
    • 599 Posts
    • 339 Thanks
    pip895
    If you were happy to ignore the market consensus then you would have been holding 80-100% equities right from the start.
    Originally posted by Malthusian
    I disagree - Have to say I'm with username.. on this. Buying when markets have fallen and selling back out when there on the up seems an eminently sensible idea to me.

    I completed a risk questionnaire a while back and came out at 80-100% equity but I was actually very concerned about stretched valuations so decided to stay with a 60:40% split and with much of the non equity portion in cash.

    As the market slips I intend not only to rebalance to maintain my equity proportion but to increase my equity proportion towards 80% after a 40% drop perhaps edging towards 90% if further drops occur.

    I do agree with you that it is easier said than done - it goes against the grain. I have a bit of a tendency to bury my head in the sand when things go bad, its why I am trying to put in place a definite plan and set of rules to steady my nerve.

    My current plan is to rebalance at 25% down, to a 70% equity position and at 40% down, rebalance again to 80% equity. What I am trying to get my head around is if I should be make it a continuous process gradually reducing cash and selling bonds all the way down or wait for trigger points which if missed could mean I missed out.

    I am leaning towards the forma - I know the analogy of catching the falling knife is often quoted, but I really think that only applies to individual shares and is irrelevant for funds/trackers. The way I look at it I might well end up at the bottom of the market with less than I would have, if I had left well alone, but I will still be better off than if I went in with 80% equities.
    • Bravepants
    • By Bravepants 15th Oct 18, 3:40 PM
    • 517 Posts
    • 612 Thanks
    Bravepants
    I will continue to drip-feed and not worry about timing anything. The more you tinker and faff about with your investment strategy, the more stress you will have if it goes wrong, and the more you will want to "check how my strategy is doing".


    If your investment horizon is long enough, just leave well alone and get on with your life!
    • Audaxer
    • By Audaxer 15th Oct 18, 8:54 PM
    • 1,495 Posts
    • 922 Thanks
    Audaxer
    Because that is the exact opposite of how markets work. When markets are 40% off that peak nobody feels happy about buying, they feel bloody miserable about buying, they'd rather gouge their eyes out with a rusty spoon than buy.
    Originally posted by Malthusian
    Well, I'm a retired cautious investor and I'm investing lump sums at present. As I'm not yet fully invested yet I'd be glad of a 40% fall before my next investment.
    • bostonerimus
    • By bostonerimus 15th Oct 18, 9:25 PM
    • 2,452 Posts
    • 1,761 Thanks
    bostonerimus
    This is really a philosophical question. You have to believe that we have free will to worry about a correction strategy. If everything is predestined it won't matter want you think you are doing. You might take the position that of course we have free will....we have no choice......In that case we will make choices and end up with a singular result, but what about all those realities where you made different choices and ended up doing better? at least you can console yourself that you didn't end up in one of the disastrous realities....or maybe you did.
    Last edited by bostonerimus; 15-10-2018 at 9:29 PM.
    Misanthrope in search of similar for mutual loathing
    • james_09
    • By james_09 15th Oct 18, 10:50 PM
    • 31 Posts
    • 21 Thanks
    james_09
    Setting your risk to say 60/40 with a view to increasing to 80/20 after a crash is just another way of trying to time the market, which as we know most people get wrong.

    What if the market doesn’t crash like you are expecting? What if it just carrys on increasing for another 5-10 years at say a much slower pace.

    You would be stuck with your 60/40 allocation waiting for a crash, when you would have been better off at 80/20 from the start.

    A crash in the next few years is not a certainty.
    • pip895
    • By pip895 16th Oct 18, 9:34 AM
    • 599 Posts
    • 339 Thanks
    pip895
    Setting your risk to say 60/40 with a view to increasing to 80/20 after a crash is just another way of trying to time the market, which as we know most people get wrong.
    Originally posted by james_09
    Do we know that? I'm not sure that such studies don't include in the timing the market bag, the uninformed investor who buys whatever the latest hot topic is and sells out when it goes down! Not uncommon behavior unfortunately but not in any way related to what I am suggesting, which is just a slightly aggressive form of rebalancing - a strategy that we do know works!

    at if the market doesn’t crash like you are expecting? What if it just carrys on increasing for another 5-10 years at say a much slower pace.

    You would be stuck with your 60/40 allocation waiting for a crash, when you would have been better off at 80/20 from the start.

    A crash in the next few years is not a certainty.
    Originally posted by james_09
    If I thought a crash was a certainty then I would not be in 60% equity would I I am quite happy with returns just ticking along - the 60% equity is within my comfort range.

    What I am suggesting is really just an application of the famous investing philosophy "be fearful when others are greedy, and greedy when others are fearful" which comes from the king of wise investors, Warren Buffet.

    For me fearful is 60% equity and greedy is 80%. Others with greater faith and more conviction might go from 0% to 100%!
    • james_09
    • By james_09 16th Oct 18, 11:31 AM
    • 31 Posts
    • 21 Thanks
    james_09
    The point is you have come up with a strategy of holding a lower risk profile than you would normally (you said earlier you spoke to a F.A. and your risk profile came out at 80/20), because you think there will be a crash some point soon. You are not re-balancing, you are changing your risk profile after a crash i.e. you are trying to time the market.

    All I'm saying is you may well end up worse off than if you stuck with your risk profile of 80/20 from the start.
    • pip895
    • By pip895 16th Oct 18, 12:06 PM
    • 599 Posts
    • 339 Thanks
    pip895
    All I'm saying is you may well end up worse off than if you stuck with your risk profile of 80/20 from the start.
    Originally posted by james_09
    That is of course a possibility - but if we don't have a major correction then I don't need to be taking risks to generate extra wealth/income. I guess if I was in the accumulation phase and needed high returns to achieve my objectives I might take a different view but I'm not. I can survive quite well with returns only a few percent over inflation - if we get a crash of say 50% then things become a little tighter and my cash will need to work harder.

    Who says a risk tolerance has to be a single number - a range depending on available funds (or position in the market cycle) seems eminently sensible.
    Last edited by pip895; 16-10-2018 at 12:14 PM.
    • schiff
    • By schiff 16th Oct 18, 12:09 PM
    • 18,289 Posts
    • 9,733 Thanks
    schiff


    When I floated this idea on another forum I was linked to a presentation showing that this was a questionable approach. The actual phrase used as I recall was "that's a stupid idea".
    Originally posted by username12345678
    I love the comparison of 'a questionable approach' and 'a stupid idea' !!
    • username12345678
    • By username12345678 16th Oct 18, 12:09 PM
    • 249 Posts
    • 134 Thanks
    username12345678
    My point about risk adjustment in your pf is that the likely upside/downside risk profile of the market will have changed following a large drop, assuming it isn't a global Japan c1989 scenario.

    When I invested in to my SIPP I was comfortable with the historic risks associated with a roughly 50% equities + 10% property set up.

    Fast forward a couple of years and the market has dropped 40% how can the downside risk be the same at that point as it is now?

    It doesn't mean it can't/won't fall further but it surely means you'd be increasing your equity holdings at a point far closer to the trough than your original starting point.
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