Stock market correction or bear market/crash? Either way I bailed.

[galway_blow_in]

Im not having a go at you galway because I think all contributions are good. In fact i think there is too little comment on this topic of investments in general. Im no expert but I think the big move in the dollar has already happened and I think it will gyrate around its current level for some time, afterall the dollar was as low as 1.50$ against the euro a few years ago. Therefore that was the time to invest in US specific assets, of course many US corporations are global so not such an issue with them. As for irish and spanish reits, they are in expansion mode in other words they are not paying dividends as they are buying properties in distressed markets. The Us reits are mature but they have also already benefited from the rebound in US propery market since 2008. As for emerging market etf, I think the risk is gone because they have already been crucified by the market and the appreciation in the dollar was a killer but that has already played out, therefore this is a low risk time I know because I was way too early and my investments really suffered last year. Maybe wait until after brexit vote as if that goes wrong way there will be another big hiccup

did you know that the vanguard emerging markets etf ( VWO ) has a PE of 12.7 a PB of 1.43 and a price sales of 1.16 for the average holding

the german etf ( EWG ) with ishares has a PE of 13.68 , a PB of 1.44 and a price sales of 0.74 for the average holding

maybe thats irrelevant , jim from switzerland told me a long time ago that the iseq having a PE of 20 is no more pricey than the DAX having a PE 25% lower than that so maybe im not comparing like with like

my instinct however tells me that germany is lower risk than emerging markets and thats ignoring the fact that germany uses the euro

 

[joe sod]

fair enough, germany is probably safe enough and has had a bit of a pullback with all the europe troubles. However Germany is very exposed to emerging markets and was particularly hit by the sanctions on Russia as German companies have big investments in Russia. So investing in Germany you are getting some exposure to emerging markets anyway. Im just giving my opinion its not an expert opinion or anything. I have some iShares country specific investments in Italy, Poland and Japan, none have been blockbusters or anything and I am a bit underwater with the Poland one, I also have VWO and I am actually most confident about that one. Its a pity more people would not join in this thread to give more opinion.

 

[galway_blow_in]

Point taken Fella, but every fibre in my being has been telling me the last few months that gold is on the way up and that we are in the dwindling stages of a 6 year equity bull run.
I am only 35% invested in gold stocks at the moment, the rest is cash.
I would most definitely reinvest in my original portfolio at some time when I see better value. Yes this is gambling......and yes this is timing the market. I might get lucky I might not but it just feels right.

Joey 101.......GSA Gold Stock Analyst.

how are you getting on landlord these days , gold took a surprising downturn since trump got elected , i guess the experts dont know as much as they think they do , they called the election for clinton and predicted gold would rise if trump did happen to wn

massive sell off since mid week in precious metals

 

[TheBigShort]

Investing should be viewed from the perspective of gambling. No-one can tell the future. A simple strategy is to find a stock you believe is cheap, reasonably priced and has growth potential. Avoid all analysts and commentary. For each bull there is a bear. Go with your own instinct. Chances are, if you have done some homework on the stock , and you are of average intelligence, you will be ok long term.
I say this as someone who invested on the advice of brokers, followed commentary of 'experts' and ended up with -97% loss.
Nevertheless, it has been my greatest education (that, and alcohol does not hold the answers).
Since then ive made some modest investments, all holding their own. Plenty of opportunities that I would have been interested in have passed me by (due to lack of funding). Food companies are of particular interest to me these days.

 

[dub_nerd]

I've heard some investors say they like it when there is volatility in the markets. Presumably because they can "buy the dips". This seems to be totally at odds with the mantra that "you can't time the market". Can anyone explain this disparity? I am pretty new to investing except for my pension, which I have seen performing fairly miserably for periods of years at a time.

Earlier this year I tried the "buy the dips" approach for myself. I have completely ignored the advice to spread risk over a large portfolio -- I've seen the entire market move with investor sentiment too often to believe in that. In fact, I like it that everything is much more sentiment driven than people seem to claim. A strongly rising market would be bad news for my approach.

I take short term punts on usually large cap stocks (although a couple of riskier ones too). I do a minimum of stock research although I do keep track of relevant news. The movements I am interested in have nothing to do with long term value. I stay invested for a few days or a couple of weeks at most. I have bought and sold the same small range of stocks repeatedly (although I am always on the lookout for more) but I only hold one or two at a time. I am up about 20% in six months, even though the stocks I have bought have gone pretty much nowhere overall in that period.

Would appreciate advice from anyone who can tell me why I'm likely to get burned in the long run. There's probably even a name for the approach (perhaps "the Fool's Errand" ). It's hardly likely I've hit on some magic formula that everyone else has missed. I can see all sort of reasons myself why my approach is risky, and a couple of individual buys have gone badly. But on the upside: a) I spend more time entirely out of the market than in; there's a corresponding chance I could miss any general market decline -- an infinitely better chance than with a buy-and-hold strategy, b) I invest a modest percentage of my assets (c. 10%) -- it seems less risky to aim for double-digit returns on this than low single digit returns on, say, 90% of my assets. At any one time I have less invested, and often nothing at all, compared to someone with a long term broad portfolio.

 

[RichInSpirit]

@dub_nerd.
You are the expert. Trust yourself.

 

[Jim2007]

I've heard some investors say they like it when there is volatility in the markets. Presumably because they can "buy the dips". This seems to be totally at odds with the mantra that "you can't time the market".

You can't time the market, but you can take advantage of opportunities the market throws up, if you are investing in individual stocks. Value investors usually have a list of a half dozens stock or so that they have researched and valued. They then wait until the stock prices is about 60% of their valuation before buying and volatility throws up those opportunities. It's like buying groceries - you stock up when things are on sale.

Would appreciate advice from anyone who can tell me why I'm likely to get burned in the long run. There's probably even a name for the approach (perhaps "the Fool's Errand" ).

It's called day trading! No one can tell you if or why you'll get burned. You may be lucky and call enough deals correctly to make money over the long term or may be not. At the end of the day it is your money.

 

[dub_nerd]

@dub_nerd.
You are the expert.

Definitely not!

You can't time the market, but you can take advantage of opportunities the market throws up, if you are investing in individual stocks. Value investors usually have a list of a half dozens stock or so that they have researched and valued. They then wait until the stock prices is about 60% of their valuation before buying and volatility throws up those opportunities. It's like buying groceries - you stock up when things are on sale.

So: a) how does that work out for them in general? b) why doesn't everyone do it?

Indeed, why are there different approaches at all? Some people seem to think you should just buy continually because everything goes up in the long run. I was genuinely shocked to discover that some other people draw lines on squiggly stock history graphs and pretend to be identifying trends. (I've heard them called "chartists"?). Since it looks about as useful as reading chicken entrails I presume they make money by selling their prognostications to others.

 

[Jim2007]

Definitely not!



So: a) how does that work out for them in general? b) why doesn't everyone do it?

Indeed, why are there different approaches at all? Some people seem to think you should just buy continually because everything goes up in the long run. I was genuinely shocked to discover that some other people draw lines on squiggly stock history graphs and pretend to be identifying trends. (I've heard them called "chartists"?). Since it looks about as useful as reading chicken entrails I presume they make money by selling their prognostications to others.

[broken link removed] - a good starting point. There are may approaches to investing, but ones based around the concept of value tend to work well.

 

[galway_blow_in]

Definitely not!



So: a) how does that work out for them in general? b) why doesn't everyone do it?

Indeed, why are there different approaches at all? Some people seem to think you should just buy continually because everything goes up in the long run. I was genuinely shocked to discover that some other people draw lines on squiggly stock history graphs and pretend to be identifying trends. (I've heard them called "chartists"?). Since it looks about as useful as reading chicken entrails I presume they make money by selling their prognostications to others.

many ( if not most ) would say charts are crucial if your a day trader , for example if a stock has been dropping for quite a while and appears to be in a downtrend , when a short term rally occurs , traders will often assume resistance will occur at either the 50 , 100 or 200 day moving average , on the downside they will try and identify where support is , again the moving averages are looked at , they will also be conscious of relative strength and volume of trade beit on an up day or down day , its not a sure fire way but its often relevant

 

[dub_nerd]

many ( if not most ) would say charts are crucial if your a day trader , for example if a stock has been dropping for quite a while and appears to be in a downtrend , when a short term rally occurs , traders will often assume resistance will occur at either the 50 , 100 or 200 day moving average , on the downside they will try and identify where support is , again the moving averages are looked at , they will also be conscious of relative strength and volume of trade beit on an up day or down day , its not a sure fire way but its often relevant

I guess the question is how often? Are there any objective analyses of these approaches, counting the times they are successful and the times they are not? That should be very straightforward to do with historical data. I'm not poking holes, I'm genuinely interested, but a big believer in solid objective evidence. My current skepticism is based on merely anecdotal evidence: I've seen people give incredibly detailed and technical sounding forecasts, along with caveats that they fall back on when they get it completely wrong; I've seen a ton of online technical analysis where the articles are clearly computer generated, and presumably just generating advertising clicks for some enterprising person; my main reason is that there's absolutely no a priori reason to believe all this stuff about moving averages etc. It's the sort of thing that might be a self-fulfilling prophecy if enough people believe in it. But then it's unlikely to be a winning strategy, since it seems to me you rarely want to be doing what everyone else is.

 

[dub_nerd]

[broken link removed] - a good starting point. There are may approaches to investing, but ones based around the concept of value tend to work well.

That looks useful, will have a read, ta.

 

[galway_blow_in]

I guess the question is how often? Are there any objective analyses of these approaches, counting the times they are successful and the times they are not? That should be very straightforward to do with historical data. I'm not poking holes, I'm genuinely interested, but a big believer in solid objective evidence. My current skepticism is based on merely anecdotal evidence: I've seen people give incredibly detailed and technical sounding forecasts, along with caveats that they fall back on when they get it completely wrong; I've seen a ton of online technical analysis where the articles are clearly computer generated, and presumably just generating advertising clicks for some enterprising person; my main reason is that there's absolutely no a priori reason to believe all this stuff about moving averages etc. It's the sort of thing that might be a self-fulfilling prophecy if enough people believe in it. But then it's unlikely to be a winning strategy, since it seems to me you rarely want to be doing what everyone else is.

objective evidence and fundamentals are not enough for day trading , often the market is in a risk off mood and the only way to make money is to short , this means even rock solid companies go down in price , ive tried trading in and out of stocks in the past and made money for a while but eventually i realised im not smart enough to beat the likes of a long term hold index fund

i dont have much money in stocks these days so for fun i occasionally buy options , can be a white knuckle ride around earnings

 

[Rory T Gillen]

Hi Brendan,
Could you elaborate a little on your opinion about DCA above? Do you think it's nonsense due to fees, time taken to invest the lump sum or otherwise?
Thanks

In my view, dollar or euro cost averaging is a powerful tool in stock markets, but it is best suited to the person who can save over time, the person who does not have a lump-sum. If you are earning and can save a portion of your earnings then consistently adding monies to an investment programme, in good times and bad, is akin to euro-cost averaging. But you must implement your plan consistently, both in down market conditions as well as up. As Brendan points out, euro-cost averaging is not much use if you have a lump-sum and cannot add to it over time. The lump-sum investor must understand how to value an asset, and buy at least reasonable value. If you are not comfortable valuing an asset then there's the option to buy a global equity index ETF and hold for the long-term. But you must take a 5-10 year view as what happens in between is unpredictable.

 

[sunnydonkey]

It's called day trading! No one can tell you if or why you'll get burned. You may be lucky and call enough deals correctly to make money over the long term or may be not. At the end of the day it is your money.

Day trading is gambling, not investing. If you go to the casino and keep putting everything on red or black, someday your luck will run out. Daytrading, gambling on irrational market movements, is the same.

 

[dub_nerd]

objective evidence and fundamentals are not enough for day trading , often the market is in a risk off mood and the only way to make money is to short , this means even rock solid companies go down in price , ive tried trading in and out of stocks in the past and made money for a while but eventually i realised im not smart enough to beat the likes of a long term hold index fund

I think you misunderstood me. I wasn't asking if day traders are using objective evidence, but whether there is objective evidence that the "chartist" approach works for them. That's just a matter of collecting data about people using it and how they fared. It seems to me that any approach that is not in some way "value-based" must be a zero-sum game for all market participants. So then it becomes an arms race to find the best algorithms. Even if you find them, somebody's eventually going to come along with better ones and eat your lunch.

Day trading is gambling, not investing. If you go to the casino and keep putting everything on red or black, someday your luck will run out. Daytrading, gambling on irrational market movements, is the same.

I think that's the wrong analogy. There are two reasons why you might lose all your money by betting on red or black: 1) in a random sequence there will be arbitrarily long runs of any given value (i.e. wins or loses) so unless you have an infinite amount of money, you will be wiped out, 2) the odds are tipped against you because every now and again the result comes up green and everyone loses.

I think the first of these is the one covered by the adage that "the markets can stay irrational for longer than you can stay solvent". The second does not apply to markets -- they go up in the long run, otherwise even people who engaged in buy-and-hold would eventually lose. A roulette analogy would be if everyone wins when green comes up, so there is a slight edge in staying in the game.

I guess people who do anything other than buy-and-hold are trying to extract more value from the market than just the average increase. Does anybody manage it, and how is it done? Even if we dismiss day traders, there must be people who believe it can be done, otherwise there would be no fund managers and people willing to buy into their funds. (I'm aware of the statistic that most fare no better than market indices).

One hypothesis I'm interested in is whether a less aggressive approach to finding value is possible. Day traders, according to the previous poster, have to short stocks if they can find nothing to go long on. Fund managers have to keep trading -- that, after all, is what they are paid for. I've even read about ones that know the markets are generally over-valued but "it's the only game in town". With one or two notable exceptions, none of them ever say "right, it's time to exit the market for the time being".

I, on the other hand, can take it or leave it. So far I've bought things that look to have dropped for reasons that have nothing to do with value. I wouldn't be an expert on valuing a stock, but I know when something goes down without any apparent associated bad news. I don't fixate on 50 day moving averages etc. If I can't find anything to trade, I'm happy to stay away completely and that's what I've done for 50% or more of the time. I'm in the lucky position of having low income requirements compared to my assets.

I feel more comfortable dipping in and out. If the market is -- as some people claim -- generally overvalued, isn't it the buy-and-hold approach that must suffer in the medium term for new entrants? (For anyone who's read the whole thread, that brings us right back to where the OP began).

 

[Firefly]

I say this as someone who invested on the advice of brokers, followed commentary of 'experts' and ended up with -97% loss.

Sounds like some of the shares I've bought too in the past! Indeed the only shares that have done well for me are those I received for nothing as part of an IPO.

 

[Fella]

I think you misunderstood me. I wasn't asking if day traders are using objective evidence, but whether there is objective evidence that the "chartist" approach works for them. That's just a matter of collecting data about people using it and how they fared. It seems to me that any approach that is not in some way "value-based" must be a zero-sum game for all market participants. So then it becomes an arms race to find the best algorithms. Even if you find them, somebody's eventually going to come along with better ones and eat your lunch.

.

I've made my money on markets similar to stock markets, mostly it's a zero sum game but to make money you need to have an edge. I think there is value there for the quick minded who are up on the news constantly and understand the implications of world events on the stock market. I remember when I was trading sports I was constantly "on" watching for news trading future events and I had dedicated twitter feeds so I had all the information as quick as possible. I imagine day traders are doing similar and then you pick up skills by remembering what happened specific stocks at last opec meeting or last time interest rates rose in uk etc. You would have to constantly watch these things along with earnings reports and announcements from big companies and be ready to pounce ready to take the value early and then trade back in or out later when the information is known by all.
I sometimes think about the value im giving away , like when brexit was happening I haven't the inclination to trade so I just sit on all my holdings knowing they are going to crash in value , i'm sure the quickest traders made lots of money shortening stocks etc but they are ready they have systems in place. I don't and I don't want to put in that effort.

 

[dub_nerd]

I've made my money on markets similar to stock markets, mostly it's a zero sum game but to make money you need to have an edge. I think there is value there for the quick minded who are up on the news constantly and understand the implications of world events on the stock market. I remember when I was trading sports I was constantly "on" watching for news trading future events and I had dedicated twitter feeds so I had all the information as quick as possible. I imagine day traders are doing similar and then you pick up skills by remembering what happened specific stocks at last opec meeting or last time interest rates rose in uk etc. You would have to constantly watch these things along with earnings reports and announcements from big companies and be ready to pounce ready to take the value early and then trade back in or out later when the information is known by all.
I sometimes think about the value im giving away , like when brexit was happening I haven't the inclination to trade so I just sit on all my holdings knowing they are going to crash in value , i'm sure the quickest traders made lots of money shortening stocks etc but they are ready they have systems in place. I don't and I don't want to put in that effort.

Thanks Fella, I always pay attention to your posts as you sound like someone with a head for these things from previous postings. You've pretty much summarised what I've been doing for six months. I have a calendar of planned announcements from the Fed, the ECB and BoJ. I watch US jobs figures (even though I don't trade US stocks). I track OPEC meetings and EIA and IEA production and inventory forecasts. It's not that I'm especially interested in those things for themselves, but oil prices and the prospects for QE seem to be good guides to what the markets will do. I do a check on the Asian markets at 1 am each night, as a possible guide to sentiment for Europe. I also used Brexit volatility to get a good price on a UK Investment Trust that I wanted to hold for the longer term.

So far I have done just 13 reciprocal buys/sells in six months. One of them was a stupid trade that I didn't know much about, and even so it took an additional fat finger problem to lose me money on it. There was one other loss maker and eleven gains. The odds of 11 out of 13 gains happening by random chance are a hair under 1%. However, I'll continue to keep an eye on it and see how things go.

If this all sounds like a lot of work, bear in mind I only need to check anything when I'm considering getting into the market, and thereafter I only need to worry about one or two specific stocks that I have already got at a good price.

 

[Fella]

I whatsapped a good friend of mine last night , he was a day trader , he rented a desk in london for 6 years. He was given money and had to sit there and trade all day. I asked him about it, he said pretty much that yeah he was following news and constantly looking for edges , he said he picked up loads of tips and tricks and just got better from practice. He said he didn't rely on charts but was happy to get involved if he saw what he called an over reaction in market as he put it he said "he's happy to catch falling knives and wait for the bounce". When he got better and better the amount of money he was allowed trade increased and so did his earnings. He said it was stressful and not everyone is successful at it. One thing about this guy he is only about 32 now but extremely intelligent a very well read guy and has just a huge knowledge base , he could talk to you about Libya or soccer or a new mine in Mexico , anything the conversation is about on our whatsapp group he would have in depth knowledge on the subject. I don't have that broad knowledge of the world , I don't know what implications world events are going to have on individual stocks , he did and still does. Everything had a price also , he wouldn't get involved just for the sake of it , he might like a company but if he missed the price he would let it go.

He left there very well off , he got a job with star lizard , that was his move into sports betting , Star lizard are basically a trading firm in sports gambling, spent a few years there and left and start betting on his own. You need an edge to make money in any zero sum games , when I met him in about 2009/2010 he was spending a lot of money on weather services , he would trade the draw in cricket or points market in NFL or Rugby based on weather conditions, he was aslo looking at the effect of humidity and altitude on kicking distances for field goals in NFL. He is now one of the wealthiest people I know and could retire comfortably in his early 30's. The main take from it is , information is key and having as much or more and better information gives you an edge even in a market that may seem impossible to beat.

I don't doubt you could make it trading , you've a good head on you and great knowledge of maths and statistics, even if it is a lot of work or maybe its not its possibly an enjoyable hobbie trading the markets once you don't over commit and lose more than you are willing to.