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

[Boyd]

Hi username

I believed it myself until a few years ago when someone on askaboutmoney pointed out the nonsense that it is.

Loads of articles online to show that it's complete bunkum.
This is a fairly good one:

Myths and Fallacies of Dollar Cost Averaging

Interesting they split discussion into DCA (where you have option to lump sum or average in) and regular investing (where you are investing monthly from salary with no lump sum). I am planning on doing both.

I have a lump sum and want to invest. While not trying to time the market, I am conscious of investing in one go (first time investor) on the back of a 6 year bull run. I like the slight piece of mind DCA gives in this regard (be it real or not!). I'm happy to accept lower returns versus lump sum if it helps me sleep easier until the lump sum is in the market and forgotten about!

Once lump sum is invested, I plan on doing regular investing from salary (pension contributions already maxed)

 

[Brendan Burgess]

If you think that the market is overvalued, then you should not really invest 100% of your lump sum, or 1% of your lump sum.

If you are investing for the first time, then you should probably invest an amount, which if it falls, won't cause you to lose sleep. As of now, you have no idea what that amount is. I would say invest around 5% of your total assets in one go. If they fall by 50% the following day, you will have lost 2.5% of your wealth.

You should not invest again for a few months until you feel comfortable with the idea.

Brendan

 

[Boyd]

Funnily enough I'm at exactly that stage... I've invested 5% of the lump sum. It's down 5%. I haven't lost any sleep so far.

 

[monagt]

Because a quick look at some average P/E ratios would suggest reasonable prices rather than 'massively over priced' as you seem to think.

Where in Europe, UK or USA? Commodities?

 

[joe sod]

I dont see where the massive overvaluation is, maybe some of the US tech companies were. Its not 2000 or even 2008. I think there is alot of fear with the Chinese shenanigans before that the Greek crisis and now the refugee crisis. I think the political instability is the backround to the big stock market swings. Also the there is much more money now trading in the markets and exagerating the volatility. I think 20 years ago you would not have seen such big daily movements and you probably would not have been able to view them minute by minute.

 

[Steven Barrett]

timing is the key difference between great investors and the majority , there are thousands of great companies out there , getting them at the right price is the trick , take VW , its still a great company but anyone who bought last week or worse three months ago , has made a horrible call

Who can get the timing right all the time. Warren Buffet, the greatest investor there has been doesn't engage in it.

VW is a great example of luck...or bad luck. They could have looked like a great value stock but who was to know they were rigging the diesel tests on their cars? There's no timing in that, it's illegal activity.


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)

 

[Fella]

I really don't understand why all these people you read that say the stock market is over valued don't just short sell the stock market and after the crash they can buy back at a fair price and make a killing. The stock market is there for buyers and sellers. The weight of money will decide the price of VW and other stocks , my guess would be it is not value to buy it now and it was not a bad buy last week , it's going to incur a significant loss now so the weight of money has valued it now at a fair price.
VW stock price might come back to what it was within a year or so (nobody knows) but people will probably say it was great value after it lost 40% and everyone should of bought it , but I be more inclined to think its now a high risk stock likely to be volatile if you buy it your taking on a risky asset so rewards but also losses should be greater.

 

[landlord]

Hi Landlord
I think Brendan is absolutely right when he says that you have learned something about yourself from this experience - you have learned that you actually have a very low risk tolerance.

Agreed!

Hi landlord
I don't think you learned anything materially new about the market in those 6 weeks. You did learn something important about yourself, though.Brendan

One of the areas I researched over that 6 weeks was the potential collapse of the dollar. The change from the "Gold standard" to the "Dollar standard" by Nixon in 1971 and how that had un-pegged the dollar from gold. All other Fiat currencies are now pegged to the dollar and as they are printed again and again and again, they are gradually floating further and further away from gold. QE 1, QE2, QE3....where will it end.....
I watched a enlightening set of videos from Michael Maloney on the hidden secrets of money. There are 5 episodes....
https://www.youtube.com/watch?v=DyV0OfU3-FU
Before anyone criticizes......please watch the videos. Perhaps this is all Doomsday stuff, but if nothing else its a fantastic monetary history lesson. Much of what Michael says made sense to me anyway and yes the potential of a general currency collapse was a consideration in my decision making. Perhaps some of you more experienced investors can explain if his theory's are fact or fiction.

 

[galway_blow_in]

I dont see where the massive overvaluation is, maybe some of the US tech companies were. Its not 2000 or even 2008. I think there is alot of fear with the Chinese shenanigans before that the Greek crisis and now the refugee crisis. I think the political instability is the backround to the big stock market swings. Also the there is much more money now trading in the markets and exagerating the volatility. I think 20 years ago you would not have seen such big daily movements and you probably would not have been able to view them minute by minute.

long term PE average for the likes of the S+P is 15 , we are a good bit above that , plus the longer a bull market lasts , the less time it has to run , we are currently in the third longest ever

 

[galway_blow_in]

Who can get the timing right all the time. Warren Buffet, the greatest investor there has been doesn't engage in it.

VW is a great example of luck...or bad luck. They could have looked like a great value stock but who was to know they were rigging the diesel tests on their cars? There's no timing in that, it's illegal activity.


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)

VW is an extreme example but great investors can spot trends which are outside the basic rules of thumb when it comes to valuations ( PE , BV , PEG ) , its how full time traders are able to make a living , they sell great companies with tremendous growth prospects all the time , they would have sold apple @ $134 earlier this year and bought it back in the mid nineties august 24 th ( the day markets had a ten minute huge dip )

in the short term , the markets are rigged and regular people cannot make money due to stocks being shorted etc , take bank of ireland , its currently around 14% below where it was at peak in early summer , this despite a great set of results a few months ago and the irish economy going from strength to strength , an average investor might have bought it @ 38 cents in jun , a good investor would have waited for a pull back to where it is now

if you have enough patience ( ten years plus ) , everyone will do fine in the markets but the key to real riches is timing

as for buffet , he doesnt always practice what he preaches , he espouses buying low cost index funds yet made his billions targeting specific individual companies , buffet is a once off

 

[galway_blow_in]

I really don't understand why all these people you read that say the stock market is over valued don't just short sell the stock market and after the crash they can buy back at a fair price and make a killing. The stock market is there for buyers and sellers. The weight of money will decide the price of VW and other stocks , my guess would be it is not value to buy it now and it was not a bad buy last week , it's going to incur a significant loss now so the weight of money has valued it now at a fair price.
VW stock price might come back to what it was within a year or so (nobody knows) but people will probably say it was great value after it lost 40% and everyone should of bought it , but I be more inclined to think its now a high risk stock likely to be volatile if you buy it your taking on a risky asset so rewards but also losses should be greater.

the real money is buying stocks when they sell off in a major way , no different to property in dublin circa 2011 , by the time VW has done its penance and paid its fine , the stock will have long recovered from where it bottomed , its too late to buy when the bad news is out of the way

those who are highly risk averse shouldnt buy stocks like this but VW is a blue chip company , should be a great buy by the end of this month as all the bleeding will likely be over , will take a year to get back to where it was last week however and several to make all time highs , amazing considering those all time highs were made in march of this year

 

[demoivre]

If you are diversified across asset classes and within asset classes then short term fluctuations should make little difference to any investor.

 

[joe sod]

VW is an extreme example but great investors can spot trends which are outside the basic rules of thumb when it comes to valuations ( PE , BV , PEG ) , its how full time traders are able to make a living , they sell great companies with tremendous growth prospects all the time , they would have sold apple @ $134 earlier this year and bought it back in the mid nineties august 24 th ( the day markets had a ten minute huge dip )

in the short term , the markets are rigged and regular people cannot make money due to stocks being shorted etc , take bank of ireland , its currently around 14% below where it was at peak in early summer , this despite a great set of results a few months ago and the irish economy going from strength to strength , an average investor might have bought it @ 38 cents in jun , a good investor would have waited for a pull back to where it is now

if you have enough patience ( ten years plus ) , everyone will do fine

Therefore the average investor should just ignore all the drama then. I read that the huge sell off on August 24 where the dow dropped 1000 points within minutes of opening was caused by computers all doing the same thing, basically they were all programmed to sell when the market opened, computers dont go drinking at the weekend so none of them knew that they were all going to do the same thing monday morning. This software was created by smart people but they all ended up doing the same thing like a herd jumping off a cliff.

 

[galway_blow_in]

Therefore the average investor should just ignore all the drama then. I read that the huge sell off on August 24 where the dow dropped 1000 points within minutes of opening was caused by computers all doing the same thing, basically they were all programmed to sell when the market opened, computers dont go drinking at the weekend so none of them knew that they were all going to do the same thing monday morning. This software was created by smart people but they all ended up doing the same thing like a herd jumping off a cliff.

during a stampede of selling like happened august 24th , many big institutions will have been shorting the market like hell , only to then buy back with the same vigour

 

[Sarenco]

during a stampede of selling like happened august 24th , many big institutions will have been shorting the market like hell , only to then buy back with the same vigour

So, the take away is simply that retail investors should only invest for the long term and ignore the noise in the intervening period. Market timing is a fool's game.

 

[Jim2007]

during a stampede of selling like happened august 24th , many big institutions will have been shorting the market like hell , only to then buy back with the same vigour

Which institutions would those be and how are they 'shorting the market'?

 

[cremeegg]

Who can get the timing right all the time. Warren Buffet, the greatest investor there has been doesn't engage in it.
Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)

I think this shows a fundamental misunderstanding of Buffett's approach.

His most enduring maxim is "buy great companies at a good price". Trying to buy a company when the price is good is what timing is all about.

 

[galway_blow_in]

So, the take away is simply that retail investors should only invest for the long term and ignore the noise in the intervening period. Market timing is a fool's game.

its ha

Which institutions would those be and how are they 'shorting the market'?

how would i know which institutions specifically are shorting the market but institutions dictate the movement of the market ( not retail )

take your pick , morgan stanley , goldman sachs , jp morgan , barclays , each employ thousands of people , do you think none are employed to go short on certain securities ?

bill ackman has made much of his fortune shorting certain companies

 

[landlord]

Guys one of the reasons I bailed was I correctly/incorrectly? came to the conclusion that this blip might turn out to be more than just a correction. I know most on here would disagree, however if one did have a bearish view on the stock market would gold be the way to go? I have specifically been looking over the last couple of weeks at investing a SMALL amount into a gold royalty company like Royal Gold RGLD or a gold mining company like Goldcorp GO5.DE or possibly the SPDR gold ETF ......GLD. I have even also been considering physical gold, but you seem to have to pay a 5% premium on buying and then on selling. Anyone any experience with gold?

 

[Sarenco]

To quote Mr Buffett:

"Gold gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head".

"What motivates most gold purchasers is their belief that the ranks of the fearful will grow. During the past decade that belief has proved correct. Beyond that, the rising price has on its own generated additional buying enthusiasm, attracting purchasers who see the rise as validating an investment thesis. As 'bandwagon' investors join any party, they create their own truth - for a while."

My advice is to steer clear of gold bugs at all times - they are simply fear merchants. Anyway, this chart should give you some sense of the long term performance of various asset classes.