What next for this market?

[airbus330]

I'm sticking with my plan of buying funds on a weekly basis, with perhaps a big cash injection if markets really tumble.

Not the only place I've seen this, so nothing personal, but where are people finding the ammo to keep buying, or using "...a big cash injection..."?

I would have thought most folks would be allocating funds to general living expenses. It seems some appear to have a "bottomless pit" of funds for reinvestment. With dividends drying up to a trickle, even this source isn't open going forward.

I think the answers you're going to get are likely to be different for what I'd perhaps call 'sophisticated investors' (i.e. investors with more technical experience in these matters - so perhaps read someone like GoSeigen as being in this category - https://tinyurl.com/w5wkjnr..), and those that are much 'less sophisticated', and I'd most certainly lump myself into that latter investor-category...

So personally speaking, and with that said, many years ago as my invested portfolio started to grow to a considerable sum, or at least a 'considerable sum' for a lowly farm boy like me, I found that I needed to alter my strategy so as to 'allow myself' to remain 'fully invested' with my 'currently-invested portfolio', whilst at the same time giving myself something to help me sleep at night for when these really quite inevitable market crashes come around.

I initially typed 'in case they come around' there, but using those words doesn't really explain the fundamental inevitability of these market drops, so I've removed the phrase 'in case' from the previous sentence, and said it like it is - simply inevitable...

So the best way I've found that works *for me* regarding these 'inevitable' issues is to always maintain at least 'some level', and in reality 'a number of levels' of cash funding or near-cash-equivalent, that can be called on to take advantage of these types of market drops. I don't hedge with gold, or any other of the fancier instruments available like bonds etc., so I've nothing 'sat there' in normal-conditions that I'd expect to 'go up' whilst everything else might be 'going down', which might then be available to sell to generate funds - I just have some cash, and then a few other 'layers' of near-cash that I can call on should push come to shove.

It's clear that during 'normal market conditions', those funds will sit where they are and *generally* lose money to inflation, and I'm really quite content with that. I pay money to insure my house, and I pay money to insure lots of other things in my life that are important to me, and which would be difficult to replace, and so I see any 'money lost' on those available funds to be another 'insurance cost', and nothing more. No problem, I don't worry any more about that particular aspect...

But now, during these types of hugely volatile market drops, that insurance can come into play. I can access that cash if I think I want to invest some of it, and I can drop the capital into the market as and when I want to. I've done some of that earlier this week. If my first layer of cash were to be depleted, which is some way off as we currently stand, I've got access to an NS&I account with some more in, and then I've also got access to some Premium Bond capital, which can again be made available at really quite swift time-scales if required.

I'm also still working, and that enables me to have monthly additional funds available to invest in these kinds of market drops, as well as any dividends that come in from what is primarily an income strategy that I'm running. If the market stays around it's current levels, I would expect to perhaps release the rest of the first-level cash that I've got left over the coming months, and also add to that some cash from my monthly wages and dividends as they come in. My current thinking is that the NS&I funds, and the Premium Bond capital will only get touched if we see any further dramatic falls from current levels, but I am prepared for that scenario and will have no problem processing those funds as required if that were to come about..

So, for a simple farm boy like me, the above strategy helps me sleep at night very well during 'normal market conditions', and whilst the value of my invested-portfolio has taken a hit from the current market turmoil, the cash-element part of my approach has now come into play, and I'm taking advantage of that as part of my overall strategy.

I have absolutely no doubt that there are more efficient ways that I could be managing the above issues, and I'm sure many here do, but the requirements for this part of my strategy are only that I know that I'm doing 'something' to enable me to manage during these types of inevitable situations, and to be able to take advantage of them when they occur, and also that the approach is both simple to understand and simple to execute, and all of those boxes are ticked with the above process.

The above approach worked well, for me, during the financial crash of 2007/08, and I expect it to work well during these current issues too.

Cheers,

Itsallaguess

I have to agree with you. Over the years I have castigated myself for always keeping about 3 years worth of basic existence money in the bank rather than being fully invested to reap the maximum return. I mainly did this due to the fickleness of my line of work. When I was forced into retirement at the end of last year I still sat on my hands thinking of the stock market what if's, but did start to move some capital into the market in January. Fortunately, not too much damage has been done, and I'm very glad to have 2 1/2 years cushion still in the bank to see how this all turns out. While my main investments have remained in equities I have been surprised how reasonably calm I am about the losses. I do believe that by the time my cushion is running thin, normality will have returned. I do have niggling worries about how long this correction will last and how long it will take for my investments to revive, but I have at least been offered the choice of sell or hold, rather than being panicked into flying for what might be a safer harbour. I have learnt a lot in the last month about my own attitude to risk.

[HarryCat]

Any suggestions for actively managed funds that will have the freedom to maximise gains when the market eventually recovers? I’m thinking of drip feeding back into the market and suspect there is an opportunity to outperform passive funds over the medium term.

[zico]

Any suggestions for actively managed funds that will have the freedom to maximise gains when the market eventually recovers? I’m thinking of drip feeding back into the market and suspect there is an opportunity to outperform passive funds over the medium term.

There's always a few actively managed funds that will outperform trackers, but most actively managed funds underperform trackers, particularly so once higher management charges are taken into account. I suspect most people here favour tracker funds - I certainly do.

If you're looking for a higher risk investment, then my Special Situations fund is the one with the largest percentage fall in the crash, so will potentially have the largest potential upside in a recovery.

[zico]

I'm sticking with my plan of buying funds on a weekly basis, with perhaps a big cash injection if markets really tumble.

Not the only place I've seen this, so nothing personal, but where are people finding the ammo to keep buying, or using "...a big cash injection..."?

I would have thought most folks would be allocating funds to general living expenses. It seems some appear to have a "bottomless pit" of funds for reinvestment. With dividends drying up to a trickle, even this source isn't open going forward.

In my case, it's because I sold a significant amount of funds on 20th March (when the FTSE was a 5200) and I don't want that money to be out of shares for a long time, because cash slowly loses value over the long term.
I'm recently retired, and our major spend is on long foreign holidays, so I'll actually be spending less over next few months than normal.

Worth bearing in mind that depending on your age, and your risk profile, different investors are likely to have very different approaches to the same situation. My main aim is to minimise loss on my money in real terms over the next 10-15 years, and hopefully I'll get real growth from investment in the market. But given the binary choice of a 50/50 bet, either losing 30% or gaining 40%, I wouldn't take this bet.

If I was aged 30, I'd be more willing to accept risk and would be seeing this as an excellent time to start regularly investing in the market with the aim of getting long-term growth for 20+ years ahead. But a golden rule of investing in the stock market is to ensure that any money you invest can stay there for at least 5 years before you need it, and preferably a lot longer.

[HarryCat]

There's always a few actively managed funds that will outperform trackers, but most actively managed funds underperform trackers, particularly so once higher management charges are taken into account. I suspect most people here favour tracker funds - I certainly do.

If you're looking for a higher risk investment, then my Special Situations fund is the one with the largest percentage fall in the crash, so will potentially have the largest potential upside in a recovery.

I too normally favour trackers funds and leave them for the long term, however in this situation I think the fund managers may come out on top.

As you said earlier:

There'll definitely be inflationary pressures post-Covid, which is why I'll want to be fully back in the market over 6-9 months.
As for pent-up demand, there'll be an awful lot of demand that is simply lost forever which must impact on profits.

So it seems to me that something like the FTSE 100 is not a particularly good bet.

At the moment Im thinking maybe BlackRock UK Select Fund or Fidelity Special Situations.

[thirty06]

Any suggestions for actively managed funds that will have the freedom to maximise gains when the market eventually recovers? I’m thinking of drip feeding back into the market and suspect there is an opportunity to outperform passive funds over the medium term.

I have no suggestions. In the short to medium term, I suppose some funds will outperform. Deciding where the medium term has ended may be a problem. Wait until the funds underperform the index, I suppose. I've been wondering if that is a strategy or just trying to time the market.

I've just been burned by an investment thatI had been looking askance at for a couple of years and thinking "I might as well move that to a tracker", which would also have been a bad idea in retrospect. It did well at first andI was rather smug about my index beating returns. Then is started levelling off and then I should have acted, but I kind of hoped that the managers had a trick up their sleeves. They did not.

[zico]

Would appreciate any updated views, as it's one month on from my OP on this, and I'm more confused than ever about where the market is heading.
I obviously got my initial call wrong, selling quite a chunk of my shares quite near the bottom, and have since been buying Vanguard FTSE UK at regular weekly intervals.

However, the FTSE is now around 6,000 and I'm finding it very hard to believe this represent anything like decent value.
Since 28th January the FTSE fell 2,487 points from top to bottom, and it's now recovered 853 points (one-third of the initial fall).

But what more do we know since one month ago? Below I've listed positives and negatives. I have more negatives than positives, but maybe I'm just pessimistic, so would be grateful for balancing ideas.

Positives

- Economies will soon be starting to re-open, but with social distancing measures, so will be very difficult for bars/restaurants/concerts to make profits as before (or even break-even profits)
- Some medical treatments appearing that could reduce death rates (but not injecting bleach!)
- People getting used to idea of social distancing (but hopefully not blase about it).
- Society hasn't broken down (which was a possibility to some extent)

Negatives

- Reopening economies will almost certainly cause infections to rise, leading to further deaths and possible spikes (which may be uncontrolled).
- US looks to be jumping the gun in re-opening before transmission has been reduced, leading in a few months to probable huge disruption to US (and world) economy.
- "Herd immunity" may not be possible because it seems virus can re-infect people.
- People may be very reluctant to return to work or to spend until they are sure that pandemic is over.
- Tourism likely to be affected in a big way, particularly countries you have to fly to (including UK, as an island).
- Virus can mutate, and has already done so.

Things that we probably already knew and haven't changed.

- Every month that govt subsidies continue mean more dislocation and damage to economy
- Companies likely to be more reluctant to invest until uncertainty is over
- Second wave of infection is almost certain at some point.
- Vaccine unlikely to be available for most people until 2021 at the earliest. UK won't be at front of queue, because it has no manufacturing capability.
- Huge government cash injection will either need to be repaid (higher taxes) or ignored (higher national debt interest)
- Airline industry will be in huge trouble. Surviving airlines likely to have much higher prices in future.
- Third world will be worse affected than developed countries. Being hard-hearted though, will this have any impact though on company profits and share values?

Finally, here's an interesting comparison between US consumer confidence and US stock markets. I know general wisdom is that markets look further ahead, but it's striking that these 2 metrics have been closely correlated until the last few weeks.

[Hariseldon58]

No one knows ..... the markets tend to adjust and look ahead to beyond the crisis. Personally I am surprised that markets haven’t fallen more but that is not worth much !!!

Timing markets is very difficult, it’s easy to be bounced into selling and repurchasing at higher prices and the process can repeat... chances are you can’t do it.

It’s sensible to consider how much equity you are comfortable holding. The possibility exists that markets may fall substantially further, but no one knows if/when this will happen.

I have held my equity position through near 50% downturns in 2000-2003 and 2007-2009, gentling adding equities on drip feed throughout each crisis.

Personally I am in FIRE and I have kept my equity position at 77%, ( in general terms I’m happy with a 75 to 90 range) but diverted ‘risk’ bonds to NS&I Income bonds, I’m happy to hold through this and in the event of further falls I would slowly buy more equities.

[redsturgeon]

If you look at previous bear markets, what do you see. An initial fall, not as sudden as this one, but then a retracement followed by more falls, rinse and repeat over months or years with the general trend downwards. If that is where we are going then what we see now is pretty much what we would expect to see.

However with central banks seemingly determined to do whatever it takes, including buying stocks then who can tell.

I'd not be doing anything dramatic in the current climate.

John

[Dod101]

Frankly I think the only thing to do in these markets is nothing. Neither buy nor sell unless you are a dedicated trader when it is always possible to make money with such volatility but that is not for me so I invariably just sit tight. A prolonged recession looks likely to me irrespective of how quickly some industries and sectors will recover. The government cannot fund people laid off for ever and pub companies, in fact the hospitality sector in general is in big trouble as are airlines and travel in general. They will all have to make employees redundant and there goes quite a bit of the economy. I can see something like 1989 or thereabouts until 1994 or so. That may seem unduly pessimistic but is perfectly possible, On the other hand, everything might be up and running again in a year or 18 months.

This is, to use the hugely over used word, unprecedented, and that word means 'of which there has been no previous instance', meaning that we have no experience of what comes next so your guess is as good as mine.

Dod

[colin]

Would appreciate any updated views, as it's one month on from my OP on this, and I'm more confused than ever about where the market is heading.
]

I have absolutely no idea what is going to happen, which is why I would never emulate your investment style, too easy to get into a situation where you don't know what to do next.

[johnhemming]

I think the response today to HSBC and Santander declaring a profit rather than a loss combined with the greater certainty of the removal of lockdown is causing the market (and financials particularly) to trend upwards. There is still not that much of a certainty as to fundamentals. It may drop back a bit tomorrow, but i would think there is a greater than 50% chance the FTSE will top 6000 by the end of the week.

[Dod101]

I think the response today to HSBC and Santander declaring a profit rather than a loss combined with the greater certainty of the removal of lockdown is causing the market (and financials particularly) to trend upwards. There is still not that much of a certainty as to fundamentals. It may drop back a bit tomorrow, but i would think there is a greater than 50% chance the FTSE will top 6000 by the end of the week.

I certainly would not have expected HSBC to have reported a loss in the first quarter. That would have been a disaster. For at least half of the first quarter with the exception of China everything was normal. I still marvel at the fact that I had a three week trip to Sri Lanka, Western Australia and Malaysia in the last week of January and the first two weeks of February. There was not the slightest hint of anything different except whilst transiting through Singapore Airport where there were more facemasks than usual; otherwise absolutely nothing. I think we all forget that it was into March before anything was really seen to be amiss.

As I have said earlier there is absolutely no certainty on anything.

Dod

[scotview]

Evening Dod,
I value you're opinion. In respect of the UK, with it's much advocated finance, tourism, services and oil industry.....how do you think this all plays out.
With particular regard for us old folkies on a pensionable income?
Being a pensioner, with open book, PAYE finances, resident of Scotia, I am NOT too optimistic for my financial future. Feel the vultures are circling as I type this. Somebody will HAVE to pay for all this free stuff, surely it cannot ALL be borrowed away but if it can that will be absolutely fantastic !!!!

[johnhemming]

The question is how much of a reserve to start taking against losses.

It took USD3bn.

[Dod101]

Evening Dod,
I value you're opinion. In respect of the UK, with it's much advocated finance, tourism, services and oil industry.....how do you think this all plays out.
With particular regard for us old folkies on a pensionable income?
Being a pensioner, with open book, PAYE finances, resident of Scotia, I am NOT too optimistic for my financial future. Feel the vultures are circling as I type this. Somebody will HAVE to pay for all this free stuff, surely it cannot ALL be borrowed away but if it can that will be absolutely fantastic !!!!

Don't value my opinion! I too am an elderly pensioner and not much of a pensioner either in that I do not have a company pension and simply live off my dividends and the State pension. I am no longer very optimistic about my financial future either and feel very concerned for teenage grandchildren. Unless we get real end of the world stuff I should have enough capital to last me but on the wider issue well I have commented earlier in this thread and am not sure I can really say much more. Looks like there are going to be a lot of job losses in the short term at least because as you are almost saying the government cannot underwrite the entire economy for very long and so real redundancies are bound to happen.

Investment wise I think we have got to try to keep all our options open and not concentrate on the UK. Our megacaps trading internationally are surely the way to go.

Not really got much more than that I am afraid, at least for now.

Dod

[vrdiver]

- Vaccine unlikely to be available for most people until 2021 at the earliest. UK won't be at front of queue, because it has no manufacturing capability.

I have some good news for you: Liverpool has two companies producing vaccines, Sequirus and AstraZeneca.

https://www.seqirus.com/manufacturing/g ... ng-network
https://careers.astrazeneca.com/united-kingdom

GSK is also a major player and has a few ties with the UK... (including a recently announced collaboration with AZN on Covid-19 work).

Unfortunately I do agree with your 2021 availability estimate; 2nd half of 2021, "if all goes well" appears to be the current R&D position, so maybe in time for the 2021/22 Winter season?

VRD

[zico]

Thanks for the helpful replies. With my recent changes to my portfolio, I've now put myself in a position where, whatever happens, the effect on my portfolio will only be 50% of what it otherwise would have been. This enables me to make fairly big decisions either way while still being able to sleep soundly at night (always a big factor when holding shares!).

If I do continue my gradual buying-back of shares, I now feel more inclined to start buying into Vanguard FTSE world indices, rather than FTSE UK which is overweight in oil stocks and more generally vulnerable in bad times.

I can't realistically see the FTSE getting back to 7,500 highs within the next 3 years, so it seems to me that the market is pricing in 50/50 between :-
a) quickish return to some kind of normality and relatively painless end to the coronavirus crisis by next year;
b) attempted opening-up of economies being stymied by increased coronavirus cases, leading to prolonged recession.

It is possible that people everywhere simply accept a new and big extra risk of Covid-19 in their lives and decide to carry on as before, accepting maybe 100,000 deaths per year per country, and a small personal risk as the price for carrying on as before. In that case we'll return to some kind of normality for share prices relatively quickly. There's some kind of behavioural precedent for this with the BSE "Mad Cow" scare. Thankfully that turned out to be nothing, but people stopped buying beef for a few months after the initial newspaper headlines, but then beef consumption rose back to almost normal levels, even though nothing about the science had changed.

[BT63]

I'm also very suspicious of this new bull market (as measured by 20% rise in the US stockmarket if not FTSE).

Several reasons why I'm suspicious:
Bear markets usually happen in more than one wave down and often fall by half.
Severe market selloffs often see a 'dead cat bounce' where a very oversold market spikes higher for a while.
Initial major lows (e.g. autumn 2001, autumn 2008) are usually broken to the downside several months to a year later.
Markets seem to be pricing-in an instant return to normality, especially as measured by the US markets which have now recovered to about where they were a year ago.
The median FTSE100 company today had a historic P/E of 13.1 and historic yield of 3.0%; about fairly priced in normal times.
Central bankers and company executives are telling us that it will not be a V-bounce (e.g M&S and BA announcements today).


I have a feeling that actions in US markets are moving almost all other markets and things like the 200 day moving average for the S&P500 and technical MACD/RSI readings might be more useful. I wonder if the 200dma for the SPX, about 5% above current levels, might be a turning point for another leg down in the markets because the 200dma has often acted as support/resistance.

Having said all that, as previously mentioned somewhere on these boards, a couple of months ago I set out a monthly purchasing plan for the next 12-18 months to drip-feed my cash into the markets and I intend to stick to it. Once FTSE goes above 6000 I'll reduce my monthly buying by about half. At FTSE 7000 my monthly buying will be reduced to just a trickle.

[Itsallaguess]

Would appreciate any updated views, as it's one month on from my OP on this, and I'm more confused than ever about where the market is heading.

I obviously got my initial call wrong, selling quite a chunk of my shares quite near the bottom, and have since been buying Vanguard FTSE UK at regular weekly intervals

Large market corrections will always be on the horizon after long bull markets, and I long-ago gave up trying to predict what might cause the next one, or what might happen whilst we're in the middle of any particular period of market-volatility...

Sometimes we just have to admit that we're unlikely to know enough about the wide variety of causes of such corrections, or the outcomes of them, and find a way to manage these really quite regular issues so that we don't necessarily have to, and which will allow us to stop having to over-think these situations when they do occur, and just try to deal with them in a much more 'generic' way....

So for me, and after some considerable thought regarding my own personal 'investment-sensibilities', I decided that I needed to find an approach that would allow me to remain 'fully invested' with what I might have in the market when these regular corrections do crop up, and which importantly was also an approach that meant that I'd be able to remain 'in the market' whether I was still working, or if I'd moved into some sort of retirement-phase of my life.

Making sure that I always had access to a relatively chunky amount of capital that wasn't invested has been the best way that I've found to deal with these issues, and importantly is also a method that suits my 'investment personality' very well indeed, which is a key element for me when considering investment-strategy aspects such as this...

We can generally hope that markets are likely to eventually recover following these large corrections, and whilst this might take a number of years, then even taking that relatively long period into account, those types of metrics can begin to feed into a strategy where this spare capital can be drip-fed into those lower markets over such periods, if I were to be in the 'still working' phase of my life, or which can be used to provide subsidised-income if I were to be in a 'retirement' phase of my life. One approach that can deliver two flexible outcomes - I do like that simplicity very much, and place a lot of personal value on it....

Covering both of those bases with a single aspect of an investment strategy has been important to me, and although such an approach means that a relatively large amount of cash or near-cash needs to be incorporated into my strategy, it's something that gets much easier to live with once a few of these market-cycles have occurred, because the validity and simplicity of the approach becomes really quite apparent both during these phases of turbulent markets, and also afterwards, when things inevitably start to settle down once again.

Apologies if this isn't really answering your 'Where next for this market?' question zico, but the main point of me posting was to perhaps suggest that you might be asking the wrong question in the context of a long investment horizon, and instead of asking 'where' a particular market might be heading at any given time when it's having to deal with any given 'issue of the day', perhaps it might be worth trying to properly incorporate a level of flexibility in your investment-approach that can begin to cope with these regular periods in a much more 'generic' way, and hence become a much more robust strategy not just for this particular volatile period, but for the next ones too, which will undoubtedly deliver really quite similar market-issues, but are almost guaranteed to be for completely different reasons...

Cheers,

Itsallaguess