What are you doing at the moment?

[simoan]

I think that far more people are deluded by the idea that stocks will just continue to rally and that every dip is a buying opportunity. I believe the risk/reward ratio does not lend itself to being fully invested at the moment, so I'm happy with my cash position. My cash position is already beating the S&P500 by 10% over the past year (I have no money invested in the S&P500).

I'm not deluded by my biases, I want to protect my capital, whilst at the same time have the option of buying at extreme lows, should they come. I believe that holding cash positions/market timing is viable at extreme valuations so I will continue to utilise this strategy. Buying commodities and selling bonds has worked incredibly well for me over the past few years so you could say that my cash balance is the result of market timing.

One thing I am reasonably sure of, is that my portfolio will survive, regardless of market conditions. Always acknowledge what can happen and don't let recency bias cloud your judgement.. https://monevator.com/the-uks-worst-sto ... 1972-1974/

I completely agree with your reasoning for holding cash, of course, because mine is the same. But I disagree with the idea of market timing which I believe very few (if any) people are capable of doing reliably. More importantly, I know I can't do it and always invest on that basis.

The reason I am not deploying all my cash right now is purely based on the valuations of equities. Basically, I don't believe I can adequately value them as we are now in circumstances that last occurred around the time I started secondary school. It is very easy to extrapolate the recent past into the future and assume that things will return to what we have known, but I'm not convinced that is any longer the case. The world has changed quite significantly and the low interest rate world we have known since the GFC has ended. Some of us were very lucky that we chose the best time in history to have a base rate tracker offset mortgage, conditions that are incredibly unlikely to ever occur again in my lifetime.

The problem I have, is what risk premium should you be prepared to pay for equities in a rising risk free rate environment? I don't know the answer to that, and hence whilst I am still buying equities, it is not with any great conviction. So far I have made 73 trades this year and 37 are in positive territory, so might as well be tossing a coin in the short term at least!

All the best, Si

[simoan]

I've been tempted a lot in recent months and it's been difficult to resist/be patient. So I have bought or topped up Ashtead (AHT), Croda (CRDA), SDI (SDI), Impax Asset Management (IPX), Liontrust (LIO), Somero (SOM) and Halma (HLMA). (My portfolio ranges from very large caps to tiddlers)

Most of these buys are currently under water, to which I am completely indifferent. In five years' time I expect them to be significantly higher than they are now.

I'm interested how you estimate this? Significantly higher? We can't simply extrapolate the past few years into the future as we have in the past. Inflation and large step increases in interest have changed the situation. Say inflation is more persistent than many expect and interest rates hit 4-5% as a consequence... the premium for equity risk we're currently paying might look completely wrong. If you can buy a government bond paying 5% why would you buy an equity with a yield less than that? (whether your yield of choice is of the free cashflow, earnings or dividend variety).

I think the assumption that what we are seeing as a short correction in a longer term bull market, as opposed to a longer term repricing of equity risk, may turn out to be wrong. I don't have an answer and I am buying quality shares too but not with your seemingly great conviction. I look forward to hearing what Howard Marks thinks in his next Memo. I know Terry Smith sounded quite bearish in his recent shareholder letter.

Leading candidates for top-ups if and when more funds become available include Games Workshop (GAW) Kainos (KNOS) and Rentokil (RTO). Likeliest new holdings are Spirax-Sarco (SPX) and Experian (EXPN). I'd welcome any other suggestions for similarly battered long-term success stories.

NB re asset managers specifically, LIO and IPX have been absolutely thumped (both more than 50 percent off their highs). Whatever you think of ESG as an investment strategy (and I have my doubts), I see them more as a play on ESG investing as a theme - and it seems to me inevitable that the retail market for this will grow for years and decades to come because of social factors.

wand

I have a screen that may appeal. It looks for quality companies exhibiting poor Relative Strength and near 52 week lows. I ran it and published the results in response to your request here https://lemonfool.co.uk/viewtopic.php?f ... 3&start=20. I often use it to find investments for my own portfolio and run a sub-portfolio to monitor it's performance. As of Friday it was down 6.35% YTD which matches the FTSE All Share, which is not a bad performance considering it is heavily underweight the value sectors that have performed so well and overweight quality shares.

All the best, Si

[Hariseldon58]

Sorry if this is the wrong place to put this question, but I couldn't see where it might best fit.

My, like I'm guessing many's, portfolios has taken a schlacking this year, with little or no end in sight. I am not too worried however, I like to plan long term so I know these dips are par for the course over a 20+ year period.

However I am still transfering capital into my portfolio and it's just sat there as cash, the way I see it I have two choices, if I still believe the companies I have at the moment I take the opportunity to buy then cheap now, and hope the bottom isn't too bad in terms of missed opporunities and again look longer term.

Or is anyone just sitting on the cash and just watching things at the moment to see how things pan out in the short term?

Good question and some very interesting responses.

One of the most interesting pieces I have read recently is this https://aswathdamodaran.blogspot.com/2022/07/risk-capital-and-markets-temporary.html

It’s worth reading.

The very honest conclusion to the question of is that it, or is it the pause before the next descent, was don’t know but if he had to make a choice it would be probably another descent is most likely.

What can you do ?

I have modelled four scenarios and arranged my affairs in a manner that will cope with each, because I don’t know.

As time passes we have more information and I will make small adjustments if necessary , however if I did nothing more, then the portfolio as a whole would be fine for the next decade.

If the OP is investing long term there is a valid argument to just get on with it, from a behavioural viewpoint there might be regret if the market cratered in a months time ! Pragmatic response is to phase investments in over 3 to 6 months.

[forrado]

I presently find myself with some 12% of the value of my ISA in cash. Not that I planned it that way, it’s just the way it’s happened. Since Covid my discretionary spending has been scaled back dramatically. The build-up of cash inside my ISA is result of some 30 months of dividend payouts that otherwise would have been drawdown and spent funding extended trips to mainly the Iberian Peninsula. Now that international travel restrictions have been relaxed, I’m realising, at the age of 75, my appetite for foreign travel is not what it once was. Plus, the problems currently being experienced at airports doesn’t make the prospect any more appealing.

With no one to fund other than myself, and no legacy issues to consider, that begs the question what to do with the bulk of my tax-free ISA dividend payouts that continues to roll up. Well, I’m doing precisely nothing at the moment, because in the words of Warren Buffett, “Price is what you pay, value is what you get. No matter if it’s socks or stocks, I just love buying things when they're on sale”. While the dividend paying stocks on my shopping list are cheaper than they were at the end of last year – they are not on sale yet. I can wait.

[absolutezero]

Moving out of individual HYP style operating companies with falling share prices and using the proceeds to buy (mostly) non-UK focussed ETFs.
I now see having most of your capital in just 4% of the global stockmarket as a mistake.

Mostly trackers such as the Vanguard Developed World (VEVE) and S&P 500 (VUSA) plus their FTSE 100 tracker (VUKE).
Also iShares versions of these.
Also deployed a large slug of capital into some other, more geopolitical plays.

I have been reading Geopolitical Alpha by Marko Papic.
His basic thesis is: don't listen to what politicians etc say. Consider their "material constraints" and then position accordingly.

So based on this idea, I have...
Sold the Vanguard Europe ETF (VEUR) as I suspect Germany will be in the doodoo come winter unless something happens re gas pipelines.
I see the EU blinking first rather than Putin. They need his gas more than they care about Ukraine - so expect some kind of fudge, but in the meantime I have reduced exposure to the EU (a proxy for Germany).

I believe natural resources and commodities are going to do well over the next few years (material constraints) - despite weakness that I view as short term.
Inflation will not be transient and I see it being elevated for quite a while. Real assets being my way of having a hedge.

I have been buying uranium (in the form of Yellow Cake (YCA) and Geiger Counter (GCL)) as I think nuclear power is long term the only politically acceptable (and realistic) electricity source - so I expect uranium prices to rise and I intend to profit from that.
iShares Oil and Gas (SPOG) and Blackrock Energy and Resources Trust (BERI) are also big features.

I am 25% in cash - which I would like to reduce.

Considering some Investment Trusts but need to do more research.

[Hariseldon58]

Moving out of individual HYP style operating companies with falling share prices and using the proceeds to buy (mostly) non-UK focussed ETFs.
I now see having most of your capital in just 4% of the global stockmarket as a mistake.

Mostly trackers such as the Vanguard Developed World (VEVE) and S&P 500 (VUSA) plus their FTSE 100 tracker (VUKE).
Also iShares versions of these.
Also deployed a large slug of capital into some other, more geopolitical plays.

I have been reading Geopolitical Alpha by Marko Papic.
His basic thesis is: don't listen to what politicians etc say. Consider their "material constraints" and then position accordingly.

So based on this idea, I have...
Sold the Vanguard Europe ETF (VEUR) as I suspect Germany will be in the doodoo come winter unless something happens re gas pipelines.
I see the EU blinking first rather than Putin. They need his gas more than they care about Ukraine - so expect some kind of fudge, but in the meantime I have reduced exposure to the EU (a proxy for Germany).

I believe natural resources and commodities are going to do well over the next few years (material constraints) - despite weakness that I view as short term.
Inflation will not be transient and I see it being elevated for quite a while. Real assets being my way of having a hedge.

I have been buying uranium (in the form of Yellow Cake (YCA) and Geiger Counter (GCL)) as I think nuclear power is long term the only politically acceptable (and realistic) electricity source - so I expect uranium prices to rise and I intend to profit from that.
iShares Oil and Gas (SPOG) and Blackrock Energy and Resources Trust (BERI) are also big features.

I am 25% in cash - which I would like to reduce.

Considering some Investment Trusts but need to do more research.

All sensible comments about what might happen, however you are probably not alone in having these insights….Thats the big problem !

[elephanthunt11]

Honestly - nothing.

Something to bear in mind is that there is always something to worry about in the stock market.

I started investing in 2018, I continued to invest through the inverted yield curve hysteria-fuelled correction of 2018, Trump's trade 'war' with china in 2019, the COVID-19 pandemic in 2020, the tech selloff of September 2021, Russia's invasion of Ukraine and the subsequent crash of 2022.

I have continued with my contributions. I do however as a matter of course keep 10% cash on account for dips. However - when is a dip isolated where no further dip follows? Who knows. Therefore I say to myself before I deploy the 10%: "is there blood on the streets?" the answer has never been a 'yes' yet.

Occasionally, and I really do mean occasionally, if one of my direct holdings goes below a 2/3 year low or reaches my entry price, I will top up and ensure the next couple of months contributions are used just to get the cash on account back to 10%

[absolutezero]

Moving out of individual HYP style operating companies with falling share prices and using the proceeds to buy (mostly) non-UK focussed ETFs.
I now see having most of your capital in just 4% of the global stockmarket as a mistake.
....
I am 25% in cash - which I would like to reduce.

Considering some Investment Trusts but need to do more research.

All sensible comments about what might happen, however you are probably not alone in having these insights….Thats the big problem !

Perhaps. But how many act on it and how many just carry on doing what they have always done?

[absolutezero]

Honestly - nothing.

Something to bear in mind is that there is always something to worry about in the stock market.

Wise words.
Which is why I continue my regular monthly purchases of tracker funds in my SIPP.

[TUK020]

I've been topping up existing holdings, raiding my cash reserves to the point where they've gone from almost six years of expenditure to just one year). Most of the investments have been in companies which focus upon real assets, either as owners or as both owners and managers for their clients. I take the view that real assets are a good hedge against inflation, though this may not feel like it given recent share price falls.

Commercial Property - CLS Holdings, Derwent London, Great Portland Estates, Shaftesbury, Schroder REIT, Empire State Realty Trust

Alternative Asset Managers & Infrastructure, Power generation and Commercial Property - Brookfield Asset Management, Carlyle Group, Patria Investments. Patria is a big punt as its business is in South America (mostly Brazil), but there's some reassurance in that Blackstone own something like 14%.

Agriculture - Farmland Partners (for the land) and Wynnstay Group (who supply the tools)

I also bought a fair few Games Workshop when they touched £60 (almost half its all time high). Not buying these earlier was a particularly poor decision on my part because I understand the business and how loyal its customers are (I know several people who are well into Warhammer)

Interesting that yo are focused on commercial property, given the uncertainty over long term impact of WFH, and the rise in interest rates.
Headline from today's FT "London office sector faces major ‘reset’ as sales drop sharply
Jump in UK base rate makes borrowing more costly for debt-reliant buyers"

[SalvorHardin]

I've been topping up existing holdings, raiding my cash reserves to the point where they've gone from almost six years of expenditure to just one year). Most of the investments have been in companies which focus upon real assets, either as owners or as both owners and managers for their clients. I take the view that real assets are a good hedge against inflation, though this may not feel like it given recent share price falls.

Commercial Property - CLS Holdings, Derwent London, Great Portland Estates, Shaftesbury, Schroder REIT, Empire State Realty Trust

Alternative Asset Managers & Infrastructure, Power generation and Commercial Property - Brookfield Asset Management, Carlyle Group, Patria Investments. Patria is a big punt as its business is in South America (mostly Brazil), but there's some reassurance in that Blackstone own something like 14%.

Agriculture - Farmland Partners (for the land) and Wynnstay Group (who supply the tools)

I also bought a fair few Games Workshop when they touched £60 (almost half its all time high). Not buying these earlier was a particularly poor decision on my part because I understand the business and how loyal its customers are (I know several people who are well into Warhammer)

Interesting that yo are focused on commercial property, given the uncertainty over long term impact of WFH, and the rise in interest rates.
Headline from today's FT "London office sector faces major ‘reset’ as sales drop sharply
Jump in UK base rate makes borrowing more costly for debt-reliant buyers"

Most of the shares that I've recently bought were 30% to 50% off their highs, with the commercial property companies' shares trading at a discount of at least 35% to their most recent NAV. There's a lot of doom and gloom already in the price, to some extent I'm betting that things won't turn out to be as bad. Also commercial property has been a reasonable hedge against inflation over the years. Property companies tend to favour fixed rate debt, often with quite long dates, so inflation can significantly reduce the real value of their debts.

One of my smaller recent buys, Empire State Realty Trust, is American so unlike the British property companies they can't publish NAVs. I bought a few at roughly 65% off its all-time high. Admitedly it's a bigger risk than Central London because of the increasing lawlessness in New York, but that's a major reason why the shares have fallen by so much.

Also a lot of commercial property within my shareholdings is industrial, farmland and residential.

Whilst there's a lot of pressure from companies to cut back on working from home, it's not just because they've got these long leases on expensive property. WFH is causing real problems when it comes to incorporating new staff within the business (particularly the younger employees who haven't been worn down by twenty-plus years of commuting). Also despite what some say, WFH does reduce productivity, in particular because it
reduces the clustering / teamwork benefits from office work. Most of the loudest cheerleaders for WFH are journalists writing opinion pieces who think that because they can work anywhere then everyone else can without reducing their productivity.

Furthermore companies are adapting by changing the way space is used, by building some allowance for hybrid working (WFH plus days in the office) into the way they use their existing space. The link below shows what Derwent London has done with part of 80 Charlotte Street.

https://www.derwentlondon.com/media/news/article/derwent-london-launches-dl-78

In any event, prime central London offices will end up being converted into prime central London flats if there is a dramatic drop in the demand for offices. There's still going to be plenty of demand for housing.

Quite a few recent trade sales of London commercial property have been done at premiums to the NAV. Notably Derwent London's sale of Bush House.

https://www.derwentlondon.com/media/news/article/disposal-of-bush-house-wc1

To quote Warren Buffett, "You Pay A Very High Price In The Stock Market For A Cheery Consensus". Buying when it's all doom and gloom can be very difficult.

As always a lot depends upon your tolerance for risk. Mine is larger than most. As I've often said, if I wake up one morning to find that my portfolio's value and income has fallen by 50% it has zero effect upon my lifestyle, even though I live off it.

[flyer61]

Lots of good stuff on this thread.

For my part

Overweight Commodities and REITs. These are the only two that will save you against inflation IMHO.
For the Commodities I am using BRWM, it is a substantial holding, plus a direct holding in RIO Also hold I3E, DEC and Exxon Mobil
For the Reits UK - EPIC, BREI(CTPT), SREI USA - Stag, WPC, STOR and STWD

Very much long the USD in my portfolio.

Equities remain mainly mega caps

MSFT, PM, JNJ, ULVR, Diageo, Pepsico, L'Oreal, Estee Lauder, Legal and General, Bank of Montreal, Novo Nordisk, Union Pacific, imperial Brands, National Grid

Investment trusts

CLDN, MYI, MCT, JEGI, FGIT, HFEL , NBPE and Bellevue Healthcare

ETFs

VMID, PFF, PGX last two are American pref ETFs paying monthly USD dividends.

I have no idea about the future. The above is my SIPP and it will form the back bone of my retirement income and my wifes. I know my strenght's and weaknesses. Importantly if I pop my clogs my wife should have to do nothing but take the natural income this portfolio produces.
Picking whizzy small companies is not where I am at. Terry Smith is a good roll model for someone like me. We hold Fundsmith outside of this SIPP.

None of the income this portfolio produces is being drawn at this time. Things that I am considering, a Japanese investment trust (your suggestions welcome!), UK prefs, Continue to increase exposure to Private Equity. Maybe a few more direct UK holdings???

Anything bought will be with the long term in mind.

Big aim is to retire on an income bigger than my salary.....and then spend it..

[SalvorHardin]

I've had a merry day at the cricket, but not so merry that I missed this article on Seeking Alpha about valuing offices in the work from home (WFH) era.

It's an American article, but it's equally applicable to the UK. It's not the office that is a big incentive for WFH; rather it's the commute that is a deterrent against the office. But younger workers want to be in the office. And need to be, to learn.

https://seekingalpha.com/article/4525471-office-reits-workers-hate-commute-not-office

I'm very happy with my hugely overweight position in Central London offices.