I've recently started reading a book called How to be Idle. The title should be enough to ensure its success as more and more people have unemployment thrust upon them.
However, the main idea behind the book - that doing less is more - is extremely pertinent for anyone now thinking of dipping their toe in the stock market.
Over eight weeks ago I recommended buying stocks and selling bonds. It just so happens the US stock market is at exactly the same level today as it was then.
In between the S&P 500 fell by 20% and then rose by 25% (unfortunate rule of investing: things need to rise by more than they fall to get back to where they started).
If you were caught out by this sudden fall and rapid recovery in the stock market, don't worry, you weren't alone.
In fact you were in very good company indeed.
Most, if not all, of the the greatest living (and still active) investors have remained confident throughout the past 18 months, and especially at the end of last year, that the stock market was past the worst.
While most of us are fed up watching the stock market fall (and the rest just don't want to look at the stock market at all) there is something very interesting happening at the moment: a turning point.
Turning points are the hardest things to predict and almost impossible to identify in real time. This is why the current situation is so favourable to the investor who is willing to wait. In other words, be an idle investor.
By doing less, you will earn more.
Find a market you like and leave your money there for a year.
You will be amazed at how productive doing nothing can become.
Showing posts with label Stock Markets. Show all posts
Showing posts with label Stock Markets. Show all posts
Thursday, April 09, 2009
Monday, November 03, 2008
Prologue of a crash
It was over 18 months ago that I made the following prediction:
"The US economic cycle has reached the stage where a sharp slowdown is not only inevitable but likely. While the timing of such a slowdown remains uncertain, it is likely that any investor who remains heavily exposed to equities for the next 2-3 years is unlikely to see any gains over the period."
On that day (April 9th 2007) the S&P 500 closed at 1450. The market then rose by a further 7% to close at 1550 on July 9th.
It then fell and fell and fell.
The market's most recent low point of 850 on October 27th was 40% below where it was when I made my prediction last year and 45% below the high point on July 9th.
You're welcome.
*****************************
If history were the perfect guide then we would all be justified in piling everything we own into the equity market.
Some professional investors, like Warren Buffett, believe that American companies offer the most compelling valuation at this most difficult of times.
Of course, with global equity markets so highly correlated it shouldn't really matter which one you pick; they all go in the same direction sooner or later!
Unfortunately, there is only one direction in which equity markets will be going in the foreseeable future: down. Why?
For the same reasons I predicted last year and more, namely:
1) Uncertainty about how much lower US interest rates will go;
2) Uncertainty about how deep and how long the US (and global) recession will last;
3) Uncertainty about how much further the US housing market will deteriorate.
If there is one thing that financial markets hate it is uncertainty and the longer it takes for these issues to be resolved the harder it will be to justify rising equity markets.
*****************************
Willem Buiter, former member the Bank of England's Monetery Policy Committee and London School of Economics professor was quoted in today's Financial Times as saying of people who for months have been pessimistic about the economy:
"Hindsight is useless. One has to look at the information available at the time and the arguments used at the time."
I guess it might be helpful if he read this blog and my posting 18 months ago.
Watch this space, Willem!
"The US economic cycle has reached the stage where a sharp slowdown is not only inevitable but likely. While the timing of such a slowdown remains uncertain, it is likely that any investor who remains heavily exposed to equities for the next 2-3 years is unlikely to see any gains over the period."
On that day (April 9th 2007) the S&P 500 closed at 1450. The market then rose by a further 7% to close at 1550 on July 9th.
It then fell and fell and fell.
The market's most recent low point of 850 on October 27th was 40% below where it was when I made my prediction last year and 45% below the high point on July 9th.
You're welcome.
*****************************
If history were the perfect guide then we would all be justified in piling everything we own into the equity market.
Some professional investors, like Warren Buffett, believe that American companies offer the most compelling valuation at this most difficult of times.
Of course, with global equity markets so highly correlated it shouldn't really matter which one you pick; they all go in the same direction sooner or later!
Unfortunately, there is only one direction in which equity markets will be going in the foreseeable future: down. Why?
For the same reasons I predicted last year and more, namely:
1) Uncertainty about how much lower US interest rates will go;
2) Uncertainty about how deep and how long the US (and global) recession will last;
3) Uncertainty about how much further the US housing market will deteriorate.
If there is one thing that financial markets hate it is uncertainty and the longer it takes for these issues to be resolved the harder it will be to justify rising equity markets.
*****************************
Willem Buiter, former member the Bank of England's Monetery Policy Committee and London School of Economics professor was quoted in today's Financial Times as saying of people who for months have been pessimistic about the economy:
"Hindsight is useless. One has to look at the information available at the time and the arguments used at the time."
I guess it might be helpful if he read this blog and my posting 18 months ago.
Watch this space, Willem!
Labels:
Credit crunch,
Leading Indicators,
Stock Markets,
US recession
Monday, September 17, 2007
Sale still on!
All the scenes of panic in the UK high street will have given the public a first-hand view of a bank run.
At the same time, there is a lot of debate about whether or not the US economy will fall into a recession and what this might mean for the rest of the world.
It is tempting to think it will get much much worse before it gets any better.
*************************
While the bad news is far from over, it would be premature at this stage to conclude that a US recession is inevitable.
But this is exactly what financial markets all over the world did in August.
Trillions of dollars were wiped off the value of financial assets on speculation that companies around the world would report weaker earnings and the world economy would stagnate.
Well it hasn't, yet. And whether it will be as bad as some would have us believe is still an open question.
What this experience should teach anyone who is actively investing their own money in the financial markets (myself included) is that the underlying strength of the global economy is what determines whether financial markets are likely to perform well or not, and not the other way around.
*************************
In other words, when stock markets sell off out of blind panic (as they did in August), but the underlying economic data remains strong, this should present an opportunity to any investor; rather like buying clothes on sale.
And the sale is still on! The same jumper that looked a bargain a few weeks ago is still a bargain today.
But at some point the current stock will go bad and won't be as good a bargain as before.
When a US recession becomes unavoidable, it will be time to shop elsewhere. Government bonds will be all the rage then.
Watch this space!
Sunday, August 05, 2007
If...
Traders who work in the financial markets don't have time for poetry.
This is unfortunate, since there's one poem that contains a lot of helpful advice for those who have been in the red these past few weeks.
The English writer, Rudyard Kipling wrote a famous poem in 1910 entitled, If. It opens:
"If you can keep your head when all about you are losing theirs..."
In the financial world this could be taken as meaning:
"A contrarian investor has much to gain". Or more concisely:
"Buy low, sell high".
But there is also a deeper message. It stresses the importance of self-belief and, more importantly, scepticism towards what other people are saying.
If you take any message from this poem, it should be that while sometimes you may be right and sometimes you may be wrong, if you stop believing in yourself, you might as will give up and go home.
*************************
The past two weeks have seen significant losses across equity markets around the world. At the same time there is a belief among many that not only was it coming, but it's only just begun.
If you stop and consider this for a moment you realise that anything anyone says about the financial markets will always have an implicit bias.
Anyone with an opinion about financial markets either has money, their reputation or both at stake. If someone had expected markets to fall then they are likely to say the markets have further to fall. If they hadn't expected markets to fall, they probably won't expect them to fall much further.
Who should you believe?
The first point to make is that until now a lot of people had been expecting a "correction" in the markets "at some point", so the appearance of such a move is proof to many that not only were they right, but they were right when others had not believed them. This "pride" effect takes time to subside and since pride is always expressed loudly, it tends to find its way into the mainstream media faster than Paris Hilton on her way to jail.
Then there are those who didn't expect it to happen and weren't prepared for the consequences. These people are more in shock than anything else and will be pretty much useless for providing advice until things recover completely, which could take days, weeks or months.
Finally, there are the select few who saw it coming a mile away. They knew exactly when a significant selloff would take place and positioned themselves accordingly. Unfortunately, these people rarely express their thoughts in public. Think about it, if you knew when panic would strike markets and everyone would rush for the exits at the same time, would you advertise that fact? Unlikely.
In reality, the only person whose judgement we can truly rely upon is our own. Today's winner is likely to be tomorrow's loser.
*************************
"If you can make one heap of all your winnings and risk it on one turn of pitch-and-toss, and lose, and start again at your beginnings and never breathe a word about your loss..."
Never breathe a word about your loss. In other words: a loser never says when they losing while a winner usually tells you when when they're winning!
Everyone is wrong some of the time, so when they're right and they let you know this, be wary of not only what they are telling you, but why as well.
This is unfortunate, since there's one poem that contains a lot of helpful advice for those who have been in the red these past few weeks.
The English writer, Rudyard Kipling wrote a famous poem in 1910 entitled, If. It opens:
"If you can keep your head when all about you are losing theirs..."
In the financial world this could be taken as meaning:
"A contrarian investor has much to gain". Or more concisely:
"Buy low, sell high".
But there is also a deeper message. It stresses the importance of self-belief and, more importantly, scepticism towards what other people are saying.
If you take any message from this poem, it should be that while sometimes you may be right and sometimes you may be wrong, if you stop believing in yourself, you might as will give up and go home.
*************************
The past two weeks have seen significant losses across equity markets around the world. At the same time there is a belief among many that not only was it coming, but it's only just begun.
If you stop and consider this for a moment you realise that anything anyone says about the financial markets will always have an implicit bias.
Anyone with an opinion about financial markets either has money, their reputation or both at stake. If someone had expected markets to fall then they are likely to say the markets have further to fall. If they hadn't expected markets to fall, they probably won't expect them to fall much further.
Who should you believe?
The first point to make is that until now a lot of people had been expecting a "correction" in the markets "at some point", so the appearance of such a move is proof to many that not only were they right, but they were right when others had not believed them. This "pride" effect takes time to subside and since pride is always expressed loudly, it tends to find its way into the mainstream media faster than Paris Hilton on her way to jail.
Then there are those who didn't expect it to happen and weren't prepared for the consequences. These people are more in shock than anything else and will be pretty much useless for providing advice until things recover completely, which could take days, weeks or months.
Finally, there are the select few who saw it coming a mile away. They knew exactly when a significant selloff would take place and positioned themselves accordingly. Unfortunately, these people rarely express their thoughts in public. Think about it, if you knew when panic would strike markets and everyone would rush for the exits at the same time, would you advertise that fact? Unlikely.
In reality, the only person whose judgement we can truly rely upon is our own. Today's winner is likely to be tomorrow's loser.
*************************
"If you can make one heap of all your winnings and risk it on one turn of pitch-and-toss, and lose, and start again at your beginnings and never breathe a word about your loss..."
Never breathe a word about your loss. In other words: a loser never says when they losing while a winner usually tells you when when they're winning!
Everyone is wrong some of the time, so when they're right and they let you know this, be wary of not only what they are telling you, but why as well.
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