Thursday, 11 February 2016

spinning around to avoid knives like la fille sur le pont

I've been looking at the shares market for a while now as part of a way to create my own metrics to monitor my finances since they took a tumble under "professional" management.

I've noticed that many of the market commentators don't seem very certain of what they are talking about. It seems empirically coin-flip random about whether they get things right or wrong. I assume they don't really have time to research things and perhaps have to regurgitate wire feeds and PR puff about whatever the next big thing is. Contingent Convertibles anyone? I should CoCo.

For a single event, some will play it up and others will talk it down. That recent Deutsche Bank slump was a case in point - they suffered a loss of confidence in their debt position and their shares fell. Then they announce they'll buy back some bonds and the shares start to go up again. All in 24 hours.

It reminds me of the twitchiness of the goshawk in Helen Macdonald's book, with its eyes providing hyper-efficient reflex movement attuned to hunting. For people with less time to play around with all of the market stuff, there has to be another discipline based more on patience.

Not to become a rabbit in the headlights of a downturn, but to have some straightforward strategies for when to kill a share and when to hunt for more.

The current markets create a strong example. The FTSE started 2016 at 6242. Today it's at about 5592. That's just 89% of January 4 or an 11% drop. That amounts to a lot of disappearing money, but from an investment standpoint only if the share values are being crystallised back to money. I'm guessing it is better for many to hang in there and, if anything, look for any relevant bargains among the things falling in cost. Like it's the winter sales.

Again, there's two storylines that the advisors trot out: “Stocks are on sale!” and “Never try to catch a falling knife” - they are pretty much opposite, and are both being used at the moment. No wonder people don't trust the bankers.

I'm currently considering whether the 'guess the sweets in the jar' theory is almost as good for predicting outcomes. Instead of taking one or two expert views, take a whole bundle of peoples's views and sample them to find which way the wind blows.

It doesn't always mean act though. There still needs to be an underlying idea about why to do something or when best to do nothing.

Of course, for this discussion, I'm taking a very capitalist view of everything. Right now it is made more pointed by the banks wanting to charge for holding clients' cash (i.e. negative interest). The high end bankers want people to move money onto risk, such as equities. The sneaky capitalist thing in the background is all of the quantitive easing being quietly fed in through central bank underwriting. The European Central bank is just about to fire up the Euro in a similar manner.

I ran my own little spreadsheet and table to check for the point of criticality in markets. I used £10,000 as a notional fund to make it more obvious what was happening.

It illustrates that the paper losses from the first part of a downturn are fairly recoverable, but somewhere after 17% is all starts to get rather more tricky. The bear territory is at 20%. And yep, that's where we are right now.

Here's a mix from the rather brilliant 'la fille sur le pont'. Watch out for the knives.


Pat said...

So many people seem to tumble under professional help -including my husband in the early days. My fellow trustee and I decided to give them a miss. The only the only thing we were assured of were the massive bills.
I'm wondering if the gravel voiced singer is Marianne Faithful?

rashbre said...

Hi Pat Bills, fees and taxes, all difficult to miss! And yes, Marianne Faithful with the Gauloises voice is singing, "Who will take my dreams away?"