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Realwealthuprising

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  1. Its not just valuations been too high, as I mentioned, I dont feel high valuations alone are not the problem. The problem is the point we are at in the credit cycle in relation to them. We are seeing global growth slowing significantly and the limits of easy credit fast approaching. Nearly all of the growth since 2008 has been driven by China and their slowing is a problem for everyone. The recovery seen in the US was mostly an illusion given it was fuelled by debt used to fund share buybacks. Lets just assume for a second that people like Ray Dalio and Buffet and Howard Marks are correct and we listen to them, given they are the experts in terms of the business cycle and how to navigate it. By their own estimations all of them have expressed that the business cycle is reaching its limits of credit fuelled growth and there is not far to go before this cycle comes to an end. This stagnation in growth will bring the global economy into recession if indeed we are not there right now given recent manufacturing data shows we are close if not already there depending in were you look. This stagnation of growth whether that be in America, China or Europe or all combined will effect the entire world, especially emerging markets. If like in 2009 a dollar shortage is a part of the next crisis and given the recent repo market blow up which forced the fed to begin the money printing to inject emergency liquidity into the system it almost certainly will be, the emerging markets will suffer more than anyone. If you believe those I mentioned are wrong however and can figure out a way that the world can reverse this slow down and then continue to grow whilst also absorbing higher levels of debt... then equities could be justified at any level. Valuations are not relevant if the global economy can simply keep expanding forever. History suggests it cannot however and at some point a threshold is hit and we have to try and measure that somehow. Beyond equities however what asset classes do you suggest right now as been viable to invest in given the current market conditions and a global finacial crisis potentially on the horizon? If you think a diversification strategy can protect and profit during a financial crisis what approach do we take? A good test of any supposed diversified strategy is to simply look at how your overall portfolio held up in the last quarter of 2018. Unfortunately lots of people believe they are diversified only to find in a downturn like the fourth quarter of 2018 or like the GFC in 2008 most of their diversified asset classes all of a sudden become correlated and are pointing the same direction....down. Most people are diversified in name but not in nature and everything they hold behaves just like an equity in a crisis. To give and example REIT’s and Woodland ETF’s, some of the oft touted supposed ‘diversifiers’, all sufferred heavy losses in the last major downturn. They were all highly correlated to equities. If you have a portfolio of truely non equity like assets that can help one survive a downturn however and also can suggest how we can easily invest in said assets, that would be genuinely useful to hear. Best wishes M
  2. Hey Vand, thanks for posting the article. I tend to agree that at most points in the business cycle its better to be invested then parked in cash, besides this point which in terms of valuations is a top. Not that this would be enough to stop me alone but paired with strong recession indicators and continued evidence of economic slowdown across the US, Europe and China, along with real bond yields offering only negative returns its collectively enough to put me mainly in cash outside my PM allocation. Of course for experienced investors already well into their investing careers, and who have likely seen big gains in the past 10-20 years, they may be ready to stomach a big hit to the equities part of their portfolio and thats reasonable enough. For someone not yet invested in stocks however or who is still very early in their investment career now is not the time to be following cookie cutter allocation strategies based around diversification. Now is the time for history. Lets not forget what market tops can do to a new portfolio. If for example you had invested in the FTSE 100 back in January 2000 in say a tracker, you took a 40% decline immediately the following year and remained in negative territory all the way through to 2008 at which point youd have gotten back to zero...big relief, for a few months as you would have then taken another 40% hit the very next year to spend another 5 years in the red. Thats 13 years of nothing but losses and zero profit and from 2013-2019 you’d have made at best 10-12%. So in 20 years you got 10%, a real loss in terms of inflation. Now granted that is a more extreme example of the risks of the market (although it was for many people close to reality to some degree, particularly those whose pensions got batterred by 40-50% declines and then went nowhere for nearly 2 decades). Whilst diversification would have helped mitigate some losses it still holds true however that investing in assets like equities at this stage brings significant risk of real loss. And what about bonds? Well today the real yield on 10 yr’s is going to be negative for any country you’d trust buying the sovereign debt of. Hardly appetitising. Yes, in the stock market value always exists and so there are places to park some money that might remain fairly insulated in a major market downturn but id not want to be heavily invested. If past is prologue we have to appreciate there is more risk to the downside then upside. Just because a strategy works over a 20-40 year timespan it doesnt mean we are wise to advise everyone follow a formulaic approach at any point in the business cycle and enter the equities market, even defensively, when the market is close to peak valuations, the global economy is saturated in debt, and growth has been slowing across the board. At all times an investor in equities has to ask where is the growth going to come from that will propel the market higher? More debt at even lower interest rates? A surge in spending by the millennials who are also awash in debt? More deficit spending when goverments can barely service their current debts at such extreme lows in rates? Its hard to answer the question positively in favour of forward growth in the current environment in my opinion without factoring in a big economic event to cleanse the system somewhat. There is very little space for expansion at present. In closing there are huge oppertunities at a market bottom post crash and huge risks at a market top in the ear or two prior. By understanding the business cycle and where we are in it we are able to make the best decisions for the immediate future. Personally stocks at the minute make up about 5% of my portfolio. Precious metals 40% and the rest is sat in cash. Some of this is by default because it will be going into property/ farmland in europe next year but the rest is parked because of the aforementioned discussion points.
  3. I know its old but for fun thought id pop in my humble opinion! Its good to share ideas we are all having to navigate the same stormy sea right now! 1) Ok, so you want to hold cash and wait for the crash. Then you can buy quality equities when its all doom and gloom and everyone is saying it can only get worse... when the market is seriously undervalued or in other words the opposite of were it is RIGHT now. There are cheap sectors atm such as oil and energy and the miners but personally id wait. In a crash and liquidity crisis like 2008 the whole thing will tank, even the precious metal miners although they will likely recover much quicker. No, far better to hold cash at current market valuations in my humble opinion and wait for the rare opportunity that only comes along once or twice in your life to get in at a huge discount. What you can do in the meantime is study. The last chance to get in the market in this way was mid 2009, if you bought then when everyone was fleeing the market you bought cheap and right about now you’d be taking hefty profits (on top of years of dividends). 2) Secondly...and obviously I hope...Precious metals. We are in a race to the bottom with central banks printing money and cheapening currency. Having a hedge against this is vital and also gold protects you in other unforseen crisis. Look at global debt and start to understand your monetary history and the case for precious metals being THE asset to own in the coming decade is very clear. Particularly with bonds, housing and stocks all in a bubble, outside of cash precious metals are the only place id personally want to be atm. Unless of course you live outside of the UK, property and land markets in some European countries are still very cheap but these would not be viable for most UK investors.
  4. I think you should, Sirius Mineral is a classic buy and hold! As in buy and hold your breath as the numbers keep getting closer to 0 😱
  5. https://www.investopedia.com/terms/s/sunk-cost-trap.asp This is investing psychology basics, its one thing to hold onto something speculative that you put a 1-2% of your portfolio in with hope, its another to go back again and again and again trying to reaffirm what was from the very beginning an overly risky investments. It’s simple, if something like Sirius makes up more than 2-3% of your investment portfolio then you have poor risk management skills and therefore are likely to lose your money as an investor. Sirius is a speculative risky investment and has been for years, and there is nothing wrong with that, so long as you treat it as such by investing only a small amount of your money in the company at a low enough price to make it a good risk premium. For those that put a significant amount of capital in this however and to those who find themselves reinvesting now after a huge reality check simply because they are psychologically unable to accept that they may have been wrong...think long and hard about what strategy it is your actually following? Because it certainly isn’t a strategy given by anyone with any history of success in investing. Most likely you have lost sight of the number one rule in investing which is appropriately managing risk. Even if your punt does pay off this time that doesn’t make you smart afterall... not if you risked more then a few percent or kept investing over and over in an already failing investment....no, smart investing is all about mitigating risks. What we are finding out now is that many people risked too much with Sirius...what happens next, who knows, but everyone with money in this company should evaluate how much risk they undertook here. For those that are too far into this psychologically just remember even if this time are lucky enough for it to pay off...you cannot evaluate an investment purely on the positive outcome...it actually matters how much risk you took to get that outcome. If the strategy was high risk and dangerous, and you over extended yourself on something as speculative as a poorly funded Potash mining company in England... it doesn’t make you wise if it pays off, it makes you lucky. As an investor a wreckless mindset towards risk is the quickest way for you to lose your capital if not on this investment, on the next. Famous investor Howard Marks discussing risk said ‘an excellent investor may be the one who - rather than reporting higher returns than others - achieves the same return but does so with less risk (or even a slightly lower return with far less risk). Of course, when markets (or in this case YOUR company stock) are stable or rising, we don’t get to find out how much risk a portfolio entailed. That’s what’s behind Warren Buffet’s observation that other than when the tide goes out, we can’t tell which swimmers are clothed and which are naked’ What we are seeing and will continue to see that a lot of investors in Sirius were actually swimming naked because they got greedy and thought they could make a lot of money by investing more than a small amount in this thing despite the obvious risk. Of course now the tide is turning the real risk that was present has been realised for those who were overextended.