I'd say that would be very good advice when we are half way through a crash and people are staring at large portfolio losses and wondering if they should get out. Maybe not such good advice at this time.
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Who cares about 4% losses? Even 10% losses? Seriously can make that back in a month or 2. Not sure what all the worry is about?
I spent many many hours over the last two days watching CNBC the world's leading business channel, (channel 91 on SKY for those that don't know) watching various experts many with several decades experience in the market opine over the current state of where things are at.
1. No surprise there is no consensus on short term expected direction of the market.
2. There does seem to be some sort of consensus that leveraged ETF's, (some leveraged as much as 3:1 and in particular and inverse VIX fund that needed to quickly liquidate (I recall it as over 1 billion of equities) together with computerized trading programs exacerbated the volatility.
3. General consensus this bull market is very mature.
4. General consensus that one fairly serious issue is the rise in long term interest rates leading to a possible corresponding compression of PE's
5. PE's have expanded a LOT over the period since the GFC
6. The U.S. economy is in good shape and global growth is sound
7. Earnings growth in the U.S. this year will be on average mid - late teens % per annum, fuelled by the radical decrease in the corporate tax rate from 35% to 21%, (note that the last time the U.S. corporate tax rate was this low was 1940.
8.The calmness, (very low VIX) and lack of correction or pullback in the markets in 2017 was extremely unusual and don't expect the market to return to that state any time soon.
9. Widespread belief that the 10 year Govt treasury rate in the U.S. is headed higher this year
My thoughts. Highly likely that we'll see some retracement of the average PE this year on the back of higher interest rates and I expect a very significant increase in volatility this year compared to 2017. I think some compression in PE's will be a widespread phenomenon around the world and despite global economic growth being fairly robust we could see a fairly flat year in global equity markets or some possible downside. The high average dividend yield of the NZX will provide a degree of protection to expected returns for calendar 2018 so I have a focus on high fully imputed dividend yield companies with a strong and resilient business strategy as I thin k one's dividend yield might be there only real return from the market for 2018, (I hope I am wrong on this point).
My strategy. I took profits recently on a number of shares, (all of which are now trading below the level I sold them at). I'm at just over 50% cash at present and am very cautious this month in particular and will only deploy dry powder on a case by case basis as companies report where I see a compelling case for expanding my current holding. I think there's about a 30-40% chance the current extreme level of the VIX is a warning that this correction isn't over by any stretch of the imagination. After a very strong 2017 I feel comfortable with being very cautious at present and protecting my capital.
Good summary Roger, yes CNBC is great in giving us the macro. I cant see the party carrying on as before and volatility is here as well as crabways charts. As always great stock picks will outperform and this is a great reminder to review and reset ones portfolio and strategy remembering the 2 rules1 Dont lose money, 2 Dont lose money
fade the rallies i reckon is what will happen this month , its been a very long time since theres been a down month. i watch cnbc too but for free now ... did away with sky tv cnbc was the only reason i had it really so now watching it for free who needs sky tv
Bit of a non-event on the NZX today
If punters think / believe that a market correction is about to happen (take the NZ market down 20% to 30%) then today might have been blessed as the day to sell at pretty good prices before the down turn actually starts.
The market correction wont be economy/earnings related — its a change in sentiment, ie PE compression. Major corrections can take a while to unfold, they don’t happen overnight or a overa week.
Even stocks with good fundamentals go down, just like stocks with bad fundamentals go up in good times.
So today might be that day of reprieve before it’s get worse
Only saying this to those who believe a crash/correction is imminent
I just watch the stocks I own and act accordingly on each.