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In a recent TPI Podcast we talked at length about a potential Stockmarket Bubble and I also wrote a bit in a Weekend Charts Blog. Both times I think I promised to write a more detailed Blog specifically on the subject and in theory as I start writing, this Blog is intended to fulfil that commitment. You can find the Podcast here by the way:
https://soundcloud.com/user-479955511/conkers3-wheeliedealer-152-market-bubbles-high-pe-stocks-gaw-fevr-amzn-googl-mpac-1 First off I must make it very clear that I am not saying a Bubble is definitely going to happen; nobody can foresee the future (least of all me !!) and all we can realistically do is to assign probabilities to possible future outcomes. Using such an approach, I would guesstimate that perhaps a year or more ago, I would have said that a Bubble was a very low likelihood, perhaps something like 5 to 10%. The fact is that Stockmarket Bubbles are very rare and hence a low probability is appropriate, but with the various factors that I will get onto shortly, I would now say that the probability has risen to perhaps 15 to 20%.
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Well, 2019 turned out quite a ‘funny’ year where we had untold (or, more accurately, told far too much !!) political farce and a very nervous Market, yet by 31st December 2019 most Markets had rallied hard and the US Market in particular was truly incredible. To give a bit more colour to that statement, the Table below I worked out as I do every year using the Start and Finish Numbers for each Index from SharePad and this shows exactly how well the Markets performed. Please note this does not include Dividends, so for example on the FTSE100 you need to add about 4%, bringing the Total Return up to about 16% and for the FTSE250 you can add about 3% to give a Total Return of 28% - that is pretty impressive !!
Of course there are no Costs in here so in reality when you run a Portfolio you will get some drag from Costs such as the Dealing Fees and Buy/Sell Spreads and the Stamp Duty. Using ETFs you could get nearer these figures as the Costs are often extremely low (see the ‘Funds’ page of my Websites).
Needless to say if you have not read Part 1 yet then it probably makes sense to go back to that one first before you start on this one. You can find it here:
https://wheeliedealer.weebly.com/educational-blogs/how-to-hold-for-the-long-term-part-1-of-2 Anyway, I was going through various Bullet Points around the subject matter concerned and here are the next bunch:
I am bashing out this blog as a result of a conversation with a mate which was along the lines that he finds it hard to hold things for the long-term and tends to bottle it at some point and end up selling when a decent Profit has built up; but often this might not be the best approach. Even a bit of a numbskull can figure out that if you continually sell Stocks after making perhaps 40% Profit, you will never ever get gains of 200%, 300%, etc., which are the ones that really transform your overall Returns.
Buying high quality Stocks and then holding them for long time periods has many advantages and of course many drawbacks. The benefits are really around ease of execution and low activity; which of course can lead to lower Dealing Fees and costs, and effort around selecting Stocks and general Portfolio Management activity. |
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