I hope you have enjoyed the festive period with your families and taken the time off to relax. Due to the pressures the stock market puts on us, and certainly if you’re an investor, it can add stress to our lives as global equities take a tumble.
That said, next year is another year. Another year to build on the lessons of 2018, improving our strategies and refining our stock selection processes. The beauty of compounding is that both money and knowledge compound and so every year we have a bigger advantage than the year before.
Extreme volatility often signifies a potential peak. We saw this in February, with the Dow plunging, only to recover and make new highs. However, there can be no doubt over the past few months that we are in rocky waters. The last week has been nothing short of a rout. I don’t believe that anybody can predict a recession (I’m certainly not clever enough to) and think that the only people who claim they can are either 1) lying, or 2) selling something - but managing risk is something that we can all do. We have had a brilliant bull market for the past decade – whilst nobody knows the top we can say with absolute certainty we are always one day closer to it. Headwinds such as interest rates and Brexit may not be resolved for a while, and though there is always something to be scared of, we are seeing significant changes in price action. Being prepared is the best defence.
It really seems like just a few months ago that I was writing my Xmas Message for 2017 - there is that old saying that time gets faster the older you get and it is hard to dispute this on the evidence of 2018 which has simply shot by. However, the fact it has gone by fast is arguably a good thing and I would probably lean that way because apart from a few bright spots 2018 has been a pretty rubbish year for me and I can only hope that 2019 is much better - it could barely be worse (oh no, that really is tempting fate….).
We all know the Stockmarket has been an utter pig this year but I have also had a pretty tough year on the personal front with the worst bit by far being the sad departing of my Mum which you may have seen me mention on Twitter. I had flagged for a while that she was in a bad way following a stroke but she finally succumbed about a week ago and to honest it is very much a relief as she was clearly not going to get better and at best she would have ended up with an extremely poor quality of life and being stuck in a nursing home requiring intense levels of care. In addition it would put immense pressure on my brother who bears the brunt of such things as he is much nearer than myself and of course my physical condition limits a lot what I can do. The funeral is in early January and I have to note the irony of how my parents both managed to make their presence felt over the Xmas and New Year periods by their absence (my father died 2 years ago at pretty much precisely the same time of the year).
Allowing for Timing Issues
From those Examples I put in Part 3 of this Blog Series regarding different % Sizes of a Drop (if you look on the Educational Blogs page you should be able to easily find Part 3 if you have not seen it yet), it appears a bit of a ‘No-Brainer’ that if our Portfolio is above a certain Size, then we should seriously consider a ‘Move into Cash’ when we anticipate a Drop in the Markets coming. In other words, as an example, if your Portfolio is worth £50k and you expect a Drop of 10%, the Costs of moving half your Portfolio into Cash (assuming a 2% Spread) would be 6.8% so it probably would not be worth the bother (go back to Part 1 of this Blog Series to get more information about this).
But of course nothing is this simple.
Moving into Cash - the Unknowable and Uncontrollable bits
In Part 2 of this Blog Series I wrote about what kinds of things are ’Controllable and Knowable’ when it comes to Moving into Cash but the ‘Uncontrollable’ and ‘Unknowable’ aspects of Moving into Cash are many and by definition impossible to be certain about in advance. The kinds of things that are Uncontrollable and Unknowable include factors like the following:
If you have not read Part 1 of this Series, then scroll down the ‘Educational Blogs’ page and it should appear a couple of Blogs before this one. I recommend you read that first.
Moving into Cash
So now that I have ‘set the scene’ with these Concepts of Controllable stuff and Uncontrollable stuff and, likewise, things we can be Certain about and things where we have no Certainty; I want to relate them to the specific Subject of ‘Moving into Cash’ but of course these concepts have wide validity across many aspects of Investing as I pointed out in Part 1.
To be clear on this, I am discussing the subject of whether or not we should sell All or Part of our Portfolios before we foresee a Major Drop in the Markets coming - a bit like we have had this Year with the upcoming Brexit escape from the EU.
I am not really sure how to go about writing this and as much as I know I should plan out a structure, I am not really in the mood for that so I will just crack on with it and of course vigorous use of the ‘Cut ‘N’ Paste’ function should help me sort the resulting mess into something that is almost readable. (Editor’s Note from much later - not doing an Initial Plan was a very big mistake !!)
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