I have found it very useful creating this Blog Series because it puts down in Black & White what the true likely Costs of ‘Moving into Cash’ are and then the exercise of relating this to Portfolio Size has been highly revealing and has essentially indicated that unless your Portfolio is over at least £100k then it really isn’t worth the bother - and arguably when you consider the hassle and timing issues of doing it, the whole thing might not make sense unless your Portfolio is worth over £300K or so - it is obviously for Readers to run the Numbers and see how it would work out for their own Portfolios in the same way that I have done. And of course it is very much a personal preference thing and related to how comfortable you feel about perceived Risk at any point in time.
As often happens when I work through these big ‘Blog Series’ things, I tend to bash out a Draft and slowly over time I go over it and over it and refine and tweak and invariably they get longer rather than shorter. I am sure the idea of Proof-Reading and refining is to summarise and condense more but I am clearly pretty hopeless at that !!
I guess my logic is that I tend to need to clarify points so adding yet more text achieves this in the best way. As a result of this tweaking I have decided that it would be more appropriate to split what remains of the Blogs into two so we now have 6 Parts in total - but this one perhaps needs Readers to turn their Brains on and think about what I am scribbling, especially in the first section on Probability stuff, so maybe it is for the best that it is shorter. The Final Part will be in essence a Conclusion but there is actually quite a lot in it.
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 !!)
There have been a lot of discussions on the Tweets lately around the idea of ‘Moving into Cash’ when it appears that the Markets are facing what could be a fairly sizeable drop and I wanted to discuss some of the many issues around this and some related stuff. At the time of starting to scribble this we are in the depths of Autumn 2018 which has brought some seriously major Falls in the Markets and the Brexit Talks are in full swing and going terribly - hopefully by the time you are reading this we will have more certainty on the Talks but it wouldn’t surprise me too much if the Parties involved on both the UK and EU sides are still dicking about.
How true the Paragraph above has turned out to be - I am now typing this Paragraph at the end of November and the whole Brexit thing seems to have got even worse with T May seeming to have lost touch with reality and trying to force through some sort of ridiculous ‘Deal’ where we have given away everything and £39bn for absolutely nothing in return. Unreal.
This probably won’t be a particularly long Blog but I just wanted to scribble something about how my ‘Style’ or ‘Approach’ so far in 2018 (and with barely 2 Months left it ain’t gonna change much - although of course I might stick with the Current Style for a while yet as we go into 2019), has been markedly different from how I usually do things.
In most ‘Normal’ times I tend to focus on picking Stocks and I sort of relax in the fairly certain belief that more often than not the Stockmarkets are going to rise (after all, this is by far their usual way of doing things with Bull Markets vastly outnumbering Bear Markets) and perhaps I switch to more of an Index or Market focus when we get towards Autumn or if other one-off Events like a General Election or something mean that there is likely to be a Short Period of pain ahead which will need me to Hedge by focusing on the Indexes and using Spreadbet Shorts to try to offset some of the damage that my Long Portfolio is likely to suffer and soon after the ‘Problem’ I normally find that Markets and my Portfolio recover quite promptly.
This first paragraph is being written after all the rest in this Part of the Blog Series. Having now completed a very good Draft of it, I have decided that it is extremely involved and lengthy and for this reason I will separate the Examples out into its own Part - Part 3 - and now the Blog Series will run to 4 Parts with the final one being a Conclusion that brings everything together.
Finally I have got around to starting on these Examples - I have been struggling with precisely how to do it as I had a few ideas in my head but often that is not actually helpful and it merely meant that this state of indecision was simply stopping me getting on and writing the darned thing !! Anyway, I have sort of settled on the basic way of doing it and I am starting typing and shoving in pictures in the possibly forlorn hope that it will sort of coalesce into something that makes sense.
This is the Final Part of a Series of Blogs - if this is the first time you have been unlucky enough to find this Series then Links to the earlier Parts are at the bottom of this one if you scroll down.
I am hoping that I have done these Blogs in a way which Readers can makes sense of and will enable them to think about how to go about such Index Trading themselves if the urge takes hold. You can use ETFs like XUKS (a way of Shorting the FTSE100 that you buy and sell like a Share. To go Long on the FTSE100 you could use something like ISF I think - you will need to check this) instead of Spreadbets and of course things like CFDs will give a similar result (but these come with Tax disadvantages when compared to Spreadbets). But it goes without saying (but I will say it anyway !!) if you do fancy having a go you must be extremely careful and start with a Practice Account perhaps or at least start with very low Position Sizes - don’t go betting £1000 a Point on the FTSE100 on your first Trade !! (that would be equivalent to about £7.2m of Exposure by the way !!!).
Before I finish the Blog Series off, I just want to stress the following Key Points:
This is the Second Part in what should be 3 chunks regarding what is a pretty complicated and hefty subject - before getting stuck into this, I would strongly suggest reading Part 1 which you can find here:
Trade Types I am particularly looking for
As with all things in Trading and Investing it is extremely important to strive for simplicity and in line with this I essentially have 4 different ‘Types’ of Trade Setups that I am particularly after; and they can be grouped into 2 different types - Long and Short.
In the Final Part of this Blog Series I intend to produce some Examples using real Charts of these types of Trades so Readers can get a much better appreciation of what I am going on about.
Welcome to my Educational Blog Page - I have another 'Stocks & Markets' Blog Page which you can access via a Button on the top of the Homepage.
Please see the Full Range of Book Ideas in Wheelie's Bookshop.