"My shares have fallen 30% what should I do?" "Is this a good time to invest in the stock market?"

JSnowWinterfell

Registered User
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I am learning new terms..... V shape, U shape, L shape recovery.

This is an idosyncratic event, and whilst the virus continues to grow there can only be predictions of market moves. What is beginning to become clear is that the virus spread can be slowed, Wuhan is going back to work after 3 months. There are two large unknowns currently, one how it is going to play out in America in the next few weeks and secondly what happens when we go back to work.

What we have seen is huge stimulus packages by central banks, using that magic money tree to print money. There is a backstop, so I don't think governments will let previously sound companies go bankrupt.

My view is that the markets are digesting the stimulus packages, and will continue to trade on the news that is coming out.

There are signs the markets are getting back to normal (a new normal?)
  1. https://www.reuters.com/article/us-usa-companies-debt/kfc-owner-yum-brands-breaks-junk-debt-markets-fast-idUSKBN21H3GT
 

Fella

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515
Does anyone have a good resource ranking the top losers (share price decrease) over the last month for the FTSE100 and S&P500? Most sites just show the daily list. There is a modification of Dogs of the Dow strategy that can be followed here.
Tradingview website seems to have all the info you could need like that for free , there's screeners and stuff , you can filter exactly what you need .
 

joe sod

Frequent Poster
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892
just reading the thread
New RTE programme "Burnt by the Sun"
and what struck me was the amount of money lost on property investment in Ireland dwarfs that lost in the stock markets. Alot of the posts on stock market investing are about the dangers of losing your money and that the stock market is always going to crash. Yet look at the amount of people that lost hundreds of thousands in foreign property in the 2008 financial crash. Alot more irish people from all walks of life have lost money on property investment.
 

Duke of Marmalade

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2,653
cremeegg I decided to dive into your spat with Sarenco and I think it is you who are in error. In essence you are saying that the implied investment algorithm of the index is superior to a buy and hold strategy. This runs contrary to the EMH which would rule out any superior investment algorithm. And it has been shown that "sloth" funds do compare favourably with rebalanced indexes.
But I can see the paradox you are referring to. So let us posit a very simple model for the market. Every stock has an even money chance of growing 20% or falling 10% so on average an expected return of 5% p.a. Let's say that this remains true for any well diversified portfolio. It doesn't matter whether you update your portfolio or leave it alone - you will earn 5% p.a. So compare an investor who buys the 500 constituents of the S&P 500 and holds them. She will earn 5% per annum for the next 20 years and indeed the S&P index will grow 5% p.a. for the next 20 years. But our investor's portfolio will bear no resemblance whatsoever to the S&P 500 of 2040. It will contain maybe 250 "dogs" which have long since dropped out of the index.
The paradox is explained by observing that whilst by definition the S&P 500 constituents are the winners over the recent past, the fact is that the index "paid" fair value for rebalancing into them and gained no pricing advantage.

PS on reading Sarenco's latest. This is a separate point to the one Sarenco is making which is that index tracking funds should, subject to small transaction costs, successfully perform that function. That is because the index is rebalanced at market values.
Developing this theme for slow learners.
Imagine a contest between the following investment algorithms.
Start with the 500 constituents of the S&P 500
1. Never rebalance (Buy and Hold)
2. Rebalance every time a stock rises 20% above its low by replacing it with another(randomly chosen) stock (Sell High)
3. Subsitiute one of the stocks (randomly chosen) with any stock not already there which is 20% below its peak (Buy Low)
4. Randomly replace 50 of the stocks every quarter (Pot Luck)
5. Rebalance to match the top shares by capitalisation (Follow the Index).
Ignoring transaction costs, a priori none of these strategies (algorithms) has any advantage over the other.
So I hope I have convinced you cremeegg that Follow the Index does not have the intrinsic edge over Buy and Hold which you argued that it had.
 
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Tickle

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26
I have 12k to invest (have been using a regular saver for last year) and 1k per month to invest thereafter. What would be a good "buy, hold & forget" fund to invest in for a 30-year time line? I think now is as good a time as any for me to get started as I have been mulling it over since January. I'm looking at the iShares MSCI world index in Degiro. Happy with the 41% tax and 8 year deemed disposal and all that. Just want to let it sit and work away
 

Sarenco

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I have 12k to invest...
It's really not worth the cost and hassle of filing tax returns for that level of investment.

Are you sure it makes sense for you to invest outside a tax advantaged pension vehicle? Do you have a mortgage?
 

Tickle

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26
It's really not worth the cost and hassle of filing tax returns for that level of investment.

Are you sure it makes sense for you to invest outside a tax advantaged pension vehicle? Do you have a mortgage?
Pension contributions are maxed out. Mortgage is fixed for 3 more years. Overpaying the max that I can, breakage fee is too high to break.

I have rainy day fund put aside, and another 1k per month after bills going into regular saver account which is earning peanuts these days.
 

Sarenco

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Mortgage is fixed for 3 more years. Overpaying the max that I can, breakage fee is too high to break.
Well, in your shoes I would keep the €12k on deposit (or buy 3 Year State Savings Bonds) and then throw it all at the mortgage at the earliest available opportunity.

You could always keep your pension 100% in equities.
 

Tickle

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26
Well, in your shoes I would keep the €12k on deposit (or buy 3 Year State Savings Bonds) and then throw it all at the mortgage at the earliest available opportunity.
I suppose the logic there is that the 12k off the mortgage is a 2.6% guaranteed net return over the lifetime of the mortgage vs a potential 3 or 4% net return on an ETF?


You could always keep your pension 100% in equities.
Contributions already go into passive State Street World Index Equity Fund
 

Bluecup

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15
Mortgage is fixed for 3 more years. Overpaying the max that I can, breakage fee is too high to break.
You should only have to pay the break fee on 12k of the mortgage, not the total mortgage if that's any use to you.
 

Tickle

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26
You should only have to pay the break fee on 12k of the mortgage, not the total mortgage if that's any use to you.
Thanks, that is a useful observation. With that in mind, I would need to consider that the break fee would eat into the interest savings on the 12k.
 
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Sarenco

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I suppose the logic there is that the 12k off the mortgage is a 2.6% guaranteed net return over the lifetime of the mortgage vs a potential 3 or 4% net return on an ETF?
That's certainly a reasonable way of framing the decision but bear in mind that (a) mortgage rates might rise over the life of the loan; and (b) you might not realise your expected net return on the equity fund within your time horizon.

I personally take the view that our tax code skews the risk/reward analysis to the point that it rarely makes sense to invest in equities, outside a pension wrapper, while carrying a mortgage.
 
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Tickle

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26
I personally take the view that our tax code skews the risk/reward analysis to the point that it rarely makes sense to invest in equities while carrying a mortgage.
It's a fair point
 

Tickle

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26
I personally take the view that our tax code skews the risk/reward analysis to the point that it rarely makes sense to invest in equities, outside a pension wrapper, while carrying a mortgage.
Would your view be different if the mortgage rates were ~1.5% or less? Where is the intersection between the net return on equities (and the the hassle of filing tax returns) and the cost of mortgage interest?
 

Gordon Gekko

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Even at 1.5% I’m not sure the analysis changes a whole lot.

The 1.5% is ‘after tax’ so you have to gross that up. i.e. What gross return do I need to make in order to have 1.5% after tax to fund the interest cost. Say you apply a blend of income tax and CGT and apply a hybrid tax rate of 40%. Then you have to factor in cost; investing doesn’t happen for free. Let’s say that’s 1%. You need to make 4.2% just to break even! 4.2% less 40% tax is 2.5% less 1% for costs is 1.5%. So paying off debt which costs 1.5% is like getting a guaranteed return of around 4% per annum which you could not get elsewhere. And when you apply market mortgage rates...
 

Tickle

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Even at 1.5% I’m not sure the analysis changes a whole lot.

The 1.5% is ‘after tax’ so you have to gross that up. i.e. What gross return do I need to make in order to have 1.5% after tax to fund the interest cost. Say you apply a blend of income tax and CGT and apply a hybrid tax rate of 40%. Then you have to factor in cost; investing doesn’t happen for free. Let’s say that’s 1%. You need to make 4.2% just to break even! 4.2% less 40% tax is 2.5% less 1% for costs is 1.5%. So paying off debt which costs 1.5% is like getting a guaranteed return of around 4% per annum which you could not get elsewhere. And when you apply market mortgage rates...
Makes sense. Realistically using an ETF index fund, the tax rate would be the whole enchilada at 52%. At current mortgage rate (2.6%), the return needs to be closer to ~6.5% by my calculations. Oh well. I was hoping investing might be fun and more rewarding than that, but my expectations for returns would have been 6-7% per annum over the long run. I think I will heed you advice and invest in mortgage instead.
 

Sarenco

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6,092
It's also important to remember that you are carrying interest rate risk - the mortgage rate might increase over your holding period.

By paying down your mortgage you are guaranteed a return equal to the weighted average interest rate that you would otherwise have to pay over the lifetime of the mortgage. But you are also reducing risk within your overall financial position.
 

joe sod

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892
In relation to the title of the thread: My shares have now dropped 50%. Is now a good time to invest in the stock markets or should I wait until it drops further? I know that this is crystal ball territory
It just shows you how hard it is to stay the course in investing and not panic sell. The crescendo of negativity from all quarters over the last few weeks was unbelievable, it was much more than in the 2008 financial crash. Yet surprisingly the stock markets have risen again over the last 2 days, nobody predicted that, I was surprised myself
 

Brendan Burgess

Founder
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40,233
Yet surprisingly the stock markets have risen again over the last 2 days, nobody predicted that, I was surprised myself
But that is the point.

Most of us realise that none of us can predict short term movements.

Some have asserted "as the death toll rises in America, the markets will fall steeply". The confidence of their predictions is inversely related to their expertise.

Brendan
 

SPC100

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501
I think lots of us predicted exactly that. It will go up we just don't know when and by how much.
 
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