I’ve still got no idea what we are doing up here, mate. There’ll be trouble brewing…

A while ago I posted the observation of a trader at FinanceRomance’s workplace, and it seems to hold just as much now. I was browsing the Ermine ISA, and looked at the bit on TD where they say the difference in purchase price and valuation and thought to myself WTF? Has there been a party on the markets these last few months?

FTSE100. Mad, don'tcha think?
FTSE100. Mad, don’tcha think?

I struggled to find value this year, so I did a capital gains transfer into my ISA rather than buying new shares. And I’m still struggling to find value, though of course a lot can happen by the time of the next ISA allowance in April. Presumably our American friends are going to shut down the government a couple of times and generally give people the willies, though the last shutdown wasn’t really a great win on buying opportunities. In general I’ve dismally failed to find much worth purchasing. Royal Mail was a win, but £300, while worth having isn’t going to make a tremendous difference. The Direct Line IPO was more lucrative but that was so last year. I took a punt on Europe last year and swapped my HSBC dirty funds[ref]dirty with trail commission[/ref] for Blackrock’s clean funds in the same space, adding to it. That’s performed well enough since I suppose. But other than that, nothing much of note. I had to liquidate £5000 worth of The Firm’s shares to make space for the Royal Mail IPO, and have had a devil of a time finding somewhere to lodge the remainder. I’ve put half of it in RDSB because I had nothing from that sector, but the remaining half is in cash awaiting opportunities, and they’re thin on the ground.

Let’s take a look around us at the twisted wreckage that still surrounds us in Britain. The economy seems to be doing well, but it’s been saved by a neutron bomb – the structures are standing but many people seem to be doing badly and falling behind. Some stupid tosser has gone and pumped up house prices again by charging about doling out free money[ref]It’s not officially free, but who’s going to be paying off a 95% mortgage in a world of 6* earning multiples and falling real wages?[/ref] to people who can’t afford to buy houses. I suppose there may be a case for more Castle Trust I suppose. Or Grainger

Grainger - on a roll
Grainger – on a roll

but everything about their fundamentals either offends me like the astronomical PE and the yield of <1%. In a HYP? Sometimes you hafta accept you know that you don’t know and leave alone – it’ll probably carry on rising forever – things to do with British housing tend to do that. Until I touch them 😉

It's mad, it's bad, and it's gonna go downOver in my non-ISA account I have mainly index trackers, another wodge of Europe value shares from an idea by Monevator who has served me well once again. I didn’t have to hold my nose to buy in Europe because I was already in there and filling my boots because it looked like it was going to blow imminently. I used a generalist EU ex-UK index – and these were big European firms earning money all over the world, in some ways more attuned to a HYP approach, so I had some of that IDJV. I like a jolly bad smell in the morning when it comes to buying. Emerging markets have got that sort of feel at the moment, but I’m not yet that brave and I have zero expertise – this seems to be one of the few areas there’s something to be said for active management, but I’m damned if I know what that looks like. Whereas indexing seem to work a treat in the developed world – I may move on from being a HYP investor[ref]move on as in leave my existing HYP shares right where they are, not sell and chop and change[/ref], now that everyone else is at it and mine is up to the target size to becoming a contrarian indexer – find regions/sectors out of favour and buy into them.

But the biggest indication that there’s trouble ahead at t’mill is this extract from my ISA on the right. It’s telling me the markets are overvalued.

In a previous life I would have loved everything going up, and would have piled in. This now gives me the willies – it’s frothy and it’s mad, bad, and it’s gonna blow at some stage. As a net buyer, I want to be buying after the blow, not now when the market is becalmed in the waters of irrational exuberance. I can’t say the sight of all those nominal gains doesn’t give me some sort of a sugar rush – the gain exclude the dividends which I recycled to buy more shares – the spreadsheet version of this looks more outrageous. But it doesn’t feel like it will hold. And I can’t find anything to buy that gives me decent dividend returns these days, not without having to take on dodgy operations.

I’ve learned however – looking back at my 2011 review I have learned one simple move to improve my results no end. It’s simple

never sell

Yes, I’ve broken that rule to try and diversify my large shareholding of The Firm, from all the employee sharesave and Share Incentive Plan shares – it’s just mad to hold more than 50% of one’s total shareholdings in one firm. And I’ve broken the rule in selling that HSBC European Tracker to pick up Blackrock’s fund investing in…exactly the same thing, but with lower fees.

Although that sea of green and some of those nice figures are great, the sooner we get off this high horse and back to buying territory the better IMO. There’s work to be done, this party needs to stop! Dammit, I’ve been so bored this year I’ve bought more index trackers than anything else – even Vanguard Lifestrategy 100% as I feel somewhat exposed with no US, not AsiaPac or Japan and no emerging markets, There’s no thrill of the chase there though, it’s not like buying something stinking up the place in the hope of a reversion to the mean…

That trader was right in May, and he’s right again now. I’ve still got no ‘king idea what we are doing up here, mate.