others are greedy and the Ermine is fearful

You want to be greedy when others are fearful. You want to be fearful when others are greedy.

Warren Buffett

Much brouhaha about the FTSE 100 at last closing above the level of its 15-year old dotcom high in December 1999. The rational investor will tap a copy of his efficient market hypothesis, sigh and wonder what all the fuss is about. Trouble is the market isn’t efficient, it’s all about the madness of crowds in the short term. And it means they’re greedy[ref]well, it also means our govenrments have printed a shitload of money that needs to stick to something I guess, and in the UK housing and equities is as good as any.[/ref]. I haven’t worked out what the hell we are doing up here for a couple of years now, and I’m still puzzled. As for the Americans, they’re drunk on it.

And I can’t help a shiver go down the spine, because unlike whippersnappers like this, I was there in the early days of the Web, with an ESI account (eventually bought out by Charles Schwab and then bought out by Barclays). A group of us late thirty-somethings  dreaming at work – I still remember the welcome note the young Ermine sent out when I set up the internal company share discussion board

“The aim: to make us rich. Very very rich”

Asshole. Sorry young Ermine – you were at least circumspect enough to not risk money you couldn’t afford to lose. There was a heady and peculiar feel about it all. One fellow did do very well in 1999. Which was a bastard when it came to paying the capital gains tax on that lot the next year and his total portfolio was worth less than the CGT bill! Time to remortgage – it’s not meant to be like this… I was a timid Ermine, mucking around with no more than about £10,000 in total so I was spared that sort of slaughtering. £10k cash is worth about £15k nowadays. It was also worth more to me then because it was a larger proportion of my salary than ten years later.

Looking back at the paper records of that time, the Ermine wasn’t as hammered as much by the dotcom bust as I thought, because I withdrew a lot from my trading account in ’99. I’m not sure why. It felt rough because I knew Mr  CGT cock-up personally – I was awestruck by the total abount of money he was trading but didn’t have the balls. It was a stupendous amount of money  – only fifteen years later have I seen that amount of valuation in an account summary of my own[ref]I am lucky this is largely in an ISA[/ref]. So I knew a few people who got hurt big, whereas I just had the black tip of my tail pulled in comparison.  I’d really like to be able to claim I saw the denouement coming but I probably wanted to go on holiday with DxGF and also to start funding my ISA, which does show the classic dotcom story (I don’t have all the portfolio valuation statements but I put £7100 into this over a couple of ISA years before losing interest)

The Ermine dotcom ISA - £7000 into about half that over three years
The Ermine dotcom ISA portfolio valuations – cash in of about £7000 into about half that over three years

I got good value out of the experience, because I learned what not to do. Do. not. Churn. For God’s sake, just don’t

bunch of contract notes from two years of my dotcom days
bunch of contract notes from two years of my dotcom days

One of the great things about investing in those days is that it was so much more tactile – you got contract notes in the post each time you bought and sold. I filed mine, and spread the suckers from two years out. One of the obvious failure modes of my early investing days is right out there in plain sight – each one of those tickets cost at least £10 I think on the turn. Yes, volatility was shocking in the dotcom tech days and you could cover the cost of churning in the runup to the bust. But to be honest it didn’t really matter what you held then, so why trade all this shit when it notched down and buy something else that was racing up. These days if you want to trade over days and weeks go spreadbetting young man. Better still tune out of the wall of noise and chill. I keep these contract notes as a memento mori. Do. Not. Churn. If you’re not a daytrader then if you aren’t prepared to hold it for six months then don’t damn well buy it, and if you are a daytrader then you are Frankie and The EscapeArtist wants a word in your shell-like.

On the other hand, like a good little regular index investor, I started investing in a virgin Tracker ISA ( I believe it tracked the FTSE All-share but could have been FTSE100. Had a good-for-the-times TER of 1%)

Virgin tracker ISA
Virgin tracker ISA

I was buying until 2000 (the dotcom ISA took over from then 😉 The pattern is not shockingly different – everybody got hurt in 2000 and may of us quit investing by 2001. From the looks of these charts I guess learning that cost me about £5000. When you look at the cost of numbnuts trying to charge you for sure fire courses on how to be a top trader the cost of attending investing school at the University of Life isn’t so bad. The lessons for me were –

If you’re gonna stop investing regularly in the stock market, go on strike at times like 1999 or maybe now, don’t go on strike in the bear markets. That’s easy to say but still hard to do. It gets easier to do after you’ve seen it work. It’s one of those gut things.

Do not churn. If most of your holding periods are less than a year you are a churner[ref]There’s nothing inherently wrong with churning though your costs start to rise. But I have learned that I am absolutely crap in that mode. so I don’t do it – I favour being catatonic when investing.[/ref] A lot of your return is in the waiting.

Don’t chase momentum. If it all looks high, look for something low. And still check the bastard out – sometimes it’s good to sit tight. Unlike chuck Price you don’t have to get up and dance, and at the paltry levels of interest these days holding cash in a S&S ISA (or even in a Cash ISA, not that that’s really worth the candle either) is a reasonable thing to do. Low inflation/deflation is the cash-holder’s friend. It’s not gonna last

Note from my index investing career that index investing will still not save you if you are Dumb Money and chase momentum. Index investing is a method, not a solution.

So what is it about now? Look all around you and the highway is littered to the horizon with cans kicked down the road by politicians eager to make it all go away for another five years. There is stupendous wreckage in the eurozone. The Chinese, Japanese and everyone else seems locked in a deadly embrace to trying to outprint money and make it some other sucker’s fault. Trade has slowed to the extend that we have overcapacity in world mining, commodities of all sorts and the oil price had tanked for  lack of demand due to a lack of economic activity. Warmongering sociopaths from Putin to the vexatious nutcases all over the Middle East are working out their childhood traumas on unfortunate legions of their fellow human beings. Grexit has been postponed, not resolved.

Apart from that everything is dandy. I know that you shouldn’t be a doomster but that doesn’t mean you have to empty the Kool-Aid in one go. The valuations of the developed world seem mad given the state of the place. Let’s hear it from Citi’s Chuck Prince in 2007

When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing.

All those damned kicked cans littering the highway, too, piling up and getting under people’s feet and making things more complicated. The ermine is fearful. Not fearful as in 2001, having lost a shitload of money and wanting to sit out the next dance. Fearful as in 2015, trying to work out what the hell to do with the coming years of ISA allowance because all those other blighters seem greedy.

The market can stay irrational for longer than I can hold out selling my own stuff back to me. I only have another three years of CGT holdings to liquidate, and then I am going to have to start putting real money into my ISA as opposed to selling my unwrapped holdings back to myself, I hope this one’s gonna blow before 2018…

There’s also a sneaky little corollary to that. If an when it does blow, don’t just load up my ISA. Load up an unwrapped trading account too, to sell back to myself in the Kool-Aid euphoria years like now. What did that fellow Greenspan call it? Irrational exuberance. His countrymen are doing that right now IMO.


27 thoughts on “others are greedy and the Ermine is fearful”

  1. Who do you feel is being greedy? None of my friends or family have any money invested in stocks and shares, and many of them can afford to put savings in.

    When the public start to get enthusiastic about stocks and shares like they did in 1999, when every man and his dog was trading, that is probably the time to hold back a bit. Maybe I’m just not talking to the right people but most I try and mention buying stocks and shares to say they can’t risk it or don’t want to gamble their money.


  2. > Maybe I’m just not talking to the right people but most I try and mention buying stocks and shares to say they can’t risk it or don’t want to gamble their money.

    Probably they’re short because they’re gambling on BTL property which seems to be another aspect of the current froth 😉 The greed is in the combination of the price in an economy that doesn’t seem to be turning over much stuff compared to when it’s working right.

    I get all the bit on the long-term CAPE of the FTSE being only a little above average, but it doesn’t feel right at all. As for the US, some serious profitability needs to be coming down the pike to justify those valuations.


  3. >Maybe I’m just not talking to the right people but most I try and mention buying stocks and shares to say they can’t risk it or don’t want to gamble their money.

    It is a significant cultural problem. Yet levering up on houses is seen as perfectly safe. The mother-in-law only stopped molesting me over renting after she admitted loosing all her divorce settlement being forced to sell in -ve equity in the 90s.


  4. I dunno the financial press I read, FT, Bloomberg etc seems to full of how fully valued the major developed markets, how much geopolitical risk there is and wtf will happen when the americans raise interest rates


  5. @underscored that looks like a tough start out of the gate during most of 2013. Mind you, initialising something like that can’t be easy!

    The property fetish of the UK is dreadful. At least if your stock portfolio blows up you’re skint. Get it wrong with property and not only are you skint but you’re sleeping rough as well 😦 I saw both neighbouring sides of my mid-terrace repossessed in the early 1990s – one side got pushed and the other managed to jump and presumably eat or remortgage his negative equity!


  6. > Load up an unwrapped trading account too, to sell back to myself in the Kool-Aid euphoria years like now

    Why load up to an unwrapped trading account.
    You can add gross contributions to a SIPP up to the annual allowance each year. No tax relief on them, but they are protected from CGT and income tax in future. Unused allowances from the last three years can also be used.

    Great website btw…..have just finished reading your posts from day 1.


  7. I’m a bit lost myself. Started investing in November with the intention of putting each month’s money into the lowest tracker on a 52 week range and now all the main ones are at a peak!
    In 4 months I’ve seen my FTSE 250 tracker rise 9% and it seems too good to be true. Even Japan seemed a great buy now it’s up over 5% in two weeks! I might just keep the cash until nearer the election…


  8. @Neverland only those grizzled of fur remember, eh 😉

    @Devonman I agree you’re right in the general case, but I don’t have an income – well one from work that is. So I don’t really have that choice. Most people should probably take the SIPP route.


    @DW For perspective if you are investing for the long term from earned income then the picture is different. If you look back from the 30 year hence point of your older self, and of course assuming the principles of investing returns hold sway, the fluctuations of buying high will pale into insignificance because they are only a small part of the total and they will also give you 30 years of dividend income to help. Steadiness seems to win that race. It’s considered very hard to time that sort of thing consistently over decades. Market timing is generally deprecated, although the Shiller CAPE10) would seem to offer an interesting angle for the brave/foolhardy.


  9. Ahh yes 1999. 30, I’d just got a mortgage, GF getting broody, well paid job doing interwebz in swanky office full of hipsters, my spuds were huge… what could go wrong ?
    I laugh at your sheaf of contract notes involvement and raise you real skin in the game.
    You could see that one rolling in from the US for a good while before it hit and we were all desperately failing to find somewhere to hide.
    Later in 2007 (same industry) work started drying up in Q2. A very nervous Nathan asked a FA how to position himself against a potential downturn (lots of actively managed, high commission stock funds and cash in an Icelandic bank; worked like a charm).
    2015 from what I can see (through a huge telescope), there’s a good supply of work in the digital satanic mills so the Nathan Barley indicator remains bullish.
    However, I shall just be rebalancing and wrapping (again) I think. Not fearful, not greedy, just very very cautious.


  10. Thanks ermine – I am in it for the long term so I’ll just try and ignore it!
    My method is only a minor form of market timing. I just buy them on a rotating basis in order of price i.e. cheapest first, giving more expensive ones time to fluctuate downward. I realise they can always go up but I can’t control that.


  11. @DW: Why not buy based on your portfolio’s distribution? This avoids the issue of ending up hugely weighted in one asset class because it lags all the others while you’re buying. In fact, then you’re just doing classical portfolio rebalancing.


  12. @Ben I don’t know what happened there. I’ll miss his reflective wit 😦

    @Nathan Big spuds to go with the BSD and the red braces in the City 😉 Maybe the ermine is getting too fearful, of the UK at least. That US stuff, it’s getting into “this time it’s different” territory which never goes to a good place 😉

    Icelandic banks eh, now that was something I just wasn’t hard enough to even consider, it was just too good to be true!

    @Derek Sorted, my bad. Must have nuked it in an update somewhere. It’s back, thanks for letting me know!

    @Brendan presumably keeping the asset class/sector bins equal-ish along the lines that fellow Monevator outlines here?


  13. @ermine

    Well, whatever you prefer really. This is the bit of passive investing nobody likes: weighting your investments in the first place…


  14. @Brendan – indeed – to allow my active heart of darkness to glimmer through:

    I can see the logical rationale for VWRL.L, and maybe tossing a bit of some FTSE AS index to get a slight UK tilt for a British investor.

    Anything else and I’m reminded of Robert Kirby’s Coffee can portfolio – on the merits of being passively active than actively passive.


  15. In some ways, I am a very bad passive investor in that I will try and time the market to a piddling degree (i.e. the moment I see a significant fall, I place an order).

    Seriously considering sitting on my fun investing money until the Election results are in.


  16. @Underscored the trouble I found with statistical approaches is that stock prices don’t seem to obey the central limit theorem. As a result you get an unusual preponderance of adverse events that kill you every so often, like the Russian default that did for LTCM. It is possible that I am merely bemoaning my own lack of smarts there, bitter experience has taught me there are some things that fall into the Do Not Touch area!

    @Luke – me too 🙂 I think the trick with market timing is you can try it on the way in or on the way out, but try it on both sides and you will get slaughtered. I have minimised selling, if only to steady my hand – as those contract notes show, without discipline I am a nervous and jumpy blighter. But I’ve found so far buying in times of trouble has been generally rewarding.

    @Brendan I found the full text somewhere on the web. It made a big impression on me as to the value of sitting on your hands!


  17. @ Ermine. Indeed! I have read m Mandelbrot, assuming central tendency of the data is ridiculous – and you can easily drown in a river that is on “average” (mean I assume) 1 meter deep! Or not realizing that the Swiss currency peg is hugely unstable – the will of a person, not some physical law. However I am willing to believe that the “markets” are fundamentally shaped by human interaction, therefore some patterns – such as trend and momentum may well be true and continue to be true. Time will tell – the future is a mystery not a problem that can be solved with more data!


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