the great sucking sound of retail investors heading for the hills

We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.
Some well-known investing chap you may have heard of
The big problem, of course, is that it’s hard to do. We all have to do the old run for the hills thing some time, and I’ve BTDT – more than ten years ago. The mistake is doing it a second time. Either get out and stay out, or if you do get in again then listen to what Mr Market is telling you about yourself. There’s nothing wrong with paying for learning, well, as long as it doesn’t wipe you out for a decade like houses can, but that’s a different story. Shares are safer and more dangerous at the same time. The trouble with houses is you borrow money to buy them, which means you make out like bandits when things go up, which is most of the time. Get that wrong and you get shellacked big time. But shares, well, you shouldn’t be borrowing money to buy shares.[ref]I am actually considering doing exactly that, so this is definitely a do as I say not do as I do, but I have some good reason. Don’t they all say that, eh?[/ref]
The trouble with the stock market and the retail investor like you and I, is that we get massively interested in the stock market when there’s recent proof that people have made loads of money from shares. So we buy. Then, when things go pear-shaped, we head for the hills, and exactly that has been happening. To the tune of 450million sods, indeed. Some of us sell, then go rinse, repeat.
Laith Kalaf of Hargeaves Lansdown put it well
β€œThere is no shortage of bad news now, but, if you invest when everything is smelling of roses, the chances are you are paying a premium for the comfort of doing so,”
Quite. I’ve been grizzling about too much smelling of roses, so I spent a fair amount of last year buying gold. Unlike some of HL’s investors I didn’t sell shares to buy gold, I simply couldn’t think of much of fair value, after dabbling in some EMs. This year has been more interesting, with a hit on the FTSE100 and a hit in my second ISA (which is more suited to funds) on a Global ex-UK fund approved of by The Accumulator no less, though I found it independently when looking to repeat what I used to do in my pension AVC fund – invest in a 50:50 Global:FTSE100 fund. I can’t buy that in an ISA, so a mix of VUKE and the L&G International ExUK will have to do. The original plan was to track these, buying 1k of one in one ISA and 1k in the other, but I will probably focus on the L&G fund, because I have more money as cash in that account – a straight transfer of a Cash ISA I had from 2009 as part of an emergency fund I need much less of now, as I will start getting a pension income as of next tax year.
The L&G fund
The L&G fund

The heft at the end of this chart is not so much that the stock market has decided to go gangbusters. No. That, dear fellow UK reader, is the great sucking sound of the pound falling relative to everything else. It makes sense to shovel as much money out of the country or into hard assets as possible, and preferably by last month. It was some of the rationale behind the gold buying last year, but now that Mr Market has taken a bit of a swoon, productive foreign assets are also of interest. The UK stock market is looking less bad than it should do at the moment because though denominated in pounds it also contains a fair amount of foreign assets, though all that mining and oil is probably still tracking down in price measured against foreign dev world currencies.

Braver souls than I trade forex. The trouble with that is it’s still holding cash, it’s sort of like holding gold, and the trouble with owning an asset like that that is not only do you have transaction and holding costs, but when the hell do you decide to sell and buy rotten-looking assets? It’s the old retail investor dilemma again, you have to make yourself do it.

So I take heart with that sucking sound of retail investors beating it. It means it’s time to keep on buying and ramp up πŸ™‚

Now I happen to be in trouble now on that front, because there’s another investment opportunity for me, which is a cash investment, into the SIPP holding my AVCs. I will toss my entire earnings for this year into that, to maximise my tax-free PCLS (if we still have one after the Budget). Ideally after March 16th’s budget, because I am hoping for a flat-rate 25% tax bung replacing the existing 20%. I will therefore flatten myself into this, because I have coasted for three and a half years on savings and these are almost all out. I don’t want to spring cash from my ISA because now is the time to invest, and I don’t want to liquidate my NS&I ILSCs because you can’t reload them and no other cash-like savings beats inflation these days without fiddling about with a zillion accounts, which I can’t be bothered to do.

So I will borrow money on credit cards at 2% p.a. to invest in bigging up my PCLS. Because I can eat paying 2% if there’s a 20% tax-free bung in it. Although I am looking forward to getting a hold of my pension savings in the new tax year, because I don’t like carrying debt. So I will be adding to the statistics of Britain as a nation of spendthrifts going bananas on their credit cards.

However, unlike my fellow-countrymen who are spending this on consumer goods and holidays in the sun, I will be buying cold, hard, cash with this – not at the usual rate of -2% but at +18%. I think Mr Micawber would let me off. As for the others rushing for the exits – if you can’t buy in, at least sit on your hands FFS, guys!


21 thoughts on “the great sucking sound of retail investors heading for the hills”

  1. I’m disappointed it’s not cheaper to buy into world stocks, partly I guess due to the weakness of the pound. Aren’t you worried about the pound bouncing back, trashing the value of your non-UK holdings?

    I’m personally hoping the world markets get back stuck back into the juicy drops they teased us with earlier in the year. I’d hoped we were about to fall off a bit of a global share price cliff.


  2. > Aren’t you worried about the pound bouncing back, trashing the value of your non-UK holdings?

    of course, but not as much as I am worried about it falling πŸ˜‰ For historical reasons I have too much of a home bias anyway, and I hit EMs in a big way in 2015. Not particularly wisely, as it turned out, but I’m sure that dog will have its day in the next decade!

    Juicy global drops? yes please! I agree that this seems to have run out of steam at the moment, I couldn’t really get my boots on before it petered out. Although it’s hard to tell how much of the rise in VUKE since I bought is the effect of the pound dropping 😦


  3. Anything is possible. The pound had been doing pretty well against the euro until not so long ago, though that’s probably damnation by faint praise. As for the $, have to see what Mr Trump can do for that later this year, eh πŸ˜‰

    One of the advantages of getting a better global balance is to average all this crap out, but it is better to buy it when the pound is higher. Trouble was the markets, particularly the US one, were so high when the pound was higher. I feel better about buying international index stuff now the US stock market has been racked back a bit even if the value of what I buy it with is less. The US is over half of that L&G fund and a fair whack of a big holding of some Vanguard DEV WLD x UK I hold unwrapped. I aim to lean against the home bias of the HYP over the next few years. I have done too much of that in EM so far πŸ˜‰


    1. The GBP/USD combo is just killing me at the moment. Fingers crossed for a reversal. 2016 could be an exciting one with political shenanigans both sides of the pond.


      1. I did some of that end 2012. It didn’t go my way… then clawed some back on CHF, hehehe, what on earth could have gone wrong there, eh? After getting back which is a classic behavioural bias in its own, I sat down and asked myself “Self, do you have a good theoretical understanding of how you got here or was recouping the loss just luck?” I came to the conclusion it was the latter, so I stepped carefully back from that account, thanked my Guardian Angel and quit FX. Because I came to the conclusion I personally had zero talent for it. Props to people who can do well with that sort of scenario though – a tip of the hat to you, sir! I take heart from that Warren Buffett fellow who says “in investment, there’s no such thing as a called strike” so I can grub about in things that work better for me. But like it or not, we are all in the FX game if we diversify our assets worldwide…

        Now if I could hold my cash savings and AVCs in SDRs with low conversion costs that would be a nice thing!


      2. I’m more a victim of circumstance, having moved to the US recently and now watching my life savings in GBP trickle away point by point as the pound tanks while the dollar soars. Though we’re at a near historical low point now, so holding out for an improvement. I’ve got a 2 year window before I might need to exchange a significant amount. Being all in cash the current equity market wobbles are just a side show – instead I’m glued to the movements of a bloody currency pair! Still, enjoying reading the blogs anyway πŸ™‚


      3. Ah, forward contracts are more the thing then. Worked well for a couple I know who moved to France – they basically spread themselves out over a couple of years rather than crystallise in one go. Not so much help at the mo, though I guess it depends how you feel about the next 2 year for both countries!


      4. We were in the same sort of situation you are in currently–at least in terms of being victims of exchange rate fluctuations. When we agreed, in March 2006, to a UK assignment, one US dollar was worth 0.57 British pound. By the time we were returning to the US, the dollar was worth 0.49. As we were getting paid in dollars, we saw our purchasing/investing power diminish throughout our time. Ah well. We still enjoyed our time in the UK and hope that you are getting something out of your stay in the US.


  4. I’m heartened to see other people in approximately the same boat as me. I too am massively overweight UK equities for historical reasons and it’s galling for the drop in the US markets to be largely cancelled out by the fall in the pound. I was tempted to buy more FTSE units when it got down to 5500 but it seemed foolish to further increase my UK holdings when I want to be moving in the other direction.

    I was really hoping to hoover up some bargains during this bear market but I don’t really seem to be seeing anything I need cheap. I missed out on bargains in 2009 as I was saving for a deposit on a flat so had a short time horizon (at least I didn’t sell out my existing investments) and it looks like I’m at risk of missing out now too. Fingers crossed markets get a bit lower, this current mini-rally is getting on my nerves. πŸ™‚


    1. At least the FTSE100 has a decent amount of overseas exposure, which will sort of track it up against the pound a bit. The US market is better value now, or perhaps less bad value. I couldn’t bring myself to buy it for the last four/five years or so, other than in generic global ETFs/funds. So although the pound has fallen the expected return on the US has risen a teeny bit. CAPE10 still stinks, though

      Mind you. look on the bright side. the flat has probably done alright for you πŸ˜‰ But agreed, we could do with some capitulation. It’s not like everything’s smelling of roses! The EU seems in trouble regardless of Brexit or not. Greece is still there, there’s the Trump factor, the low oil price causing aggravation in the Middle East along with all the other woe that is there, Brazil, the strange psychology that is Vlad, falling productivity it just goes on. Gotta be good for a rumble at some point.


  5. Re: EM, plot IEEM against the FTSE 100 on a year-to-date or even six-month view. Perhaps the fightback has started! πŸ™‚

    (Or, as you say, perhaps it’s all just currency gyrations for now…)


    1. Ah, but the question is, now that you do know about it, how will you feel in 6 month’s time…?

      That’s where the whole diversifying across a ladder of time periods reduces the volatility, because all the volatility in FX is temporal/market timing (assuming you don’t expect the USD or GBP to go bust)

      FX is one of those things that is a sod to get one’s head round, because it can turn on a sixpence and isn’t something most of us think about. Two years is a good window for changes and all that, but of course that window is closing 24 hours every day. Looking at the 10 year history ain’t pretty – there are some long suckouts. Hopefully the uncertainty around the US election will do you some good around Nov, as to what sort of trouble we are in for in the Old World, that’s another question.

      That’s the trouble with dealing with the known unknowns coming from a better point in the past – the lure of anchoring is always there, and it never gets easier to fight. Or maybe that’s just me. What I did with the FX stuff trying to recoup the losses was classic anchoring on the original position. Dammit, I even knew I was anchoring on the original position at the time. It was sheer luck, not cleverness, that it worked out. Yes, I got smarter in that I controlled my value at risk better, but it was still the spin of a wheel. The rational thing would have been to get out at the loss once I came to the conclusion I had no edge. But then if I were a materialist rationalist I’d be in a world index fund – although some of that thinking informs trying to push back on the home bias. I just want to buy the various global components when they’re individually on sale, ‘cos I’m vain that way.


  6. Despite all the participants here being above average intelligence, they are yet to accept the one truth, which is that you cannot beat the market. I am now in a blissful state of investing peace, and invest in one fund only, VWRL all world etf. Market down, buy more, market up, buy more. Market plummets spectacularly, buy more. Market rises spectacularly, crap, have to sell some to tax harvest capital gains!


    1. Absolutely can’t argue with that, and indeed when it comes to other people I point them to Lars Krojer’s VWRL post on Monevator which is the long-form version of that. Or at least a decent grounding of 80% VGLS for people who can’t resist wanting a bit of control but where the outcome is make or break

      But I am
      1) not a materialist rationalist. I accept my flaws but the journey is more important than the destination
      2) have only another 30 years ahead of me
      3) am lucky enough to have a decent underpinning of future income streams independent of my stock market dabblings
      4) I believe valuation matters. Over a very long integration time of a whole working life it averages out, but my entry into the market is telescoped, because I started when I was in my late 40s

      So I can afford to play and try and beat the system. Honing the art and craft, sharpening the saw, is all part of retiring well. But yes, I am a market timer as a result of believing valuation matters. I am not a trader, I aim to buy and hold, but in my view B&H regardless of valuation needs a longer integration time than I have


  7. “you cannot beat the market”: if you accept that some people do worse than the market, then it follows as night follows day that some beat the market. Though I dare say that they are mainly investment managers despoiling their clients.


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