Disclaimer: I won this round. I’m still not sure of the balance between skill and luck, I favour luck. I’m not sure I could do it again, so don’t extrapolate…
Monevator has a lovely little summary of advice for people who opened a share account during lockdown. The recommendation is go invest passively, but that’s dull as ditchwater. Everyone sees themselves as the Wolf of Wall Street
You opened your new trading account for excitement, not something that’s just as dull to do as it sounds – even if it is more profitable.
The markets had a near-death experience earlier this year. Passive investors had an easy life. Do Not Sell
We only have to do one thing.
Do not sell.
DO NOT SELL.
DO NOT FUCKING SELL.
If you’re going to sell into a market suckout, do it, do it decisively in the shortest time possible, and if at all possible do it early. Well, I got two out of the three right. A bit before then I also started to short a lot of what I had1 . In a couple of cases I shorted more of the stock than I had in the ISA.
I had been chasing income into the ageing bull market, so I ended up with more FTSE100 and investment trusts than I should really have had. And then I sold into a low, though nowhere near the true low-water mark. I did not sell VWRL, gold, or my HYP from way back when. I didn’t sell any of my index holdings in Charles Stanley, and indeed pumped LGITI up. Among what I saw as crap I sold BWRM which was a mistake in hindsight. You don’t have to hit zero bum notes, just more high ones than bum ones.
I bought a shedload of gold to add to my existing stash bought before the Brexit vote in 2016, and a few shares, and some VWRL. I was selective about what I sold – mainly UK based stuff and also income investment trusts, though only the excess I had bought in 2019, I have a core holding of ITs that I have had for years. At least TI seems to approve of the selectivity, just about.
9. Invest for the long-term: run your winners, and cut losers
though he doesn’t actually say short the losers…
So I am one of those suckers that passive aficionados take the piss out of, I got slaughtered in the bear market, when stocks return to their rightful owners, yes?
Not so fast, passivistas
You’ve had a good war. You did not sell, and you are now sitting on a tidy profit. All around you the smoke is rising from people’s business hopes and dreams, but you stayed passive, and you did not F*ing sell, you kept the faith, and you are up on the year? I don’t want to take that away, well done you.
I did F*king sell. Investing FAIL. Had I done n’owt I would probably be back where I was in Jan at a guess. Oddly enough when I look at my ISA now compared to January it’s not epic fail, but still FAIL. Advantage passive.
Oranges are not the only fruit
Not so flipping fast. I was way too heavy in shares, which arguably is not where I should have been. As Monevator reflected in his comment that I pinched the title of at some point during this bear market I realized that I probably shouldn’t keep doing this I was over-exposed2 to equities at a market high, and I didn’t want to really be so highly exposed. I’ve been grousing about valuations for long enough on here.
I hold no real bonds, and I don’t have the benefit(?) of the market value of bonds responding conversely to shares. I don’t really like cash, although I am happy with ILSCs. One long trade I did manage to get right was selling some premium bonds to buy LGITI, because: holding pounds into the farrago of Brexit, well, no.
Now I have a lower exposure to equities. Before March the red and the yellow bits were about half where they’re now, with the blue stocks Pac-Man correspondingly larger. It’s easy enough to get a lower exposure to equities in a bear market, you just sell 😉 The downside is the loss! Active investors get killed in the long run, the market is efficient and exists to KO such temerity. And all that good stuff.
The ermine is not passive. I am quiescent most of the time, and indeed I have held some of my shareholdings for 10 years, most are over 5 years. So I’m not a day trader. I hope that we aren’t going to get rapid-fire seethe in the markets like this again, because that was too fast and furious. And I don’t want to have to short things again. Shorting stocks happens outside my ISA, and it’s tough to add it all up in real time, I could focus on tracking the shorting or the ISA. Shorting is more dangerous, so I tracked that. Reviewing my shareholding performance this year, I realised that what I am measuring is off.
The Law of the Instrument
I use a spreadsheet first created in 2008 to monitor shareholdings, which is terribly lo-tech. It is also unwieldy, because I used it to model what-ifs when I was trying to work out how many more years I had to work, then how long I could defer my DB pension for, until Osborne changed the rules. It only shows the ISA. It would substantiate the passive mantra, since the ISA down. Worse than that, I crystallised losses. You heard what the man said. Do not F*ing sell
The problem with using any instrument is it blinds you to what happens outside its area of utility. I have to zoom out. I use Quicken for a 360 degree view of networth, but getting it to display shareholdings right is a pain, since this program dates from 2004. It can match share ticker codes to values, but it is a manual update process, I’ve only done it sporadically.
Quicken has a line for all my accounts, so it is the closest to the one real truth I have. In particular it includes the cash in IG. I have no shorting exposure in IG now. I hadn’t updated share prices since the 1st November 2019, so up until February this shows the share networth frozen at the snapshot of 1/11/2019.
Because shorting in IG meant that I couldn’t use my normal spreadsheet, I updated this on March 24 (so after the low-water mark), then on May 1st when I was out of IG exposure and June 6th. I track all other spending as it happens, which is what Quicken is mainly for. The steady state to February shows that on this scale income and outgoings are about the same.
Not every active investor gets killed. It may be most of them, but not all. If I sold into a suckout, and have a higher balance of gold to equities and gave up some money to the market, how is this? I retained 60% of my equity holdings so a little bit of it is simply the suckout coming back up – passively. What I retained is decent stuff, it rallied more than what I junked.
But late March was a low water mark. What’s with the March heft? Some of it is the power of gold, which lifted ~20% between 30/10/19 (SGLP=112) and March 24 (SGLP=132). Correspondingly VWRL sampled on the same dates was £68.4 and £60.49 so an 11% suckout. There was much worse in there 😉
Disregarding the gold I did get burned on the shares. Shorting over 100% of some of these deadbeats (EDIN and ASL in particular, I’m looking at you) into the suckout saved my tail. Shorting is a very strange world indeed, and there is an argument that plungers need a different skillset to going long. Their inspiration is Jesse Livermore
I did not have great skill – I gave up half of my erstwhile profits before I realised I was fighting the tape and the resurgence would continue.
I have no good explanation for why the markets have swept back to what was already an overvalued position in the good times and the high-water mark of a bull market. I failed to get back into the market on the long side, though others with a finer sense of market timing did, a couple of weeks after I cleared out. I thought I’d have months.
I can think long or short, not both. Shorting is extremely hazardous 3. It has a very high time cost of carry, and normally long holders just aren’t used to that at all. The shorting paid off. I didn’t have to put up with the misery of metrics and performance management to ‘earn’ a decent wedge this year.
I feel in a better position to fight another bear market with a much more balanced asset class holding than at the beginning of this year. I was too drunk on heady valuations, I am not a 20-something who needs to hit it out of the park. I have been bitching about valuations on here for long enough. OTOH it was the feeling valuations were high that triggered the shorting episode so quickly.
I don’t need to be balls-deep in equities. If equities will continue to soar, and that is good, and the gold will fall. If they tank, and the gold will rise. If the bear market comes soon, hopefully it will be less fast and furious than this one just gone and I will take it on via the long side, in a civilised way, over months.
You make your best buys in bear markets, but you don’t know it at the time.
I didn’t sell stuff that has proven its worth to me from the last bear market. I did OK here. I made plenty of mistakes, and had luck, but I wrested some wedge from this bear market, though it wasn’t the bear market I was hoping for (and still hope for 😉 ).
No more hedging of the resounding success Brexit will be
I hold very little that is dependent on the domestic economy now. If the £ rises then I am on the wrong side of the trade. I am betting against Brexit being a resounding success, because I have no hedged holdings. I am exactly the guy that Monevator highlighted should hedge foreign holdings to the £. I held IGWD for a while to do that, while I was largely equity-exposed and had no £ income. I have a secret weapon now. My DB pension is denominated in £. If Brexit is an amazing success and we have a strong world-facing economy exporting lots of stuff like they tell us, then my pension will be worth more in terms of Real Stuff, like bread, iPhones, foreign holidays, wine and cars. Taking a hit on the ISA is diversification in action.
Brexit is unlikely to be a resounding success for the £ IMO. Former Brexit Secretary David Davis said thusly of the devaluation he looked forward to
“Our goods will become 20% more competitive on the global market.”
so the hit is likely to be the other way round. I’d rather look like an incompetent investor as the £ appreciates in value and preserve the value of my regular income, but I don’t get to make that choice. Que sera, sera.
time to retire that 10 year old spreadsheet
That 2008 spreadsheet is getting unwieldy. It has Visual Basic in it, and that’s really not nice. Nobody wants to admit to having VB in anything that matters. I also made a mistake in drafting it that I chose to unitise with a datum set on the 1st of January. When I was working the period between Christmas and New Year was quiet enough to go on the web and get a snapshot of prices and a valuation. Other than that January was a poor choice of datum because everything else is set on the end of the tax year on the 5th April.
The networth chart showed that this is not a bad year to start again, move the datum to April and start over. I am not sweeping bad news under the carpet. But I am not typing in market prices again. There are only about 20, but the process is tiresome and error-prone.
Google sheets (cloud-based spreadsheets) has a GOOGLEFINANCE command, which gives you some share prices and also currency pairs.
There’s a lot wrong with Cloud anything. The Ermine does Not. Do. Cloud. That’s because I’ve had too many times when a cloud service becomes collapsed.co, paid for, or otherwise goes bad. It’s particularly bad when you put effort into entering data to somebody’s Cloud platform, and they hold your work to ransom without any way of exporting it.
Share data is inherently a Cloud thing, but Google sheets lets you save a spreadsheet as a comma-separated value. After all, for a sporadically updated valuation it’s hardly as if I need Level 2 share price data, so I’m not going to pay for it, thanks.
Googlefinance is an unreliable sidekick, though it gives share prices easily. Given the ticker LON:VWRL in cell A1 the function =GOOGLEFINANCE(A1) gives you the 15 minutes delayed price. Bizarrely sometimes (like for VWRL) it gives you the price in pounds, whereas say for most shares eg LON:GSK it gives you the price in pence. So you need another column to normalise this to all pounds or all pence. That’s the price of being a cheapskate.It doesn’t seem to change from day to day for any given ticker. So I can get quotes. Now I need to get an oversight without the dreadfully unreliable pound.
in search of the luminiferous aethyr
If you stick GBPUSD in A1 you get the exchange rate for that pair. You used to be able to put GBPXDR to denominate things in IMF Special Drawing rights, but the unreliable sidekick stopped that earlier this year. This is how you derive that from the constituent pairs
B5 is GOOGLEFINANCE(A5) and D5 is =C5*B5 D10 is =SUM(D5:D9)
The currency amounts are brazenly pinched from the IMF specification here. Why am I engaging with all this aggravation? It is because the Great British Pound is an unreliable yardstick of value. Some extreme muppetry has been going on in the last few years, viewing your networth in GBP sticks random noise of Brexit noise into the signal. There seems no end to this muppetry – Brexit seems to mean hard brexit to the current crew, rather than the easiest trade deal in history. Reality, meet Stupid. Unfortunately I’m with Stupid.
I am looking for an independent measure of value, a financial luminiferous aethyr, but the trouble is all forex pairs are relative. When we had the Gold Standard you could use gold for that, but it was before my time, gold is more a fear-associated variable rather than a measure of value. IMF SDRs are an attempt to nail down all that relativity, though the relativity across time is an inherent problem of fiat currencies, and probably of money itself. IMF SDRs will get me far enough away from being blinded by Brexit baloney’s effect on the pound.
So now all I have to do is get a Google Sheet of the tickers I want, and create two columns, one in pounds and one scaled to IMF SDRs, and store these in my Excel sheet in April, and I am done. I can track the longitudinal value in £ and XDR.
wait but what about funds
=REGEXEXTRACT(IMPORTXML("http://www.morningstar.co.uk/uk/funds/snapshot/snapshot.aspx?id=F00000QTLZ", Morningstarscrape), "[0-9]*\.[0-9]+[0-9]+")
Morningstarscrape is a named range containing this magic incantation
//*[(@id = "overviewQuickstatsDiv")]//tr[(((count(preceding-sibling::*) + 1) = 2) and parent::*)]//*[contains(concat( " ", @class, " " ), concat( " ", "text", " " ))]
No, I don’t understand what it does either, though I presume it’s the contents of the div overviewQuckstatsDiv munged in some way, from the LGITI web page on Morningstar
Active investing is more like work
that passive investing. March was really tough. I can see the passive attraction, OTOH I ‘earned’ more like when I was working. And yes, usual wealth warning. Active investing kills 9 out of 10 cats because it’s a zero-sum game
Don’t even think about it. Even at the end of this, I don’t really have a good handle of what was skill and what was luck, and Dunning Kruger probably favours luck. You also get massive sample bias, because if that networth chart had a heave-ho in the down direction you wouldn’t be reading this post. Success has many fathers and failure is a bastard.
However, I’m not selling you investing seminars on how to be a shit-hot short trader. I hope to never feel I need to short again – starting with trying not to be overexposed to equities at high valuations.
There again, I do hope this guy comes along later in the year to relieve me of some of those pounds with lower valuations. We were all told how it’s going to be a V shaped recession, which I struggled to see at the time. Fair enough to say markets look forward in the future, but it’s tough to see what they’re so damn chipper about for the next couple of years. At the moment it looks truly evil – Amazon, Facebook and Google will stand over the smoking wreckage of a billion people’s dreams, All Watched over by Machines of Loving Grace. Adam Curtis warned us in 2011. This is apparently what success looks like, according to the stock market. WTAF?
- If you short holdings you own as opposed to selling them then you freeze your net position, although if the short goes the way you expect it to you do effectively transfer money from your ISA out of it. This is not a big deal for me because I am not contributing from income any more, so I can put it back into the ISA. You save costs on the turn of the holdings, but shorting has high costs of carry compared to holding shares. This market swoon was both exceptionally steep but also exceptionally short, so that didn’t add up to much. ↩
- On a technical measure I am not overexposed to shares because my DB pension is an annuity. Scaling the annuity by the inverse safe withdrawal rate of ~5%, I would have to have more shares before I would get the bonds:equities ratio right for my age. ↩
- IG and the spreadbetting industry make a big song and dance about being able to use margin to lever up. That’s for people with balls of steel IMO – I put on deposit enough to cover the amount of value at risk if the price doubled. It’s really hard to control a SB account – I suspect IG make a fair bit of money pinging people out and crystallising losses if they reach margin limits. ↩