Saturday, June 5, 2021

How Much To Budget Your Stock Market Returns For?

 Working out a 10 year investment budget has always been challenging as, until recently, there has been no benchmark as to what the returns from a managed funds share portfolio might be.

Now, thanks to modern digital techniques that have examined investment returns going back to the 1790's, there is a number;

"The stock market’s has produced an inflation-adjusted total return of 6.0% annualized since 1793, according to research conducted by Edward McQuarrie, a professor emeritus at the Leavey School of Business at Santa Clara University

How To Avoid Stock Market Sleepless Nights

I had a correspondence with a noted economic advisor which I detail below;

QThe issue in share investing is your appetite for risk. But whichever one chooses — and I go for “far less volatility (and sleepless nights)” — the end result is the same.

Buy and hold or, if it suits you, get out when the 200-day moving average dips. The 200-day chart seems as infallible as such things can be.

AFor readers wondering what on earth you are talking about, everyone who invests in shares — whether directly or via a share fund or a higher-risk or other fund that holds lots of shares — has two choices around trading:

  • Buy and hold. You leave your money where it is, regardless of what the markets are doing. This should be ten-year-plus money, and you can be pretty confident the markets will have time to recover from any downturns by the time you want to spend.
  • Get in and out of the markets, hoping to avoid the downturns and be in for the upturns. This might mean cashing up or moving your money to a lower-risk fund, and returning when things look better.

I always choose buying and holding. It’s easier, and research shows that in the long run it works best.

However, people are always coming up with ways to try to predict market ups and downs, so they can win by timing their entries and exits. Our correspondent has found a system he likes, and sent me an article about it by Brett Arends on Some excerpts:

“Money manager Meb Faber worked out years ago that pretty much every stock market crash or bear market in history has been signaled in advance.

“If you just cashed out when the market index first fell below its 200-day moving average, you avoided nearly all the carnage. (OK, in the sudden 1987 one-day crash you got all of a single day’s notice.)

“Even if you didn’t end up making more money in the long term than a buy-and-hold investor, he found, you made pretty much the same amount … and with far less ‘volatility’ (and sleepless nights).”

Arends continued, “Last year this trigger got you out of the S&P 500 (the main US share index) on March 2, just before the main implosion. The market rose above the 200-day moving average again, triggering it was time to get back in, on June 1.”

I looked back at those dates. The strategy meant you skipped nearly three quarters of the Covid plunge. You sold when the index had fallen to 3,090, missed the bigger drop to 2,237, and came back in at 3,056.

That’s tidy. But it doesn’t actually gain you anything — especially after you take any trading costs into account, as well as the bother of watching the 200-day chart. It would have been much more impressive if you had re-entered the market near its trough.

And what about the 1987 exception — one of the biggest share crashes?

The thing is that Arends, and our correspondent, seem to think the alternative to timing the markets is tossing and turning through downturns. But buying and holding doesn’t have to mean sleepless nights. It can mean ignoring the markets, and reading novels instead.

Sure, you can’t escape the talk during a big downturn. But I just look up from my book and say, “Here we go again. I’ll just sit tight and it will come right.” And it always done."

In further correspondence following publication I added;

I was delighted to read your analysis of how the example of selling and buying I provided actually worked out. This confirmed that both methods work and bring peace of mind with the difference shown that your book reading method would gain you a bit higher returns than my method. It also shows that personality types will still do their own thing regardless of a slight disadvantage-I actually enjoy following the S&P500 moving average index, it's not a chore, rather it adds a soupcon of smugness :-) (when it works out of course)

As you have pointed out before we humans are odd-my ​stocks​ went up $1k this week which I appreciated but didn't rejoice over, after all, how much can $1k make to ones life in sum-but when it goes down, even $500, the "unenjoyment" is palpable!


Wednesday, May 12, 2021

The Fed Rules The World-And You Are Stuffed


"The next year or so will show if there is, or ever was, "the laws of economics" or if a new paradigm is in place and the textbooks have to be tossed aside.

We shall see how the laws of economics hold up against US$2trillion of Reserve Bank created money on top of the trillion already spent and the 2 trillion of infrastructure spending to come, all this at a time when the economy is recovering anyway as Covid winds down. 

We shall see, as orthodoxy advises, if the massive circulation of money equals inflation, whether there actually is a "low level of unemployment that will cause inflation" and if there actually is no level of deficit spending and money creation that will cause inflation anymore when the creator of money is also the world's reserve currency-so far inflation, at a level to cause economic disruption, is utterly dead."

I said that we shall find out if classic economics has been upended-the answer has come sooner than I expected. The massive Fed money printing has fed through into inflation. Corn, a basic staple, is up 50% and the crazy situation is a massive labor shortage causing supply chain bottlenecks (as people are, rightly, happy to earn more in handouts than they can get in low paying jobs) with a rise in the unemployment rate! 

When this feeds into mortgages the pain will be severe for those who have borrowed so heavily against the crazy rise in house prices. The Fed rules the world, when they get it wrong everyone suffers.

I can understand financial ignorance and financial greed but can't comprehend how, as attached, numerous professional financial advisors can, over and over, pursue "14% p.a. continuous returns year after year from "Master of the Universe" and take down "high net worth individuals who have blocked their names" as well as establishments all of whom should know better and have endless examples going back to Bernie Madoff.

Managed funds  and one's own home are, over time, the best- for those who can invest.

This latest and surely most comprehensive research might interest as it gives an apparent final figure on stock market returns.

"The stock market’s has produced an inflation-adjusted total return of 6.0% annualized since 1793, according to research conducted by Edward McQuarrie, a professor emeritus at the Leavey School of Business at Santa Clara University.

Monday, May 10, 2021

The Meaning Of Life

 Having a child then having the child marry are the first two steps to mellow. On becoming a grandparent, although one is aware of the cycle of life after the first two steps the full dawning comes when one actually becomes a grandparent.

 At that point psychologically one becomes fully aware with a depth that is unobtainable prior (of course when young there is barely any recognition except in moments of health problems but that is diminished as one is focused on one's own situation).

 A feeling of having done one's job genetically and parenting comes in and it is very very satisfying. One becomes an observer rather than a full participant in life and the trials, tribulations and foibles of one's offspring is viewed avuncularly.


In my experience if one can get through life with a bit of dignity intact and has a loving family then that's the best one can do. When young of course there is the struggle and challenge of suitable employment, finding a partner and striving to achieve as whatever societies current mores and striving dictate.


The reality is that achieving a degree of financial comfort and if possible job satisfaction while maintaining key relationships is all that matters (with faith as an adjunct). 


If Bill Gates and Bezos with all their billions and worldly success can't maintain their relationships that's all you need to know about the pursuit of wealth and fame-it's a chimera.


Friday, May 7, 2021

Woke Tide is Turning At Last

Coming to all countries in due course-people have had enough;

 UK Labour Crushed

"Criticising Sir Keir Starmer for failing to listen to voters, Mr Mahmood said: "A London-based bourgeoisie, with the support of brigades of woke social media warriors, has effectively captured the party.

"They mean well, of course, but their politics – obsessed with identity, division and even tech utopianism – have more in common with those of Californian high society than the kind of people who voted in Hartlepool yesterday.

"The loudest voices in the Labour movement over the past year, in particular, have focused more on pulling down Churchill’s statue than they have on helping people pull themselves up in the world..