S&P500 at record highs - time to stay in or pull out?

[Jon39]

bmwmike said:

+1 to that. Very risky to offer unsolicited advice. Its amazing how financially illiterate people are, even business owners, when it comes to this stuff. I was in a convo recently and someone was talking pensions and asked the group if anyone invests. I was the only person who did. I explained you can do it relatively low risk using global trackers etc, but it was like explaining quantum resistant cryptography to a Zulu.

Forum discussion seems to have moved from, 'is the S&P overvalued', to 'short-term trading'.

As someone who finds the long-term strategy to be an easy way to increase wealth and income, with almost no work involved, I associate trading with gambling. Probably very exciting, but accompanied by high risk, especially if leveraged debt is added into the recipe.

When seeing warnings such as the followiing, I am puzzled why anyone would want to get involved.
'Approximately 80% of our customers lose money, when investing in CFDs'.
It all sounds rather Wild West.

'Because of the risks, the FCA has undertaken an extensive programme of work to ensure consumers are as protected as possible. The sector has attracted a number of firms, often accessing the UK from overseas, that do not deliver good customer outcomes. In 2020 and 2021, FCA action stopped 24 firms marketing CFDs in the UK. The actions in 2021 alone prevented an estimated £100 million a year of harm to UK consumers. Further FCA action has been taken in 2022 and will continue where justified.'

Are the FCA actually doing something this time?

[DaveA8]

Jon, instead of being here why don't you use your spare time to watch Family guy because the similarities between you and Peter Griffin are uncanny. If Peter doesn't understand something, his default is "Garbage", "that's garbage"

How do you think a price is set for anything you hold ?, if short term trading didn't exist you would not be able to sell or buy anything, liquidity is the driver of the market and your BAT or Shell shares would be of near zero use to you, for an old school value investor you clearly missed the class on why the stock market exists and how it functions.

[Jon39]

DaveA8 said:

How do you think a price is set for anything you hold ?
if short term trading didn't exist you would not be able to sell or buy anything, liquidity is the driver of the market and your BAT or Shell shares would be of near zero use to you, for an old school value investor you clearly missed the class on why the stock market exists and how it functions.

Thank you, Dave.
Supply and demand eh.
You might be right. A PHer may be able to teach me. -

Please excuse me now. Have just finished breakfast in bed. Goodness it is a quarter to ten. I really ought to think about starting my day soon. My part ownership employees will have already been working (hopefully) hard, to get the eps up.


Edit - As I have said before, I stopped short-term trading, because I was unable to predict share price movements. Therefore not suited to being a trader.
Of course with long-term, if a business can steadily become more profitable, there is a considerable likelihood that the share price will eventually follow upwards. I see that as a reassuring way of having greater certainty.

Edited by Jon39 on Wednesday 8th July 10:28

[Phooey]

Genuine question for DaveA8 and SchillingTwo seeing as you are both traders so hopefully you'll be able to enlighten me. Why does a stock like AMD which has a market cap of around 900 billion fluctuate in daily price by up to 100 billion on no news? I'm curious to know what is happening under the hood in some of these mega-caps. Thanks

[NowWatchThisDrive]

In a nutshell, an orgy of speculation using short-dated leveraged products.

(not a "trader" retail or professional, but used to be the latter)

[Phooey]

NowWatchThisDrive said:

In a nutshell, an orgy of speculation using short-dated leveraged products.

Thanks. I heard it yesterday on some podcast or something playing in the background.. a phenomenal amount of money (on no news!) being talked about in some of these stocks.

[DaveA8]

Phooey said:

Genuine question for DaveA8 and SchillingTwo seeing as you are both traders so hopefully you'll be able to enlighten me. Why does a stock like AMD which has a market cap of around 900 billion fluctuate in daily price by up to 100 billion on no news? I'm curious to know what is happening under the hood in some of these mega-caps. Thanks

On the 6th of Jul Goldman Sachs raised price target to $645 and there was an investment in Japan so price jumped over 6%, the is a stock in play so a lot of near term options will be trading and the options dealer hedges, so this creates volatility anyway, the stock on average over the last 20 sessions moved about 6.5% daily ( high to low) and because it's so heavily traded other news ( Broadcomm AI uptake and news in general) has a direct effect on the price.
I held it from the 8th of April and reduced on the 17th and the remainder got stopped out.
Knowing all this is useful but this is a share that requires the holder to be very clear on their intention, Funds will be accumulating this and Funds buy on pullbacks, rarely do they buy into strength, long term holders will buy and just hold based on the theme.
The other parts is day trading, options and swing trading and this is really about price action, other than knowing there's a catalyst ( news, earnings upgrades, new products), the driving factor is price and the only sustainable way to trade a relatively vollatile stock is to size the trade in a way that fits the risk profile for stops. As of today it wouldn't be of interest to me as there is no set up but if there was broadly a stop at $489.78 ( 22c below 490) but at present it has nothing about it and being situationally aware of the Gulf, I'd be cautious generally but pre market today is an absolute no no

[Panamax]

It might be helpful if traders started a new thread on the subject of trading.

This thread started off talking about an index rather than individually traded stocks and I've not yet heard anybody say they're trading the S&P500 index, which would typically be seen as trying to time the market. Perhaps an ETF investor could dip in and out through the day but that would be very different from my own approach.

[Panamax]

DaveA8 said:

if short term trading didn't exist you would not be able to sell or buy anything, liquidity is the driver of the market

Do you have a view on the active vs passive debate and whether passive investing has become so large it may be distorting the market?

[DaveA8]

Panamax said:

Do you have a view on the active vs passive debate and whether passive investing has become so large it may be distorting the market?

I wrote this yesterday

Now lots will say, this is isn't relevant to me as I'm a long term buy and hold and value investor and if that's the case, then why the hell are you worrying about what will happen in the next 3, 6, 12 or 24 months to the S&P and why are you even reading this.
And
I also said there is no answer to the S&P question because it's totally individual based on risk etc.
For a retail investor and certainly an active one, there is almost no edge availabe in an index ( other than at market turns usually from a low)
What I don't understand is what people don't get about this question, it's a typical CNBC question and even if one had an answer, what do you do with it because unless you want to be an active investor in individual stocks what else is there, In the investing world there was a term I learned, "The Restless Soul" and this is the personification of it, it's self flagellation, oh god what will the S&P do but I don't want to sell out in case I miss out but god if it goes down what will I do and no I don't want to be in cash but trading shares is sooooo low class, I'm an Investor ( in other words me and Warren are the same, most likely not) This thread ran its course on Day 1 because it's like the Hitchhikers guide to th Galaxy, if you manage your own money, then the decision is yours, if you have a fund then they decision is yours.
I write this because based on all available evidence and history, the Stock Market and the US particularly has been a very good compounding tool but constantly looking at something that you have very little control over either by choice or structure is a waste of time.
As for active or passive, I have no view. The only time fund accumulation is of interest in when buying comes in for a stock, that's it, Funds are big buyers of stock and are the things that move the price not retail buyers

[Phooey]

DaveA8 said:

Thank you for reply

[Panamax]

DaveA8 said:

Panamax said:

Do you have a view on the active vs passive debate and whether passive investing has become so large it may be distorting the market?

I wrote this yesterday, .... "As for active or passive, I have no view."

Yes indeed, although to have no view you either haven't thought about it at all or have thought about it and decided it's not a material factor. Which is it? If the latter, why do you feel a big slug of passive makes no difference?

[DaveA8]

Panamax said:

Yes indeed, although to have no view you either haven't thought about it at all or have thought about it and decided it's not a material factor. Which is it? If the latter, why do you feel a big slug of passive makes no difference?

I have had money with an Active manager and it was a problem because I made a poor choice, I liked the guy and was too willing to overlook his particular weaknesses.
My son has started earning good money and I said go passive and he has 40% Nasdaq, 40% S&P and 10% in 2 Wisdomtree 3X , a Nasdaq and some kind of Semiconductor. So if I was young passive with a bit of aggressive like that
Active, it's luck and to be fair the responsibility of the individual but you could get Woodford at one end or Ron Baron at the other.
I know someone who has a lot of money with Renaissance and that was an eye opener how poorly that did, the thing that does well is the in house staff version, the general one ( it's been sometime since I looked) has not been a good investment.
The real thing with the index is just buy and forget and low cost ( as Buffet says).

[Jon39]

DaveA8 said:

I have had money with an Active manager and it was a problem because I made a poor choice, I liked the guy and was too willing to overlook his particular weaknesses. ...

... The real thing with the index is just buy and forget and low cost ( as Buffet says).

If you decided to try active, why did you use a manager. You give us the impression, that you have enough knowledge to be able to create your own portfolio.
I suppose 'his particular weaknesses' means, he never beat an index. That would not be an ideal selling point.

Yes agree an index fund is a very good starting point for everyone (there is still a problem of which to choose, especially considering some of the present valuations), but an add-on self select portfolio must be worth a try, after more experience has been gained. A way to test ourselves.

[DaveA8]

[quote=Jon39]

If you decided to try active, why did you use a manager. You give us the impression, that you have enough knowledge to be able to create your own portfolio.
I suppose 'his particular weaknesses' means, he never beat an index. That would not be an ideal selling point.

Yes agree an index fund is a very good starting point for everyone (there is still a problem of which to choose, especially considering some of the present valuations), but an add-on self select portfolio must be worth a try, after more experience has been gained. A way to test oursel

I was busy so my time was better spent on my work, he beat the index but was either wedded to a stock and allowed big drawdowns or when I complained about this cut winners too quickly to show a profit, allowing big drawdowns makes an assumption the person knows the future, they don't so once in a drawdown you are no longer in control of your destiny, you are letting the market control you and normally it comes back but you have no real say, other than to take a thumping big hit. Better not to let it happen in ther first place.

I couldn't easily construct a buy and hold portfolio, I could learn but the thing is if it's just randomly picking 8 to 12 stocks with some sector weighting type thing as most would do, that's an afternoon, look on Seeking Alpha, if you want to do it in a professional way, I'd guess 1 to 2 yrs of research not on specific stocks but on how to read and understand earnings and forward earnings, themes, Analyst upgrades etc.
If it was easy everyone would do it and out perform and doing the afterrnoon way guarantees you never know why you hold a stock and what the real details are and you never learn to read sentiment around, if you go that route you better marry it to a decent risk structure as one morning you'll wake up to a thumping great down day and never know why it happened.

[Jon39]

DaveA8 said:

Jon39 said:

If you decided to try active, why did you use a manager. You give us the impression, that you have enough knowledge to be able to create your own portfolio.
I suppose 'his particular weaknesses' means, he never beat an index. That would not be an ideal selling point.

Yes agree an index fund is a very good starting point for everyone (there is still a problem of which to choose, especially considering some of the present valuations), but an add-on self select portfolio must be worth a try, after more experience has been gained. A way to test ourselves.

I was busy so my time was better spent on my work, he beat the index but was either wedded to a stock and allowed big drawdowns, or when I complained about this cut winners too quickly to show a profit, allowing big drawdowns makes an assumption the person knows the future, they don't, so once in a drawdown you are no longer in control of your destiny, you are letting the market control you and normally it comes back but you have no real say, other than to take a thumping big hit. Better not to let it happen in ther first place.

I couldn't easily construct a buy and hold portfolio, I could learn but the thing is if it's just randomly picking 8 to 12 stocks with some sector weighting type thing as most would do, that's an afternoon, look on Seeking Alpha, if you want to do it in a professional way, I'd guess 1 to 2 yrs of research not on specific stocks but on how to read and understand earnings and forward earnings, themes, Analyst upgrades etc.
If it was easy everyone would do it and out perform and doing the afterrnoon way guarantees you never know why you hold a stock and what the real details are and you never learn to read sentiment around, if you go that route you better marry it to a decent risk structure as one morning you'll wake up to a thumping great down day and never know why it happened.

I have noticed on PH finance forums, the word 'drawdowns' being used.
It is not clear to me what this means, although I think it is used in more than one context.
1. Pension fund where a pensioner is withdrawing money from the fund, probably faster than investment growth is increasing.
2. And I think this might be your meaning. A share price is steadily falling.

If you want to know, my initial stock selection was mostly done over 30 years ago. It was not done randomly, there were some key requirements involved. Train commuting provided the spare time and it was Financial Times research in those days, no smart phones then.

The simple strategy was;
- Large cap profitable FTSE 100 businesses; have the strength to cope with disasters (sometimes self inflicted) and most trade worldwide.
- Consumer defensives favoured; resilient during economic crashes.
- Cyclicals avoided, except Oil and Gas majors, which mostly remain profitable during downturns and also continue paying dividends.
There have been changes over the years, mostly corporate actions. By luck, a few good businesses were acquired as a result of takeover activity, without any of my input.
Simple performance monitoring is key to decisions. Overall fund total (ignore individual constituent movements) if mostly ahead of market index, then do not make any changes. We are only concerned with the overall percentage growth. Remarkably, that strategy has now worked for 39 years, exceeding the appropriate index and with solid performances in every stock market crash. After gaining confidence during the first couple of crashes, I then became bold enough to go against the 'herd' and took those opportunities to increase existing holdings at cheaper prices.

I suppose it is rather like an old car - if it ain't broke, don't try to fix it.
It has all worked very well by sticking to the rigid parameters, with almost no ongoing work on my part.
However, I know that I would be a hopeless trader, probably sacked in the first week.

Edited by Jon39 on Wednesday 8th July 21:34

[Panamax]

DaveA8 said:

Active, it's luck....

By what logic are traders able to make money by "skill" whereas active managers must rely on "luck"?

It makes no sense.

[DaveA8]

Panamax said:

DaveA8 said:

Active, it's luck....

By what logic are traders able to make money by "skill" whereas active managers must rely on "luck"?

It makes no sense.

The “luck” part referred to whether as a client you get an active manager who works well for you and out performs, no where did I say that active management was about luck or if I inferred that I apologise

[Panamax]

I see what you mean. No apology needed.

It happens that I buy mainly active funds and, to my mind, identifying which funds to buy/hold is fundamentally similar to a DIY investor identifying which shares to buy/hold. I'm backing the fund's management and DIY investors are directly backing the individual company management. I guess that, in contrast, a trader isn't backing anything except the "perceived opportunity" which looks like an investor's equivalent of "timing the market".

[trickywoo]

Panamax said:

DaveA8 said:

Active, it's luck....

By what logic are traders able to make money by "skill" whereas active managers must rely on "luck"?

It makes no sense.

The simple explanation is short term vs long term. Short term its relatively easy to 'beat' the market. Over the long term its much harder.