S&P500 at record highs - time to stay in or pull out?
Discussion
Jon39 said:
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.
I think an active fund investor can deploy similar simple strategies, leaning towards,- 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.
- Larger or smaller companies
- Specific sectors or geographies
- Emphasis on income or growth.
And I guess passive investors can also choose what they track even if the majority seem happy to back overall global markets.
FWIW my own exposure to North America is currently a bit lower than its share of global markets, which doesn't seem to be doing too much harm.
Panamax said:
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".
I will expand upon because otherwise it seems almost a flippant comment but it's far from that especially in Active Management and I will use me as the reference point.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".
Say I like burgers, my unconscious bias is then to potentially look for companies who make and sell burgers to invest in, the big risk in Active management is I will seek out a manager who likes that too and then use the confirmation that Bill Moneybags the great investment manager likes burgers, I like burgers, god burgers must be a great investment.
So I buy Bill's fund and all's well until Intl. Burger corp starts falling from our price of $100 to $90.00. Bill and his people go through the numbers and ah the markets wrong, it's great buy, brilliant earnings, we hold and if it gets cheapr we buy more. Eventually Intl. Burger falls to $35 after a few years of under performance and Bill's compliance people tell him to get his act together and they wind up the fund.
The issue here is Bill's whole schtick has been " buy and hold on strong thesis", "we're not bothered about day to day silly day traders, we're pro's and we're fundamental investors" or " We've spoken with management and they assure us next qtr is the turnaround"
The list of exuses is almost infinite but the price is telling eveyone something but Bill has set his stall out on the buy and hold big picture thinking etc.
We know nothing of Bill other than what his marketing and carefully curated performance story tell us, he could be a pure gambler is is up and decides this is the optimal to promote the big bad burger fund,along with its big bad fee structure.
And btw I'm a 350lb certified burger addict
Now before anyone dismisses this, Neil Woodford, can't be bothered but it was horrendus despite positive initial claims or Cathie Wood or just yesterday Alexander Darwall who was so high conviction the fund never trimmed it's gains and watched and round tripped Novo Nordisk. This fund is due to close with losses I guess.
With an Active maanger you are buying into what they have set their stall out on and it's hard to imagine the peer pressure not to U turn or sell because the hundreds of hours of Analysts time, meetings with management and factory visits all fall on the managers shoulders and often an about turn can be career ending.
The likelihood is they are finished but honestly tell themselves with such conviction that the fund holders stick in there
And that is the luck element because for all of that the counter works when some half decent guy discovers and sticks with Palantir or some other high flyer, it is possibly luck but on the other side.
Panamax said:
Jon39 said:
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.
- 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.
I think an active fund investor can deploy similar simple strategies, leaning towards,
- Larger or smaller companies
- Specific sectors or geographies
- Emphasis on income or growth.
And I guess passive investors can also choose what they track even if the majority seem happy to back overall global markets.
FWIW my own exposure to North America is currently a bit lower than its share of global markets, which doesn't seem to be doing too much harm.
Yes, I agree Panamax.
I suppose with funds, fine tuning of holdings might not be possible for buyers.
For example I have purposely always held some non-cyclical defensives. For those businesses, trading is less affected by economic downturns and stock market crashes. Having now experienced nine years of stock market crashes and in only two did my overall holdings fall as much as the market index.
2000; 2001; 2002 was horrific with a cumulative index fall of 37%. My results during those three years were; + 10.95%; -4.89% and -6.48% (a cumulative fall of 1.3%)
I have simply described that, to emphasise how helpful non-cyclical defensives can be overall.
A poster did recently mention a London fund, that has achieved excellent long-term results using a similar strategy.
As for your decision about North America.
I like established UK listed companies, that do a lot of their business in USA.
I say established, because there have been some howlers. Do you remember Tesco's attempt to conquer America?
And they were not the only one who limped home with losses, tail between legs.
I don't hold any US listed businesses, so don't know too much about what is going on.
You might be right to be wary of any very high value companies, that don't have corresponding profitability.
The huge proportion of the whole S&P, by just a few companies is probably historically very unusual.
What it all means, if anything, I don't know. Time will tell, I suppose.
Edited by Jon39 on Thursday 9th July 18:39
nickfrog said:
g4ry13 said:
If you have no view then bold sounds best.
Thank you. Perhaps an opportunity to also slightly de risk the US exposure to AI if I leave the FTSE alone and rebalance towards FTSE somewhat? Not sure it's a good idea!?Last 6 months: S&P +8.29% FTSE100 +3.44%
The above does ignore FX exposure.
There's also political risks to consider (mid-terms in USA) and Labour / Burnham policies in UK. I'm personally not sure that current UK politics set a path for the economy to grow. Potential ISA reform in 2027 could funnel more money into trackers too which could provide a boost on asset prices.
I have contemplated reducing exposure to AI and took profit on Nvidia and bailed out of AMD when it was $250. A buy / hold strategy would clearly have been optimal instead of trying to predict the end of a potential bubble.
Bottom line: i'd personally not take a view and reduce exposure in equal measure to obtain the funds you need.
g4ry13 said:
Over the 1 year period, S&P +20%. FTSE100 +18%
Last 6 months: S&P +8.29% FTSE100 +3.44%
I'm personally not sure that current UK politics set a path for the economy to grow.
Last 6 months: S&P +8.29% FTSE100 +3.44%
I'm personally not sure that current UK politics set a path for the economy to grow.
How can a person with your financial nous, be not sure? -
When PH Financers are actively taking steps to reduce their tax liabilities, businesses have increasing overheads, businesses are refusing to recruit, everyone is seeing rising prices and taxes continue to increase, not sure won't apply.
During 2025, the FTSE 100 beat the S&P.
UK needs to make the most of that, because it has not happened for a few years.
Edited by Jon39 on Thursday 9th July 23:12
Jon39 said:
g4ry13 said:
Over the 1 year period, S&P +20%. FTSE100 +18%
Last 6 months: S&P +8.29% FTSE100 +3.44%
I'm personally not sure that current UK politics set a path for the economy to grow.
Last 6 months: S&P +8.29% FTSE100 +3.44%
I'm personally not sure that current UK politics set a path for the economy to grow.
How can a person with your financial nous, be not sure? -
When PH Financers are actively taking steps to reduce their tax liabilities, businesses have increasing overheads, businesses are refusing to recruit, everyone is seeing rising prices and taxes continue to increase, not sure won't apply.
There is undoubtedly the argument that a lot of these companies have global exposures and don't solely rely on the UK market.
Fidelity has put out some comment on the active/passive debate. I'll link the article but the parts that caught my eye were,
"Terry Smith, who manages the popular Fundsmith Equity Fund, pins the blame for his underperformance on a market that has been driven by momentum rather than fundamental factors like profitability, return on capital and growth. The 2.9% fall in the value of his fund in the six months to the end of June compares unfavourably with the 11.2% gain delivered by MSCI World index over the same period.
"More specifically, he blames a dramatic shift in flows from actively managed funds to passive index trackers over that same period, a move that he argues has negatively impacted the ability of stock markets to correctly price the companies listed on them. Increasingly, he says, the structure of the market itself has become the dominant driver of prices, with potentially calamitous consequences.
"In the US, the market has provided a total return of 83% versus 59% for the average open-ended mutual fund over the past five years.
"The dominance of trackers might also be creating dangerous feedback loops that are inflating valuations, making markets less efficient, and increasing the risk that any future correction could be faster, deeper and more unpredictable than today’s complacent investors - lulled by years of outsized gains - are ready for.
"The risks are obvious. When the escalator is going up, anyone can jump aboard and believe they have some investment skill. But they are probably just in the right place at the right time. When sentiment reverses, as inevitably it will at some point, there is no way of knowing how far and how fast markets will fall in the absence of price sensitive buyers seeking to arbitrage emerging price anomalies."
https://www.fidelity.co.uk/markets-insights/invest...
"Terry Smith, who manages the popular Fundsmith Equity Fund, pins the blame for his underperformance on a market that has been driven by momentum rather than fundamental factors like profitability, return on capital and growth. The 2.9% fall in the value of his fund in the six months to the end of June compares unfavourably with the 11.2% gain delivered by MSCI World index over the same period.
"More specifically, he blames a dramatic shift in flows from actively managed funds to passive index trackers over that same period, a move that he argues has negatively impacted the ability of stock markets to correctly price the companies listed on them. Increasingly, he says, the structure of the market itself has become the dominant driver of prices, with potentially calamitous consequences.
"In the US, the market has provided a total return of 83% versus 59% for the average open-ended mutual fund over the past five years.
"The dominance of trackers might also be creating dangerous feedback loops that are inflating valuations, making markets less efficient, and increasing the risk that any future correction could be faster, deeper and more unpredictable than today’s complacent investors - lulled by years of outsized gains - are ready for.
"The risks are obvious. When the escalator is going up, anyone can jump aboard and believe they have some investment skill. But they are probably just in the right place at the right time. When sentiment reverses, as inevitably it will at some point, there is no way of knowing how far and how fast markets will fall in the absence of price sensitive buyers seeking to arbitrage emerging price anomalies."
https://www.fidelity.co.uk/markets-insights/invest...
Panamax said:
Fidelity has put out some comment on the active/passive debate. I'll link the article but the parts that caught my eye were,
"Terry Smith, who manages the popular Fundsmith Equity Fund, pins the blame for his underperformance on a market that has been driven by momentum rather than fundamental factors like profitability, return on capital and growth. The 2.9% fall in the value of his fund in the six months to the end of June compares unfavourably with the 11.2% gain delivered by MSCI World index over the same period.
"More specifically, he blames a dramatic shift in flows from actively managed funds to passive index trackers over that same period, a move that he argues has negatively impacted the ability of stock markets to correctly price the companies listed on them. Increasingly, he says, the structure of the market itself has become the dominant driver of prices, with potentially calamitous consequences.
"In the US, the market has provided a total return of 83% versus 59% for the average open-ended mutual fund over the past five years.
"The dominance of trackers might also be creating dangerous feedback loops that are inflating valuations, making markets less efficient, and increasing the risk that any future correction could be faster, deeper and more unpredictable than today s complacent investors - lulled by years of outsized gains - are ready for.
"The risks are obvious. When the escalator is going up, anyone can jump aboard and believe they have some investment skill. But they are probably just in the right place at the right time. When sentiment reverses, as inevitably it will at some point, there is no way of knowing how far and how fast markets will fall in the absence of price sensitive buyers seeking to arbitrage emerging price anomalies."
https://www.fidelity.co.uk/markets-insights/invest...
The irony with that is that if you reversed the passive / active element of his statement plenty of people would agree."Terry Smith, who manages the popular Fundsmith Equity Fund, pins the blame for his underperformance on a market that has been driven by momentum rather than fundamental factors like profitability, return on capital and growth. The 2.9% fall in the value of his fund in the six months to the end of June compares unfavourably with the 11.2% gain delivered by MSCI World index over the same period.
"More specifically, he blames a dramatic shift in flows from actively managed funds to passive index trackers over that same period, a move that he argues has negatively impacted the ability of stock markets to correctly price the companies listed on them. Increasingly, he says, the structure of the market itself has become the dominant driver of prices, with potentially calamitous consequences.
"In the US, the market has provided a total return of 83% versus 59% for the average open-ended mutual fund over the past five years.
"The dominance of trackers might also be creating dangerous feedback loops that are inflating valuations, making markets less efficient, and increasing the risk that any future correction could be faster, deeper and more unpredictable than today s complacent investors - lulled by years of outsized gains - are ready for.
"The risks are obvious. When the escalator is going up, anyone can jump aboard and believe they have some investment skill. But they are probably just in the right place at the right time. When sentiment reverses, as inevitably it will at some point, there is no way of knowing how far and how fast markets will fall in the absence of price sensitive buyers seeking to arbitrage emerging price anomalies."
https://www.fidelity.co.uk/markets-insights/invest...
Only time will tell but I think it is something to pay attention too. My concern isn't the size of the US market in general but the concentration and the rapid growth of that concentration within the US - which has historically been associated to bubbles crashes or long periods of poor returns. Over a long time you would still expect a large index of companies to grow but it will never bob along with perfect fundamentals - the inflows lift all ships and the outflows drop all ships.. the question today is do these ships need to come down? Not wanting to wish the next crash on those who are overexposed, I would feel more comfortable if we had one.
Jon39 said:
Douglas Quaid said:
Jon39 what are your holdings?
I think it would be inappropriate to publicly reveal all the holdings.
Imagine all the buying that would take place, consequently increasing the share prices of all my holdings. -
Happy though to repeat what has previously been mentioned.
At present there are 27 holdings.
The strategy has been:-
Large cap FTSE 100 companies (muscle power to cope with disasters).
International trading businesses (some people think of a UK listing, as doing business in the UK).
I like holding some non-cyclical defensives, providing goods or services that continue to be in steady demand during all economic cycles (those share prices generally hold up well during market crashes).
I avoid most cyclicals, but do hold oil and gas majors (their share prices are obviously subject to cycles, but profitability continues and dividend payments also continue).
A portfolio of that nature will tend to have a higher that average overall dividend yield (at present 4.4%, probably more than interest from a cash savings account). Dividends can contribute significantly to overall performance.
Holdings that have been named in the past;
British American Tobacco (some bought at £3, now over £40).
Compass Group
HSBC
Severn Trent
Tesco
For new investors, tracker funds are now the best starting point, then maybe in addition gradually begin building a direct holdings portfolio to gain experience. Use money that will not be needed (you won't become a forced seller); dont buy into business that you cannot understand; don't panic during market crashes; don't buy when a business has a high value (opportunities will eventually come); be very patient.
butchstewie said:
There are investors who genuinely seem to think that a few forum members are going to go out and buy some of their holdings and swing the share price or something daft.
See it on other forums and I don't get it.
I bought a whole Tesla share once, and the price rose.See it on other forums and I don't get it.
Cause and Effect in action :big laugh:
Phooey said:
Not wanting to wish the next crash on those who are overexposed, I would feel more comfortable if we had one.
Interesting point.One of my thoughts is the same investors who buy without thinking because "it's easy money, the market always goes up 10% a year" may be the ones most likely to panic when there's a drop. Combine that with automated trading and things might accelerate downwards rather vigorously.
Anyhow, I'm not intending to be a prophet of doom. I like to have a broad mental picture of what's going on (albeit subjective) to assist with asset allocation and, hopefully, risk management.
butchstewie said:
There are investors who genuinely seem to think that a few forum members are going to go out and buy some of their holdings and swing the share price or something daft.
See it on other forums and I don't get it.
See it on other forums and I don't get it.
You cannot accuse me of trying that though.
With no intention of selling and having already held most of the holdings for 20 years, that tactic would be pointless.
Anyway for the top FTSE 100 companies, I doubt any retail purchases would move the share prices.
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