What caught my eye this week.
Another roughhousing in the markets. It’s enough to make you wish you’d pursued a gentler hobby. Maybe kickboxing.
The falls are now officially deep. Even British investors tracking their global returns in our ever-punier pounds have taken a foot to the face:
Presumably I won’t get readers telling me this time that I’m being spooked by phantom bears. Because the pain is finally spreading to all corners.
Okay, bully for you if you had more than my few percent in gold.
Indeed more growth-minded investors like me are frantically tapping the mat like we’re trying to drive nails into the ring with our bloodied hands.
Meanwhile I doubt there’s a professional developed market bond manager in business who has seen a market as bad as the past six months. (Apologies to any septuagenarian fixed income experts reading.)
Even value investors have not been unscathed. Lately they’ve found a puck coming in their direction can still smack them in the face. The cheap and stodgy FTSE 100 threw in the towel this week. It is now down nearly 7% for the year.
You’d still rather have been in value than growth of course, if you’re a naughty active sort.
The UK’s largest, growthiest – and until recently frothiest – investment trust Scottish Mortgage has fallen 46% year-to-date.
Warrior
Old hands might be expecting it’s around now that my gung-ho alter-ego will enter the ring, raise his fists, and urge that it’s a great time to buy – like in March of 2009 or 2020.
It could be. It’s certainly hard to imagine (non-UK) investors being much more bearish.
Alas Alter-Investor is still over in the corner, on the other side of the ropes, biting his gum shield.
Maybe I’ve just taken too much of a battering to feel bullish. (And yes, that could certainly be a contrarian cue.)
My portfolio has been battered for over a year. While I did pretty well to sidestep the first round of disruptive tech carnage in 2021 – swapping a fair bit of clearly over-valued growth companies into my old favs, UK equity income trusts – I got greedy too soon.
Back in December I was warning that the under-the-surface growth sell-off could well herald a wider crash. Yet as I noted then, I was already seeing apparent bargains in my beloved software, cloud, and consumer tech shares.
Slowly my income trusts mostly went back out the window for fast-growers down 30-60%.
Who doesn’t like a bargain?
Unfortunately it was time to learn again that a share that’s down 80% is one that fell 50% before you bought it – and which then dropped by another 60%.
I am astonished by how far some of these – growing, cash-generative – companies have fallen. That astonishment is smeared across my portfolio in red.
Rocky
The good news for me is that on the back of my concerns about imminent quantitative tightening earlier this year – and with an eye on my leverage – I acted in February to shift a huge proportion of my portfolio into a new bucket I call ‘low volatility fixed income’ on my infamous spreadsheet.
True, even that’s since fallen 4%. It’s a shame I didn’t just call it ‘cash’. But the move has saved my net worth from a deeper ravaging.
The only trouble is I don’t want that to sit around forever while inflation has its wicked way with it.
Remember my spin on investing risk and thermodynamics:
“Investing risk cannot be created or destroyed. It can only be transformed from one form of risk to another.”
Inflation risk is one concern. Opportunity cost – missing the rebound – is another.
That’s the trouble with any sort of strategic tactical allocation market timing.
First you have to get out without doing so at the bottom.
Then you have to get back in.
Fight Club
So yes, perhaps I’m punch drunk. Read me accordingly.
Certainly it isn’t time to sell, unless you’ve realized your asset allocation or risk tolerance is far out of whack. (Even then proceed cautiously).
You want to sell when everyone is chasing rainbows, not when grizzly old veteran investors like me are feeling under the cosh.
The market has front-run a lot of this regime change away from free money – hence the turmoil. But the falls so far are hardly historic, and in the US especially they’re from extreme valuation highs.
Moreover the impact has only just begun to be felt in the real world of mortgage rates, company earnings, and that ultimate lagging indicator – jobs.
I haven’t learned my lesson, and I believe there are opportunities in the decimated growth sector.
But away from those on-the-ropes stocks, I feel there could be more of a kicking to come.
Creed
However you invest – passively or actively – this is a Joel Edgerton market where you want to roll with the punches, not a Tom Hardy one where you want to risk all for knock-out glory.
Try that and it could well come back to smack you in the face.
Here’s live footage of Mr Market in 2022 versus yesteryear’s everything-goes-up lockdown traders:
It’s been a rough six months for most of us – but it will pass.
Go for a walk. Stay invested. Add new money. Check your household budget as the economic squeeze intensifies.
And have a great weekend!
From Monevator
How do accumulation funds work? – Monevator
Stress testing your home loan as mortgage rates rise – Monevator
From the archive-ator: How to spot a bear market bottom – Monevator
News
Note: Some links are Google search results – in PC/desktop view you can click to read the piece without being a paid subscriber. Try privacy/incognito mode to avoid cookies. Consider subscribing if you read them a lot!1
UK’s Bank Rate up another 0.25% to 1.25% – BBC
Bank of England now foresees 11% inflation – BOE Monetary Policy Summary
US hikes rates by most in one day since 1994 – ThisIsMoney
Bitcoin falls below $20,000 for first time since 2020 – Coin Telegraph
UK holiday bookings boom as Britons think twice about trips abroad – Guardian
Renters to receive new rights to challenge landlords in biggest shake-up for 30 years – ThisIsMoney
Covid wave rising in the UK, with more than one million infections in England – Guardian
How much money is needed for ideal life? Most are okay with £8m, study finds – Guardian
Products and services
What is Making Tax Digital for income tax, and how are you affected? – Which
Fixed rate savings hit 3% for the first time in three+ years – ThisIsMoney
Open a SIPP with Interactive Investor and pay no SIPP fee for six months. Terms apply – Interactive Investor
UK lenders raise mortgage rates ahead of further BoE hikes [Search result] – FT
AJ Bell and Hargreaves Lansdown aim bring IPOs to retail investors – Finance Feeds
77% of Gen Z leave their wallets at home and pay with their phones – ThisIsMoney
Nationwide Start to Save review – Be Clever With Your Cash
Homes in historic seaside resorts, in pictures – Guardian
Comment and opinion
Off the treadmill – Humble Dollar
Under-spending in retirement can be a feature not a bug – Morningstar
A 67-year old who ‘un-retired’ on the big challenge nobody talks about – CNBC
The problem with inflation is that it erodes trust – Morningstar
Is passive investing a blatant lie? – Banker on FIRE
Too good to be true – Of Dollars and Data
Five obvious signals of the top of the bubble, in hindsight – NY Mag
(Another) bear market mini-special
Stocks on sale – Humble Dollar
Two simple and cheap ways to manage a bear market – A Teachable Moment
Merryn S-W: Time to cut your stock market losses – or not? [Search result] – FT
Anything could happen and nobody knows anything – The Reformed Broker
A time to puke – The Belle Curve
Five things to keep in mind during bear markets – Validea
You are paying attention to the wrong bear market – Abnormal Returns
Crypt o’ crypto
Crypto lender Celsius stops all withdrawals and transfers… – Protocol
Another lender, Babel Finance, freezes withdrawals – Crunchbase
Naughty corner: Active antics
An interview with Stanley Druckenmiller [Video] – via YouTube
Fed tightening need not lead to a recession – Calafia Beach Pundit
Jeremy Siegel says US stocks are already pricing in a recession – Yahoo Finance
Have active funds really shone in the downturn? – Morningstar
How bear market rallies trick gullible investors – MarketWatch
Kindle book bargains
Ultralearning by Scott Young – £0.99 on Kindle
The Dealmaker: Lesson’s From a Life in Private Equity by Guy Hands – £0.99 on Kindle
Think Like A Rocket Scientist by Ozan Varol – £0.99 on Kindle
Stuffocation: Living More With Less by James Wallman – £0.99 on Kindle
Environmental factors
The floodgates have opened for solar to crowd out fossil fuels – The Gregor Letter
Larry Swedroe: can investors improve returns by reducing ESG risks? – TEBI
Interesting Twitter thread promoting nuclear over solar power – via Twitter
Not all ESG funds are created equal [Research, PDF] – SSRN
Off our beat
35 lessons on the way to 35-years old – Ryan Holiday
How eBay turned the Internet into a marketplace – Guardian
Why The Man Who Broke Capitalism is an urgent read – The Lefsetz Letter
Sentient or not? The Google chatbot transcript… – via Medium
…and why this new generation of A.I. could make writers and artists obsolete – Vanity Fair
Olympiad – Indeedably
The dismantling of Hong Kong – NY Mag
And finally…
“Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one.”
– Charles MacKay, Extraordinary Popular Delusions and the Madness of Crowds
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Keep your guard up as the market falls, plus the week’s good reads…
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