Asset Values

[ArunAlec]

I’ve got room for about 500 litres in my oil tank, how much do reckon I should ask to fill it up?
Maybe a straight swop for the £160 I’ve just paid (and I thought that was cheap). The joys of no gas supply

 

[Amarillo]

Yes that would indeed be a punt. A more conventional approach would be to feed money in monthly (as you usually do by the sound of it) so you aren't trying to 'time' the market.

Just to follow up on this.

Not only did I max out on my boys Junior ISA back in April, but following a slashing of their interest rates to 0.1% on their Junior Nationwide accounts I withdrew £33,000 each from their accounts (leaving just a little behind), and invested the cash in a basket of six low cost tracker funds (UK, Europe exc. UK, US, Japan, Pacific exc Japan and emerging markets).

Since April that £33,000 each has grown to over £41,200. Wow!

 

[66tim99]

My pension pot is down 30%

My stocks ISA went up more this year than any of the last 4...weirdly

 

[Velma's Dad]

The markets climbed strongly out of the immediate post-covid trough so anyone lucky or brave enough to have piled in back in the spring will now be quids in.

However, attempting to time the markets is always extremely risky, and I would say futile as it assumes you have some crystal ball that other investors around the world don't have.

Here's the MSCI World index over the past five years, which is a reasonably proxy for "world stock markets". It's denominated in USD so if your 'home' currency is sterling you'll want to adjust it for USD/pound shifts.



All it really shows is: (a) how any short term gain/loss you make is governed by when you happened to buy or sell (ie which crystal ball you used); and (b) the 2020 effect shows how even extreme market downturns never last very long, if you're a long term investor (rather than a gambler) hold on tight in any downturn.

 

[GrumpyGranddad]

Just to follow up on this.

Not only did I max out on my boys Junior ISA back in April, but following a slashing of their interest rates to 0.1% on their Junior Nationwide accounts I withdrew £33,000 each from their accounts (leaving just a little behind), and invested the cash in a basket of six low cost tracker funds (UK, Europe exc. UK, US, Japan, Pacific exc Japan and emerging markets).

Since April that £33,000 each has grown to over £41,200. Wow!

‘Scottish Mortgage Investment Trust’ has proved to be a great investment. Up around 100% this last year (300% over the last few years). Also pays a decent dividend. We put this in all the grandkids Junior ISAs.

 

[Vagophile]

Oil has now fallen 99.9% in a day
Hit a low of 1 cent a barrel... basically free oil to anyone who will take it

And if you are a group of oil traders based in Essex, that can make you £450 million, apparently.

 

[Jandy61]

I’m invested in gold a pretty safe bet with everything going on

Ahh, but the ‘end times’ profs you

Gold has dropped like stone its usually a safe haven! Cash and food is king.

Bread! End times prophecy says a piece of bread will buy a bag of gold,
I’m stocking up on bread rolls

 

[Velma's Dad]

‘Scottish Mortgage Investment Trust’ has proved to be a great investment. Up around 100% this last year (300% over the last few years). Also pays a decent dividend. We put this in all the grandkids Junior ISAs.

Good for you. Just bear in mind that when the regulator makes them say "past performance is not a guide to future performance", it's because it's true. I mean really, REALLY true.

In any given period there will always be some active managed (ie stock picker) funds that are beating the market, while others are underperforming. But in the next period - a year, three years or whatever - the positions end up reversing (actually that's not strictly true, there tends to be a 'zombie layer' of funds held by poor schmucks who don't know any better).

And remember, a fund that says it grew XX% year on year might have had a mediocre performance last year, making this year's catch-up growth look more impressive.

The law of reversion to the mean says that over time, all funds will do pretty much the same, ie follow the underlying markets. But because 'active' funds consume fees, and often trade at a premium to the value of the actual assets they hold, active funds as an asset class will always do worse than beta (ie market) over time.

That explains the gradual shift, over the past 30 years but especially in the last 5 or so, to 'passive' investments, eg tracker funds that simply aim to replicate the underlying markets with very low fees.

 

[GrumpyGranddad]

Good for you. Just bear in mind that when the regulator makes them say "past performance is not a guide to future performance", it's because it's true. I mean really, REALLY true.

In any given period there will always be some active managed (ie stock picker) funds that are beating the market, while others are underperforming. But in the next period - a year, three years or whatever - the positions end up reversing (actually that's not strictly true, there tends to be a 'zombie layer' of funds held by poor schmucks who don't know any better).

And remember, a fund that says it grew XX% year on year might have had a mediocre performance last year, making this year's catch-up growth look more impressive.

The law of reversion to the mean says that over time, all funds will do pretty much the same, ie follow the underlying markets. But because 'active' funds consume fees, and often trade at a premium to the value of the actual assets they hold, active funds as an asset class will always do worse than beta (ie market) over time.

That explains the gradual shift, over the past 30 years but especially in the last 5 or so, to 'passive' investments, eg tracker funds that simply aim to replicate the underlying markets with very low fees.

Totally understood. Chose Scottish Mortgage and City of London investment Trust for my grandkids Junior ISAs with a long term view (18 years minimum). I appreciate that the share value may well fall in the future (maybe quite likely in the near future!) but in terms of dividend income both funds have a very good track record over a very long time. Haven’t looked lately to check but I think City of London has consistently paid around 4% p.a. for well over 100 years.

 

[Velma's Dad]

Totally understood. Chose Scottish Mortgage and City of London investment Trust for my grandkids Junior ISAs with a long term view (18 years minimum). I appreciate that the share value may well fall in the future (maybe quite likely in the near future!) but in terms of dividend income both funds have a very good track record over a very long time. Haven’t looked lately to check but I think City of London has consistently paid around 4% p.a. for well over 100 years.

Not sure what you mean by 'City of London', do you mean UK equities? Barclays study in 2019 estimated 4.9% avg return above inflation (that's total return, ie capital growth and dividends) from UK stocks over a 119 year period.

Global equities have returned about 5.2% pa above inflation since 1900 (Credit Suisse analysis).

But I assume you didn't really mean 'consistently'? Those are long run average figures and obviously values raise and fall dramatically through each economic cycle.

 

[willwander]

Well done, you make your own luck.
There are two classic bits of investment advice, you can’t time the markets and diversify your portfolio ...I’m not convinced by either.

Asset bubbles everywhere at the moment...,including Cali’s.

My stocks have been doing really well. Which proves that even an idiot can make money in a rising market.

 

[GrumpyGranddad]

Not sure what you mean by 'City of London', do you mean UK equities? Barclays study in 2019 estimated 4.9% avg return above inflation (that's total return, ie capital growth and dividends) from UK stocks over a 119 year period.

Global equities have returned about 5.2% pa above inflation since 1900 (Credit Suisse analysis).

But I assume you didn't really mean 'consistently'? Those are long run average figures and obviously values raise and fall dramatically through each economic cycle.

City of London Investment Trust consistently pays a 4% annual dividend.

 

[GrumpyGranddad]

City of London Investment Trust consistently pays a 4% annual dividend.

 

[pjm-84]

Not looked. Don't want to.

Okay have looked. Pension pot down 45k. I should have bought the Range Rover

Pension post back up 47k

 

[Velma's Dad]

City of London Investment Trust consistently pays a 4% annual dividend.

Ah yes.

But don't forget that's a nominal not after-inflation return. Average UK inflation has been about 2% per year over the past 20 years. So a 4% nominal is actually 2% real return. Not very exciting against the long run real performance of UK equities (nearly 5% real return, as I cited above) but if you need very low volatility that's one way to achieve it.

The original timing of both investments were based on an article I read in the Economist some years ago. It suggested that markets don’t like uncertainty, but once a shock has occurred uncertainty is over.

Generally true: markets usually strengthen on certainty (even if it's still bad news). But that's a very short term effect, it still doesn't tell you which way the markets will go after that.

 

[willwander]

I’ve tracked the value or estimated value of that £45,000 carefully over the past 17 years. It has grown to an estimated £730,000 equity in buy-to-let property.

Right market, right time. Jammy git.

UK equities (nearly 5% real return, as I cited above)

FTSE has been underperforming for years, hardly surprising given the quality of companies listed. DOW has Apple and Amazon, we have Vodaphone and Morrison’s.

 

[GSX1300R]

Don’t know why I need to invest money when I have people begging me to Take $5 million when all I need to do is send them my bank details to transfer the money to.....Bring it on.....There’s some very kind people in the world..

 

[Kernowboy]

Don’t know why I need to invest money when I have people begging me to Take $5 million when all I need to do is send them my bank details to transfer the money to.....Bring it on.....There’s some very kind people in the world..

Only a shade below the likes of Woodford who’s still getting fat on my money. Expensive lesson on ‘safe‘ investing.

 

[Velma's Dad]

I still cannot really get my head around where the extra £120,000 has come from. If there is a fixed amount of cash sloshing around in the economy, for one person to gain £120,000 someone else has to lose £120,000. But quantitative easing has slipped billions into the economy - so is that where my cash bonanza has come from? If so, why hasn’t inflation eroded the value?

Perhaps if I’d have studied economics I’d have a better understanding.

Aha, there's your mistake then. There's not a fixed amount of money in the economy, the money supply is growing all the time, at the behest of the central bank.

I'm certainly not an economist but a good primer on macroeconomics is The Undercover Economist Strikes Back by Tim Harford (the bloke who presents More or Less on Radio 4, one of my fave shows I'm such a geek).

 

[GrumpyGranddad]

All this finance talk reminds me of this:

It is the month of August; a resort town sits next to the shores of a lake. It is raining, and the little town looks totally deserted. It is tough times, everybody is in debt, and everybody lives on credit.
Suddenly, a rich tourist comes to town. He enters the only hotel, lays a 100 dollar bill on the reception counter, and goes to inspect the rooms upstairs in order to pick one.
The hotel proprietor takes the 100 dollar bill and runs to pay his debt to the butcher. The Butcher takes the 100 dollar bill and runs to pay his debt to the pig raiser. The pig raiser takes the 100 dollar bill and runs to pay his debt to the supplier of his feed and fuel. The supplier of feed and fuel takes the 100 dollar bill and runs to pay his debt to the town's prostitute that, in these hard times, gave her “services” on credit. The hooker runs to the hotel, and pays off her debt with the 100 dollar bill to the hotel proprietor to pay for the rooms that she rented when she brought her clients there.
The hotel proprietor then lays the 100 dollar bill back on the counter so that the rich tourist will not suspect anything. At that moment, the rich tourist comes down after inspecting the rooms, and takes his 100 dollar bill, after saying he did not like any of the rooms, and leaves town.
No one earned anything. However, the whole town is now without debt, and looks to the future with a lot of optimism.

 

[NessL]

All this finance talk reminds me of this:

It is the month of August; a resort town sits next to the shores of a lake. It is raining, and the little town looks totally deserted. It is tough times, everybody is in debt, and everybody lives on credit.
Suddenly, a rich tourist comes to town. He enters the only hotel, lays a 100 dollar bill on the reception counter, and goes to inspect the rooms upstairs in order to pick one.
The hotel proprietor takes the 100 dollar bill and runs to pay his debt to the butcher. The Butcher takes the 100 dollar bill and runs to pay his debt to the pig raiser. The pig raiser takes the 100 dollar bill and runs to pay his debt to the supplier of his feed and fuel. The supplier of feed and fuel takes the 100 dollar bill and runs to pay his debt to the town's prostitute that, in these hard times, gave her “services” on credit. The hooker runs to the hotel, and pays off her debt with the 100 dollar bill to the hotel proprietor to pay for the rooms that she rented when she brought her clients there.
The hotel proprietor then lays the 100 dollar bill back on the counter so that the rich tourist will not suspect anything. At that moment, the rich tourist comes down after inspecting the rooms, and takes his 100 dollar bill, after saying he did not like any of the rooms, and leaves town.
No one earned anything. However, the whole town is now without debt, and looks to the future with a lot of optimism.

What this thread has developed into reminds me of Harry Enfield’s Stan & Pam Herbert

 

[66tim99]

What this thread has developed into reminds me of Harry Enfield’s Stan & Pam Herbert

Cunsiderablay richer than yaow!
Whilst we’re here though, can someone answer a question I’ve had for a while please? Who is buying your shares that are falling in value? Seems you can always sell a dud?

 

[Velma's Dad]

But doesn’t that cause inflation?

Consider a small island with a central bank. Its economy has a value of 1. Its economy is divided into 100 units called groats. I have 1 groat worth 1/100 of the island’s economy. The central bank issues a further 100 groats. I still have 1 groat but now it is only worth 1/200 of the island’s economy and everything on the island is now double the price.

No because the population of the island is growing and the people are finding ways to produce more gumbo beans (the main food source) per acre of land. So the overall economy size is not static. Hence a continually growing number of groats are needed as a means of exchange to allow the extra people to trade the extra gumbo beans.

But there are lots of more complex reasons, unfortunately monetary theory isn't my specialist subject, sorry.

 

[GrumpyGranddad]

No because the population of the island is growing and the people are finding ways to produce more gumbo beans (the main food source) per acre of land. So the overall economy size is not static. Hence a continually growing number of groats are needed as a means of exchange to allow the extra people to trade the extra gumbo beans.

But there are lots of more complex reasons, unfortunately monetary theory isn't my specialist subject, sorry.

I’m liking the sound of this island. How many groats for a kilo of gumbo beans.

 

[Velma's Dad]

I’m liking the sound of this island. How many groats for a kilo of gumbo beans.

They never went metric. Beans are sold by the half-skull-full. Still wanna go?