2018 Investor sentiment report

28th Nov '18 by fwyburd

20 comments 2456 reads

In mid October 2018 I invited SCVR readers to participate in my annual Investor Sentiment survey. The organisers of Mello London also invited the attendees of Mello Chiswick to take part.

By mid November, 167 people had responded so I closed the poll and presented the findings at Mello Chiswick yesterday.

The survey seeks to understand private investor behaviour and feelings about the markets they invest in, in particular, what percentage of their portfolio is in cash today (vs 6 and 12 months ago); their outlook for the next 12 months; what return they have made to date in this calendar year and whether they use derivatives to hedge their portfolio. The last two questions were new this year. To see the 2017 report click here

Please bear in mind this survey ran during the market correction that took place in October and the subsequent "mood" swings in November and so reflects private investor behaviour and sentiment at that time.

Headlines

26% of Investor portfolios were in cash vs 16% 12 months ago
Investors were mildly bearish about their markets prospects over the next 12 months at 3.76 (mean is 4 on a scale of 1-7 where 7 is very bullish and 1 is very bearish)
47% of investors had made 0% or negative returns in this calendar year
53% of investors' portfolios were positive this calendar year, on average 9.22% up.
91% of respondents don't use derivatives to hedge their portfolio

Respondents by portfolio size

NB: Please note the sample size for the two smallest portfolio holders is too small to be statistically accurate.

Proportion of portfolios in Cash vs 6 and 12 months ago

Sentiment by portfolio size

Please note the vertical axis is calibrated to the mean of 4 so groups to the right of the vertical line are bullish; anything to the left is bearish. Also, the horizontal axis is calibrated to the average so any groups below the…

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Mechanical Bull

28th Nov '18

Thanks for sharing these results. However, I find it very difficult to believe that 53% of investors have achieved positive returns this calendar year. All the evidence points to 2018 as being quite a bit more difficult year than average:

- The FTSE All Share is down around 8% - AIM is down 11%.
- Stockopedia's top decile QVM stocks were down around 3-4% in mid October
- Only 17% of Stockopedia Guru screens for the UK show positive returns so for this calendar year.
- Only about a quarter of Stockopedia Fantasy Funds are in positive territory over the past 12 months. I see that Paul Scott's Fantasy portfolio is down about 17%, and PhilH is down 7%
- If you look at others who track their portfolios online, John Rosier shows a 8.5% YTD loss while John Kingham is down about 8%

If investors with the most skill and experience have struggled this year, I find it difficult to believe that so many less skilled investors have just got lucky. I think a more likely estimate is that at least 75% investors have lost money this year with average losses around 5-10%.

The problem of is that this may not be a representative survey. Maybe those who have achieved postive returns this year were more likely to respond while some of those who have done particularly badly in the last few months gave up and lost interest. Alternatively, maybe some people are exaggerating their performance or maybe even some respondents don't even track their performance and are just guessing.

Still, I think this is still a useful exercise for tracking investor sentiment so I would support this being done on a regular basis.

shipoffrogs

MB - but the survey was in mid October - just 2 weeks after the carnage started - in that light the results do seem plausible,

mmarkkj777

Two other factors may be at play. It seems that over a quarter of investors had already gone to cash before mad October. Also people may have been including other assets classes as part of their overall potfolio (e.g. Bonds, gold, property, etc. I guessing, can this be confirmed fwyburd?).

Interestingly, it seems people going to cash as a tactic seems to be inversely proportional to size of their portfolio. Could this be strategic, or maybe the sheer size and diversification of stock portfolios makes it difficult to react quickly? Or maybe behavioural (enough assets not to worry about a short term drawdown).

Anyway, interesting poll, Thanks.

Merlotman

Francis
Thanks for arranging this.
What I find interesting is the cash % by portfolio size. My guess is that those with bigger portfolios tend to be older, have more diversification (sector and geography) and take a longer term view. They may also have a higher proportion of bonds and therefore feel they are more comfortable with the current uncertainties (they are also more hedged)
Also agree with MB re returns but I suspect that many will be including divis (I did) which by October had added around 3% to 2018 returns
Given I wasn't able to get to Chiswick yesterday were there any interesting comments from the floor?

ls2g08

I think also many who say they achieved positive returns wont be tracking their portfolios all that accurately.

JohnEustace

I would echo the point about the timing of the survey. I was ahead ytd when I responded, not so much now.

simoan

I think so too - everyone could be answering the same question but using completely different criteria, and It's actually a difficult question to answer if you want to calculate returns accurately. It's probably easy if you are a full-time investor with a fixed size pot X at the start which at some point in time is worth Y i.e. (Y-X)/X. However, if you are still growing your portfolio by adding cash all the time, then calculating the return over a given period is really difficult! How do you treat the new cash added since the start of the period?

Also what really is your portfolio? Is it just broker accounts where you hold individual company shares or do you include holdings in funds and/or non-SIPP pension schemes? Perhaps everyone is just holding lots of Fundsmith Equity T Class! :-) And people could be holding cash for reasons that do not indicate a defensive stance. I for instance have been liquidating insurance company pensions and moving the cash into SIPPs and so had much more cash than I would normally have at the time of the survey i.e. It's just like a company's cash balance at the end of a reporting period - it's just a snapshot at one point in time and doesn't give an indication of a bearish standpoint.

All the best, Si

doug2500

On performance I have unitised my portfolio so used my change in unit price from 1st jan to 5th october to answer this question.

This is a total return figure and you could argue that it is inaccurate due to being a few days early. For me it was a half year valuation since the start of the tax year. Unless everyone uses the same date there's going to be some variation in returns. Especially in these volatile times.

FWIW on 5th oct I was up but only low single figure %. And that was mainly due to Fundsmith Equity T class :-)

timarr

Hi Si

I think so too - everyone could be answering the same question but using completely different criteria, and It's actually a difficult question to answer if you want to calculate returns accurately.

True, and at the margins people are spectacularly bad at tracking their actual returns. Even so you'd think this is a relatively sophisticated participant set, so probably it's less of a problem. More likely we're seeing recency bias - people looking at this are failing to adjust for the recent falls in the market - and self-selection bias - people who are up on the year are more likely to be bothered to contribute.

Even ignoring the details the thing the survey shows that all groups have generally moved to hold more cash, which seems intuitively likely and a useful data point. Although, obviously, "intuitive" is very much a personal bias :-/

The problem for those genuinely in cash is what to do now. In the event of a hard Brexit inspired pound devaluation you really wouldn't want to be holding sterling. On the other hand, any kind of Brexit deal will see a rally. Probably best just to invest in good companies and ride out the wave ...

It would be a valuable tool if it could be extended to get more data. Maybe Stocko could be persuaded to offer a discount to subscribers if they participate on the understanding that only a summary of the results would be published for 6 months? Or something ...

Anyway, leaving aside the obvious data integrity issues, I think it's a useful survey.

hawkipa

29th Nov '18

Hi,
Really worthwhile analysis. Thank you for your efforts, the substance of the study is of great value.

On the issue of performance, I tend to agree with the comments about accuracy. I started using Bloomberg this year to track my performance, as whilst expensive, this is absolutely a best in class product. The difference to what I thought was an accurate representation using excel historically, was startling and the tools provided by brokers by comparison were not fit for purpose. The industry standard methodology whilst simple in principle is fiendishly difficult to ensure correct. I have found by comparison to Bloomberg, that unless you correctly value your portfolio daily and ensure inflows and outflows + cash are accurately recorded then the performance is a very rough approximation at best and will be a lot different to reality.
However, that in no way undermines this study as it is great to see what our peer group is thinking/doing.
Regards
Paul

On performance I have unitised my portfolio so used my change in unit price from 1st jan to 5th october to answer this question.

Yes, "Unitisation" is probably the best way of tackling the problem to give an accurate picture where cash is being added to an existing portfolio. I looked at doing it once after reading a thread on TMF many years ago but it was just such a faff I couldn't be arsed! :-) Anyway, congratulations on having the gumption to do it! I suspect very few of the people who responded to the survey probably use the unitised approach.

FWIW on 5th oct I was up but only low single figure %. And that was mainly due to Fundsmith Equity T class :-)

I think I'm about flat to very slightly up YTD thanks to a few really good performers (like Sopheon) and having an eighth of my portfolio in the T class!

Hi timarr,

Even ignoring the details the thing the survey shows that all groups have generally moved to hold more cash, which seems intuitively likely and a useful data point.

I must be missing something but how can we draw this conclusion? I thought the comparison was year-on-year but how do we know it was exactly the same set of people responding to the survey as last year? Without using exactly the same set, it's pretty unscientific to draw any conclusions on the movement of anything from one year to the next. Surely it has to be a LfL comparison?

Personally, I have no problem being in cash at any point in time. But that's because I already have as much money as I need for the rest of my life and inflation is not yet a concern. The main problem to overcome with having cash is feeling the need to invest it and then if you feel it burning a hole in your pocket it is difficult to maintain the quality of your decisions.

I don't understand why holding sterling is a problem? It's the currency I use to pay the bills! Brexit is in my basket of "too hard and unknowables" so it is not something I waste time thinking too much about. I think most portfolios probably have a certain amount of natural currency hedging anyway, particularly USD/GBP. Personally I am leaning towards a deal being done and sterling strengthening but that's just a hunch and not something I am using in making investments.

It's great that Francis takes the time and effort to run the survey and that other people find it useful. However, as I've written elsewhere, I don't really care what fellow private investors are doing because they account for so little of the volume of share transactions for companies in my portfolio. And I really want to minimise outside influences on my own behaviour... :-)

Effortless Cool

I don't think it's a difficult question at all.

You define your investment universe (for me, my and my wife's SIPP, ISA, spread betting and dealing accounts, not bank accounts, etc.)
You record the quantum and date of all cash flows into and out of that universe.
You value the holdings plus cash in that universe.
You use the IRR spreadsheet function to determine your return, taking accurate account of the timing of cash flows.

If you retain a record of month-end valuations, you can determine IRR for any specific stretch of months or years that is of interest.

EC,

Yes, of course, there are ways of doing it but the point is that unless everyone contributing to the survey is using exactly the same approach, the overall end result will not mean much. I didn't say it was impossible: just that there will be a great variance in methods that makes the end result pretty meaningless.

BTW I apologise for being an engineer! :-)

Hi Si

On the cash thing - the figure "Proportion of portfolios in Cash vs 6 and 12 months ago" shows that all the participant groups moved to hold more cash in the last six months. It's not proof of anything, but suggestive of a touch of risk aversion, perhaps.

And on sterling, that's just a reflection that if the pound is suddenly devalued then you'd prefer non-sterling based assets in your investment portfolio - and, yes, all things being equal, many UK companies earn lots overseas. The one area I'd be wary of is actual exporters of goods, as border management preparation seems sub-optimal, as far as we can tell.

However, as I've written elsewhere, I don't really care what fellow private investors are doing because they account for so little of the volume of share transactions for companies in my portfolio. And I really want to minimise outside influences on my own behaviour... :-)

You may be in the wrong place, then :-)

Yes, but I did say minimise, not eradicate :-) I'm not sure it's possible to read the Cialdini book too often... I would go as far to say it has changed my life since I first read it, along with Kahneman, Tversky, Thaler et al.

Now you've got me interested, Si !,

What is this Cialdini book? I need to Google it after. Just finished reading Jesse Livermore that Timar recommended :-)

What is this Cialdini book? I need to Google it after. Just finished reading Jesse Livermore that Timar recommended :-)

Influence: The Psychology of Persuasion.

Recommended by Charlie Munger, no less :-)

matylda

It's working :)

Yes, my comment was intended to be tongue in cheek!!! :-)

2018 Investor sentiment report

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Fwyburd

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