Is this a year to sit out?

19th Jan '22 by The real Tim

11 comments 1745 reads

Reading the comments to many articles, I get the impression there are many people like me who have surplus capital and enjoy the act of investing while knowing that it is not critical that any one year is a +5 or a +15. We also have the sobering tales of Paul on how in bad years he got wiped out etc. So, that brings me to the question that after a very long run of positive years, aside from the covid issue, is this the year when I should be taking 50% or 60% off the table because one of these years you will lose 25%. Obviously that has been wrong in every year for a very long time but given that having that much off the table would support investing in a big dip, then that is my big question this year far more than getting in the weeds on individual stocks. Would love to hear wise opinions on whether this is the year for maximal prudence?

Unlock with Email

Unlock with Google

Already have an account?
Login here

Bigtim

19th Jan '22

The age old dilemma of timing the market vs time in the market.

I would say that money is made when people are fearful and lost when people are greedy. If you want to try and beat the market you will have to decide which of these apply right now. Else you diversify to track the market, switch off your screens and live your life.

The real Tim

I sense with things like EV share valuations in the US that there is more greed than fear right now. The UK seems more sensible but if the US craters, then I think everything else will go south in the short-term.

epo001

20th Jan '22

It probably depends which market you are in. Covid and Brexit haven't gone away so the UK isn't looking great. Putin is sabre rattling in the Ukraine so Europe may also have issues. The majority of the world is not yet vaccinated... Also, recent falls in some growth stocks seem to indicate a UK shift in sentiment from growth to value shares.

I think it is all too difficult for PIs to second guess so either keep a reserve in cash for mopping up bargains or stick it into diversified large funds where the people with experience and access to information can preserve value for you.

Gilgamesh_Investor

It all depends on your financial goals and timeframe - I do believe it could be wise to cash in on some profits and hold cash for value opportunities which present over the coming 6-12 months.

I read an article recently which highlighted the impact that Government subsidised aid and support (furlough and loans etc) which have kept many companies afloat which would have otherwise gone bankrupt.

I do feel a lot of equities are overpriced - not only in the UK but in USA as well; interestingly tech stocks are starting to fall in the USA which are valued in double digit multiples despite having no revenue… inflation is going up to its highest in years and a recession is looming yet FTSE and S&P etc are all at their highest they’ve ever been… I think it would be a smart move to liquidate some holdings but don’t sit the year out completely, be on the hunt for some opportunistic value plays!

Nobody realises we are in a bubble until it pops…

good luck

21st Jan '22

I think that very nicely summarises where I am at. I suppose there is also an interesting ego driven risk to watch out for that we can all feel a bit bulletproof after years in which most boats rose. This is the first year where I’m having to evaluate if I’m investing or gambling given all the factors you lay out. Thanks for the wisdom!

GloucesterBob

After seeing a huge profit disappear into a small profit, except for my high dividend, money making shares, Rio Tinto (LON:RIO) Sylvania Platinum (LON:SLP) everything else is on a strict 20% stop loss regardless of who they are

Volex (LON:VLX) is just one example where even with high directors buy ins, watching a 30% profit disappear into a 25% loss ain't gonna happen again

So will still invest for the long term but it may mean selling and looking to buy the same share back to protect wins

Tommy H

22nd Jan '22

Hi Tim

A quick note, I manage my own money as well as mum's, sisters and daughters. So whilst each one is small in the terms of some others, it is still important. Such as mum's is her only income other than her state pension, so emotions considering all else going in life are high right now for me, like am I going to be made redundant for the second time in less than two years, trying to help my wife sell and clear her mum and dad's house after losing both parents in under 3 years...so I know that I am not mentally strong or resilient right now.

I have been a heavy seller over the last two weeks, including selling things I had just bought as I had been planning on part of my mum's and my own portfolios to follow a NAPS style. Lots of transaction fees made but then I am with a lower cost provider.

So for me I still have my pensions, Fidelity (Lifestyle target retirement dates, fund split over several dates as planning draw down strategy) and Aviva (spread across several Vanguard funds) 100% stocks. These are about 60% of my own investments.

But in terms of active investments, right now for my own, mum's and sisters investments think 50-80% cash currently. So this week particularly was bank profits, cut losses and only keep what I am feeling really confident in currently, so think of the likes of Supermarket Income Reit (LON:SUPR) and Impact Healthcare Reit (LON:IHR) in mum's income part of her portfolio (supermarkets are going to keep paying rent and we will always need care homes, sorry mum I cannot look after you myself but I can pay for you to have a nice home if you cannot live at home any more) but have sold Warehouse Reit (LON:WHR) as feel it is ahead of itself, and within my own portfolio things like Tracsis (LON:TRCS) and Smiths News (LON:SNWS) I have held. But these are small (2-3%) - medium (~5-6%) holdings. I have sold down most of the big holdings, cashing in British American Tobacco (LON:BATS) and Begbies Traynor (LON:BEG) and halving Fundsmith which have been longer term corner stones.

I think that this is lessons learnt from 2020. I sold and went to cash, including my pension, fast but not fast enough. I returned, but at the wrong time and wrong things (my low point was July not March like the markets), but overall did ok through that period. I do not do gearing.

Right now I think this is an emotional thing. I would rather protect capital and can emotionally miss out on a well £XYZ went up another 10% in the two months after I sold, then thinking I thought about going heavily to cash and I am down >20% across several portfolios, one of which is critical to lifestyle for mum. I guess this is I want too sleep at night, I hopefully have a lot of life to go, and I don't have to make 20% this year for any reason my base position is get a better than a Skipton Building Society cash ISA.

So I agree there is nothing wrong with cash, it is a corner stone of any portfolio as if you do not have cash you cannot take advantage of an opportunity. But with cash you might miss a gain, but you also miss a loss. Right now things are moving a lot without logic or understanding for me, so I would rather be cash, miss out on some profit and sleep at night. I can always chase the rainbow next year, but I am at least not trying to recoup like I spent the last half of 2020 getting back what I had lots after the main crash. My mum is still about 2% down from January 2020, but then again we have paid for the work on her house out of the income so that is good.

Sorry very vague, but happy to continue the dialogue further.

Tommy

24th Jan '22

Tommy. Thanks so much for your honesty principally. It's a long and non-financial topic but its easy to doubt ones resilience when the reality is probably that you are dealing with a lot of very difficult things and as such the "strong" thing is to be impacted by them. But that is a longer dialogue! Again, I do agree and last week I sold probably 15% of my holdings and feel that at least if the bad thing does happen, there is now 40% waiting to find a bargain rather than the much longer wait if I was still 90% invested. It does get more tricky now though when you are selling knowing that you have already "lost" 15-20% given the drop in things like Volex (LON:VLX) but can't dwell on these things.

Thank you for your kind words.

The one thing I learnt from 2020 is I sat on shares that were losing too long (I think Card Factory (LON:CARD) and Reach (LON:RCH) ended up something like 70% loss which is still painful). So I introduced a very crude sell rule when I was picking myself back off the floor, which of course I have bent from time to time, but if something is down 10% I start to look at why it is down and it goes on the potential sell list post it note on the wall (subsequent refinement) and when something hits 20% from the buy price it gets sold no matter what (I am not at the terminal all day) and put the share back on the watch list. Typical with all such rules is the share sold will bounce a day or two later, or that is what a lot of the last 18 months has felt like and you go you numpty e.g. Tharisa (LON:THS) but with others Polar Capital Holdings (LON:POLR) it has turned out to be right, so overall feel ok with the rule, and it is about having a logic and controlling the emotion and Fear of Missing Out...

I get totally that this is an emotional game, we all hate to make loses, we all want to do better, be better every day. Why did we not buy more when it was lower, sell it all when it was higher, and invest in that company that we have never ever thought about that just tripled?

I have just done the update on my tracker for my sister and she is in a loss for this tax year, so much for beating the Skipton Building Society cash ISA! But then again if I had not sold lots of stuff last Friday afternoon whilst making the kids tea (thank you whoever was ill so there was a cancelled the swimming lesson I owe you several drinks!) it would have been a bigger loss. The main point for me now is that the money is there, it can be invested again tomorrow, next week or next month. But it is there, not quite as much as last April, but still a lot more than most people in this country have saved up I would assume.

Anyway lesson learnt here is cut your losses, take the dent in your pride, just set a line, mechanical as it might seem and press the button.

Looking at which Redde Northgate (LON:REDD) crossed the 10% down line today, why did I not just got totally to cash last Friday again? But I will now see what happens tomorrow, just looked at America and they are going down again so maybe I need to check in tomorrow lunchtime and hit sell, chalk up another loss, but put in back on the list once more. But follow the rules they are there for a reason.

KevinS1

25th Jan '22

I have mixed feelings here and have always looked back with hindsight and questioned why I didn't move more to cash...........

However, I have generally always stayed largely in the market and, to be honest, I think I have adopted the ostrich approach - bury head in the sand and stop looking at the PF value.

As many people have said it is time in the market, not timing the market that matters. I firmly believe this and my PF value since the late 90's would support this. Probably reinforced over the last half of 2021 when I was tinkering and selling out of some things (but not most of my stocks) as things ticked down with the view to come back later, only to find that when I did I had missed the bounce and was buying back in around the price I had got out at.

Whilst yesterday was extremely painful in terms of £££lost, I am sure that over the long-term things will come back and if you are invested in good-quality companies that make a profit then you should be OK.

I personally have too many stocks to manage them individually on any given day and was in the process of moving a good chunk of my PF across to IT's to try and pass the day-to-day management across to someone who can do the job on my behalf. I will still keep a decent sized PF under my management as I enjoy this, but I don't need to realise big gains to meet my needs, and consequently carry the risk that this also entails. I am just regretting my timing on some of the moves, but there goes............

I have a small amount of cash (probably 5%) but won't be deploying this just yet - I'll let things settle down first as I am sure this isn't just a one-day blip. In the meantime I will carry the losses, but certain in the knowledge that further down the line this will just be a minor blip on the chart.

Chasing the market can have some great results, but it carries risk and I would rather not carry that risk at this time in my life. I'll dabble here and there, but will try not to make short-term jumps that actually end up increasing the risk profile.

Yesterday was very painful with 60% invested as well! I think what is true that now is the no mans land where there is a possibility that selling now does cement losses and rather than my grand idea to sit out the year, maybe the question now becomes is it a week or a month when it is time to go back in the water. Will definitely do some enforced sitting on hands for a few days.

Is this a year to sit out?

Unlock the rest of this article with a 14 day trial

About the Author

The Real Tim

11 comments

Unlock the metrics for all these stocks and more...

Unlock the metrics for all these stocks and more...