Monday 17 August 2015

Doom and Gloom

Trouble Ahead Sign

We are going through difficult world financial times, which the London Stock Exchange is reflecting in its loss of all 2015 FTSE100 gains.

If you are a Buffettarian, you will know that the best time to buy is when all others are fearful. And the signs could not be worse...

The Daily Telegraph's John Ficenec has a depressing overview of the present state of the world economy:
  • China slowdown, despite an unprecedented stimulus package, ending in the recent substantial devaluation
  • Collapse in commodity prices, including oil and iron ore
  • Resource sector credit crisis, with many new projects making losses - particularly in the US shale oil and gas industry
  • BRIC dominoes falling, with the economies of Brazil, Russia, India and South Africa in various stages of disarray; Greece has narrowly avoided melt-down
  • Credit markets repricing risk, with high-yield debt falling in value
  • Coming interest rate shocks in the US and UK
  • The UK bull market is in its 77th month - the third longest in history
  • The US stock market is over-valued, according to Schiller CAPE

A depressing exposition as my own DIY Income Investor portfolio has followed the yield signals into commodities and Emerging Markets.

So, what to do now?

Focus on Income

Stock markets do go up and down - this is one of the hardest lessons of investing. When the markets are sliding down, I find it is very helpful - from a behavioural point of view - to focus on income. As long as you have enough income from a job, investments and savings, then you can wait for markets to recover.  Focusing on income helps to stop your 'monkey' brain from worrying about the paper losses due to the fall in stock prices.

Keep Holding Cash

Our family financial wealth is still around one-third cash, mainly in 5-year high-street bank bonds or Ratesetter peer-to-peer 5-year loans (which I have written about before). The differing terms of the loans/bonds means locked-in cash becomes available every year or so. Ratesetter is even more flexible as individual loans are often paid back early - freeing up cash to withdraw or reinvest (the current 5-year loan rate is around 6%).

This emphasis on holding a sizeable amount of cash 'investments' is a deliberate strategy to be prepared for a very rainy day. It also helps to stabilise the value of our total financial assets.

Keep Holding Investments (with reasonable yields)

Selling at the bottom of the market (and I'm not saying that this is the bottom yet) is never a good idea. I held on during the dramatic 2007/2008 market meltdown and most of the investments recovered. The only proviso is that these investments should be yielding a reasonable income, which  pays you to hold on. If the income dries up from any individual stock weigh up the liklihood of recovery against the possibility of selling and finding something better. Think 'opportunity cost' rather than 'capital loss'.

Pick Up Bargains 

Try to look beyond the current crisis - like Warren Buffett - and find under-priced securities in products or services that will always be needed and, importantly, which are unlikely to fail in the short term. Market madness affects all stocks, whether they are good or bad.

Do Something Else

It is nice to look at your investments when prices are rising - but not when prices are sliding. So don't look. Monitor enough to check that nothing serious is going wrong but otherwise, find something more rewarding to do: you could take up the banjo (like me).


I am not a financial adviser and the information provided does not constitute financial advice. You should always do your own research on top of what you learn here to ensure that it's right for your specific circumstances.


  1. Pick Up Bargains - Now is the time to consider investing in shares related to oil. BP, Shell, Tullow, Premier Oil etc. Rather than fixating on trying to guess the bottom, build a position close to the bottom.
    The price of oil WILL go back up - maybe in 6 months, maybe in 18 months or maybe in 3 years. But it WILL go up. The world is not done with oil yet!

  2. It's part of the game. How many corrections and crashes has Warren Buffett sat through? Answer: countless.