Asset Bubble and Investor Psychology

Investing
#1

Hi Guys I think its fair to say that over the last year alot of us have done very well with our portfolio’s. I myself am kinda overwhelmed with how respectable my gains have been over the last year.

And although we can be arrogant and attribute these gains as “good investment” decisions. In my opinion investment returns are credible when achieved over several years of consistent and careful investing. Just because something goes up or down even for a long time doesn’t make it a gd or bad investment.

The conditions of these gains is something I have been aiming for over a multi year period and the returns have been outstanding month over month this year. Anyone who has a good grasp of economics and investing knows why this is (favourable monetary policy, huge spike in retail investor interest, etc).

In my opinion I do not see anything actually slowing down the equity market in the short term but I do agree that there is an asset bubble. No one knows if the market is going to crash or correct or statically wait for corporate earnings to catch up and anyone saying they know when a crash/correction will happen is frankly moronic. Obviously there is always a catalyst whether that’s a rise in interest rates or poor economic data after most economy’s reopen (unlikely). But even so most of the time the economy doesn’t directly correlate with equity. In fact I personally believe if you can be objective, scary economic data (especially in the news) or bad company press that doesnt impact a companies ability to grow and maintain/grow free cashflow can be fantastic opportunity to invest.

I’m a strong believer of aiming for moderate and consistent gains (I don’t aim for 20%+ plus returns per year) and as a retail investor i should stay in my lane and invest in industries, countries and companies i have a very good understanding of and buying in at a fair price.

Naturally psychology can heavily impact our investing decisions and recently I have realised that I am become more anxious about my investments partly because it has done so well. I wanted to know what other thinks about this topic.

Also I am looking into educating myself more into investing psychology and behavioural economics. As investing is also about understanding market behaviour. One particular area which is interesting is about the idea of market Reflexivity - how feedback loops positive or negative effects companies growth and valuation.

Sorry this was a bit of rambling on but I feel like this isn’t talked about alot.

What do you guys think overall about the market right now ?

Also what do you guys think of market reflexivity (George Soros) its a very interesting idea and if you haven’t read up on it, I highly recommend it for any serious retail investor.

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#2

My only current thought is if you’ve made heavy gains which a lot of us have, sell all your shares.
Now comes the tricky bit, would you buy these companies back at the current price?

If you would then don’t sell in the first place, if you wouldn’t then it’s time to sell these shares be thankful of your good run and move on to the next thing.

I’m certain of a market crash but then it’s a very easy thing to say as one seems to happen as regularly as clockwork in the modern world.
What will it’s effects be on our assets long term? As long as the companies invested in survive then little to nothing will change after the crash becomes the next bull run.

It’s a fact that mass growth only happens before a big crash and after a big crash

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#3

My general view is that money doesn’t disappear, it just moves about.

Governments globally have given out a lot of handouts to keep the economy going for the struggling sectors, and I think that is mostly priced into the market and then some.

We are not necessarily in a bubble, but a number of companies share prices imo are over inflated, to put it simply based on ‘sheep’ mentality. Money follows money.

A lot of people that can work from home, are suddenly finding extra funds to invest, inflating the market more. That will die down and disappear late 2021.

I also think now is the time for the UK market to catch up with global counterparts, but not the banking / O&G sectors.

There will be some corrections - healthcare companies and EV, but not across the board.

That’s just my view.

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#4

I agree alot of the points you mentioned. Especially as people begin going out whenever that is and consumer spending reaches precovid levels.

Thanks for your response

#5

I’m not considering selling whole positions but I will definitely think about trimming positions and taking profits and redistributing them to other holdings.

I try not to move money around too much in my portfolio. I like to leave positions for a long time as long as fundamentals remain even if I believe they are inflated.

Thanks for your response :+1:

#6

My approach on the Invest side of T212 is just to keep buying monthly non stop for the next 20 years and forget about everything else. The more I read about trading, the less I care about price action, price movement, short term fluctuations, fx rates etc. I’ve researched my companies, hedged, and will just sit back and be happy with what I get when my planned time to cash out comes. I don’t want to be smart or greedy or try beat the market. Just let my cash build.

The CFD side is a total different ball game of course.

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#7

I like to sell my original investment and keep the profit element if I think the gains are slowing or reversing.
I only ever consider selling in this way, I would never close a position unless its in trouble.

#8

Completely agree with this. I’m investing for 25-30yrs i know long term it’ll be fine.

#9

It’s a good approach. Going back to your original post then, I would just say ignore the psychology. Don’t even let it register and fester in your mind.

What is your definition of success? What are your goals? Once these are defined you will be able to stay on track. If they’re not, you run the risk of kicking yourself or beating yourself up down the line for not selling or not doing xyz or buying this or not doing that.

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#10

if selling would you not convert it to buying gold/silver (silver more stable) to offset capital gains tax as you’ve reinvested?

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#11

I’m not looking to sell anymore than my gains, I will reinvest straight away either way.
Copper would probably be better than gold right now but I do agree about silver also

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#12

Coppers a good one to get but if for a stable asset personally I would go for silver and, im pretty sure silver is exempt from capital gains taxes

#13

If you’re confident long term I wouldn’t even worry, set and forget as long as you’ve got high conviction in your investments.

The odds are if you try to time the market, it won’t work and there’s plenty of research out there to back that up.

That being said, you need to be able to sleep at night so if you’re uncomfortable then it may be prudent to take some off the table.

I’d also suggest barely checking the app (not sure if you do or don’t obviously), but some of my mates check it like it’s some sort of social media and it’s not good psychologically at all if you’re investing opposed to trading

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#14

The more I progress into my 30s, the more I realise this.

I heard a good analogy from Peter Lynch on a YouTube video on this. He basically said something along the lines of you’d never ever see somebody checking the value of their house every day relentlessly. They just live in it and get on with it. He reckoned stocks should be the same - i.e. as with your house, you bought them for a reason after doing research, and you should just hold over time and forget about everything else. Easier said than done though.

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#15

I guess it depends on the rationale of buying the stock.

#16

99% of retail investors (& others) were bailed out in 2020. You were bailed out. None of you complained because many of the assets you purchased made gains and now you are all geniuses and investing is super fun. 2020 was not investing. It was buy the rumour - buy the dip and hope.

2023 - 2026, now that’ll be investing. That’s when the ones with a clear consistent strategy with be tested. This is a savage double dip recession for the UK and couple that with disillusioned USA stock prices, many companies are going to get longterm burnt.

Without trillions upon trillions of stimulus the S&P 500 would still be flirting with a 2400 area, or worse into the 1800 area. The FTSE 100 would be falling vertically below the 5000 area (or even into the 3500 area).

The UK’s real economy is in absolute pieces. It’s a wreck. It’s also an economy based on mining, tobacco and oil… not exactly an ESG rating to shout about.

Asia Pacific and Emerging Markets could genuinely be the place to focus on over a long 20-30 year period.

I know one thing, you will not see me holding a FTSE 100 etf that’s for sure.

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#17

interesting rationale to deny the countless people who actually lost money in 2020 and those who hold stocks that saw no price fluctuations related to covid19…

the analysis on the UK economy is worth about a much as the paper you wrote it on… wait…

And here I thought the UK economy was most reliant on its services and financial sector, my mistake, guess that 71% of our economy was an illusion.

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#18

I might have gained a small amount investing but my actual businesses lost something shocking with all this covid crap. a lot of markets where prime to take the hot seat with so many brick and mortar companies crumbling across the globe

#19

In my opinion, financial markets are and will remain under tight management. Ahead are at least 10 years of fundamental transition towards a new world economy and a new world order with a reset of western capitalism and the rise of Asia as the major player on the global stage.
Central banks and large funds will team up to make sure that markets don’t collapse in the process. Slowly but surely money will be reallocate to SDG-compatible assets and non-compatible assets will decline.
Stock picking might become a tough exercice and I believe that more and more people - even pros - will join the ETF craze, realizing that AI has made companies like Blackrock unbeatable at managing risk and optimizing returns long term.
As you’ll see below, I followed a sound methodology to reach my conclusions on the future of stock markets:

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#20

I think that’s actually a little unfair to tarnish everyone with simply buying these hyper growth stocks that are detached from the main point of a business, which is naturally having meaningful revenue and profits.

That being said, how correlated are earnings etc with the stock price? That’s another story

I agree with you that there is value in the short term in emerging markets and Asia etc

However, to say that there is no longer any value in the USA and UK i don’t feel is quite right over a long period of time.

Yes, there could be another collapse in the short term when the stimulus stops. But over a long period of time there is still value in the USA and UK