Seeing red

So the stock markets are busy at the moment, maybe the traders need to top up their children's school fee accounts? Those lifestyles don't maintain themselves you know!

Up and down, up and down - according to Reformed Broker in the US they are seeing a significant increase in the number of days when the market is up or down over 1% - I haven't totted up how the FTSE is doing, but if feels like it can't be far behind.

So what now after the c.15%  fall I was looking for - well, seeing red is never great when you log into your trading account, but there it is, about half of my investments are under water. Some by a few pounds, others by reasonably significant percentages. This makes me feel uncomfortable, obviously, I don't like it at all, but it's worth sticking with because it's caused by and will be helped by reinvesting the dividends.

I generally stick to ticking the box that reinvests the dividends, which means all through the time when the FTSE was going from 6,200 - 7,050 roughly two years from 2013 to early 2015, before tumbling down to where it is now, I was buying shares. These are the ones that are now underwater by a few pounds as more expensive versions of the same shares were bought, taking the average price per share up. The larger losses arise from purchases where I felt I needed to act, bought too quickly and without enough thought - hopefully they will come back and I'll be able to get out of those holes and learn some lessons!

Pre-correction I was earning a yield of just over 5% in good blue-chip, main-stay companies which I bought and add to during dips. I feel this compensates me for my lack of knowledge and skill and increases my chances of avoiding capital losses whilst receiving an above market income return - nice and simple! That yield will now be boosted by the falls through new purchases and top ups along the way.

A slow recovery / this current bouncing about gives me time to think and hopefully act more rationally - my musings on buying shares in the oil industry show just how long I can take to think about things! I'm happy with that as my personal share dealing account is not my main investment pot, across them all I'll be buying more shares and units all the time at, hopefully, discounted prices supercharging future returns - from that point of view, it's all good, but that doesn't make seeing the losses any easier to bear.

I do also genuinely see these as paper losses, crystallised only if I hit the sell button. Since the money invested is surplus to everything else I spend on, I don't need to sell, which generally puts me in a decent position mentally.

So I'm okay seeing red at the moment. Deals are hopefully on offer, rather than "correct" valuations. I've bought Vodafone and the Vanguard worldwide high yield ETF during the slumps, so we'll see what else is out there in the next few weeks...

House price bubble?

Okay, this may seem obvious, housing in the UK is way too expensive, but is it entering bubble territory with the potential to deflate in an uncontrolled way.

I don't know if we're about to hit 2007/08 again. As a home owner I hope prices don't collapse and you can draw your conclusions of my ability to forecast on a macro level from the below - I'm an ordinary bloke talking about what I see. In any case the Government has shown a deft hand at re-inflating asset prices - particularly house prices - when it looks like negative equity might hit voters.

As things stand interest rates are rock bottom with no official pressure for them to go up - inflation is low, there are economic concerns abroad / at home, the Government has a massive debt pile to deal with and a little inflation would actually help them quite a lot (but I'm sure that's only a small consideration for the MPC!)

So debt is cheap and the house price Ponzi scheme has been boosted by the Government with help to buy and other bribes. Another factor to consider is lending standards. I personally thought the Bank of England did a good thing 18months or so ago - they tightened the criteria lenders had to follow to approve lending - I've been through it, it's hellish, long and tedious. You get asked how much you spend on clothes and shopping and gas and water, presumably you can stop your water intake to pay the mortgage...

Anyway, instead of using the sledgehammer of interest rates to knock down house price growth, and everything else in the economy, they just focused on telling banks not to lend lots of money to people who can't afford to pay it back. Well done.

Are those standards slipping? Something which would indicate an unseemly bubble. Have the rigorous controls become a tick box exercise more than actual review? This could provide a third leg to the bubble theory.

To conclude my summary of thinking on this I bring in my Kev "Grand Designs" McCloud Housing Index*. Have you seen any of the present series? The houses are monumental which suggests a fair amount of Hubris, but the amount and ease with which people are taking on debt is the issue. The one with tax accountant was great - this poor chap had a brain hemorrhage and having survived it decided to build a massive house without a proper budget. It ended up costing several million, that's million, with an m, pounds. It was "paid" for with over ten different loans including bridging finance at one point.

Ignoring personal decisions about how the house was supposed to make life better for the family involved, though how mountains of debt makes life better I don't know, it's interesting to see the houses built over time against the backdrop of the health of the economy.

A couple of series ago, the projects built between 2009-2012 ish, it was all highly energy efficient, smaller more innovative designs. Now that's all out the window - so far big is back and only the best concrete will do (paraphrased, but the sentiment was used in this show, it's insane.) A few series before that, projects being completed c2006, were mostly very large and paid for with easy loans from the banks...

Clearly this is not scientific and I don't want to be a perma "we're doomed" bear about the housing market, but its interesting to draw the comparisons. Maybe Nemesis is waiting round the corner to bite?


*not a real index

Further reading:
http://alephblog.com/2011/11/05/bubbles-are-easy-to-spot-well-almost/

I wish I'd written it....

I really like this post, it sums up the majority of my motivation for seeking FI.

There are a lot of posts written about reasons why people seek FI - sticking it to the man, quitting the rat race, giving the finger to a boss, company or industry you don't like. I'm in a lucky-ish position in that I have nothing to complain about, I am pursuing FI in the most part for reasons neatly laid out in this post:
http://www.beardeddragonfinance.com/borrowed-time/

Oil revisited

Since the last post on this things have been "interesting" in the markets and I'm getting tempted by the oil majors.

In the blue corner:
- http://www.reuters.com/article/2015/08/29/us-berkshirehathaway-phillips-idUSKCN0QY0L120150829
- http://theconservativeincomeinvestor.com/2015/09/01/royal-dutch-shell-from-one-correction-to-the-next/
- http://alephblog.com/2015/08/30/we-still-have-a-buck-in-the-till-were-solvent/

In the red corner:
- Me.

I get tempted to go for it and then think about how the market has changed now from 2008/09. OPEC seem to be washed up and the ability of US frackers to gear up when the market picks up should keep prices lower for longer.

Recognising my lack of knowledge is why I keep reading, generally and specifically. In this case, there is a fair amount of information pointing to the plunge and a 7% yield would be rather nice to complement the portfolio.

The current correction seems like it's not as V shaped as in the US, so I can deliberate a little longer...

As always DYOR.