Stock volatility is painful for investors - itās horrible to see your portfolio down 5% or 50%. Thinking about your appetite for risk is useful (āI reckon I could handle -50% without panickingā) but it isnāt the same as actually experiencing it.
So I think it would be great if Freetrade could show investors the worst portfolio drawdown theyād previously survived, in order to encourage them to stay the course and not panic sell during volatile times. You know, like āYou lived through a 26% drawdown on date, so hold the course now ā.
I like the idea of showing a range of investors like yourself to help benchmark how you are doing.
E.g. investors like you we picked 5 top, 5 bottom, 5 like you and then plot that to show their performance without telling you who they are or what investments they made.
Just to give comfort maybe you are outperforming your peers but also to help build confidence around what you are doing. Plus itās good to see if there is room or improvement or maybe you have made a horrible mistake
I usually donāt lose too much money on investments in the short term, because I buy stocks as cheap as I can. If you have a margin of safety in what you pay, you can only lose so much before a floor is found. Buying at all time highs is obviously dumb and leads to a loss of capital in the short term, buying poor companies at all time highs is even dumber and leads to a loss of capital in the long term.
Iāve never been down more than 5% in a position because of this. But I can imagine if you bought stocks at an all time high, you could easily be down 20-35%.
True. I donāt want to hijack your vote. I like the idea. Itās basically show me more stats about my history as an investor which is something Iām extremely for!
Itās my data let me see it and do interesting stuff like this with it!
That doesnāt address the point of this thread tho. Eveyone,except obviously you, will see a dip in their portfolio at some stage. Positive reinforcement that things have been bad but improved may help them
Iād instinctively guess [1] that any investing strategy could be exposed to large drops, large enough that many investors could feel a bit panicky. (Out of interest, how long have you been investing Harihar?)
[1] though donāt have access to historic charts or the knowledge to attempt any proof
What I am saying is maintain a large margin of safety in the price you pay for a stock, unless you are prepared to buy on the way down as well. This only applies to good companies in weak markets, a poor company in a weak market is going to get hammered even more.
Most capital is destroyed buying poor companies in a strong market. Most capital is made buying good companies in a weak market.
In 2000 my āportfolioā of one stock dropped a terrifying amount, having gone from being cheap to overpriced and then back. By 2008 Iād mostly learned to not look at the prices.
I like your strategy, Iām not confident that Iād execute it as well as you. My approach is 95% index tracking orthodoxy: generally I donāt look at the prices at all, and I keep buying.
It makes sense to buy more aggressively when stocks become cheap and buy less aggressively when stocks become expensive. The fact we donāt know the bottom or the high, means we have to keep buying. Reinvestment of dividends is key and will help in the long run. In the short term, the market is highly irrational, driven by hope, fear and greed. In the long run, the market is highly rational, driven by fundamentals.
2008 was exceptional and should not be considered a normal recession, the banks were about to go under. We may see another 2008 type event in our lifetime, but they are far and few in-between. Having cash is the key in a stock market crash, being able to buy assets up cheaply as retail investors sell out at the bottom.
Not wishing to hijack the thread, but when your portfolio sees a big drop, itās already after the event so to speak. The only options you have is to hold and hope for the best, or to sell at a loss.
I like the ideas discussed above, but itād be good to get some leading indicators as well. Just spitballing here, but some stats around your diversification by sector or geography, as you may be overexposed and thus be at risk of more volatility.
And perhaps some pop-ups when one of your stocks experiences a x% drop in a y timeframe, so you can log on and decide a course of action. None of us are arguably professional investors and arenāt glued behind our Bloomberg monitors all day, so some nudging may be useful.
I think when you invest large sums of your own money in a place which is driven by hope, fear and greed, you end up becoming professional in the actions you take. Anyone who isnāt professional after investing Ā£10,000 or more in individual stocks, will not live to see their capital appreciate. The only people who are going to remain novice are those who buy index funds (nothing wrong with that though).
Retail investors have no place being in common stocks if they do not know what they are doing, they do however have a place being in index funds if held for a period of a decade or more. Most people lose so much money buying high and selling low in their first year, they never come back to investing. Then Marcus by Goldman Sachs gives them their 1% a year interest, while simultaneously taking that capital and putting it on the stock market.
The point is that regardless of how normal or not 2008 was, 2008 did actually happen (@ytsruh oh that chart, the pain) and features that help and encourage investors with the behavioural side might be helpful.
Obv you wonāt need it but others might. And since weāve had such a lovely chat about things @harihar do pls consider voting for this idea top left
I donāt think showing them the worst theyād personally experienced helps; what happens during their first big drop?
If they understand the stock market and have invested in a broad ETF, no drop will phase them and any feature like this is redundant.
It is the person who has invested in a small handful of stocks and sees that they have suddenly fallen that panics. Without the context that the whole market has fallen, they may think thereās something wrong with their stock picks in particular.
A useful metric for all users is to overlay your own performance with the performance of an index like FTSE global.
Itās not so frightening to see your own stocks dip the same as everyone elses. And for people who know what theyāre doing, itās always nice to have a benchmark visible at all times.
Yep, this idea would be more helpful when a current drop isnāt the worst one youāve ever experienced
But if the app showed me that Iād lived through a -60% without panicking in the past (to grab @ytsruhās example) maybe it would help me be ok about whatever I was experiencing in the moment.
ā.
