“Hi David I'd appreciate any thoughts you could provide on the following (which I understand is a difficult question, but another view would be helpful). My pension fund can be moved to cash - however, I'm told the lead time for this is 5-10 days. This puts me in the position of possibly selling into the bottom of the market given what's currently happening. So I may be best just to ride this out. Depends how bad this correction will get. I'd appreciate your views - what's your sense on how far the markets might drop. Is a 'ride it out' approach a sensible approach at this point? Again, I understand there's no real answer to this as no-one knows where the market will reach, but any thoughts would be appreciated.”

David Fuller's view

Thank you for an interesting email certain to be of interest to some other subscribers. 

The first point I would make, which is not your fault, is that I do not like the lead time of 5 to 10 days that you would have to accept.  You might wish to find out if this was always a stated condition of the plan, although I appreciate that this information would not change your current circumstances.  Unfortunately, this does occur on occasion, when firms are hit with a surge of redemptions, especially if they hold some illiquid positions.

The short answer to your question, assuming you like the assets in your pension, and assuming that the valuation is already down over 10% from its recent high, and that you would face the uncertainty of a 5 to 10 day delay on selling, is that a ‘ride it out’ approach has become sensible at this stage.

I believe you live in Ireland, and although you are very likely to have some international holdings in your pension, I also assume that you have some Irish holdings.  If so, your ISEQ Index peaked on 28 February, from the most overextended position relative to its 200-day (40-week) moving average, throughout the bull market recovery following the 2009 low.  With hindsight, that was the time to lighten positions, although I appreciate that this is seldom an easy decision to make.  When things are going well, we may consider reducing the position when it is clearly overextended, but usually reject the option on the basis that it may only mean revert to the MA before picking up once again (I do this too often), which is exactly what happened, at least for a while.

At todays low, ISEQ is down 14.6% from that February high, and many other European markets have seen similar setbacks.  For instance, the Euro Stoxx 50 Index, at today’s low, is down 18.6% from its June high.  So, we have already seen significant corrections.  We also have a short-term oversold condition and James Bullard of the Fed is saying that they should delay ending QE.  However, I think we are unlikely to see more than a short-term technical rally in most stock markets.  Those that had been rallying for several years have only seen a break down from top formations, or in the case of the S&P 500 Index, a break in the uptrend consistency characteristics of the last two years.  Therefore, we could easily see a further selloff, because of all the leverage (margin debt), plus this year’s expensive global uncertainties of sanctions against Russia, war against Isil, and Ebola.  These are causing some cyclical bear markets, defined as 20% plus corrections, but nothing like 2008. 

Nevertheless, I do not think that stock markets will go down and remain lower beyond the short to medium term.  If we think about it, there is plenty of good news out there, although most people are not focussing on it at the moment.  In terms of market action, what we are seeing today is not out of line with what this service has been predicting for 2014 since late last year, although there are always plenty of surprises along the way.