Are long and rocky years ahead for private stock investors?

Stocks
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I’ve been following the stock market for a couple of years now and have studied the basics, mostly from channels produced by Inderes and Nordnet. I’ve already invested a bit in stocks and it’s gone well.

My understanding of these things is pretty minimal, and I can’t even keep the basic terms straight yet. However, I’ve developed a pretty interesting impression of the market during this time, so I came here to ask if someone wiser can make any sense of my view?

In very layman’s terms. Currently, the stock market seems to constantly react very strongly to all company news. It’s as if everyone is eagerly waiting for a sign from somewhere otherworldly and immediately puts all their efforts into a certain stock when some positive sign appears. As if someone has far too much extra money. And of course, when prices rise, investors like it, and that attracts new investors like us.

Then there are these central banks. They buy tons of these loan papers, which apparently used to be popular with big investors. So, big buyers bought them with big money before, but now central banks buy them and force that money into other investment objects. But that money doesn’t establish factories or build bridges; it goes into stocks.

But what happens when this central bank money pumping stops and these big buyers can buy these bonds again? Or will it stop? Won’t a huge amount of money disappear from stocks then? What happens when that money trickles away from stocks? Will it become a long and gentle several-year decline when stocks no longer interest big money as much as before, due to stock fatigue?

At 26, I’ve only in recent years started to believe in a situation where you can no longer trust that you’ll get a pension in retirement. Instead, financial security must be ensured by saving and investing oneself. And when planning to take out a loan to build a house and considering the state of the world, a little financial anxiety tends to strike :grinning_face:

If anyone made any sense of this rant, please comment. Are you worried about this situation, especially from the perspective of small investors, or is there any truth to this thinking at all?

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I, for one, am not worried. There’s so much euphoria in the stock markets right now that we’re probably going to see a downturn at some point, but knowing that, you can decide how much risk you’re willing to take with stocks.

I also own several stocks where the valuation is maxed out and the company’s profit is lagging far behind. In the markets, you can chase returns with risk, or you can settle for smaller returns and smaller risks.

And who knows, maybe even paper money will lose its value someday.

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Yes, the trend is concerning in that if this continues for a long time, it will lead to an ever larger correction, which in its most drastic form could be long and difficult. It would probably be best for everyone if the pumping of money into indices would soon end and thus investment returns would return to a state where profits are made only by genuinely good picks in the future. This way, one wouldn’t fall too far and too hard.

But either way, it’s worth thinking about your own strategy so that you are prepared for various situations: the continuation of the current bullish market, sideways trading of indices, and a market correction. Uncertainty always belongs to the stock market, and this situation is no different.

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That’s how it is, you have to recognize your own risk tolerance and be prepared to live with it.
And for me, that risk is precisely what makes the whole thing appealing.
Sometimes it just feels like we’re in such a wild situation that I’m almost eagerly awaiting a proper crash.

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For me, this strategy would really need to be honed. However, for me personally, a big drop would feel almost more desirable and like a buying opportunity, whereas several years of a steady, gentle slide would just fray my nerves.

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It also depends on age. At 26, you can take a good amount of risk. At 56, you should have already moved to perceived quality.

Nothing has probably changed, there will be many more crashes when the investment horizon is 50 years.

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This is also my goal: to seek out stable and reliable companies for the long term.

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@mokomakiamatoori, that’s a really good point :slight_smile: I recently read Seppo Saario’s “How I Invest in Stock Market Shares.” Saario wrote that when everyone talks about stocks and inexperienced investors enter the stock market, we are at the peak of price development.

When a correction will happen is a mystery; it might take six months or a couple of years.

The best and only means of protection is temporal diversification. One’s own investment strategy should be thought out and written down; it helps one act planned and thoughtfully when blood flows in the markets.

In many sectors, valuation levels have strayed far from the real world. My gut feeling is that, for example, hydrogen stocks have a strong bubble feel to them.

In other, less trendy stocks, e.g., Fortum, Sampo, similar hype has not been visible. My purchases have focused on these non-trendy targets. My strategy is based on dividends and so-called safe targets, where risks and returns are moderate.

Debt-financed stimulus cannot continue indefinitely, and when monetary policy tightens, a correction is likely ahead, and the valuation of value stocks will increase.

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Don’t they come about every 10 years? :slight_smile:

1973 British, 1987 US, 1990 US, 2000 Dotcom, 2007 Financial, 2020 Corona

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It’s funny that it wasn’t that long ago we had one of the steepest crashes of all time, and 6 months later people are already hoping for a new one. Greed, I say :smiley: .

An easy solution is to stop making market predictions and just invest in individual companies at a price you deem good.

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It is true that it has just crashed. The point, however, is not whether there will be a new sharp drop or not. My main concern is precisely whether it is possible that when these central banks stop printing money, it will become a long dry season where nothing really reacts to anything and there is a long and gentle declining market. :grinning_face: Of course, my intention is to find those companies that generate moderate and reliable shareholder value in the long term. Long-term thinking is the foundation of my strategy, but I do wonder if the market is such that it’s worth entering?

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This is precisely the core of my own contemplation. As I myself am just at the beginning of investing and aim to invest in this type of stock. Will these also gradually decline or stagnate as a result of central bank actions?

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And let’s just say I’m not going to shiver in some closet for fear of a big loss. I will continue to buy stocks, but now I just had to throw up this struggle and see if there’s any sense in it :joy:

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Yeah, that’s absolutely true. I didn’t mean to belittle it; it’s just that with so many warnings about crashes and “meet the crash when valuation levels are high” messages, it gives a funny impression that investing is all about constantly fearing crashes :grin:. @Verneri_Pulkkinen is probably the best macro/history commentator to provide insights and references from the past and future, but things aren’t so simple that they can be easily predicted—and certainly not taken into account in investment decisions for individual companies (especially in the long term).

But, if you’ve already identified what kind of companies you want in your portfolio, just go for it boldly. Your job is to figure out how much you want to pay for the company, keeping realism in mind. You won’t constantly find -50% discounts in a mechanism that has produced 7-9% annually, unless you go where the masses don’t (e.g., Aston’s and Arimati’s handiwork), or wait for those crashes. If markets crashed and recovered every year, market players would gradually learn, and discount bins would no longer even be accessible. Surprising global catastrophes would also run out at that rate. For those waiting for a crash, the money will remain in their hands.

About hype stocks. It’s not shameful to buy after others, for example, Kamux, or a good reason not to buy when everyone else, for example, on the forum, is buying, if you can get into the company with a cheap price tag. (Everyone decides where to invest, I’m not recommending Kamux here, just as an example). If you can no longer grasp, or haven’t even familiarized yourself with, the company you’re paying for, then it’s dangerous hype. If a Tesla guru buys 100 shares of Tesla at $600/share, and the stock quickly drops -30%, the Tesla guru probably has a target price somewhere above $2000 and doesn’t care much about the crash. The one who just followed the price increases and doesn’t know what they paid for will most likely sell the shares at a loss. Whether the Tesla guru will ever make a profit again is another matter, but they have some view on which they based their decision. No one has the right answers beforehand, there are only guesses, better and worse.

I personally made additional purchases of Harvia last at 20 euros and Qt at 50 euros. I am very satisfied with Harvia’s purchase price, but Qt wasn’t as “good” even though it has risen now. I had estimated the so-called fair values of both to be about 5-10% higher than my own purchase prices, so I bought when I had extra to invest (on the other hand, an alternative would have been to wait for a better idea, but the intention is not to open significantly new lines in the portfolio so that everything remains under control).

So when you asked if the situation is worrying, I would focus on just buying companies where you see potential (assuming you want to pick stocks). You can buy something worth €10 for a purchase price of €9, which can increase its value by €9 annually. Then macro pictures or index levels don’t matter that much in the long run (they can also be favorable for investors). You shouldn’t be afraid to make mistakes, but you also shouldn’t make them unnecessarily (for example, by exposing yourself to the mercy of the market by hoping someone will pay more tomorrow than you do today).

Merry Christmas :+1:

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The situation certainly looks alarming for future pensioners. Pension funds can no longer achieve decent returns with interest rate markets in a bubble, and pension companies still have to invest their assets in negative-yielding government bonds because they are considered “risk-free.” For those investing in riskier options, solvency limits burst during stock market downturns, meaning they buy at the top and sell at the bottom. In any case, a large portion of wealth disappears when cash becomes valuable again as interest rates rise.

Bubbles can be observed in some parts of the market. Especially in these monthly-billed services (x as a service), which are considered a sure concept for the future. In the United States, even common household appliances like cable modems and printers are now being billed on a monthly basis. Poor financial literacy leads consumers to not understand that by signing a 3-year, €15/month contract, they are indebted to the company for €540.

Solvent actors in many sectors have complained about the lack of consolidation in their industry. Why sell your business if its market value only keeps growing and bailout packages will save you from trouble anyway? Loss-making tech companies continue their ascent when revenue is the only thing the market measures. Revenue is easy to get if you don’t have to care about the profitability of sales. So: the larger the revenue, the larger the loss, and the higher the stock price (Delivery Hero example).

The height of the indices conceals the fact that not all companies are priced into a bubble, although future returns may fall far below the historical 8% return. Regardless of the market situation, it is always worth ensuring that the business of the company being bought is stable and profitable, and that you are not paying too much for the company. The number of buying opportunities is just much smaller now than it was in March. Hype stocks will eventually collapse under their own impossibility, and their holders must have the sell button ready then. Believing in all kinds of world domination stories is deceptive.

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