August and September, 2020 Update

Our net worth rose in August by 8.34% and then fell in September by 5.96% in dollars. The EUR figures are similar.

In August, we, along with anyone who owned stocks corresponding to the U.S indexes, saw our wealth shoot up rapidly. It was both fun and unnerving, since the biggest news related to Apple and Tesla's stock splits. Sure enough, shortly after both companies split their stock, the markets began to fall.

The good thing about having survived March by just watching prices plummet, is that normal corrections barely register. Now, if we suffer a protracted decline à la 2001-2002, that might be harder to stomach. But the truth is, I'm not done saving: I want prices of great companies to fall. I was nervous in August because I knew we wanted to buy more stock, rising prices now lowers future returns.

The Election

I am not changing anything about my financial goals in response to the election. That doesn't mean I'm not worried. I've imagined all sorts of horrible scenarios, such as:

• Consequences for Americans abroad due to strained relations between the US and its allies
• A closing off of American society that begins to affect the lives of Americans abroad
• A drastic change to the tax code that doesn't adequately incorporate the needs of US expats
• A collapse of the rule of law in the US
• Major civil unrest and/or civil war

I hope none of these things happens. I don't think any of them will (though the US probably isn't done writing tax laws that harm citizens abroad), but I'd be a fool not to imagine them, especially since things like this have already happened.

It's worth imagining. It's also worth remembering that the U.S. tends to figure its problems out and that having some faith in the country is likely the best course of action. You know, it's the "Triumph of the optimists".

Outlook

I'm not expecting a major change in October. We're continuing to save for the piano, and we've planned on renting to buy beginning in December. That will cost us more money vs. buying it all at once, but I view it as buying an insurance policy: just in case the world falls apart and I lose my job, I have an out. If we get to December 2021, and all is well, it will be easier to part with the full cost.

Good luck out there. It's a weird and stressful time. We've been getting some laughs by watching Cobra Kai on Netflix. I've heard it described as a guilty pleasure, but I don't feel guilty at all liking it.

Getting Used to Market Drops

In the past week and a half, I've lost more money in the markets (nominally) than I ever have. I wasn't investing in 2000 or 2008, and I cashed out the few stocks I had in 2015 to help pay off the student loans before that year's turbulence hit. Right now, I'm sitting on a large net loss that I predict will become larger.

With the fall yesterday, the S&P 500 looks like it will close below the ten-month moving average. This is a fairly rare event, and it's one of those possible triggers for trend-following people to close their positions and wait things out. I'm not going to do that, but I am and have been girding myself emotionally for the potential of a big drawdown.

I don't really feel any panic about this. Maybe I'm fooling myself, and if there's a 50% drawdown, I could conceivably panic. But I suspect I won't.

Tempered by past panics

In the past year, my tolerance for big drops has improved. I had my first taste about a year ago when one of my large holdings dropped by 16% in a day and then kept falling. I panic sold, and the holding eventually recovered, much to my chagrin.

After that I held more doggedly through big drops and was rewarded. I hated holding, but I did it, and one big draw down became a big winner, which I sold for a profit when the price appreciation looked too good to be true.

And then 2018 came, and suddenly big drops for some names didn't recover. Currently, I'm sitting on some securities that are very much drawn down, and the speed with which their plummets happened feels a bit punitive. When I described how one holding has fallen 40% since April on no real news, a friend laughed and said, "It's because God hates you."

But there's also something irrational about the plummets. Many of them are falling not because of their current actual performance but because of fears of future performance or fears of their markets being encroached by newer technology players. Fair enough. But the penalties in many of these cases are extremely pessimistic, and extreme pessimism can equal good value opportunities if the world doesn't fall apart. Which is admittedly a big "if" right now.

Backtests

One exercise that also helped gird me mentally was all the backtesting I did. There are some market drops that can be mostly avoided. The dot-com bubble was one such example. If you'd bought value at that point, you breezed through that basically unscathed.

Meanwhile, 2008 was a different beast altogether. If you're long-only, the only real way to dodge 2008 was to not be there. But if you weren't there in 2008, you probably weren't there in March 2009, and if you were there in March 2009, you were rewarded. Big time.

It's not easy. But it does show that the big drops are opportunities if you're buying. And they're also something to plan for.

Dreams of cheap prices

So there's a part of me that wants to see prices really fall. Like, c'mon lads, let's do this. Since I'm still earning money, I'd love for my future money to meet much lower prices. The CAPE ratio is still high, and if we think it has any predictive power at all, all of us who are buying securities right now should be praying for it to fall.

The only people who should be hoping for higher prices are those who aren't buying anymore or who are mega-rich. Higher prices don't help young people. Higher prices don't help savers. Think about how much you've already saved vs. what you will save in the future. Which number is bigger? If it's the latter, then you should want an 80% drawdown to happen (as long as you get to keep your job) because the compounding effects of that money will be so much greater.

So to wrap up, I've been training my brain to not get too distressed about this. There's some distress, not going to lie, but it's not panic, and if I'm not panicking now considering the amount of money I've lost, I doubt I'll panic later.

Markets Fall Too

TLDR; Nothing to do in response to stock drops. I'm just going to stick to my plan and console myself that things just got cheaper.

It was unpleasant watching the market fall yesterday, and if it falls again today, that will also be unpleasant. Since I own individual companies instead of broad indexes, it was rough seeing every name take it on the chin. I own value and growth. I own a variety of sectors and industries. They all got pummeled.

What to do? Nothing. Just watch.

But I can remind myself of a few things to help make sure that I don't do something stupid.

This Could Already be Over

Yesterday could have been a one-off event, or maybe it's the start of a longer down trend. I actually have my doubts about that unless global trade really blows up, but more importantly, I don't know. If I sell today, thinking that this will go on, markets could recover, and I'd be feeling like a dummy.

Falling Prices Make Future Money Worth More

I will save more future money than the money that's already in my portfolio. It's no fun watching past dollars lose value, but if there's a larger drop, I can console myself knowing that my future dollars will buy more of asset than it could have had prices risen forever.

There's no position in my portfolio that's so large I couldn't see myself adding to it, and falling prices make it a lot easier to buy more.

Selling Stuff Makes Tax Headaches

More sales equal more paperwork. I want to save myself as much paperwork as possible.

There's a Reason I've Chosen My Strategies

There's a reason I have what I have. I've done a fair amount of backtesting and research, and while that's not perfect, it does give me some idea of what's possible on the downside as well as the upside.

All I have to do is not freak out. Just follow the plan and let time do most of the work.

So there you go. That's what I'm reminding myself as the heads babble on TV and Twitter and blame this or that for why the markets move as they do. I don't know what's going to happen. Neither do they. Stick to the plan.