Net Worth Update: January, 2020

Our net worth increased from Dec. 26 to Jan. 26 in USD by 4.72% and in EUR by 5.48% to $62,387 and €56,561 respectively.

Some Changes to the Chart

This is the first time I've broken out the holdings in my taxable brokerage. I didn't do this by individual securities but instead by currency and cash amount. Since I have some securities based in euros in addition to dollars, I have split those up. You can see that reflected in the slightly higher euro assets.

Additionally, I'm using a ~10% margin position in euros. Namely, I sold euros to buy dollars some months ago, and I would like to have that debt acknowledged in my spreadsheet and chart. After long consideration paired with the low interest rates my broker charges for euros, I thought it a good idea to lever up a little bit. 10% is a very mild levered position, but it's still mildly unsettling: I am in debt, and I pay interest on that debt. It's worked out so far, but I want it to show, and you can see it in the sudden amount of euro liabilities.

I plan on going back and adjusting the previous months to show this change, but there's no set schedule for when I'll do that.

Major Factors in the MoM Change

I tried to be aggressive with our saving overall, and we saved around 37.5% of our blended income (post-tax for me pre-tax for her) this month. Some of income came after I finalized the spreadsheet: I got one of the refunds I've been expecting for my dental work, so it will be reflected in next month's net worth change.

In addition to that refund, I got some random income boosts. We both got some gift money: since we live abroad, those who wish to give us gifts often just send money. In addition, a colleague hired me for some extra work and sent that money straight into my bank account. That story deserves its own post.

The stock market performed reasonably well, though it wasn't a crazy positive month.

Possible Big Purchase in 2020

After thinking we wouldn't be buying anything large, my wife and I discussed 2020 money goals, and she mentioned a large purchase she's interested in: a piano. In my mind, this might eventually happen as an ongoing rental or a fixed upfront cost of 1000-4000€. I have some math to do!

We also haven't made fixed plans for the summer. The summer trip to see family is often our biggest outlay for the year, so that's a big wild card.

February Outlook

There's one final dental cost refund that I expect to happen in February, but otherwise, I don't expect any big cash infusions beyond our normal income. Our February budget right now is aiming for a 22.6% savings rate, so if the market holds still for a month, we're looking at a net worth change of ~€1000-€2000.

Margin

I sold some positions yesterday in my brokerage account. They passed my selling rules and on the whole I made a small profit with those positions, but I wouldn't have sold them except I wanted to close out my use of margin.

I used margin in my brokerage for the past year, and although my timing was shit, and its use probably amplified the loss I'm sitting on now, the loss isn't what bothered me about it. Instead, it was the mental games it played with me that forced me finally to shut it down.

Dangerous Thinking and Actions

I don't write this blog to give anyone else advice. I'm not a money professional, and I don't want anyone to think my word is correct or actionable. But I do want to point out a few of the dangerous lines of thinking and risks that margin use exposed me to, and maybe someone else will find this helpful.

Careless Security Selection

When it's borrowed money, I found it easier to buy stuff that I otherwise might not have bought. It was easier to say, I'll buy a bit more here on this pullback. I'll buy this security just 'cause. The dividend is higher than the interest I'd be paying. I'll day-trade just this once... twice... three times....

Looking at some of the stuff I'm still holding, all of that thinking was stupid. I have stuff I shouldn't have bought. I took risks that were unnecessary. I'm sitting on losses that will take several years to recover from. It's not the end of the world, but it was a mistake.

Constant Desire to Close Out my Margin Use

This is more stressful than financially destructive, but I thought a lot about my margin use, and I was always itching to sell to close it out. That's just stressful, and I don't want to live my life worrying about that. And speaking of stress...

Constant Need to Check the Portfolio

Because I was using margin, there was always the risk of a margin call. I never borrowed all that much, but the possibility was always there, and so I told myself I needed to regularly check the portfolio.

Well, if you constantly checked your portfolio this past year, you were probably pretty stressed out by it with all the volatility. Checking the portfolio probably contributed to some of the buying and selling that I regret in the past year because I got worried about a big crash wiping me out.

Playing Russian Roulette with Risk

As Nassim Taleb says, some risks are like playing Russian roulette with a gun that has hundreds of chambers. The likelihood of the bullet going off is low, and because it doesn't go off, you forget that there's a bullet in the gun.

I backtested the percentage of margin that I used, and the margin call bullet never went off in my tests. But it doesn't mean that it couldn't have. Especially because so much trading is done by computers, there's always the possibility that something crazy happens that causes a major after hours fall in prices that triggers the margin call. Because my broker insta-liquidates once that point has been reached, there was always the possibility of being forced to sell at crazy low prices even if the prices quickly recover.

That's an unacceptable risk. Last June, my broker had a glitch and sent out an email to many of its customers that their maintenance margin limit had been reached and their portfolio was liquidated. I literally woke up to read this email, and I'll never forget that feeling. The first thoughts were how I was going to discuss this with my wife. Perhaps World War III had started while we were sleeping and the world market crashed.

Eventually, I figured out that it was a glitch, but the fact that it was even a possibility that I could have considered hasn't sat well with me since.

This is Hard Enough

I buy individual stocks, and that's hard enough. Some of them may go bankrupt. I've sold a few for losses, which sucks, but on the whole, I believe that the portfolio will march higher as a group, despite some individual losers.

But using margin exposes me to something else entirely. It exposes me to permanent loss of capital based on price swings alone. It exposes me to risk that takes me out of the game entirely. My wife and I earned and saved this money by sacrificing pleasure now for gains later, and taking permanent capital loss risk with that is stupid and foolish.

Some instruments, such as shorting or options use, force you to use some kind of margin. I don't want to say that no one should do those things because they're useful. I respect smart short sellers. I respect that people can figure out options and appreciate the kind of insurance they can provide a portfolio.

But I don't have to. No one has to do that kind of stuff because just buying securities at reasonable prices in reasonable amounts and holding is hard enough without worrying whether I get to be in the game another day.