Update: March, 2021

In March our liquid net worth dropped 3.38% in USD and .26% in EUR to $91,767 and €77,834 respectively.

There were three major influences on these numbers:

1. The stock market had increased volatility, and it impacted a lot of the names in my portfolio. Growth stocks fell out of favor this month, and I have a bunch of those. The few "value" names that are in there, or names associated with value like Berkshire Hathaway, did pretty well.
2. The dollar strengthened against the euro. A month ago, it took 1.217 dollars to buy a euro, and now it only takes 1.179. That's a pretty quick drop, and you'll notice that despite the lower prices of my US stocks hurting our $ number, our € was basically flat.
3. We had a number of large expenses. In March we pay our estimated taxes, and it was also the month we had to pay for our tax preparation. We're expected two large payments from the German government (tax refund and help for businesses affected by the pandemic), but those haven't landed yet, so I'm not counting them.

A Year Since the Plunge

A lot has changed over the past year, to put it mildly. In March, 2020 we had the largest month over month change since I began writing this blog:

Our net worth dropped since this time in February by 12.16% in USD and 12.48% in EUR to $52,448 and €47,985 respectively.

The reason is obvious. Our stock portfolios fell precipitously as Europe and the United States responded aggressively to the COVID-19 pandemic.

Since then however, our year over year change is up 75% in USD. We certainly didn't save enough over the last year to explain that number; instead the stocks we own just did really well, and we plugged in money whenever we could.

If I can give myself credit for anything it's that I didn't lose my cool and sell everything. I did sell some right as the panic started, to be sure, but it was mostly tinkering around the edges. And that money stayed in the market (except for sales to close out our margin balance). So we got to enjoy the weird ride up over the last year.

There's always some hindsight bias. If I'd known how the market would react, I wouldn't have sold anything, including the margined positions. I would have reduced our emergency fund and would have thrown it and the stimmy payment from the US government into the market as soon as I could.

But I was scared, and it was hard enough to just hold and add a little. Even Warren Buffett sold the airlines, and at the time it seemed like a reasonable decision. I sold my retailers (Simon Property and Foot Locker), and that was - with hindsight bias - a terrible decision, but it looked like we were entering a new paradigm, and assumptions I used in buying those positions weren't strong enough to keep me holding them, so I sold and ate my largest losses ever.

April Forecast

As mentioned earlier, we expect a couple large infusions from the Germans, and someday we'll get those last two American stimulus checks, though I have no expectations for when. As always, the market could have a convulsion in either direction. No matter what though, I'm going to be making my monthly stock purchases today.

Net Worth Update: August, 2019

Our net worth increased to $52,326 and €47,141, representing a growth of 1.7% and 1.98% respectively month over month.

Investment Volatility

I hadn't expected a positive return this month because of the trade war and subsequent market sell offs. It hurt our numbers, but that's the life for anyone holding risk assets.

I'm getting pretty good and dealing with the volatility. The past year or so has really opened my eyes to what the markets can do as a whole and what can happen to individual stocks. Some of my positions have really gotten hurt the past month, but I don't see any reason to sell them, so I'll just sit tight and consider what they'll look like in ten or more years.

Larger Income

The big reason our number was up was because I got paid a bunch of extra money for some extra work I did, and my wife worked through the summer rather than travel to the US with me. When we take our trips abroad, we have to not only reckon with the costs of the trip itself but the opportunity costs associated with her missing work. Things slow down in the summer here, but they don't grind to a halt, so she can still earn decent money.

Vacation Costs

The difference in vacation costs this year vs. last year were enormous. The flights were paid for with Citi ThankYou points and some taxes and fees, and then I spent a few hundred bucks while there. Everything we did that was sort of fancy was paid for by family, and had they not wanted those things, I could have done without. The goal of these trips to connect with them rather than have a fancy vacation. I'd be just as happy sitting in their living rooms as on a boat or beach.

I didn't pay for housing, because they housed me. I never paid for a hotel and was welcomed into family homes for the duration. I try to be a good house guest, and they're happy to have me, but that could change if their circumstances change.

It will be hard to ever switch back to the vacation style where my wife and I travel together for several weeks to various corners of the US. We're already planning a targeted trip for her to see her family directly that will require probably no hotels or rental cars or long drives since I won't be there. And if she does that, and if some family visits me, then maybe we can avoid a trip to the US next summer.

Turning Stuff into Money

I sold a camera this month, and although I enjoyed the camera and will miss using it, the money hitting my hand in return for it felt good.

We have several things that I really need to get onto Facebook Marketplace and Ebay Kleinanzeigen. I was shocked how easy it was, and these services reminded me of Craigslist minus all the weird stuff.

I also sold an old iPad while in the US to Gazelle. I should have done it years ago as it only netted me ~ $26. But, hey, that was money I didn't have before, and now I don't have a device just collecting dust and mental space.

September Forecast

I bet we're going to lose money this next month. I have an enormous dentist bill to pay, and we didn't earn a ton of money last month. We also have a giant tax pre-payment to make, so there you go.

But the market could spike, and if we restrain our spending, then it could all be a miraculous wash.

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.

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.