February 2022 Update: War, Trend, Hobbies

On February 28, 2022, our net worth stood at $121,069 and €107,904, which represents a -0.09% decline and 0.09% rise in USD and EUR respectively.

Basically, we were flat month over month. However, we were net savers in February, which means that our savings were offset by losses elsewhere. Those losses were in the stock market, where prices bounced around from fear of high valuations, rising interest rates, and war in Ukraine.

Ukraine

I'm not going to expound on the politics of the war beyond my support for the Ukrainians and hope for a swift and just end to the violence. However, since Ukraine is just a long day's drive away from us, the war is felt very keenly here. I have Russian and Ukrainian colleagues, not to mention the many eastern European colleagues who remember Soviet occupation or hegemony. There is panic in the air.

The Ukrainian colleagues are bearing their burdens well, however, their pain is showing. One has family hunkered down in shelters in Kyiv. A Russian colleague made a point of hugging him last week. On the first day of the war, several Russian colleagues called in sick. Who can blame them? Generally, they've been quiet about the war.

A friend's spouse is Russian, and she's very stressed. Her sister is in jail after protesting in Moscow, and they're not sure how they will get the money to get her out, especially now that money transfers are impossible. At the same time, she's losing business from her local Russian customers; their wealth is in rubles, and they both can't transfer it, and the value has crashed.

There is fear of nuclear war. There was one day where, upon reading the news, I became afraid of spiraling escalation and considered dropping everything, grabbing my wife, getting on a plane, and flying someplace remote in the American midwest. Of course, in the case of nuclear war, that probably wouldn't be enough.

My mother is worried about us. I've tried to downplay the risk, but events have proven me wrong.

Trend Following

I've decided to implement a simple trend following strategy in my tax-deferred IRAs. The basic rule is this: if above the 10 month moving average, buy or hold. If below that line, then sell. The "buy" is for a broad based index fund like the Vanguard All World Stock fund.

I got this strategy from Meb Faber, and its major advantage is that it saves an investor from long draw downs. Yes, it will sometimes whip you in and out of positions, but when it saves you from a 2000 or 2008 type crash, it makes up for those mild inefficiencies.

The one challenge is that my account with Vanguard is still based around mutual funds. Their rules prevent me from buying shares within one month of selling them. That means there's a minimum one month wait to rejoin the market, or else I have to choose a different fund.

As of now, I'm not doing this in my taxable account. I may ultimately regret that choice, but I can't decide how I'd logically implement it when some stocks are doing very well (ABBV, BRK.B, ENB), and others are in big drawdowns. I'm not interested in trend following each name individually. So I guess I'll have periods where I just go down with the ship and am forced to watch.

At least I'll have this Charlie Munger clip to keep me company in my bag holding:

Hobbies and the Value of Stuff

I have a few expensive hobbies. Namely, I'm into photography, which is a high cost hobby no matter which way you look at it. Recently, I've decided to switch camera systems due to having a new interest in video, which does demand more cutting edge gear.

This has meant trying to sell my older stuff, which reveals the value - or lack thereof - laden in the object. However, there's always a challenge in doing it with high end stuff, because there might be a lag time, especially if you try to bypass a site like eBay. Perhaps no one in my city needs that specific wide angle lens for that particular camera system.

In any case, I'm sitting on gear that's not valued as part of my net worth, which I'm hoping to transform into cash at some point soon. At the same time, the new gear I bought has most certainly knocked down our net worth. I did manage to sell the camera, but lenses can have a longer lead time before they're purchased.

I will likely have to use eBay in the end with all the risks inherent in that choice.

Forecast

I'm not particularly hopeful right now regarding the economy. Commodity prices are spiking as Russian and Ukrainian exports are closed out of the market. Europe is in a vulnerable spot with their energy supplies. There's risk of not enough food to feed the world.

So far, March has been another difficult month in the stock market, which is where most of my wealth resides. I'm trying to look at it with equanimity, but it's hard. I'm also trying to see market prices declines as an opportunity rather than as a curse to avoid at all costs. Since I'm in a lucky position, I can continue to accumulate cash and/or buy attractively priced shares. Though I'm all spent at this point in the month.

A family emergency has arisen in the US with the health of a family member. It will likely mean a trip to the US by my wife sometime in the near future. This will be a real cost, but there are more important things than money.

Update: May 2021

Our net worth dropped 1.36% in USD and 2.23% in EUR to $100,509 and €82,452 respectively. The major factors leading to this monthly drop were reduced income, higher one-time spending events, and volatility in the stock market. Year over year, our net worth increased just under 60% in USD.

The biggest factor affecting 2021 so far are our reduced incomes. My salary has steadily gone up over time, but because of reduced opportunities for doing extra work, I've not had those big one-off boosts to my income. Due to Covid-19, my wife's profession has been severely affected. I've written about this paradigm since the pandemic began, so I feel like I'm repeating myself, but conditions for us have remained very stabile. No one lost their job, but we are nevertheless reduced.

This has meant that we've been unable to take advantage of the market volatility because we're just having trouble saving anything. It's a tricky moment for us on the savings front.

Closed Lots of Stock Positions

During this last month, I closed a lot of positions. I liquidated my small cryptocurrency holdings, and I sold off a lot of stocks while putting that money back into other companies.

I wrote about my feelings on crypto recently, but the stock sales arose from a sense that I couldn't go to war with these names: I knew that I would have difficulty holding them through a serious drawdown, so I bailed on them now. That, and I wanted more Amazon, Facebook, and Berkshire Hathaway shares. I moved out of low conviction names into higher conviction names.

Selling some of those positions will likely have been a mistake when I have the benefit of hindsight. But increasingly, I'm admitting to myself that I am a stock picker, and that means that I need to believe in the position if I'm going to hold it long term. A bunch of small positions that don't mean much to me are just anxiety fuel, and that was especially true because so many of them looked severely overvalued. Some of the positions I sold will likely outperform the positions I bought, but I believe that my behavior will be better in the positions I bought because I have more faith in them.

My desire is to hold a few high conviction names for the long term. That means that I have to understand what's going on and be comfortable holding them through thick and thin. It also means that I will miss out on some other stocks' meteoric rises, but that will have to be ok. I don't have to take part in absolutely everything to have a good result, and, as I saw during the big March 2020 crash, I can hold on to high conviction positions even during trying times.

But to avoid similar culling in the future, I need to be more careful with the stocks that I buy. The sin here wasn't selling, but instead it was that I purchased some names using a half-brained theory, believing that I was a computer who could dispassionately buy and sell companies that I don't have any emotional investment with based on certain factors. This has been a recurring problem for me, and it's time to forego systems that treat me like a computer.

That said, don't be surprised if some of these stocks re-enter the portfolio. I'm not dead-set against them under all circumstances.

As has been the case for the past few months, you can see those positions under the Portfolio tab.

How's June Lookin'?

June will look a lot like May. Our incomes will basically be the same, and we have to pay our estimated taxes, which will hit our savings. Unfortunately, we won't be able to save much, which is a drag.

We're still waiting on our tax refund as well as the U.S. stimulus payments, but those will arrive whenever they arrive.

Update: April 2021

Our net worth increased 10.75% in USD and 8.07% in EUR to $101,894 and €84,336 respectively. That's a year over year change of 78.77% in dollars and 60.24% in euros.

And what a year it's been. We're still masking up to go to grocery stores. My wife still isn't allowed to meet with people face to face and works from our home office entirely. Our incomes are still depressed. Our restaurant budget is still nothing. I still can't go to the gym.

But if you were long risk assets this past year, you've probably had a very good year financially. In fact, it's been such a good year, that I think a lot of assets have become overvalued and therefore risky.

April Contributors: Stocks and Stimulus

The factors that affected our numbers this month were primarily the strong performance of the stock market and a stimulus payment my wife got from the Germans because of the impact this whole mess has had on her business. That money went straight into an account for earmarked funds.

Germany has had various stimulus programs, but they've been pretty complex to use. Unlike the US, they haven't just shuttled money out to the citizens in waves of checks. The programs have been highly targeted, dependent on the state (Bundesland) to implement them, and you need to meet very specific criteria. For example, my wife missed out on one early stimulus payment because the timing of a vacation she took in 2019, which made the year over year comparison look better than it really was. But that meant zero help despite her income dropping to very low levels.

Additionally, because of these criteria, it requires the use of a tax preparer, whose fee reduces the impact of the stimulus. We love our Steuerberaterin, but we're sending her a lot of money in a very short time.

That's all to say, it's all a bit convoluted and over-engineered, which is kind of the German way.

Selling Stocks

I sold out of my positions in two companies yesterday:

Square (SQ)

And Cloudflare (NET)

Both had run up so much that I couldn't make sense of the valuation anymore. It's entirely possible that I'll regret this at some point in the future if/when they pop upwards, but such a pop would only further divorce them from their fundamentals, and their fundamentals suggest upwards of a decade before their valuations align.

Naturally, if they crash, I'll happily buy them again. And some other companies might also be on the chopping block once I figure out the tax implications.

However, selling is hard, and I often get it wrong. I sold Equinor (EQNR) and Ternium (TX) in the last few months, and both quickly climbed above my sale price. Much to my chagrin, I sold Foot Locker (FL) and Simon Property Group (SPG) a year ago at low prices and ate a huge loss, and both have recovered very well indeed.

My buying instincts appear solid, but my selling instincts need refinement.

Speculative Excess

Nevertheless, I can't help but feel like we're living in a moment of speculative excess, and that makes me more cautious. Speculative excess doesn't just affect the prices of assets, but it affects the way people talk about those assets and the way the press reports on them. It's self reinforcing and full of confirmation bias.

It's one reason I sold: I saw the confirmation bias in myself. I was looking for the angle that could justify my continuing to hold both of those companies, and seeing that in myself made me realize how flawed my own judgment was. The valuations don't make sense, and I was trying to make myself see that the valuations actually did make sense.

Beyond pure speculative insanity, we've seen several major blowups this year already from traders using too much leverage:

• Archegos Capital
• Greensill Capital
• Forced liquidations on Binance

Regarding crypto, whatever merits there are to cryptocurrencies, the proponents of crypto are behaving in the way you'd expect bubble proponents to behave: they are often dismissive and full of bile towards anyone who questions the basis for their belief (Disclosure: I have a tiny amount of Bitcoin and Ethereum).

Likewise, despite John Templeton's admonition that, "The four most dangerous words in investing are 'This time is different'", I've seen lots of arguing that this time really is different! It's hilarious. I've heard it in podcasts, seen it online, and heard it from friends who believe we've entered a new era in some way. They might be right, but it sure sounds like the same sort of rationalization that accompanied previous bubbles.

So what else is there we don't know about? How about fraud? It's likely lurking somewhere, since crypto doesn't solve people behaving like people.

Anyway, I'm feeling cautious.

Over $100,000

As mentioned in my last post, we crossed the $100,000 mark for the first time. I figured it would happen this year, but I didn't expect it to happen quite so fast. And I didn't expect the sudden difference in my mindset. It's not as if I'm going to quit my job to become a full time speculator, but I have a greater sense of autonomy and more emotional detachment from my job.

The Virus Rages On

But financials obviously aren't the only thing, and this past year has been very hard on just about everybody. Thankfully the vaccine rollout is happening faster in Germany, and there's some light at the end of the tunnel here. In fact, we have our appointment for our first shots in a week and a half.

However, the virus continues to hurt people around the world, and I continue experience cognitive dissonance about the relative ease of my life.

May Expectations

Nothing special will happen with our incomes this month. We won't be able to save much because of some fees around my wife renewing her work permit. Because she's self-employed, they require a special document prepared by our tax preparer for yet another fee to that preparer, plus the fee for doing the renewal.

Meanwhile, we're still waiting on our 2019 tax refund. Hopefully that will land soon. And one day we'll get those last two stimulus payments from the US government, but I won't hold my breath.

I'll leave you with this:

Guilty as charged. Until next time.

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: February, 2020

From last month's update:

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.

¯\_(ツ)_/¯

Instead, our net worth declined to $59,706/€54,826, which is a decline of 4.3% and 3.07% respectively.

Stocks Plunge

The reason is clear. In the last weeks of February, and especially in the last week, the international stock markets plunged. My portfolio went down right alongside it.

The reason for the drop is typically blamed on the outbreak of the coronavirus. That may have been the catalyst, but it's also true that the markets had been running up in valuation, and there was likely going to be something that triggered a pullback in any case. There's no way to run that alternate experiment though, so nothing is certain.

What is certain, is that I saw that the risk was real at the beginning of the week and began unloading my lowest conviction positions. Something told me that heading into this with margin debt wasn't a great idea, so I trimmed that back, and as of this writing, I'm not using margin at all.

This process has actually been very enlightening, because it's helped me see what gives me confidence in positions during difficult situations. Why are some positions that are in drawdowns fine to hold while others in drawdowns grate on my psyche? It was irritating to sell those positions, to be sure, but the money was lost when I bought them, because I didn't buy them for good reasons. I also sold some things for a profit, and again, these were positions that were my least confident positions. But whether something is in drawdown or at a profit isn't necessarily what gives me confidence.

The past few years has been showing me what it looks like to have confidence in positions. I'm not a professional money manager, so finding confidence to hold individual companies might arise from something different in myself than a professional might have. Something else has to grab me about a position to make it worth the stress of owning it.

Anyway, I think I'll write more about this idea in the future.

Savings Rate

We achieved a savings rate of our mixed pre/post tax income of around 31.5% in February, which was pretty good for us! It is disappointing that the money saved seemed to be fed into the markets with very little return, but that's the way it goes sometimes.

I mentioned last month that my wife wants to buy a piano, so we're saving up the required money over the next year. I couldn't stomach the idea of cutting from our asset-building savings to save up for it, so it's coming from both of our BLOW budgets.

March

Who knows what's going to happen. As I said, I'm out of margin debt as of this writing, partially because I got such a large payment from my company at the end of February. I'm still waiting on more dental stuff refunds, so one day that will come.

But the truth is the markets will determine what happens over the next month. I've put in the money, and now I have to wait just like everyone else. Much as I hate to see past money lose value, my future money would appreciate lower asset prices, so I'm of two minds regarding what I want.

Tja, wir sehen mal.

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.