Two days ago, I calculated our new net worth, and we're above $100,000.
That's enough for both of us to live on for two years even without either of us working.
Yesterday, my employer did something very irritating, and I strongly considered, "I should threaten to quit. It's not an idle threat anymore."
This time, we resolved things for the time being without resorting to that, but...
It's funny how quickly your mindset changes once you have some money.
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:
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.
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.
Our net worth rose in February 3.36% to $94,974/€78,039.
The main positive factors were a relatively high savings rate, decent but not great stock market performance, and a large refund from a January purchase. Negative factors were negatvie stock performance at the end of the month and reduced income due to the pandemic.
Our incomes remain depressed due to the pandemic. Due to lockdown measures in Germany, my wife's ability to work has been severely limited. While many of her customers are happy to work via Zoom or Skype, many aren't and are happy to delay their purchases until the day they can meet in person. Meanwhile, I earn a salary, but the extra work that often served to goose our incomes has completely dried up.
Simultaneously though, we are essentially forced to save money. The restaurants are closed. The shops are closed. I need to buy new clothes, but nowhere is open to facilitate the purchase. When I last tried, back in October, I wasn't allowed to use the changing rooms, so I bought a pair of pants, hoping they'd fit. Unfortunately, they didn't, so upon the return, I decided I'd wait until the dressing rooms re-opened. Joke's on me!
Naturally, there's always the internet for purchases, but eventually, you do run out of things to buy, unless you're willing to also buy clothes over the internet. My wife has become very adept at buying clothes online, while I lack the patience. It requires a willingness to try on and send back repeatedly. But ultimately, I might have to bend on this.
It's pretty easy to get spooked about the stock market. Valuations are high. The CAPE is high. When I look at the charts in FASTGraphs, I see just how extended some of my own positions are. Meanwhile, you have people like Michael Burry calling for Weimar-style inflation and Jeremy Grantham saying we're in an enormous bubble.
It's easy to write these folks off since doom and gloom predictions have been so wrong for so long. But at the same time, there's clear bubble behavior. I'll refrain from naming specific areas, but I'll leave you this passage from William Bernstein's latest book The Delusions of Crowds:
Financial manias can be thought of as a tragedy, like Hamlet or Macbeth, with sharply defined characters, a familiar narrative arc, and well-rehearsed lines. Four dramatis personae control the narrative: the talented yet unscrupulous promoters of schemes, the gullible public who buys into them, the press that breathlessly fans the excitement, and, last, the politicians who simultaneously thrust their hands into the till and avert their eyes from the flaming pyre of corruption.
The promoters follow a classical Shakespearean tragic path and are consequently the most fascinating of the actors. Most begin as brilliant hard-working visionaries, who intuit before others the riches that a new technology will bestow upon society. In the process of bringing their visions to fruition, they grow rich and powerful and in a capitalist society that judges men by their wealth, become their nation's lions. When the speculation runs its course and bursts, they wind up disgraced and bankrupt and usually but not always narrowly escape the jailor.
The public proves easy pickings for the blandishments of the heroic charismatic promoters. Competent investing requires a rare combination of mathematical ability, technological expertise, and, most critically, a working knowledge of economic history. Alas, people greatly prefer stories to data and facts. When faced with such a daunting task, humans default into narrative mode and perhaps the most pleasing story of all is one that involves the effortless wealth to be had from buying into a new technology.
The press falls prey to the promoters in the same way as the public. Few things corrode journalistic excellence as the ease of writing about the revolutionary ventures of brilliant businessmen, who with alarming frequency grace magazine covers first as heroes then as accused felons.
Finally, financial manias sweep into their ambit politicians whose reputations and popularity are enhanced by the economic prosperity that temporarily results from speculative excess and who not infrequently get caught raiding the cookie jar.
Our net worth climbed to $91,890 and €75,505, an increase of 5.34% and 5.77% respectively. For the first time, our assets grew above $100,000.
Stocks did well, and we had an inflow of cash that obviously more than made up for our spending. I bought another musical instrument, and actually, these numbers include a double charge for which I haven't yet been refunded, so it was a surprisingly good month. We sold something to some friends for a few hundred euros, and at the end of January, I received a bonus as a kind of stimulus due to the pandemic.
Regarding the pandemic, we can't do anything besides order stuff online. We considered buying some plane tickets, but it seems pre-mature at this moment. We can't go to bars, and we can't even have friends over, which often prompts us to spend a lot on groceries. There was none of that this month. Our money went to things, generally, that we can resell later.
We also hit the bonus for an American credit card, which gave us a bunch of very useful points, which we'll eventually use to save money flying back to Germany one day. I value those at 1¢ per point, though the tickets I plan using them on will cost much more than that were I to buy them with cash.
Since that's the big market news at the moment, I'll say that I'm not participating in this trade. It just isn't my kind of thing. And I generally try to resist this kind of stuff, even if I might end up winning big. My belief is this: the behavior that might make you outrageously rich suddenly is the same kind of behavior that might make you broke suddenly. So I'll stick to my plan, which is doing fine.
I've also watched r/wallstreetbets for a while as a lurker, and while their trade ideas are often really good, there's a time element to them that requires you to be early or not take part at all. However, with the reinforcing peer pressure on the subreddit -- all that talk about "diamond hands" -- it can incentivize the willing latecomers to participate much later than is wise. Just remember, every time you buy, it means someone else is selling.
Anyway, be careful and good luck.
By December 26, 2020, our net worth rose 4.1% in USD and 1.72% in EUR to $87,233 and €71,385 respectively. This caps off a year where our liquid net worth rose by 46% in USD.
This is almost entirely a story of strong stock market performance. In December, our taxable account rose by 5.5%.
We spent a fair amount of money in December. I purchased a new computer for €1550. We spent a lot on groceries. Since we're in lockdown again, we're spending a lot more time at home, which means we're just eating at home a lot and trying to make that as interesting as possible. I've purchased more novelty meals that I normally would because it's hard not to think, "Eat, drink, and be merry for tomorrow we die".
We also earned a bit extra. I got my December bonus, which is 1/3 of a month of pay. My wife did a new type of work that gave her a big one-time boost. I made some money from my photography hobby.
Regarding the computer, we saved for this. Since last summer, we'd been saving money every month, so with the extra cash this month plus that savings, it became easy to pull the trigger. I also signed up for a US credit card, so hopefully next month, the signup bonus will land.
As of December 26, 2019, we were worth $59,577. That means we experienced a $27,656 rise in wealth in 2020. Of that, we deliberately saved about $17,500 for a savings rate of about 28%. Some of that was the big stimulus check, which we, also, received and left in a US savings account. We also took on a large debt (sans interest) for this piano, and so the rest was stock market appreciation.
Our taxable account had a time-weighted return of 30.3%. Our US tax-deferred accounts rose by 16.5%. That compares to the S&P 500's performance of 16.26%.
It has also to be said that we were extraordinarily lucky this year. Yes, we had good stock market performance, and I deserve some credit for not panicking and selling back in March. However, I got to keep my job, and my wife actually managed to expand her customer base and offer her services online in addition to in-person. Had either of us experienced a complete zeroing out of our incomes, things could have gone very differently.
Not everyone was so lucky, which is true even here in Germany where the social safety net is so high. There's a visible increase in people sleeping outside in our neighborhood, and so we're going to start making monthly donations to a local organization that serves the homeless in our neighborhood. There's one here that's doing visible good work and has had to adapt to the challenges of coronavirus.
Here are some takeaways from the year.
I'd been trying to reduce spending in a few areas by artificially tightening the budget there. For example, our groceries item was always estimated to be lower than the reality. This didn't do anybody any good and just made us feel guilty. I'd still like to get our budget lower, but our budget spreadsheet isn't the place to do that.
Just budget for reality and try and do better than that.
It's worth asking yourself what, if anything, about your portfolio makes you uncomfortable. Think through a crash that takes your portfolio with it. What position will keep you up at night when the S&P 500 falls 10% in a day? Deal with it now, when the markets are stable because once they crash, you're going to want to panic sell it.
I took some big losses in March, because I had positions that weren't "hold worthy". I was using some margin, and this was an extra stressor when markets began plunging. I sold a bunch of positions to cover it much earlier than I otherwise would have. It wasn't a catastrophic error, but it could have been. I had also overweighted a position that was too risky, and I ignored the signs that it was turning against me. That will probably stand as my largest loss for a long time.
This is my wife's input, and she's right. We should regularly check in with what something costs used so that we experience sticker shock at the new prices. She has found an online second hand clothing service, and she's been ordering things for €5.
This is neighborhood specific, but my wife's walking habit in May and June got us some nice free used items. Nothing was especially luxurious, but you never know what a neighbor would rather be rid of immediately for free if you don't get outside and look around.
At the same time, we also often leave some free things out front for passers-by to take, so it's a virtuous cycle.
It's hard to make estimates for what a year will bring. This time last year, coronavirus wasn't on our radar. I never would have guessed that we'd have bought a new piano or computer. Nor could I have guessed that we wouldn't fly to the US.
I'm going to keep making monthly stock purchases. I'm going to try and get more of these photography jobs as well as look for other avenues of income generation. I assume my wife will continue diversifying her customers. I assume my employer will still exist. I want to fly to the US.
We wish you a healthy and prosperous 2021, and if you experienced any misfortune in 2020, I hope that 2021 will be a happier year for you.
In November, our net worth rose 12.04% and 10.91% to $83,765 and €70,155 respectively. This was after two months of greater than 5% declines.
The main reason for this is that the stock market did very well in November. It'd been a rough couple of months leading up to the US election, but November's performance more than made up for that. Some of my individual holdings really just exploded upwards, and some of the weaker positions regained some ground.
The main driver is likely the good news from the various coronavirus vaccines. I wanted Joe Biden to win, but I'm under no illusions about the market rising because of his victory. The virus and the resultant economic pain and disruption are the alpha and omega right now.
This past week was Thanksgiving, which I celebrated only by video chatting with some family in the US. My wife and I didn't prepare a giant meal since we're being good social-distancers, and a couple pizzas were just fine. I remain thankful that we've remained healthy, and that our careers haven't been too negatively impacted. It could have gone differently, but through luck we've gotten through this so far better than many. I'm thankful.
Our liquid net worth fell 5.07% and 6.51% to $74,763 and €63,252 respectively in October.
The reason for the fall is entirely because we bought a piano, and they're expensive. We actually ended up getting a better deal than expected, which will save us about 1k EUR, but it meant receiving it now rather than later. To keep myself honest, I've listed it on our balance sheet as a liability since we'll be paying for it over the course of the next year. It's a rent-to-buy: we'll be making payments while simultaneously saving for the lump-sum payment we'll have to make in one year. However, there's no interest accruing, and the price we could have paid all at once was the same as the price for rent-to-buy.
You can see the liability on the chart as a pink mass below the zero line.
Otherwise, stocks performed surprisingly well. We saved some money. I got an automatic raise due to my employment length with the company. It's the kind of raise that helps a little now, but over the course of years it really adds up. My wife is working more hours.
Yesterday, new coronavirus-related rules went into effect across Germany, which limit certain activities. We're allowed to go outside, and while my wife's profession isn't currently impacted, my company can't earn any revenue for the next month at least. We've been assured that it's not an existential crisis, but of course the mere mention of that idea raises alarm bells.
It's good to have savings in a time like this, though we wish we had even more. I can hear you now, "Then why the hell did you just buy a piano?" And the answer is because it was important for my marriage, which is more important than any one bout of employment. It was clear that this was very important for my wife, and I think my company will most likely survive this.
The alarm bells are nevertheless a good reminder to keep socking away cash.
