Update April 2022: Net Worth, Rough Month, Indexing, Covid

Rough Month. Ouch.

Our net worth declined by 11.42% in USD and 6.48% in EUR to $110,276 and €104,329 respectively. The euro loss was offset by the appreciation of the dollar relative to the euro. At the same time, our euro debt was reduced in value relative to the dollar.

This was our worst month financially since March 2020.

Stock Decline: Sleep Test and Indexing

Obviously, the main driver was the stock market declines. I wish I could say I bathed in glory and withstood the desire to sell anything. I wish I could say I wasn't scared. I wish I could say that the online chatter didn't influence my decisions.

I sold some stuff. I was scared. I let myself be influenced by noise.

That said, I tinkered rather than dismantled. I knew that at any moment, the whole thing could turn around, so it was unwise to go to cash 100%. So if my tinkerings were mistakes (as they almost certainly were), they will be small mistakes rather than absolute disasters.

One thing that's become abundantly clear though is that my overall portfolio is not passing the "sleep test". I am often worried about it. It is often gnawing at me, prompting me to take action in one way or another.

It's stupid. I'm saving money in order to improve my life, but if I'm stressing over it, then what's the point?

So I'm going to start indexing most of my new money. I'll start with about $7,000 and put most new money into that on a monthly basis. I intend to write more about this decision, but long story short is: I need a pool of money where I don't worry about individual securities. Right now, I have to worry about each individual name in my portfolio. Might this company perform poorly? Have I overweighted this company? Maybe this is a secular decline, and I'm missing it?

I hate all this. This worry is a negative in my life, and so far my stock picking ability has not shown itself to be superior, so it's an emotional negative for not much gain.

Covid Caught

As a backdrop to all this, I've caught the coronavirus. Last Friday, as the worst day of selling was ravaging my portfolio, I was sitting home alone having called in sick to work. I had the sinking suspicion that I'd caught it, but since I'm both vaccinated and boosted, all my self tests came back negative.

Only on Sunday did the test faintly show positive. Now I know why they say the self tests take fifteen minutes: the control line appears quickly, but it takes much longer for the T line to show up. If you just wait for the C line, you might miss the eventual faint T line, which tells you that you're positive.

My employer requested that I get a "Bürgertest" (a free fast test administered by an official testing center) and, if positive, a PCR test. Both came back positive, and so I'm at home at least until next Monday.

Financially, this is a set back. I was set to do some extra work for my employer that would have paid me a fair amount of money. Someone else will do that now. On the upside, at least I can't go out and spend money, but that's little comfort.

Ironically, I caught it at work, where a mini super-spreader event occurred. Restrictions have been lightened in the past few weeks, and we had a week and a half of vacation. Simultaneously, our thrice-weekly testing regimen was changed from PCR tests to antigen tests. Someone must have had a false negative and come to work, where they infected me and around 20 other colleagues. Go team.

Health-wise, this thing was awful. Saturday and Sunday were especially unpleasant with coughing, sneezing, runny nose, body aches and pains, a high fever, and an overall sense of fatigue and foreboding. It's gotten progressively better since Monday, but my voice is still froggy, and I'm still congested. If this is what it feels like with the vaccine, then what the hell does it feel like without it?

So far, my wife hasn't caught it, but unfortunately, it may be just a matter of time.

Final Thoughts

I don't know how to guess about May. But during May I'll be thinking about how to pass the sleep test. What actually worries me during drawdowns? What is so scary?

I'll also try and come up with an asset allocation plan that's simple and effective for my new indexing allocation.

Until next time, stay healthy, and remember that relationships are wealth.

March 2022: Net Worth, Q1 End Portfolio, Stock-Picking?

This is late.

In March, our net worth rose by 2.83% and 3.38% to $124,495 and €111,555 respectively.

Long story short: the stock market rallied in March, and my positions were brought along for the ride. I also sold off some of the camera stuff that I mentioned in February, which brought in some cash.

Here's my portfolio at the end of March:

A few notes:

• Berkshire Hathaway has grown into the largest position in the portfolio, overtaking my tax advantaged IRAs. Berkshire has done very well this year, and it's helped bolster the portfolio against some of the volatility.
• My tax advantaged accounts are still in a money market fund since the Vanguard Total World Stock Index is still below its 10 week moving average.
• A lot of positions are in significant drawdowns from their previous highs.

Do I Want to Keep Picking Stocks?

With all that, I'm considering whether I want to keep picking stocks. I devote a lot of time to this practice, and the results I get are - thus far at least - fine. Not disastrous. Not brilliant. I've basically performed as well as VT has over the past few years, while also spending a lot more time on the project.

At the same time, I have other activities I'd much rather be doing. I have a side hustle I'd like to build up. I'd like to spend more time developing my "hopes and dreams" career. When I listen to podcasts, they're usually investing podcasts. When I do research, it's often stock research. What if I could get rid of those activities and just focus on the stuff that truly brings me joy?

But then I remember I'm an expat and I'd be signing up for tax and reporting hassles. Doesn't mean I won't change this up at some point, but a decision that I could just choose were I living in the US is much more complicated.

This is the dilemma faced by American expats in Europe. I kind of want to get off this train, but the alternative is misrepresenting my actual address to a US brokerage and putting a lot of my assets in it in order to have access to US ETFs. I'm not comfortable with that, but I'm getting tired of waking up and thinking about or worrying about stocks and stock prices and trying to determine where I should put my money every month. I could just buy a few ETFs and be done with it, but then I'd be creating my own tax data and all that crap.

This is stupid. This is all so stupid, and these governments can't be bothered to actually fix the problem for us.

April Outlook

Well, April is almost over, so I have a good idea what's up.

My stocks have performed badly, but basically in line with the overall market.

We've spent some money on travel. We likely won't save much because of it. There's a family medical emergency in the US my wife is attending to, and that kind of stuff supersedes stock investments.

I've made a little money on the side, but I've also spent a good amount, so it's kind of a wash. On the whole, this camera switch has been expensive.

I also went to France for a weekend on someone else's dime. But it felt dishonorable to rely on their money the whole time, so I paid for some of it myself.

Until next time. Stay healthy, save what you can, and remember that your relationships are wealth.

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: January 2021

This one is very late. There was a lot of real life that happened in the first week and a half of February that threw off my normal schedules. With that out of the way...

Our net worth shrank in January by 3.02% in USD and 1.72% in EUR to $121,177 and €107,809 respectively.

The main drivers were the stock market and some personal spending. Anyone who's exposed to the tech sector has experienced a good amount of pain recently. January had a sharp decline and a reversal at the end of the month that eased the pain a little, otherwise our numbers would have been worse.

On the spending side, I'm re-jiggering my cameras (I like photography and, increasingly, video). That means, I'm buying cameras and trying to sell my older cameras. That will impact the January and February numbers.

On the upside, our incomes are improving as normal working life resumes post-pandemic, and we received our German tax refund. Score.

That's it for this month. February so far has also been a rough stock month, so I expect losses. Thankfully that will be mitigated by our incomes somewhat, but it won't be enough, I expect, to totally offset this volatility.

Stay healthy. Until next time.

2021 Wrap Up: Net Worth and Investments

2021 was another strange year. Both of our incomes were depressed, and there was noticeable inflation is many of the staples we buy. In Germany, many of the activities we would have taken part in were curtailed by pandemic rules. My small side incomes sources shriveled to nothing as projects were cancelled or simply not planned.

Despite these challenges, our net worth rose year over year by 43% in USD and 53% in EUR to $124,045 and €109,697 respectively. In December, that represents a respective monthly rise of 6.65% and 6%. Our liquid net worth stood at $104,269/€91,544.

Investments in 2021

The power of compounding assets that work in the background is amazing and shocking. Yes, we made money this year. Yes, we saved money this year. But this relentless background grind of our assets - primarily in stocks, both taxable and tax-advantaged - overwhelmed whatever other forces were working on our lives.

And this was the case, despite the fact that my portfolio only returned around 20% against the S&P 500's 27%. I underperformed overall when compared to that benchmark, and still I'm surprised by how well it works.

In the period between January 7, 2021 (the date the Brexit transition hit my IB account) and December 31, 2021, our investments made a total of $15,752.53 within the taxable account. That includes $504 of dividends, with the rest being a mixture of realized and unrealized gains.

My primary contribution to this result was having some amount of fortitude to withstand all the fears hurled at us investors in 2021. The biggest gains were in positions that I'd bought in prior years and held. That's not to say that I did nothing.

In general, my decisions to sell were, at least in the short term, correct decisions. My decision to sell Square - now Block - was a good call. I sold Cloudflare, which was early but basically correct, and bought back in, which was not correct. I briefly owned a number of foreign growth stocks, but I realized their valuations were beyond comprehension, and I bailed on them. That turned out to have been a good call, though I held Alibaba too long and lost some money on that.

In May, I made big bets on Facebook - now Meta - and Amazon, which have been basically flat since then. I figured those were at least five year bets, so I'm holding without thinking about them too much. I did not expect my Apple position to continue to grow so well, but I can't complain. I also added a lot to Berkshire Hathaway and bought another share of Alphabet, both of which have paid off.

Late in the year, I took out a €30,000 loan with which to buy stocks. My largest single purchase was AbbVie, which was a terrible immediate-term pick since it declined 10% within 15 minutes, but since then has nearly returned enough on its own to pay for the entire interest cost of the loan. Other smaller picks like Intel and Enbridge have been flat but volatile. Greenbrick Partners is volatile but has given a good return so far. Likewise, small positions like Bank of America, D.H. Horton, and Pulte have all done well.

I entered the cryptocurrency space early in 2021, exited after becoming disillusioned, and then I re-entered just as a correction was starting. It's been an uncomfortable few months as my new purchases get swallowed up, but I view the space as promising enough to buy a little bit every month. However, I might be wrong, but I'm strictly using my personal allowance money (BLOW) to pay for these purchases.

On the last trading day of the year, my portfolio looked like this:

The Vanguard All World Stock Index Fund was my largest single holding since that's the entirety of my U.S. tax-advantaged accounts. The largest positions after that are Apple, Amazon, and Berkshire Hathaway, each larger than 10% of the entire investment pool. Some of that is due to deliberate position sizing, while in the case of Apple, that position simply became dominant despite a much lower cost basis.

Final Thoughts: Finding Yourself as an Investor

I have a friend who got an inheritance windfall in 2015. He basically knew nothing about investing, but he knew that he wanted to buy cheap stocks that had promising futures. Like me, he's an American in Europe, so he had to buy individual securities, and he bought around 40.

His performance has been quite good, having bought a mix of growth and value. Some choices turned out to be under performers, and they've have been cut. But he's been admirably steady in his positions even when they grow very large.

It's taken me years to "find myself" as an investor. I bounced from all sorts of styles, but what seems to work best is to be more like him: buy reasonably priced companies that have good odds of doing well in the future. Get convinced ahead of time that the purchase is a good one. It's ok to have some speculative stuff, as long as you're aware it's speculative stuff. And then for the most part let it ride.

Letting it ride is hard, but I'm getting better at it. Over the past month, the market has been rough, but my tendency to want to sell has been quiet. Likewise, I'm trying to get past the need to find the perfect investment or investment style. If I achieved greater than 10% returns annually over time, that would be an achievement.

I plan on writing more about 2021, especially about our income sand saving. Until then, stay healthy. May your 2022 be full of happiness and good fortune.

Update: November 2021

As of November 26, our net worth had appreciated the prior month by 2.86% in USD and 5.4% in EUR to $117,153 and €103,492 respectively.

Our performance in November was aided by strong performance from some of our stocks. We also received several large refunds due to the lowered income in my wife's business resulting from the coronavirus disruptions.

New Date of Record in December

This is the first month where I felt like I should wait until the final day of the month to record the totals. I chose November 26 years ago because it was around when the Deutsche Rentenversicherung made its withdrawal from our German checking account, and it was guaranteed to be before my job paid me. My concept with this timing was wanting to record whatever remains after making all the monthly expenses. Wealth is, after all, that which remains.

The day I recorded our net worth, the market started moving a lot. October 26 through November 25 was a very strong stock market month. From 26 onwards, things started moving downwards, and they moved down a lot. It feels weird to say that we were "up" in November, when the final days of the month were so consequential.

So I'll likely change to recording our net worth on the final day of the month, with my salary subtracted.

Liquid Net Worth

In my spreadsheet, I've also added a "Liquid Net Worth" section. This is basically what I could access if I were to need a bunch of cash. Now, we don't own a home, and I've never included our physical assets in our net worth calculation, so this number isn't drastically different.

I would like to be able to glance at a number that gives me an idea of the number of years we could live off our assets. That means, that retirement accounts and rewards programs don't get counted. Were I to add physical assets and my pensions into the full calculation, they would also be omitted.

At the end of November, this number was $97,131/€85,805. Since we spend about €25,000 a year, it means we could quit our jobs and live about 3.5 years. Were we to cut expenses, we could lengthen that out.

December Outlook

My December Christmas bonus and extra money will be offset by some expenses having to do with some trips, one of which we've already made and another we might make if Omicron doesn't ruin it for us. Obviously, not doing the trip is better for our finances, but, man, we have to live our lives.

Until next time. Stay healthy/Bleib gesund.

Update October 2021: Q3 Earnings Season Gyrations

In October our net worth (measured on October 26) rose 1.74% in USD and 2.8% in EUR to $113,899 and €98,189 respectively. Year over year, that's about a 52% rise in USD and 55% rise in EUR.

This small monthly gain was entirely due to the stock market gains. Our savings rate was negative because we had to pay our German tax preparer, which means withdrawing from an account set aside for infrequent but recurring purchases. We also paid off our piano, which had been on a rent to own plan. I characterized the balance remaining on the plan as liability when we agreed to it, although it didn't carry an interest rate, and payments to it counted as saving in my scheme.

But since we were also saving up a large cash balance to make the final payment, it's a wash for our monthly savings rate. You can see that in the chart because both assets (the ~€5000 in cash) and liabilities (the balance) decreased simultaneously.

Stock Market Volatility

On the whole, our portfolio did fine in October, however, it was not without its drama. Of the companies that we own that reported earnings, the market's reaction to the majority of them was swift and terrible. Apple, Amazon, Facebook (now Meta), Intel, Ally, and Charter all fell sharply after earnings were released. Sometimes earnings bled into other names, such as when Snap (not owned) announced their earnings, which caused sell offs in Facebook, Alphabet, and Amazon.

While there was some justification to these downward moves, the intensity of the sell off was surprising. It is no secret that Intel is trying to right its ship after years of product delays and encroaching competition. It is no secret that Amazon is investing heavily in its workforce and logistics operations and that it will likely face some bad year over year comparisons. It is no secret that Facebook is pivoting hard towards the "metaverse" and VR/AR and that this will cost a lot.

Nevertheless, the stocks were punished, and that's one of the aspects of single stock investing that anyone who wants to do this just has to become accustomed to. There's no escaping it.

Some companies did well, to be sure. Alphabet, AbbVie, Bank of America, and Sony had strong post earnings reactions. Absent earnings releases, Greenbrick Partners did very well in October. My two small hyper-growth names Dutch Bros and Cloudflare both grew wildly in October, though their earnings aren't until November. I honestly don't know what to make of their relentless price appreciation.

Regarding Cloudflare, at least for now, I have to conclude that my subconscious was right: selling Cloudflare back in May was a colossal blunder. Had I sat tight, I'd be sitting on my first "ten bagger". Whether that price appreciation continues indefinitely is unknowable, but my current cost basis is a more vulnerable price than my original $19.27/share cost basis.

Somehow, I am reacting to all these gyrations with a decent amount of equanimity. Occasionally I will feel some stab of stress, but I know that:

• Selling too early has been my biggest mistake.
• Companies that I've sold often continue to do well, which means that I'm generally fishing in the right pond¹.
• Despite that, drawdowns are part of reality, and there’s no prudent way to avoid them entirely within my set of priorities.

A healthy reminder has been that, were I to stop adding new money entirely and only reinvest dividends, this portfolio will likely do very well over time. This is in line with Warren Buffett's admonition that "Wall Street makes its money on activity. You make your money on inactivity." That doesn't mean that it will "beat the market" or that every name will be a long term winner, but left alone, I likely end up with decent price appreciation over the long haul.

November Outlook

We expect several large expenses:

• We're planning a few trips. I have some time off around Christmas for once, and we want to take advantage. We also plan to visit a friend in a far corner of Germany, which will demand train tickets and a hotel.
• We still have one tax preparer to pay. Fun times.
• October has a two week school vacation, which many adults choose to also take for themselves. That means that my wife's income this month will be lower due to reduced working hours. She would have gladly worked, but her clients chose otherwise in many cases. Ah, Europe.

We also expect several refunds:

• My wife will receive a refund of part of her health insurance premiums from 2019.
• The estimated taxes we paid in September will be refunded due to a new estimated tax appraisal.
• We expect a tax refund from 2020, but the Finanzamt might take its time delivering that.

And naturally, the market might behave wildly, which is outside of my control. Until next time, stay healthy and happy.

Reminder: I, like all Americans living in Europe, find myself forced into individual securities. The dual taxation/regulations placed on US citizens in Europe via FATCA, the FBAR, PFIC taxes, and MiFID II rules mean that we are excluded from buying financial products such as mutual funds and ETFs unless we misrepresent our actual residence. In many cases, US citizens in Europe are denied simple bank accounts. We are a group that is actively being discriminated against by multiple countries for the crime of being US citizens abroad.

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1. This idea was taken from a recent episode of The Investor's Podcast with Dev Kantesaria ↩︎