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 ↩︎

Why This Expat Isn't Buying German Real Estate

As I recently mentioned, I just took out a loan to buy stocks. Right now, interest rates are temptingly low, and while the U.S. market overall is expensive, there are still undervalued companies there and elsewhere that can overcome the loan's interest rate cost.

My impression is that few people do this. Stocks are risky, and those who lever up can flame out hard. Stocks, in addition to being volatile, are nearly always available to be traded. I could get drunk, get scared at falling prices on my iPhone, and close every position in my portfolio at a giant loss with six or seven taps. Applying leverage to that is risky, no doubt, and buying stocks on leverage attracts a certain amount of skepticism and disdain.

Real estate leverage attracts much less scrutiny.

Stating the obvious, the high price of a single real estate unit usually requires a buyer to finance the purchase through a mortgage or other lending structure. That's naturally as true in Germany as in the US. And that leverage means, theoretically, that you can turn your down payment into a much more potent force, where you can reap the levered gains from rent and from the price appreciation.

For those who do this, it's possible that rental income more than covers the monthly cost of the mortgage. Indeed, one of the oft-repeated strikes against renting is, "You're paying someone else's mortgage." For a landlord who accomplishes this repeatedly, they can create an empire of rental units paying off his or her debts all while accumulating value through appreciation.

It sounds like a dream.

Expensive

In Germany however, it looks much less dream-like. To be fair, there are serious real estate investors here. I know two of them personally, and their wealth is absolutely real. But recently, both have said the same thing: everything's too expensive.

For all the complaints about costs in the US, German real estate feels increasingly out of reach. Yes, if you live in the hot American cities, purchasing real estate can be nigh impossible. But even in the not-so-hot German cities, buying an apartment can be a ludicrous amount of money for what you get.

Prices in many cases have outstripped the possible rental income you can get from the property. I sometimes see properties listed with a renter in place. That means the rental income starts immediately without having to go through the hassle of finding a tenant and doing all the necessary background checks.

But if you do the math it stops seeming so nice. I've gone through the listings and priced out mortgages for given down payments to see what kind of cash flow can come from these properties, and it doesn't work. In general, the down payment would have to be enormous for the property to have positive cash flow from the rental income. But having an enormous down payment cancels out the benefits from the low interest rates in the first place.

Tenant Protections

For an American, you might ask, "Why not just raise rents?" But we're not in Kansas anymore, and there are legal and cultural realities you have to adapt to. In general, German renter protections are much higher. And, as a renter, they're great.

Leases are continuous, and the renter can leave at any point if they notify the landlord 90 days in advance. So there's no new lease signing event to hike rents. Instead, there are prescribed rules about when and by how much a landlord can raise rent on an existing tenant, and it's biased in favor of the tenant. For the ambitious landlord, there are ways to force it, such as by doing a large Modernisierung of the unit where it's materially nicer and more energy efficient and therefore deserving of higher rents. But that's yet another cost, and do you really want to spend your time doing that?

Dealing with tenants, by all accounts, is hard in Germany. One of my landlord friends says that you basically can't raise rents once a tenant is in place. Kicking tenants out who don't pay rent is, by all accounts, difficult and lengthy. In addition, tenants are allowed to lower their rent payments for cause, such as loud construction nearby. German renters have non-profit organizations that can go to fight for them for nominal membership fees.

High Taxes and Fees

If you're versed in basic investing wisdom, you know that keeping fees low is a primary requirement of the wise investment. But for the German real estate investor, taxes and fees are deadly. When you buy an Immobilien in Germany, you pay a series of up-front fees that are an immediate loss.

If you visit a site like ImmobilienScout24, they list fee estimates for a given property. For example, the estimated fees for an apartment in Stuttgart is around 10-11%. That includes the following:

• Maklerprovision (3.57%, broker fee, and the one fee that can be avoided)
• Grunderwerbsteuer (5%, property transfer tax)
• Notarkosten (1.5%, lawyer fees)
• Grundbucheintrag (.5%, registration fee)

So in my Stuttgart example, according to Sparkasse's calculator, we get an estimate of €50,350 in Nebenkosten.

Here's an actual example in Stuttgart from a 56m² (about 603 sq. ft) Maisonette apartment with slanted walls with a property price of €298,000 where the Nebenkosten add up to €27,952, which equals a total cost of €325,952. And that's with a slightly lower Maklerprovision.

To be sure, the fees vary depending on location. The Maklerprovision and the relevant taxes depend on the local government rules. But they're all high, and the fees are purchase price dependent. The Maklerprovision gets a lot of hate despite it being the one fee that is sometimes avoidable, but the Grunderwerbsteuer by itself will bite you hard. With property values at high levels, you're getting hit twice: you're at higher risk of a fall in property values, and you're hit by the upfront fees attached to that price¹.

You're also guaranteeing yourself high opportunity cost. You'll have to save up those fees since banks generally won't finance them for you. To save up, you'll likely stick the money in a savings account earning nothing, and it might take years. You have to ask yourself if the lost potential gains in the stock market are worth it. If it takes you two years, those are two years of compounding you never get back. And when you eventually buy, your down payment might go entirely to the fees and not towards the property, leaving you financing 100% of the property value.

Those fees mean that there's never a guarantee that you earn any money from the purchase. It's an immediate hit of ~6-12% up front of the levered cost, and if you're compelled to sell for any reason before compounding has overcome that hurdle, then it's a shocking loss of potentially more than your entire down payment. That's the two-edged sword of leverage.

At the very least, it means that you'd better be damned sure that this is the best use of your money or that you have some special insight or strategy that makes those costs worth it. And you'd better be able to hold on.

Property Tax

There is property tax (Grundsteuer) here in Germany, but trying to estimate it in advance is hard. Just know this: you will have ongoing property taxes. They are not particularly onerous, which is one advantage compared to the US.

What I've divined from the online literature is this: the tax varies based on the type of dwelling and depends on an official value assessment (Einheitswert) by the state (Bundesland) you're in. This number is much lower than the purchase price and gets adjusted every six years. That number is multiplied by a small percentage (Steuermesszahl). This value is then multiplied by several hundred percent (Hebesatz) - depending on the state - to equal your yearly tax. Clear?

Expat Issues

I haven't even talked about the potential challenges of being a U.S. expat doing this. For one example, Robert Kiyosaki likes to extol the virtues of not owning anything yourself to protect yourself from liability issues and lawsuits. That would likely mean putting your properties into a corporation or other such entity. But you, the American expat, have to consider the implications back in the States and what the IRS will make of your German arrangements. Controlled foreign corporations require extra compliance and paperwork.

There's also the rule that the IRS can declare that you have capital income from your mortgage if the exchange rate changes in your favor.

Lastly, there are the normal challenges of being a real estate investor that exist everywhere. All the stuff listed above is layered on top of that already substantial levered risk burden.

High Prices, Lots of Rules, High Fees, the IRS... What's Not to Like?

If you're excited by real estate, and other options won't do, then more power to you. There are likely unexplored riches because the hurdles are so high, and there are likely strategies that can work for those geniuses who recognize and execute on them. If you're actually receiving cash from your purchase in excess of your outflows, it dulls - but doesn't eliminate - the impact of the up front fees, especially compared to owning a home as a residence.

But at this moment, I can type some numbers into my computer, get an appropriately-sized loan relative to my income, buy a diversified basket of stocks, and go on with my life. If that sounds irresponsible to you, you have to ask if losing potentially tens or hundreds of thousands of euros up front guaranteed for a likely overpriced asset to service tenants whom you can't kick out sounds responsible.

Maybe neither sounds responsible, and that, at least, would be consistent. But I want to use low interest rates to my advantage, and although I'm attracted to real estate, I look at the reality of it and am turned off in comparison to other options.

Does that mean never for this oft confused expat? Of course not. I've moderated my opinions often, even after writing negative articles. Buying stuff is fun, and property captures my imagination. I know all this because I regularly stare at property listings, after all. But there's a lot of friction in buying real estate, and I assume that I'd bail before putting my name on the dotted line.

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1. In comparison to the US, Bank of America estimates the closing costs for a $500,000 property in Charlotte, NC with a 5% down payment at $12,921. In New York City, it'd be $21,547.↩︎

September 2021: 3Q 2021, One Terrible Trade, A Loan for Stocks

In September¹ our household net worth inched up .74% in USD and 1% in EUR to $111,947 and €95,518 respectively. For the third quarter 2021 (July-September), it rose 9.46%. Year over year was a net worth 42.15% rise.

Portfolio Performance

If the Portfolio Analyst feature of Interactive Brokers is to be believed, my taxable brokerages and IRA portfolios returned -.65% for the quarter. I was keeping pace with the S&P 500, but my portfolio fell harder during the September drawdown.

There's some uncertainty around that number because of the loan - more on that later - and because I added external accounts to the Portfolio Analyst system, which is kind of wonky. Let's just say the way PA works is kind of opaque. Long story short², I slightly underperformed the S&P500, but by the exact amount is a bit unclear.

I'm not pushing stocks on anyone, so I don't know how much people care about that sort of number. As I've matured as an investor, I've looked at how things will perform given longer future time horizons. I don't know if I'm good at that yet, but I've learned that three month stretches don't really give me much information to work with.

Additionally, I rarely look at any individual position as "full" or "complete". I like adding to positions, and lower prices are helpful for that.

I'm happy, on the one hand, that I didn't crash and burn during these last three months, but given how I close I was to the index, I'm probably more or less closet indexing with a handful of small wildcard positions that have small effects on the portfolio. I'm trying to get away from that by making more educated and larger bets that I can hold for the long term but that will likely perform much differently than the major indexes.

My Worst Timed Trade Yet

I did have my single worst timed stock purchase though. On September first, I bought my first 50 shares of AbbVie. In 15 minutes the stock fell by 10% because of some FDA news. It was pure bad luck because if I'd bought 15 minutes later, I'd likely be sitting on a small gain rather than the loss I currently have. It's not a disaster, and I don't regret the purchase, but there's a real, "You pays your money and you takes your choice," feeling here. Stocks are risky after all.

Speaking of risk...

I Took Out a Loan to Buy Stocks

In September, naturally with my wife's input and consent, I took out a €30,000 loan with an effective interest rate of 2.39% and a repayment over 7 years. You can see the effect in the stacked column chart by looking at both the asset and liabilities side.

It's surprisingly easy to shop for loans in Germany, and the banks are desperate to get euros off their books and some positive cash flow coming in thanks to negative interest rates.

It's taken me years to act on this idea. I discovered the loan shopping sites several years ago, but I didn't act on it, and even in the last several months, it was an idea that I bounced around but left in the drawer. While deliberating, I priced out loans and had bankers calling and emailing me. I had to psyche myself up for it by listening to Rich Dad, Poor Dad a few times³ and listening to a terrific episode of The Investors Podcast about using debt proactively to buy assets.

In my case, I've borrowed to buy stocks rather than borrowing to buy real estate, for example. In fact, the terms of the loan explicitly state that I may not use it to buy real estate. A mortgage would likely have meant a lower interest rate, but RE in Germany is a much different animal than in the US.

I had a few guidelines going in:

• The interest rate needs to be an achievable return. As in, I need to be more or less assured that over the life of the loan, I don't lose any money to interest.
• The monthly payment needs to be lower than the amount I normally save towards my stock purchases. I'm still going to be adding money monthly in addition to the loan amount, and I never want us to feel pinched by the monthly repayment plan.
• The stocks purchased should help diversify away from large cap tech stocks (which are the largest single positions in my portfolio). Doesn't mean I can't buy any tech if a great opportunity arises though.
• The combined dividend yield of the companies I purchase should pay a growing dividend in excess of the loan's interest rate.
• Since I don't want to lose the principal either, the companies purchased should have reasonable-to-great valuations while also not being value traps, melting ice cubes, junk.
• Diversification away from the U.S. would be nice, but is not required.

The stocks I've purchased thus far satisfy those requirements and have been in healthcare, real estate, homebuilding, and banking. I've added here and there to smaller growth positions. I've achieved the dividend/interest rate goal already and still have about $10,000 left. I've probably done more stock research in the past week than I've ever done before in order to decide what to do with this $10,000. It's exhausting, but I've learned a ton, so maybe I'll delay indefinitely and just keep learning until I find more 1 foot hurdles.

October Forecast

We'll have to pay our tax preparers, which will eat some money, but otherwise October should be a pretty standard month for us.

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. As of September 26. ↩︎

2. Basically, after adding the loan to the PA feature, it made the portfolio look like it had fallen by 25% or so. They don't treat their own margin debt that way, so I'm not sure why it was different for an external loan. Additionally, adding historical data for external accounts is very counterintuitive. ↩︎

3. Don't listen to Robert Kiyosaki's market predictions though. ↩︎