Table of Contents
- Hooli Value Investor
- Mr Laag
- Bonds Make No Sense
- Market-induced tendency to change strategy is no good
- Reduce Volatility
- Minor Issues
Last Friday I’ve published Part 2 of 2020 Q4 update, which is still missing a Part 3 about personal and blog updates, hopefully seeing the light before the end of January.
Part 2 covered my 2020 investment actions and performance, and more importantly my 2021 investing plans.
I’ve published this very long post on Friday afternoon, before a busy weekend with no time to catch up with comments and personal messages. I’ve received a lot of them. I thank you all!
I’m writing this post as a collective answer to the (mostly constructive) criticism, to your questions, and a feedback on your recommendations.
Two things before we start:
- Thank you for your feedback. I really appreciate you spending your time to leave me a feedback.
- Please, comment my posts using English Language. The language of the blog is English (RIP slang 😀 ). If you can read it, please make the effort to write your comments in English. I accept (I prefer, actually) Italian language for mail or private messages on Social Media (Twitter, Facebook, Reddit), but I prefer English comments on my blog posts. Some of the comments in Italian language are very good, and they add a lot to the conversation. Using a language only 1% of he world population can handle isn’t inclusive enough for my standards.
Having said that, let’s get started!
Hooli Value Investor
One of the first feedback I got was a DM on a social media by a former Hooli colleague, with whom I had several chat about Personal Finance, Investing an FIRE while at Hooli (and even after). He’s into Value Investing / Stock Picking, the Warren Buffett style. I’m going to paste here his message almost verbatim. I got his consent 🙂
Here we go (emphasis mine):
Just read your post on the blog. In the interest of improving ourselves, I hope you take the feedback in the right way.
I see two parts of your personality: (a) personal life, (b) financial life.
You are very risk taking in your personal life but way conservative financially.
On top of that, in both lives, you make so many decisions. Just far too many. You look at correcting every little thing and torture yourself everyday with small market movements.
There is something to be said about minimizing decisions. For example: while driving you can play quite a lot with the wheel, brakes and accelerator. You will probably arrive a bit faster, but it will not be comfortable for the passengers. Advanced drivers know how to minimize braking and accelerating and also how to turn the wheels slowly.
I strongly caution against: “every second you are deciding to buy your portfolio at the current price”. No. If Annie Duke says it, I disagree completely.
You want to minimize decisions, not wake up everyday and worry about your portfolio. This will be a terrible way for me to live my life. I would rather make one decision a year. And even then I need to be very sure that my current situation requires me to correct course.
Most of the time, things go back to normal. No decisions need to be made. If you were invested in SPY, the correct response to world wars, sars, covid, russian default, … were the same. Stay invested and if you can stomach it, buy more.
I think you have constrained yourself in your professional life by burning out (maybe). You really don’t want to work.
Furthermore, your portfolio is not so big. 1.5m is not enough for you to be “free” to do what you want.
And maybe you understand this. But one of them needs to change. Otherwise, you don’t really have a way forward.
I would keep doing the 200k job until I have 5mil.
And find a way to manage the emotional troughs I have while slogging through.
— fin —
Sorry, if this comes across as a bit rude. I say it with love.
This is one of the most personal feedback I have ever received on my blog. There are many interesting points, especially about how I’m perceived from the outside, and I’d like to address them publicly.
My friend says I look like an aggressive risk taker in my personal life (I assume it’s because I quit jobs and I don’t fear unemployment) while I act as a conservative with my finance.
What’s interesting to me is that I perceive myself being quite the opposite!
I don’t see myself as a risk taker in my personal life. Yes, I quit one of the best job in the world (and I think I quit 4-5 dream jobs in my life so far), and I’m going to quit another one soon… but I don’t see it as taking much risk. I have something to lose in not taking such risk. And a lot (potentially) to gain in taking risk.
Like Andy Dunn amazingly said:
I’m weighing both sides. I feel the high opportunity cost of working in a job I don’t like. Even though I stopped feeling excited at Hooli maybe in late 2015, it took me almost 5 more years (!!!) to unplug. In your face, RIP risk taker 🙂
My health declined a lot, staying would have been a riskier action than quitting.
Quoting Eric Barker:
Sometimes grit can be a negative. Sometimes grit isn’t even grit – it’s just stubbornness, fear of change, or the sunk cost fallacy working overtime.
Even though I see quitting a job a “minor” risk, it still took me forevah to act and actually do it.
I definitely played with my personal life too conservatively 🙂
On the other hand, I feel like I’m playing aggressively with my finances! Maybe not exactly in this moment, ok, but I come from the most risk averse nation, tribe, family, social environment ever. My father’s knees shake every time I remind him that I own stocks. I’ve grown up – until age 30 at least – cocksure that money must grow in the bank, eventually – if you’re really brave – you can buy some Italian government bonds, and of course a flat with a 30 years mortgage.
It took me forever to start playing with fire, to actually start investing.
Wait, what’s that…
I started investing 5 years ago, at the age of almost 39! After 2-3 years of reading about passive investing, but too scared to jump in. I remember the two trading days after Brexit referendum. Lost 5-6% in 2 days, I got mad! Almost an entire salary! During Q4 2018 I lost 20% (recovered immediately). I didn’t sleep well. What about March 2020? Between a dip/crash/correction and the next one my NW grew substantially, so the stakes were higher.
Today? If market crashed 50% and I lost 500k what would I have to show? In my opinion, according to my mental model, this is much more risky than my “risk taking” perceived attitude with my personal life.
It’s mostly a cultural issue, but it’s so ingrained with me. I’m doing my best to accept the “new normal” of having some money, but old habits die hard.
Plus, having a 7 digits amount of money and being at the end of my career don’t help.
Too many decisions
On top of that, in both lives, you make so many decisions. Just far too many. You look at correcting every little thing and torture yourself everyday with small market movements.
I totally agree with you on this. I’m consumed by decisions.
I do think though, that I’m at the crossroad of many potential futures. I feel that today decisions about work, investments, Italy vs Switzerland, physical and mental health have a huge load of meaning, and a great impact on our future. I can’t just wait for things to fix themselves.
I’m in the process of “sharpening my axe for six hours” before spending the proverbial two hours to chop those tree.
If I had eight hours to chop down a tree, I’d spend six sharpening my axe.
– Abraham Lincoln
I definitely want to cut down the number of decisions I take – I’m already doing it in any unimportant field of my life. You should see how much care I put in my clothing/shopping decisions 🙂
But I also want to make some irreversible important decisions during the next 2-3 years, and I want to be sure that I take the right measures.
I need to stress myself a bit today for a simpler life tomorrow. Today more than ever.
Plus, investment-wise I’m aware that I’m doing things wrong. My July-August strategy of selling all my stocks was temporary. Holding bonds was also temporary. I don’t want a temporary strategy to become long term due to my inaction. I need to be active now.
Maybe this sounds familiar: “previous strategy was deprecated. Current one is not ready yet” 🙂
About the “every second you are deciding to buy your portfolio at the current price” quote from Annie Duke (link), I agree with you that this should not be a self inflicted torture, but more of a thought experiment for when you think your investments are not aligned with your values.
SPY is the answer
Yes, sure, in hindsight you’re right. Historically you’re right. Like Taleb’s Turkey.
Outcome-based analysis, decontextualized, with an infinite time horizon.
When you buy something don’t you take its price into the equation? Well, today stocks (S&P500) are priced
38 39 times their earnings, 35 times their 10 years inflation adjusted average. doesn’t it matter at all? Even if P/E was 100?
Are you sure that during next world war the stock market will go up?
I don’t have an infinite time horizon, in 10 years I’ll be 54. Who said “in the long term we’re all dead”?
Global GDP growth rate averaged to ~3% during last 50 years, while the stock market returned >10% nominal per year.
Maybe, just maybe… we’re a bit ahead of ourselves, no? Maybe we’re too enthusiast, exuberant, optimistic… maybe the 2% population growth is not going to last for long (hopefully, I’d add), and it seems to have contributed to world GDP growth a good half of it. Maybe the “next 5 billions” are already shopping. Maybe we already captured all the low hanging fruits since we started trading companies on stock exchanges. I’m talking about industrialization, technology, women in the workforce, bye bye absolute poverty, “Artificial intelligence”, and so on.
Maybe we’re about to enter a “productivity winter”. Can you bet against it?
Or simply, we’re overdue for a reversion to the mean that will kill the next 2-3 decades or more, like in Japan.
Today, every sector that carries any dust of hope about the future gets overhyped. You got mining stocks, marijuana stocks, tech stocks, electric vehicle stocks, clean energy stocks… Let’s not even get started with anything that has “blockchain” somewhere on their homepage.
Even a stock of a troll company who pushes trucks from mountains and claims they’re autonomous performed +700% last spring.
This is not a scenario that makes me comfortable investing in. A scenario flooded by TikTok traders, that are completely losing their minds and believing things that are not things.
But let’s talk about SPY, i.e. US large cap.
A comment to my previous post by reader Martin pointing to a different source for global CAPE turned out to be another source of terror for today valuations:
Research Affiliates studies and data are eye opening. Please spend some time browsing their data. You need to create an account, but it’s free and well worth your time.
Large Cap US (S&P500) are expected to return negative (real return, inflation adjusted) in USD, over the next 10 years.
US large caps seem to be the worst investment in stocks for the next 10 years:
Other markets are less overpriced. For example the global stock market is expected to grow 2% per year (in USD, after inflation) over the next 10 years.
Of course other asset classes suck even more! We’re in a crappy situation right now, this is undeniable.
Take a look at cash and bonds, this is scary:
And I’m not talking about “noise, fluctuations”. We’re taking a cold look at the next 10 years.
First one is about 10 years of MSCI World index from a CHF perspective:
Cherry picking? Well, here you can find rolling average over 5-10-15… years nominal returns in USD. Rolling 20 years nominal return (before inflation) in USD (which is sucking vs CHF) in 2018 has been 3.74%. Before inflation, before currency conversion.
Do you think we’re in a better market than in 1998? Maybe, slightly…
What about the 70s? Not just in the stagflating US, but in the entire word:
Now, this is index investing and I know you, my dear friend, are a value investor and might use this argument to reinforce the belief that index investing is for losers. But in your message you praised SPY, so that’s what I’m arguing against. And I think we can agree that active investing is not for everyone, right?
“But my QQQ shares are doubling every month!”
Yeah, I know. Adding Investing FOMO on top of everything. But I’m old enough to not fall for it. I’d rather wait and lose “potential gains” than join this worldwide Ponzi scheme as a leaf.
I don’t have an answer, and this is driving me crazy. I have drown my plan in last post. I’m addressing the feedback, and maybe I’ll change something.
Else, I’ll end up reluctantly following my plan. Buying overpriced stocks, with disdain. Ready to tell myself “told you” when prices will be back to normal.
This other comment by reader fabric is a cold shower though, a reality check:
You’re right, if we want to reach FI we need to believe in “passive income”, in “sending the money to work for us”.
Right now I don’t know if I’m willing to make a leap of faith and believe in it.
Or maybe I need to see a reversion to the mean, a huge shock that would detoxify the market from exuberance, TikTok traders, and dangerous optimism/overconfidence in general.
The plan I shared last week is a compromise between my reluctance to invest in this environment, the acknowledge that T.I.N.A., the faith in FIRE, and a bit of Investing FOMO.
But I’d keep all my money in cash in the bank if they gave me 1% instead of -0.75% while the market is this level crazy.
Back to my friend:
I think you have constrained yourself in your professional life by burning out (maybe). You really don’t want to work.
Two things. Let’s start with the second one:
You really don’t want to work.
On the contrary, I think I’m a workaholic. I’m working very long hours, and complaining about coming weekends. I have Friday (not Sunday) Blues. I told my wife that 2-days weekends are unacceptable, I can’t stop working on my projects for two consecutive days.
So maybe we should define “work”… but it would take 5k words so let’s skip it 🙂
But you’re right. I really don’t want to work:
- For The Man.
- On projects I don’t fully believe and love.
- On projects that have not enough impact.
- With people I didn’t choose.
- Without complete autonomy. I need a “do the fuck you want” white card.
- On a field I don’t master.
- As a Software Engineer (for now).
Maybe the only chance I’ve left is self employment? Maybe. Probably.
Then be it 🙂
I think you have constrained yourself in your professional life by burning out (maybe).
This is interesting and I’d like to explore it more. Do you mean that I have responsibilities in having burned out?
Well, of course I have some. I could have prevented it, handled it better, or forced my way thru like a military or a stoic.
But my question is: do you think I chose to burn out? That as the symptoms started showing up (I didn’t realize it at first) I decided to cling to them in a self destructing vicious cycle?
It’s not a rhetoric question, please don’t get me wrong. I seriously fear I have nurtured my depression.
Btw, wouldn’t that be a “normal depressive behavior”? Should I blame myself for having acted “like a sick man” while being sick? Of course I could have done better, but I think I could also have behaved way way way worse. I’m kind of proud of my overall life direction in face of my tendency to let events and circumstances take me down.
Anyway, surely I should have recognized symptoms early on and changed team or company before my passion for the field drained out. I let myself slide off the employability spectrum. I don’t blame myself for the burnout, I blame myself for having let a soul killing job drain my passion.
Your portfolio is not so big. 1.5m is not enough for you to be “free” to do what you want. And maybe you understand this. But one of them needs to change. Otherwise, you don’t really have a way forward.
Yes, 1.5m is not enough (ad I’m short 100k+ CHF) In Switzerland. But maybe you forgot that I keep the Italian hypothesis alive. If we move back to Italy 1.5m would be more than enough even if we won’t earn any income, any pension, any inheritance. Even with an investment strategy aimed to just cope with inflation.
If Italy were not on the table, I’d frame my problems differently. I’m forcing myself to find yield in this environment, and a salary at the end of the month to keep the Swiss hypothesis alive, because we think we like it more than the Italian one. If we give up on the Swiss hypothesis, surrender, and check this box off for good… I will have several decisions less to take 🙂
I’m fighting for something we as a family think is valuable, which is essentially a supposed opportunity-richer future for our daughter, and a higher perceived quality of life.
But I can decide anytime that what we have is “enough”.
Retire Early at age 64!
I would keep doing the 200k job until I have 5mil.
I ran some numbers, with an optimistically 3% NW Growth in CHF and 100k net savings per year:
I will reach 5mil in 20 years, at age 64. Yes, we can technically call it “Early Retirement” 😀
Thanks for the suggestion, but I guess I’m going to quit in February 2021 anyway, 19.9 years earlier than you recommended.
This is my response to Mr. HVI, and I hope it doesn’t sound too rude. I thank him a lot for his feedback, it’s a bless to have a honest “third-person point of view”.
There are valid points that I subscribed to (like aim to reduce the number of decisions), and maybe I should take a look again at some “slides” on Value Investing and abandon Index Investing for a while… not today though 🙂
This is probably the best comment to my previous post, from reader Mr Laag.
Let’s start by saying that I love your point #4!
Ok, jokes apart, let’s address your points one by one 🙂
I truly understand your need to write and how it clarifies things. Every time I take the time to write, I always think I should do this more often.
Totally agree! This is essentially the main reason I write: to discover what I think.
Improving my writing skills, being a source of inspiration/entertainment/education to others, holding myself accountable, and having a community of therapists ( 😀 ) are nice side effects.
Everyone should definitely write more.
While employed save aggressively and invest everything on Stocks (VTI or VT). You don’t really care about what’s going to happen to your portfolio short term (it may go up, it may go down). Once you’re approaching retirement, allocate a small percentage to bonds and stick to that allocation. I know it’s always tough to do when you’re the one invested.
I don’t want to dismiss your point with “come back when you have 1M invested and a dead-end career“, I’ll do my best, promised 🙂
Yes, it’s tough when you’re the one invested. And it’s even tougher when neither the “while employed” nor the “approaching retirement” conditions correctly define your situation.
I’ve shown above how we might be at the edge of a 10-15-20 years nonpositive returns in real terms, in CHF. It’s not easy for me to invest all my money into stocks right now. Btw, VT and VTI are “a little bit” different.
The impact of market swings on one’s portfolio are correlated with portfolio size. In the early years of wealth accumulation it’s negligible (that’s why someone even recommends using leverage to even out market exposure over your lifetime), at the end of your wealth accumulation phase a market crash would be deadly.
“allocating a small percentage to bonds” is what I’m trying to do with my CAPE based strategy. But I don’t really like it, and buying bonds is not the solution. Bonds suck. Stocks suck. Cash sucks. Real Estates suck (slightly less). Commodities suck. Crypto sucks (even more).
There’s no fucking alternative, and this is driving me crazy.
If you (not you specifically, Mr. Laag) think that “everything is fine” you scare me.
Everything has negative expected yield. Banks in Switzerland are charging negative interest rate on savings. Holding cash is stupid. Holding bonds is stupid. If you think that the only wise thing to do is to invest 100% in tech stocks and bitcoin you really scare me.
Your strategy about F(CAPE) and 1-F(CAPE) seems ok, but I honestly think it overcomplicates things with no certain benefits
Well, it’s similar to “allocating a small percentage to bonds“, with this percentage being higher when the market are overpriced and lower (or zero) when stocks are cheap. I think it’s a defensive strategy that works better than a fixed percentage in bonds. It’s inefficient only in a persistent bull market with CAPE out of control… which means that my portfolio is doing great anyway with 50% stocks.
I think it’s a superior alternative that reduces risk of running out of money, at the expense of a lower expected final NW value on my deathbed. I’m fine, I don’t aim to be the richest man in the cemetery 😉
As you said, you would be just better off by playing dead and never logging in your IB account.
This is again outcome-based decision evaluation. Sure I’d be at least 100k richer if I didn’t sell my stocks in July-August, but we’d be commenting another story if the bubble had exploded in September.
It seems like commenting a soccer match. Final score 0-0, with a missed penalty for the home team in the overtime. “Wasted opportunity!”, “Crisis for team X!”, “Bad match, coach is fired!”
Had home team scored the penalty kick instead of hitting the post: “Marvelous victory!”. “They’re on a strike!”, “A statue of the coach has been erected in the main square!”
The simplicity part is more important than it seems. The more we try to optimize the more likely we are to start making changes to the initial strategy for more optimal allocations etc. For me, a strategy should be kept KISS (keep it simple stupid). The less meddling, the less chances we screw up.
This is a good point, I agree.
But I do plan to set and forget. If my strategy appears to be complicated, well, do you think Bill Gates’s investment strategy is “just invest all in VT!”. It would be complicated, since Bill Gates’s Net Worth ($129B) is 6 times VT Assets under management ($24B) 😀
I think my strategy is a bit complicated but it serves two-three different goals, where every dollar is allocated on a “project”: short term, long term, fun (or placebo / illusion of control).
The long term fund (which is 1M, let’s not forget about that) is my real pension fund. And I want to handle it like a roboadvisor, like a personal index, that someone claimed to be the future of Financial Advising.
The bonds amount (0-50% based on CAPE) and the stocks diversification (World + EM + Small + Value) match my current taste.
I will review the strategy in 2-3 years.
Mind that one can’t be 100% passive, no matter what!
Even your strategy of investing 100% in stocks in VT is not passive. You decided to keep other asset classes out of the door. And you decided to stick with market cap based geographic allocation, which means you’re essentially not owning any small cap stocks. What about your money deployment strategy?
There’s no way to be 100% passive, but this is not an excuse to be 100% active. Let’s not fall into the fallacy of gray. I aim to be “as passive as I can” day to day, but a bit active in the design and evolution of my asset allocation, and goal based investing.
Also, if we’re indeed in a stock market bubble, it doesn’t matter if you hold small cap, large cap etc everything will crush together.
Long term fund is for long term returns. While there’s correlation in the short term (especially during a market crash) between asset classes, long term performances of small, large, value, growth, US, developed, emerging have shown low enough correlation, which is a good thing for diversification benefits.
Looking at your expressions I can’t help but think that you’re so stressed, that you can think clearly for everyone else except yourself. I’ve been in that situation before and this is the impression I get from your writings the last months. If I asked you for advice, I’m pretty sure you would offer honest and good advice and something close to my strategy, but when you’re the one under the gun, it’s impossible to keep you coolness and approach things the same way.
This is so true. I am stressed. I used to consider “stress” a buzzword, like “happiness”. But recently I looked up official definitions of Psychological Stress and yes, it’s me. I’m the definition of stress.
From Wikipedia (if you think you’re stressed, please make yourself a favor and read the entire entry):
In psychology, stress is a feeling of emotional strain and pressure. Stress is a type of psychological pain.
Stress can be external and related to the environment, but may also be caused by internal perceptions that cause an individual to experience anxiety or other negative emotions surrounding a situation, such as pressure, discomfort, etc., which they then deem stressful.
Anxiety about the future, pressure, a permanent state of instability, and a gazillion amount of microstressors took me down more than I should have allowed them to. I recognize all the symptoms. I was already there at the end of my Hooli career.
Yes, my friend, you nailed it!
What can I do? I’m dealing with my mental inefficiency, and my current job is to “avoid doing extremely stupid things”.
Honestly I don’t think it’s a “clinical” issue, but neither something to underestimate.
Anyway, I’ll keep working on this issue, probably for the rest of my life 🙂
Let go of the past
Do not be afraid to let go of the past. We’re people not robots so, sometimes we need to experience something in order to truly learn from it. So, there should be no shame or guilt in having slight losses in the stock market for just one year, hell others have lost everything! Yes it sucks when we’re wrong, but you can’t correct a mistake (selling VT at
7679) with another mistake (not buying VT at 96), if that’s your strategy.
I agree with you on this one as well.
I know, on paper it’s easy. Committing with your money is hard. That’s why I committed to buy stocks back slowly, 50k per month.
But yeah, I totally agree with you.
Keep in touch
I had more to write here, but this is already getting long enough. Anyway, since I started commenting, we’ll keep in touch.
Sure, I can’t thank you enough for your comment 🙂
I hope my reply didn’t sound rude, I really appreciate your input!
Bonds Make No Sense
This is a valid point in general (why own bonds today?), but I think the CAPE analogy doesn’t make much sense.
Anyway, I will write a separate post (Part 2-TER, holy shit I’ll never get out of this hole!) in reply to a long email that Julianek sent to me, which is about bonds and more interesting stuff. Probably the best non-personal, objective feedback about my strategy from a friend, and a person who knows a lot about investing. Not today though 🙂
P.S. not the central argument in defense of bonds, but I don’t buy that “holding cash doesn’t make sense. Holding bonds doesn’t make sense. It only makes sense to have 100% of your wealth invested in stocks with Earning Yields (1/CAPE) of 3%, in USD, before inflation. Plus of course Tesla and Bitcoins“.
Sorry, I don’t buy it.
P.P.S. I didn’t plan to buy and hold US bonds for good. I just wanted to temporary park money waiting to set time aside to design a better strategy. Strategy that will include bonds, but not 1M like I own today…
Market-induced tendency to change strategy is no good
This is a great comment, thanks Ste 🙂
I try to steel man your argument before replying: you’re saying that both my recent “strategies” made sense, and the correct way to move forward is to stick with one of them instead of changing my mind based on market events. If I do so (and I’m doing so), I’m essentially timing the market and “selling low and buying high”. In general: pick a strategy and don’t change it based on the temporary outcome.
I hope I understood correctly, please correct me in the comments if I made a mistake.
First: my summer “strategy” of selling all the stocks (VT at 79, not 76) wasn’t a real strategy but a strong “impulse”. I didn’t fall at the first discomfort signal with the rising market, I waited at least a week or two then I sold all my stocks during a 2-3 weeks window. It wasn’t a “strategy”. I was just scared I would have regretted not doing it.
I would have regretted not having acted IF the market crashed afterward.
I accepted the risk of being wrong. I didn’t expect to be so much wrong (as of today, January 21st 2021) that the market went another 20+% up in less than 6 months!
I was expecting a crash, or at least a flat market for a while. In the meantime I would have had some time to sit and think about a long term strategy that I would have felt confident in NOT touching for a long while.
Sadly, this 6 months waiting period has been the worst 6 months to be out of the market that I have memory of.
I’m sure had the market crashed right after my “market timing” action we’d be talking differently.
And I didn’t time the market for profits, I just escaped from it due to anxiety.
Anyway, selling stocks and holding US bonds was not a strategy. I didn’t want to stick with that strategy for long.
I think this contradicts your point. It does make sense to change my strategy now because: (1) I was not following a strategy in the last 6 months, and (2) I’m not designing a strategy because the market went up, I’m doing it because at the moment I’m holding bonds with expected negative real return, in a currency which is being printed like there was no tomorrow!
I’ve only heard about endowment funds in the context of US universities, I can’t find the source but I think it was a John Oliver video.
I did my (superficial) research and what I understood about endowment funds is that they’re expensive “boxes” that invest your money and give you a regular “dividend”. Essentially they offer you services you can build on your own, for a high fee. What you get in exchange is the full delegation of your responsibilities. They’re like trusts. Plus there are many country-specific tax implications, and they are usually associated with charity and donations.
Not sure it’s a thing in Switzerland, not sure it’s a retail thing also.
Anyway, what I “read” between the lines is “delegate your money management”. Maybe, one day. Not today though.
Anyway, I didn’t read the suggested Pioneering Portfolio Management book.
Second suggestion is to invest in a buy-write S&P500 fund (like the recommended XYLD). I must admit that I took a superficial read, but it seems even riskier that just buying an index. And the XYLD has small size, tracks the S&P500 (CAPE = 35), TER 0.65%, and yada yada yada.
But I want to understand the logic behind this fund: it buys the stocks in S&P500 (I doubt they physically replicate the index given the small size of the fund), and they write call options for each security held.
First of all, I couldn’t see the strike price logic: is it “at the market”? Expiration date? What happens if the option expires? Will they re-write another call options for the same asset at the new market price? How do they rebalance when the options is exercised while the underlying asset 10x-ed in the meantime (like Tesla)?
I’m not saying I don’t like the strategy, it’s actually interesting, but I’d love to see some numbers. For example, what’s the impact of cashing all the premiums if the market drops 30% in a year?
I’ll monitor this strategy but I’m not buying right now. Thanks for the recommendation though 🙂
Real Estate For The Win!
8-12% return from RE in Switzerland… I don’t know guys, you’re awesome! Everyone is getting incredibly rich, EASILY, in this overhyped asset bubble. I’m speechless, huge CONGRATS!
In order to make 12% from a property you should rent it at 1% of purchase price. In Switzerland. Where rents (gross, before taxes, before renovation, before administrative cots) are below 0.2% of purchase price, which makes the 1% per month return impossible even with a 5x mortgage leverage (20% down payment).
I don’t know… as I said, I’m speechless.
But maybe I’m just dumb, and money is falling from the sky and I’m missing out by staying indoor.
Sure, you can always sell and make a profit!
Except… oops, we’re in the RED ZONE of the UBS Bubble index which means BUBBLE. Not OVERVALUED, but BUBBLE.
All pension funds and krankenkasse invest in real estates in Switzerland, and they struggle to carve out 1-2% per year from it (cashflow, not appreciation).
Claiming that you can “easily” get 8-12% looks like a lie. Sorry if I’m rude, but unless you disclose all your data I’m not going to believe it.
P.S. Even if you do disclose, and show your current RE yield, it wouldn’t prove that the strategy is replicable.
High Yield Dividend in Switzerland is Stupid
In 2020, VYM Dividend Yield was 3.17% and VYMI 3.71%. A 50-50 portfolio would yield 3.44%
Also in 2020, VT Dividend Yield has been 1.91%.
The difference in yield is ~1.50%. Which will be my highest tax bracket in 2021? I don’t plan to earn like in the previous 8 years so… say 20%?
We’re talking about a 0.30% inefficiency on 30% of the stocks component, which is 70% (actually 65% after adjusting world CAPE from 22.3 to 24.2) of my long term fund, which is 75% of my NW.
The overall inefficiency on my Net Worth will be 0.04%.
I can deal with that.
I get in exchange exposure to Value factor and a “cashflow” (which I know it’s fake, but it psychologically helps).
Stupid? Maybe. Not a great deal.
I’ve done stupider things 🙂
You Should follow an ENHANCED VALUE INDEXES strategy
IWVL, and in general MSCI World Value Index has a lot of Japanese stocks (26%). You should investigate alternative Value exposure. He then listed a few interesting strategies.
This is – I think – a micro optimization. I understand that it might be interesting for insiders and financial nerds, but for me it’s a pass.
Thank you, I’ve watched your most recent video about Value, and I think it’s full of insights.
But it’s too much for me, I got already accused to not KISS enough 🙂
Why not decrease stocks more if CAPE goes above 30?
Asked by reader Mateusz.
Because at the moment I think it doesn’t make sense to go below 50% Stocks even in case of a huge bubble. I might have stretched the MIN_CAPE, MAX_CAPE even more (10-40), or shifted a bit (15-35), but the structure of the function should remain the same.
This is a good compromise between my fighting beliefs (the market is crazy vs the market is efficient).
Of course if something changes permanently and CAPE = 50 is the new normal in a decade, I might reconsider my strategy and be more aggressive. But there will also be other factors at play.
Let’s not forget that my goal is not to maximize my lifestyle, or to die with the largest amount of money but to forget about the existence of money as soon as possible, and, quoting Mr. Money Mustache:
I try to make all spending decisions as if the price were $0.00.
And I make all work and income decisions as if the wage were $0.00.
How do you deploy 50k per month?
Reader Ajeje (Brazorf?) asked:
I haven’t thought about it yet.
I have built a sheet in my NW Spreadsheet to track what’s unbalanced:
I allow myself to pick each month an overinvested asset (background color RED), sell 50k of it, pick an underinvested asset (background color GREEN), and deploy 50k on it.
I will of course invest first in what hurts less, as explained in my last post:
Plus, I’m not setting a clear “day of the month” for when to make the trades. January is almost gone and I haven’t acted yet… maybe starting in February I will set a specific day of the month. I don’t know.
I might reallocate some temporary assets in the meantime. BND is providing me a nice Italian salary each month, but it’s objectively a bad bet. I might sell all my BND shares and buy BSV in the meantime.
That would make sense, but I’m acting as a dick, as usual: I don’t want to stomach a nominal loss with BND (9k USD unrealized loss, more or less compensated by dividends so far), so I’m holding them longer than I should.
I allow myself a bit of activity in the transition process given that by the end of 2021 my investments are aligned with my strategy.
Ok, of course should something “shocky” happen – like a brutal market crash – I might accelerate the transition phase. I’m praying for it.
I don’t plan to change my investment strategy after the feedback received, but:
- I will put more attention to my bad habits of checking the brokerage account daily
- I will do something to reduce my stress level.
- I will aim to reduce the number of decisions in my life, as a mid term goal.
With regard to the last point, I do plan to take a few important and irreversible life decisions in the next 2-3 years, in the hope to simplify my life, my finances, my work. Stay tuned 🙂
That’s all for today!