Coronavirus Journal Day 29 – A new hope

March 19th, 2020

This is again an “unedited”, journal style post. Expect lower quality, some typo, emotional speak, not well rounded opinions, but a good dose of honesty.

Hi readers,

This is just a humble blog about personal finance and personal struggle, I’m here to document my journey through these tough times. Last journal entry was Day 24.

I have a long list of more technical posts that I can’t find enough inner peace to finish and publish.

I also have a long list of posts about my “Leaving Hooli” experience that will need to be postponed.

It seems nothing matters much these days.

What we’re experiencing is a one-in-a-lifetime thing.

Nobody is prepared, and we don’t know what to expect next.

There are few optimistic scenarios and many dark ones. I usually err on the side of pessimism, but I don’t know why this time I feel more optimistic than I should be. This feeling is helping me doing relatively good so far, but I’m aware that a well targeted punch will make this house of cards fall.

Italy

The news from Italy are dark, especially from the north.

Of course newspapers and TV have vested interests in overemphasizing, but even my skeptical self must admit that perception and reality have never been so close.

in this darkness – fingers crossed – our families are doing ok. Nobody we personally know contracted the disease.

Well, that’s not true. I have several friends from the Bergamo region who contracted it in its mild form, which is still not “just a flu”, and might have some long term / permanent consequences even after recovery.

The fact that several friends claim that in their area “everybody got infected”, orders of magnitude more than the official numbers say, contributed to my optimism. As also contributed the fact that death rate below age 50 is very, very low, and limited to those who have other conditions.

But we also know people who have had losses, like one of our neighbor which is originally from Bergamo region who lost 3 relatives during last week. He said they had conditions and were old enough, but still.

Plus, we have friends (in Europe, but neither in Switzerland nor in Italy) who have been officially quarantined (with a warrant handed by the cops!) because they’ve been in contact with persons who got infected.

We see it coming.

I’m a Rational Optimist in this moment, with a feet in the Rational Alarmist territory:

And it hurts me to classify that the good old Pete Adeney, aka Mr Money Mustache, in the Ignorant Optimists bucket 🙁

Switzerland

Switzerland is taking it easy.

Until last Friday, everything worked as usual outside of Canton Ticino (the Italian speaking Canton, the most infected one).

Then a couple of Federal Council happened and a partial lockdown has been imposed.

What’s still weird for us is:

• Child care is not officially closed, but they recommended us to keep the child at home (and keep paying the monthly fee). Child care involves a lot of money. I know friends who are paying more than 3k CHF per month for a kid, 5k CHF or more for two kids. Asking them to pay and not get the service has some consequences. The child care below age 4 is mostly private. Maybe the Canton or the Federation are thinking about a reimbursement of some sort, that’s why closing public school was easy, while forcing a breakage of private contracts is harder (and expensive).
• Social distancing not respected. This is driving us nuts. We have many Italian friends in Switzerland, and we know the fuck is going on in our country. I was close to scream at a group of 4-5 teenager playing together, very close one another. Or a group of runners running shoulder to shoulder. Or people having barbecues without respecting safety norms, or parents & kids grouping together… I mean, we all know that this will lead to a hard, military enforced, prolonged quarantine. Why the fuck can’t you start behaving like a person who’s closest ancestor who descent from trees was alive millions of years ago??

It’s hard to blame people too much, when the country has not been rigid on this. Until a couple of days ago restaurants were still open, simply limited to no more than 50 people at the same time. Which is nonsense.

Another weird thing is that while in Italy grocery stores are kind of working, here in Switzerland we experience panic-shopping all around us.

The status of grocery store is not good, with few product categories not available for more than a week. Like toilet papers, flour, long-life milk, and less intuitive things like fruits and vegetables.

I hope they’ll work on bringing food situation back to normal. We only have 68 days of toilet paper left!

Let’s look for something positive: at least now I know who’s the president of the confederation. In 7.5 years here I had no idea who is in charge of what. I’ve not been interested in local politics at all.

What are we doing?

We stopped sending BabyRIP to krippe. She goes on Wednesdays and Fridays. Last week it was weird to see the nonchalance of the system, but I was in the transition between Ignorant Optimist to some degree of Alarmism, and we’re paying for it (924 CHF per month).

Since last Saturday, we started discussing the issue within the family, with Mrs RIP leaning toward not sending Baby to the krippe anymore, while I was playing a different role: we need some time without Baby around, the government thinks krippe is ok, we’re paying for it, she’s having fun and exposure to German language… but the closer we got to last Wednesday (March 18th) the more concerned I became.

Then a Baby’s mild cough and running nose convinced us to keep her at home. And get her visited by the pediatrician. The pediatrician in our neighborhood comes from Italy, and she kicked our asses for even thinking about sending her to krippe. That means Baby is 100% with us since last Saturday (March 13th), and it’s not being easy.

I’m glad we changed flat back in November.

We’re also social distancing to the extreme. We don’t meet anybody. We go outside (while this is still allowed) and stay at least 3 meters far from anyone else. People don’t seem to care enough to do the same, and as I said this drives me nuts. If they’ll force us to stay at home it will be because of you, asshole who can’t manage to play safe. Being outside in this sunny weather is awesome, and it will be a pity if this will be taken away from us.

We’re meeting friends online, organizing virtual Apero, and essentially organizing ourselves.

There are a lot of tasks that need to be done, some of them connected with leaving Hooli, Mrs unemployment, my unemployment, hardware and mobile number change (bye bye corporate sim card, phone, and laptop).

Plus we have Baby RIP to handle.

And I’m supposed to be working on the next phase of my life, since I’ll be unemployed at the end of March and this StupidiFI is being blackswanned.

I’ve never been the furthest from being bored.

Being at home with a 2yo is tough. I think first thing I want to do once the world reemerges from the abyss is self quarantine alone somewhere in the woods.

Sincerely, I dream about a true quarantine, self isolation. I’m angry at the lost opportunity. I’d be spending my time playing videogames or solo boardgames, reading real books, immersing myself in deep work, meditating for hours… while reality is that I can’t do anything that require high concentration.

But I also enjoy that we have this unique time to stay close, and be the three of us without weekends fully packed with social activities. We spent a lot of quality time together these days. But we also miss friends and relatives. And freedom of movement.

I’m also grateful – but scared – that I don’t have to care much about work these days. I see my team emails, and the huge amount of work everybody is carrying on to keep services up and running. I don’t think I could have afforded that. No regrets about having quit, even though I would have been happier in a less “end of the world”-y departure.

In the end, this is a unique time in our life, an occasion to re-evaluate your values, your priorities, your plans.

Don’t waste it.

Financials

Financials seem less important these days… oh cmon, who do I want to lie to??

I’m following closely the stock market, and over-acting. My original plans to buy stocks all over 2020, “just 20k per month” has been overwritten by a “BUY BUY BUY NOW ALL YOU CAN!” It seems like I’m doing with stocks what others are doing at the grocery store.

What I’m not following is the Oil war though. I have no idea what’s happening in the Oil War, and I sincerely don’t care much. I think it’s a minor effect in this picture, and one that’s doomed to irrelevance in a couple of decades. Nevertheless, I’d like to document myself more, and understand who the hell is fucking up with this during a pandemic. I understand that’s the right moment to attack a weakened financial rival, but my honor code is sentencing you to death.

Anyway, for how long is this knife going to fall?

This is my “March Madness”

I’m buying VT and EIMI.

VT because that was the original plan. I’m buying it faster than I planned because of the sudden drop in price. I think the world is not worth 30+% less than a month ago. And I think if the optimism shows up early, the recovery might be fast. I’m here for the long term, and I think these prices are good bargains for owning a good share of the world economy. Well, in hindsight I might have waited a bit more, but everybody is Warren Buffet in hindsight.

EIMI (Emerging Markets) is against my original plans. I’m overexposed to EM in my portfolio, but I sincerely think they’re underpriced for the following reasons:

• EM are down something like 40% from peak
• EM are lagging developed since 20 years, i.e. low Cape, very low
• China economy is back at full speed (EIMI is 34% china, 13% Taiwan, 12% south Korea)…

It seems to me that this is irrational. I think EM are underpriced.

Yesterday, Wednesday March 18th, I also dropped 31.2k CHF I had sitting in Pillar 3A saving account (with PostFinance) into their 100% stocks fund Pension100.

Their TER is 0.98%, I know, not that Viac is much cheaper though.

The Pension100 fund invests mostly in Swiss stocks (75%), but also “international” and “emerging markets”. Over the next weeks I’ll do my best to model it into my rebalancing model.

Swiss stocks… they’re doing great! I don’t see any market crisis. Swiss SMI index is up 2.7%!

… since July 1998, not joking (and not per year, not inflation adjusted).

Ok, it doesn’t include dividends (which are money taken out of the economy), but holy shit, the value of the Swiss companies is very close of 1998 levels!

That screams BUY to me.

I’m raising stocks exposure while the market drops.

I still have a lot of weapons available:

• 90k USD cash on IB
• 44k EUR of planned to be sold EU bonds
• 72k USD of sellable US bonds
• (stretch) 41k EUR + 23k USD corporate bonds (EU + US)

This while maintaining 150k CHF safety cushion.

If it was not clear, I plan to take some measured risk.

I’ll keep investing while the market falls. If I consume my entire rebalancing power, then I’ll simply stop checking my balance on a daily basis, and focus on keeping cashflow positive (unemployment insurance, or getting a new job if the world falls apart), at least while we’ll be in grace period for the Ravenna Threat.

Btw, how far is Ravenna today?

It’s getting close…

Perspective

How bad is our financial situation?

Well… the world is falling apart and we’re still above October 2019 level. We’re at -69k EUR in March, and -66k EUR in 2020. It’s 5.7% of our wealth destroyed. Not fun, but not the end of the world.

We’re still above 1.1M EUR.

While it’s not fun to look at the bloody red in the above picture, we’ll be fine.

On the cashflow side, we’re doing very good. The semi-quarantine regime is pretty “cheap” compared to our expectations. February we spent below 6k, and this month we’ll be in the 6.5k neighborhood but we purchased a high quality used sofa for 1.1k CHF, and paid Serafe (TV and radio yearly subscriptions, 360 CHF). The rest is just grocery and 4k baseline (rent, utilities, child care, health insurances).

Random Thoughts, Ideas, and Open Questions

Question: Do ETFs increase their tracking error in high volatility environment? 

I mean… an index is updated daily (new companies coming in and going out), while an ETF rebalances with a lower frequency. In low volatility environment it doesn’t matter much, what about high volatility? Is it possible that an index goes -50%, +100% getting back to initial value while an ETF tracking the index is still at -10% at the end?

Idea: Will there appear “Black Swan resilient/antifragile ETFs”?

Like a Pandemic-Resilient ETF, with grocery stores stocks (Walmart), WFH-ready companies (Zoom), companies in the fields of detergents, medical equipment, medical research.

Or ETFs Nuclear-Resilient, War-Resilient, Oil-Resilient… Is this a stupid idea?

A reflection: What’s the best ETF? The one you don’t sell during a recession.

Psychological skills win a thousand times against micro optimizations.

Optimize as you can, but spend 10x more time into understanding who you are, what’s your plan, and what risk you can handle.

Take care, and stay the course!

Have a nice day.