Hi dear readers,
Today I’ve received at least 20 messages from people asking me a lot of questions related to the current market fall: “what to do now?” “are you buying?” “are you selling??” “are you celebrating that in November you sold a lot of stocks?” “are you StupidiFI plans holding?”…
It’s been an intense day!
Let’s write a quick impulsive post as a public answer, and some more 🙂
Plans are Useless
In preparing for battle I have always found that plans are useless, but planning is indispensable.
– Dwight D. Eisenhower
In early February, I sent my resignation letter to my manager. My last day of work will be March 31st 2020.
Ten days ago, on Feb 19th, I posted my “after Hooli” strategy. Ok, I actually published the post on Feb 20th, but it was 95% ready on Feb 19th. The market peak day. A kiss of death.
TL;DR: our plan is to stay in Switzerland without a salary while our Net Worth is above a certain threshold. The difference between current NW and the threshold is called The Swiss Buffer.
At the time of writing my last post, the Swiss Buffer crossed 200k EUR (215k CHF), i.e. 3 years of living expenses in Switzerland. February NW Delta was +41k EUR, also thanks to the fact that the EUR lost value compared to USD and CHF. I announced I crossed the 100% old FI goal of 1.2M EUR: I was 102% FI if we were to move back to Italy.
I said “Wait… let’s celebrate! Hold my beer!”
I didn’t know the beer was a Corona.
9 days later, Feb 28th 2020
“Hey RIP, are you celebrating? You sold almost all your stocks in November, right? 🙂”
“Holy shit it’s been hard… I’m 70k below. What a shock! Maybe you were right about holding too many Hooli stocks 🙁”
“Are you buying, RIP?? I’m excited when market drops! You should be greedy when the others are fearfu….”
I KNOW IT!
I know it.
It’s all easy on paper.
Yes, I sold 300k of stocks in November 2019, and now markets are below that level.
But I still lost a shitload of money in just nine days, and I’m not happy with that.
Some number… in just nine days:
- Our Net Worth dropped by 60k EUR, from +41k to -19k. It’s not only due to Mr Market, Mr USD contributed as well.
- FI% dropped from 102.16% to 97.34%.
- What about the Swiss Buffer? Here you go:
“But RIP, you said you won’t even look at the graph for a year, until end of March 2021!”
YES, I’M NOT LOOKING AT IT.
I don’t know, compared to November 2019 I’m less invested in stocks, but I suffered a huge hit anyway.
Even though my stocks investments are ~30% of our wealth, my portfolio is heavily unbalanced toward a pandemic event. My current stocks ETFs are:
- 46% VT (ACWI World): So far, so good.
- 30% VYM & VYMI (High Dividend Yield, US and Ex US): I’m ok with the fact this is tax inefficient, but in this situation high yield stocks performed even worse than the rest. I think that’s due to the fact that high dividend issuing companies are those who sell goods and services, which are being destroyed by anti-pandemic preventive measures.
- 15.5% EIMI (Emerging Markets): I’m extra exposed to EM, and that’s not exactly the best thing in the world when a pandemic begins in the country that constitutes a huge portion of the EM index: China.
- 8.5% invested Pillar 3A (mostly Swiss Stocks): Stocks that follows the high yield model. Btw, many pharma stocks, which might profit by a race to vaccination in the near future.
Plus, I’m heavily exposed to USD currency, which is not performing good as well.
Plus, one of my bonds is: “Emerging Market Local Government Bonds“. Its performances YTD? -7.5%.
How do I feel?
Mixed feelings, mostly negative ones.
I thought my new plan would give me peace of mind, but what’s currently happening is exactly the scenario I didn’t want to happen: a sudden drop of our buffer.
I’m a bit scared.
Luckily I have room to rebalance, and a lot of cash to “buy low”, but as we all know: when will the market bottom? Nobody knows.
I also received messages from people who are excited about the market drop! Maybe that’s my game now that “I’m rich”, and I should learn how to “be happy about that”.
And forget that of course the three people who contacted me, excited for the drop, are 30 years old or younger, with a NW less than 10% mine. And without a dead career.
Anyway, who am I to judge? The net effect of all my attempts to time the market has been negative so far.
Time will tell.
What do I plan to do?
Well, the original plan is still in place.
I’m scared, but we still have 140k EUR of buffer (plus, last Hooli salary in March will be larger) and 13 months of grace period. After that, if the market keeps going down, we’ll be walking on a thin ice.
We’ll face it if/when it happens.
In the meantime I should also stick with my plan to do Dollar Cost Average 20k EUR per month into stocks, mostly VT, as resolution of my November 2019 investing paralysis.
I’m trying to buy the dip (which is not wise: take a look at this amazing article by Michael Batnick) but what I’m actually doing is Catching the falling Knife.
In January I’ve invested my monthly 20k at the end of the month. I wanted to do the same in February. But I saw a dip and decided to anticipate the planned move.
VT peak share price has been 83 USD. As soon as it fell below 80 I purchased my monthly dose: on Feb 24th, I purchased 273 VT shares at 79.50 per share (21.7k USD).
On Feb 27th price dropped below 75, and I bought 300 extra shares at 74.58 per share (22.4k USD).
Then today, Feb 28th, I purchased another 100 shares at 72.45 (7,245 USD).
I’ve invested 50k USD in VT in last 5 days.
Current snapshot price on IB is 72.83.
I’ve Chicken in!
I don’t know what I’m going to do in the following days, but for sure:
- I’m not going to sell for any reason.
- I’m not going to lower my desired cash cushion of 150k CHF.
- I’m not going to invest into stocks more than what I account for in my Investing sheet. Current ideal Asset Allocation is 50/50 stocks vs bonds, and even in that conservative AA I still have plenty of room for stocks investments: 157k EUR.
- I might decide to switch to a more aggressive AA (60/40, 70/30) but only if the drop will be very large (30% or more) and all my rebalancing power had gone. Not sure though.
- I might sell EIMI, but I’m not sure. Well, this year I don’t fear being classified as a professional investor… I would actually want that privilege and be able to deduct losses from 2020 taxes!
I’m curios of the dividend yield of Q1 2020. Most of my ETFs distribute quarterly dividends, I’m waiting for them. If companies have not been impacted much by the virus thing maybe it will be time to double down and buy more. Let’s see the impact of the global fear and all the preventive measures on the real economy. Are we able to self inflict a recession?
Anyway, the plan is still active. It’s actually not started yet: I’m still an employee and receiving a salary.
Before you ask: no, I’m not thinking about staying at Hooli any longer. Even if I would, I don’t think I actually could. My resignation is final.
A (lucky) guy named P, who’s part of my Coaching Program, sent me an email about my plan: “it seems you are planning not to win but to try not to lose… does it make sense?”
Yeah, kind of. it’s been like this for my entire life.
But I’m not alone: Avoid the Zeros is Warren Buffett wisdom, as mentioned in this amazing post by Nick Maggiulli.
I’m always planning for the worst case scenario in the desperate attempt to feel in control of everything. Maybe in the even more desperate attempt to catch Black Swans before they come.
Anyway, P’s comment made me think.
Am I trying to be smart by chicken back in? Probably yes.
Is this carrying a positive expected return? Probably no.
Why am I doing it anyway? Because of my cognitive biases.
Fun fact: I thought I coined the term “Black Swanning” but I found it exists in the Urban Dictionary and it means… something that has do to with sex… holy crap NO NO NO I didn’t mean that!
There’s More to That.
I planned to blog about other things: I have a half written post #1 in a series on “bonds investing”, but I didn’t find motivation to finish it today.
I’ve been slacking off the entire day instead of working on that post.
But it’s not been a complete waste of time: I’ve read so many – so many – posts of my new favorite blog of 2020: More to That.
I know, it doesn’t fit this post but I wanted to share it here anyway 🙂
- Money is the Megaphone of Identity: a deep dive into how wealthy you actually are that will twist your way of perceiving money and confidence.
- The Riddle of the Well Paying Job: why compensation can’t compensate for a job you don’t like.
- How Natural Selection Screwed Us: a deep dive into the Resistance, the primordial brain, and its misalignment with our superior mind.
- The Quest to the Unlived Life: in my opinion the best post on the blog! It’s talking about me, about my Resistance (Laziness, Self Doubt and Uncertainty). Do yourself a favor, and go read it!
- Travel is no cure for the Mind: hedonistic adaptation explained in the best way possible, plus philosophy.
- The Economics of Writing: start your writing gig. Now! it’s the best time in history!
- The Release Ratio: the world is full of amazing content to view, listen, read. Just… do yourself a favor and create something as well. Don’t just consume.
I plan to binge read all his remaining posts, and – according to his suggested Release Ratio of 1 – write full notes and reflections about them for my own knowledge building.
About creating, producing content: I’ve been “drafting” this post entirely via audio. I’ve took a long walk during my way home today, and started recording notes. Speech-To-Text is amazing these days!
I went home, and found a lot of material ready for this post. This may be my future of post drafting!
Of course, you can’t do research this way, and your train of thoughts is not perfectly shaped… but I like it, and I’ll do it more often 🙂
Please, have a beer
Of course I don’t have any factual knowledge about this virus. I don’t know where it’s going. Where we’re going.
My gut feeling is that it’s not as bad as market and governments are telling us.
Maybe we already paid our due to it: BabyRIP has been 5 days sick with fever at 40 degrees and a lungs infection after a quick travel to Rome, before the virus was cool. Now in Italy it’s circulating the hypothesis that maybe the virus was there since January. Maybe she already got it, and she’s now 100% ok. My nephew has been 10 days in the hospital with – you guessed it right – very high fever for a week and a pneumonia. In early February. In Milan. Yeah, not cool.
Maybe we faced the virus without knowing it, and it passed.
And maybe this is just Survivorship bias.
But mortality rate is close to zero for anyone below age 50.
Containment might be useless at this point.
I don’t know, I hope that all we’re doing with quarantines and panic sell-offs is not making things worse.
But I know nothing.
Find your risk tolerance.
Get to know yourself better.
Investing is a psychological game.
Stick with a strategy.
Volatility is a fucking beast.
You can’t predict Black Swans.
Enjoy the rollercoaster guys 🙂