Hi RIP voyeurs,
This is the second part of my October Update. If you didn’t yet, please take a look at the first part.
Main focus of this second part is market performance and investments. I wanted to document what happened day by day to my portfolio, and how I reacted in terms of both feelings and actions. But I didn’t took notes on a daily basis, and the quality of my memory is decaying exponentially over time… so here is what I was able to reconstruct from notes, screenshots and memory.
Deconstruction of a shitty month
During first 2 days of the month Mr Market dropped significantly (except the S&P 500) and USD got stronger. NW Delta measured in USD is close to zero. After just 2 days!
I was a bit sad, but nothing more. This month I could have reached 1.03-1.04M USD, putting space between me and the Million, but it’s ok. Just two bad days. It happens 🙂
At the beginning of each month I transfer 5k CHF from checking account to brokerage account. I set up the transfer to be automated and recurring on 1st day of the month (or earlier if the first happens during a weekend). On October 2nd I had my money available on IB and I was tempted to buy more stocks. instead, I chose to stick with the plan and keep buying bonds until my real allocation matched my ideal asset allocation. Stick with the plan, always!
Converted the 5k CHF into USD (forex fee: 1.98 CHF) and bought 959 shares of WING at 5.298 USD per share. 5080 USD total (trade fee: 4.38 USD, 0.086%).
NOTE: concrete actions taken will appear in purple color.
A tranquil day on market street, a timid recover on EU and Emerging markets. S&P500 is doing ok. Extra money hit my brokerage account: September Hooli stocks autosale proceedings, i.e. 7800 USD. Good.
Sticking with the plan, I bought 119 IEML at 57.56 USD per share, 6850 USD total (trade fee: 5.87 USD, 0.085%), and 183 WING at 5.305 USD per share, 970 USD in total (trade fee: 1.91 USD, 0.2%). Bonds allocation is fine now, next month I’ll invest in stocks 🙂
I should have waited before buying WING yesterday and aggregated the purchases. I ended up paying 1.91 USD trade fee for WING today (0.2% fee, ~3 times my usual 0.07-0.08% for larger purchases).
That’s when shit started hitting the fan.
S&P500 is heading down, EU Stoxx600 too, EM and pacific as well (since January, btw).
Net Worth Delta is negative in USD.
I’m a little bit worried by unbecoming millionaire (still more than 10k margin though), but in the end it’s just a normal fluctuation. Keep calm. There’s nothing I can do anyway.
Ok, first week of the month is gone, and it’s been shitty. Let’s see what this Monday looks like!
Still all red.
EU index is heading down at the steady pace of “more than 1%” each day. Other markets are shitty too. NW in USD is ultrared, I’m almost an ex millionaire.
There’s nothing I can do, I’m a bit sad, but I know it could go way worse (and it was going to happen soon).
Well, I played with my ideal asset allocation on my investment sheet. The rationale was: I feel uncomfortable with this ~5% loss so far, I’m not sure I want to experiment what it means to lose 50% of my wealth. I’d like a calmer trip. But I also want to take advantage of this (supposed) temporary strike of 6-7 consecutive days of negative market.
NOTE: don’t do that. Remember the random walk hypothesis. Don’t time the market. Don’t be like Mr WTF. Do you think black is more likely to happen after 10 reds on a roulette? Exactly.
META-NOTE: Notes, lessons learned, documented bad behaviors, patronizing morals, old fart’s advices will appear in green color.
Actions taken on paper (here’s my investment sheet):
- Increased ideal cash from 30k to 50k but added “virtual” to “cash and others” as available liquidity in my investment sheet. All the virtual cash (end of year bonus and vesting stocks) is becoming real cash in December. I’d say there is zero risk of this not happening. I want more cash at hands in future. That’s not necessary related to contingent market situation. But at the same time adding the “virtual” (30k CHF in November) to the asset allocation base will end up in many under-invested assets to be rebalanced. I’m essentially being cautious in needing more cash but more aggressive in considering future expected cash as real cash today.
- Increased ideal Swiss stocks to from 0% to 5%, reduced Large EUR from 25% to 20% within the stock bucket. Why? Well, we have almost 50k in cash positions in our Pillar 3As: (36k Mr RIP, 13.5k Mrs RIP) that could be invested somehow. Opening a VIAC account and invest 97% of it in whatever I want is tempting but the lazy and startup adverse GenX-er in me wants to play it safe. PostFinance Pension75! I already invest 5k in Pension75 and I can tolerate investing more money in Pillar 3A funds with shitty TER (1%) that invest mainly in Swiss stocks. I’m ok with holding more Nestlè, Roche and Novartis, but there’s no room for it in my asset allocation. So far I added 75% of my positions in Pension75 to the “EU – Large Cap” category. Time to create its own entry in my AA and split the sources.
- Lowered ideal low risks bonds to 80%, increased both IEML and WING AA to 10%. As a consequence of investing in Pension75, my “Low Risks” bonds (Swiss Pillar 1&2, plus the uninvested 25% of Pension75, plus Italian CDs) would drop and that’s ok. I’m actually lowering the low risk weight within bonds allocation to be able to use the other bonds to rebalance when needed. Maybe I should add another bond entry here instead of raising IEML and WING, but I’m lazy and didn’t do the research needed. Has anyone a mid-risk bond ETF to recommend?
Action taken with real money:
- Run some math, decided to invest 29k of my PostFinance Pillar 3A into Pension75, keeping 6.7k of my second Pillar 3A in cash and still the entire 13.5k of Mrs RIP’s Pillar 3A in cash. It will take some days for this action to take place.
On this day real shit hit the fan.
Millionaire no more.
Like Russ Hanneman in my favorite TV series, I also lost a comma
As icing on the cake, on this day PostFinance announced new fees for 2019. The future looks dark.
Before going to bed though, the market seemed to have recovered a bit, enough to offer back to me the comma I was begging for:
Ok, let’s go to bed, maybe the night is not that dark and full of terrors.
Or, is it?
The night between October 10th and 11th is when the market lost the most. The daily delta is close to -15k, an entire month of work burned overnight.
That’s how I woke up on October 11th:
To document it, I’ve published a quick update here on this blog that day.
It was not enough to wake up far behind the Million, I also had to face another day in the red, by more or less 8k.
As a little drop of hope in an ocean of desperation, my dark heroes IEML and WING survived this storm:
I’m losing confidence that even if everything would settle, I won’t become a millionaire again next month.
But at the same time I’m getting excited because:
- I want to invest more, macroeconomics look good and I don’t see why the market is crashing.
- I want to document this crash on my blog, and it looks fun 🙂
Small dead cat bounce day.
Finally, the purchase of Pension75 initiated on October 8th has been executed: 244.765 shares at 119.07 CHF per share (29k). Today price is 117.65.
NOTE: Postfinance Assholes! You never know when your shares are purchased. It takes few days, they make you pay the highest share value during the period. Don’t do that while high volatility. I hate mutual funds. Long life to ETFs, long life to things traded in real time on a stock exchange!
Anyway, one of my 2 PostFinance Pillar 3A accounts is all-in with Pension75 (34k). The other one, the small one (6.7k), is still uninvested.
In the good news territory: today I received 100 USD as referral fee from IB 🙂
Ten days of relative tranquility. Ups and downs, but nothing horrible. It seems the month is going to send me back in the single comma realm, but it’s not the end of the world. It was a 6-7% market drop. It hurt, but that’s it.
Market is going south again, another 10k lost.
I don’t want to time the market, of course, but I have some cash sitting in my checking account. Time to use secret weapons: wired 10k CHF to IB to be invested, according to my asset allocation, which is also being manipulated a bit: changed stock & bond desired allocation (increased stocks), minor changes within bonds and stocks too.
10k CHF received on IB and converted immediately in ~10k USD. I also received 1k from VHYD dividends somewhere during previous week.
With 11k USD at my disposal I decided to buy more of the worst performing ETFs:
- Bought 5k Emerging Markets (197 EIMI shares, 25.34 USD per share, 4992 USD total, 4.3 USD trade fee)
- Bought 5k Pacific (38 CSPXJ shares, 131.80 USD per share, 5008 USD total, 6.27 USD trade fee)
- Bought 1k Small-Cap US (3 CSUSS shares, 315.55 USD per share, 947 USD total, 3.71 trade fee)
This last one trade costed me a little bit more than usual in term of trading fees. IB said between 0.7 and 3.7 USD trading fee. I ended up paying 3.71 USD on a 947 USD purchase, i.e. almost 0.4% trading fee. It’s at least 5 times my standard.
Ok, I’m losing tens of thousands each day, maybe I shouldn’t care much about fees. WRONG. Fees are what may make your game a negative sum one if you trade too much and don’t care about fees.
With this thought in mind, the market headed down again, right after I bought my new fresh shares. By the end of the day, I was down by another 10k. And I just invested 11k.
That’s how it felt:
Expecting some “Bansky was here” when opening my IB app.
Got somehow nervous, but manageably so. I need to stay calm and stop doing stupid things. Ok, no, I can’t. I need to do something more: I Invested my second PostFinance Pillar 3A (6.7k CHF) into Pension75. It will take days to figure out share price.
Dead cat bounce day.
Didn’t even recover yesterday losses though.
Another bad day, yesterday’s minor recovery is eaten up. I keep playing with my numbers to see if I can invest more. But I’m low on cash. I better wait.
In the evening (when US stock exchanges open), the market reached the bottom.
S&P500 is down 10% since beginning of the month. My portfolio is more or less down 10% too.
The Unrealized Profit&Loss on my IB account become negative, meaning that I paid more than actual evaluation for all my open assets. It’s scary.
Note: it doesn’t mean I’ve lost money investing in last 3 years. Realized Profit&Loss is in the order of 45k, thanks to funds I don’t own anymore (CBMEM, SC0C, XLKS). Plus I’m earning dividends on a quarterly basis. But still, when your open positions are negative you feel dumb.
This is what my personal NW spreadsheet looked like on Saturday October 27th 2018:
NW delta is -30k in EUR, and -51k in USD. This is after salaries, after saving, after pension contributions. NW is down more than 50k USD despite the positive (as always) cash flow. The market effect alone is -65k USD. The effect in USD looks exaggerated compared to EUR because the Dollar is raising a lot, close to overtaking the CHF.
My USD NW is in the 960k range, which means there’s a big chance I won’t become millionaire again before the end of the year. It’s at the same value of Friday, January 26th 2018. Almost a yer ago!
Ok, again, this is an unfair comparison: I’m comparing against a market peak and a USD bottom. But still that hurts.
I’ve added a new column to my Net Worth document indicating “last month change %“. That’s how it looked like on October 27th:
YTD column indicates variation since beginning of the year. Last M column is the delta between last two months. It’s actually “current month performance” on my private spreadsheet, but I called it “Last Month” here because I update the public spreadsheet only after the month is over.
It’s a disaster, all red. Every single ETF is red this year. Only Hooli stocks are still above the water, even though they lost 10% this month so far.
European Large-Cap (IMEUD): -8% this month, that sent in the negative territory (-6%) the 2018 performance.
European Small-Cap (CEUS): small-caps are performing badly, the EU ones lost almost 12% this month, -14% in 2018 so far.
US Large-Cap (CSSPX): -9% this month, same value of beginning of the year. It was my warhorse, it lost a leg this month.
World High Yield Dividends (VHYD): -7.5% this month, -11.5% this year. This fund gave me nice dividends, but it’s losing value over time faster than the dividends it issues… I expected more resilience from value stocks during a market downturn but it didn’t happen so far.
US Small-Cap (CSUSS): another one legged warhorse. -13% this month, -4% since January. Two months ago this fund was +15%. Small caps are crazy. Note that I bought my 3 shares for 115.55 USD each (and another 1.24 USD fee each) few days ago. It didn’t seem to have been a smart move in hindsight…
Pacific excluding Japan (CSPXJ): this fund is performing badly since the beginning of the year. -11% this month, -14% since the beginning of the year. C’mon Australia, Honk Kong and Singapore! The extra 5k I threw into it few days ago already lost 2-3% too. Don’t time the market!
Emerging Market (EIMI): the worst performing of the year: -10.5% this month, -19.5% this year. Pardon, since April 2018 (when I switched from CBMEM to EIMI). Needless to say that the 5k I threw at it few days ago was not a smart move.
Real Estate Europe (IPRP): -4.5% this month, -3.5% this year. At least I got some fat dividend in June…
Corporate High Yield Bonds (WING): I was expecting a negative correlation here, but nope: -2% this month, -1% this year (since July).
Emerging Market Government Bonds (IEML): the ugly duckling of my family, the hero of the worst day. My best performing asset of October so far: -1% this month, -4% this year (since July).
Is it the bottom? Is the sun going to shine again? My weather app says so:
Summer will come back. There’s the sun waiting for us after few cold rainy days. Don’t give up!
Monday morning, I’m scared. If the market opens south again, unrealized P&L will be truly negative.
Luckily it’s a positive day. Another dead cat bounce? Who knows.
Aaand it got worse during the afternoon (US stock exchanges)
Is this the end? It doesn’t really matter. What I’m learning here is that you need patience. A month can be ugly, an entire year can be horrible. Don’t look at your balance every day – or multiple times a day like I do. Of course I had to do it as a duty to report 😀
Don’t try to be smart, don’t overtake fear on the right. I invested more in a supposed dip. But it wasn’t a dip, just the threshold of a precipice! You’ll bite your fingers both because you feel stupid and because you want to invest more in the new (again, supposed) dip. It’s always easier in hindsight.
October 30th & 31st
The market bounced nicely, recovering 15k EUR. The USD got stronger. The loss has been amortized, but still significant. Time to heal the scars, in the hope that this is not a bigger threshold of a bigger precipice.
This is S&P500 index value over the entire month:
On the 30th, Mrs RIP received some unemployment money, meaning we can count on this stream for a while. Focusing on cash flow is a must during bad market times.
Same day, Pension75 purchase made on the 24th took place. Bought 58.836 Quote for 115.03 CHF per quota = 6767.91 CHF.
This is it. It’s not a happy ending but it didn’t end up being a disaster either.
What to learn from this shitty month? A taste of a market crisis:
- When in shitty Market try to not panic-sell “because you’re smart”.
- Avoid also necessity-sell “because you need to put food on the table”.
- Focus on cash flow, stay lean, have a cash reserve. Remember that the market may stay low for longer than you’re able to stay liquid.
“Yeah RIP, stay calm, don’t sell, don’t buy… in the previous update you said you were calm while the market sank 10%… reading this report it doesn’t seem so. Admit it, you were scared! Greed and Fear will take you!”
Haha, no, I’m fine 🙂
I dramatized it here for fun, but I was mostly tranquil. I tried to “be smart” and invest “in the deep”, but I didn’t do stupid things. My real Asset Allocation didn’t match ideal one, so I had no room to “sell to rebalance”. Someone around me sold bonds to buy more stocks and things like that. I didn’t do much. I wanted to invest my Pillar 3As anyway, so I did it. And before you scream, I’m still on the fence with VIAC. I’m ok with Pension75 from PF.
Btw, I also made some minor change to my asset allocation: increased stocks, decreased bonds. Within stocks: lowered European stocks, increased American stocks, created the “Swiss stocks” entry (Pension75 invests mainly in Swiss stocks), reduced small caps, reduced dividends.
I’ll do a major review somewhere in January I guess. It’s not healthy to review your strategy more than once a year.
In November I plan to drop 12k CHF as a Pillar 2 buy-in and invest the usual 5k that I send monthly to my IB account (at the beginning of the month, pay yourself first) in S&P500, since I’m behind my desired allocation.
Then I’ll wait for the big money coming in December/January and fully rebalance.
That’s all for part 2, next post will be about personal updates 🙂
I hope you’ve enjoyed the read!
Why are you undecided on VIAC?
Hi Phil, I’m undecided because it’s a young startup and who knows what could happen. I might be forced to take money out (if any) in few months if they go broke, or if they got regulated.
Interesting. Maybe I’m too trusting and jumped on it (this was the product I was waiting for).
Of course, I proceeded to loose thousands as I switched from PF cash pillar 3a to VIAC 97% stock market at about the stockmarket hights. But, hey, we’re in it for the long term, right? 😉
I invested my 3a into PostFinance Pension75 a year ago. I need to open a new one since I’ve hit 40k on it. But like you I’m not ready to go with VIAC. The company is way too fresh. I’ll check back on them in a few years
Same here. The mental costs to switch, plus the potential downsides, plus the fact that I might get the money out in few years make me double think about that.
When you mentioned low risk bonds, it got me thinking. The risk refers to the probability of issuer going default. It is unlikely some major country going broke soon, however, such bonds are again heavily susceptible to increased interest rates. You don’t necessary loose money (beside opportunity costs), if you keep bond until it matures, but the tricky part is, how ETFs handles the bonds? If they follow an index, do they hold them till the end? So in the times of ultra-low interest rates, I find the commonly used name low risk bonds misleading.
Good point, I need to elaborate on it.
Right now 90% of my low risk bonds are in my Pillar 2 savings, which is actually not composed by bonds. Anyway, by low risk I mean low volatility.
sorry for the comment not related to this post…but…I really did it! Went through all posts on your blog, skipping just some very small parts of some of them and not that they were bad, I was rather very impatient to sit down and start measuring my net worth, incomes, spending, then finally start to invest etc.
The time to do it is NOW (even though I should start already at least few years ago)!
I guess at some point I’ll send you an email, but already here I would like to thank you for all your tremendous work so far – it’s very interesting, helpful and mind changing!
Best comment ever!
Thanks for having visited/devoured my blog, happy to have contributed to your financial makeover!
This deserved to be comment #1000 but it fall short by few dozens 😀
Yes, I am also undecided on VIAC because it’s a young startup. I do not know about it very well. Only the time will tell me how good my decision has been. I invested my 3a into PostFinance Pension75 more than 6 months ago.
Now I’ve crossed 50k invested in PF Pension75, so maybe I’ll start investigating alternatives. The 0.98% TER means 500 CHF, which is triggering my optimization addiction 🙂