Its officially a year since I started this investment journey. And what a rollercoaster of a year it has been! If you had told me this was how it was going to go, I think I would have chosen another path. It has been hell. Bad news after bad news, market drop after market drop. New low after new low. Eventually you become numb to it. I have thought of cashing out a couple of times, but this was at least a five-year project. So no, I’ll HODL (yes, I’m a Wallstreetbets Ape!). I’m not sure if this will be helpful to anyone reading this, but I’ll push it out anyways. This is the story of the downward spiral - so far. Lord knows when it ends!
HODL baby!
As of writing this article, my brokerage account says I’m down 24%. Yes, 24%. I’m only a percentage point off the S&P 500. I own a lot of tech stocks - something I’m slowly fixing - so a more relevant comparison would be to the NASDAQ, which is down 34% since I started. Good, since I’m 10% off that number, but bad too, because 24%! I could have put my money into a money market fund and earned 9-11% over the past year. Instead, I’m 30 percentage points in the opposite direction. At some point in the last three months, I came back all the way to breakeven. There was a rally that lasted for a month or so. I felt like a genius! And then it started crashing again. One of the things I did wrong was to dump a huge amount of money into the stock market at once. Early in the year. When things looked rosy. And the Russia happened. And then inflation happened. And so far, it’s been one thing after the other. Well, how else do I get to raise my nose and say I went through one of the worst years in the stock market, eh!
Crypto, oh crypto!
I stopped looking at crypto numbers a few months ago. I got tired. See, I first invested in crypto on the 3rd of January - yes, I remember it pretty well. Since then, crypto is down anywhere between 40% and 60%. Luckily, I didn’t dump a huge amount of money at once, compared to stocks. But it’s been painful either way. There was the Terra/Luna collapse. Then came the Celsius fiasco. Then the bankruptcies of Three Arrows Capital. Bad news after bad news. A few days ago, I told a friend of the losses I’ve had in crypto, and his face said it all. I’ve looked at the numbers long enough to not think it’s a big deal. Its whenever I mention it to someone - and get their reaction - when I realize that it is bad. But as with stocks, this was at least a five-year project. I’m only 20% of the way there. Who knows what the other 80% of the journey looks like. It may be bad, worse even. Or it may get better. Only time will tell.
The one thing about crypto is that I can’t buy anymore - my bank won’t let me. I recently had my account flagged and closed and had to certify that I wasn’t going to continue buying crypto from my account if I wanted it reinstated. That was an awkward scenario that reminded me one thing - banks are not your friends!
Noise, lots of noise!
At first, I was checking the performance of the S&P 500 almost every hour. I was looking at my portfolio every two hours. I had become obsessive with the news cycle such that that was all I could think about. First thing in the morning, check the news on the market. I was following a bunch of Youtubers in the finance space, and boy were they having fun. You see, bad and tragic news sells a lot more than good news. I you happened to search ‘Crypto’ or ‘Stocks’ or ‘Housing Market’, you’d be bombarded with red thumbnails with over-the-top headlines and anecdotes. It’s what information theorists would call noise. And I drowned myself in it for a while. I needed to know if this or that would have a negative impact on my stock portfolio. And what that negative effect would be. I had forgotten - it seems - why I had bought the stocks in the first place. I had forgotten that short term news has little to no effect on my strategy, as my holding period is at least 3 years.
Applying a filter
One of the best things that the downward spiral has given me is the ability to filter out what’s important in the long term and what isn’t. After drowning myself in the noise for a time, I realized that news cycles are more interested in views than anything else. I also realized that if it’s on the news cycle, then it’s probably already priced into the stock. I had just come off of reading a book on information theory and realized the parallels between that field and investing (with anything really). The first thing I did was delete my investment apps. All of them. Coinbase, Interactive Brokers. All gone. The rule was to only add them back to my phone on the specific date when I do my monthly buying. After that, I delete them, and only add them back a month later, when I’m buying again. During the breaks, I learnt not to pay attention to daily price movements outside of any big news that is hard to miss. I also limited the number of times I look at the broad market performance to twice a day - once at the open and once at the close. I don’t even bother with the articles explaining the day’s movements as I’ve realized that they usually don’t have as much solid information as you’d think.
Developing the habit
During the monthly downtime when I’m not actively tracking the movements of the stock market, I usually do research. A lot of research. This has helped in creating the beginnings of a strategy in my investments. When I started, a lot of the investing I did was based on pop culture discussions. ‘This stock is going to the moon!’. ‘This stock has 10X potential’. However, limiting my exposure to such information (read ‘noise’) has allowed me to develop a method of investing. I’ve started going through the 10K filings of the companies I own, and of companies I’m interested in owning. I’ve developed a nose for quality attributes of a company, and potentially catastrophic qualities. I’ve developed a pattern of thought. This allows me enough time to develop conviction on a stock. And the end result is that when I do eventually buy a company, I know what I’m buying. There are no surprises. I’ve basically created habits around my investments, and if you’ve read any self help book in the last five years, you know that the ultimate goal is to create a habit out of everything good.
And finally…
I’m 24% poorer. Not 100% poorer. That, in and of itself, is an achievement I can’t overlook. I’ve had discussions with people over the last few months where they recount situations where they lost all of their investments on one go. The fact that I’m still in the game gives me the opportunity to claw back some of those losses. As it has been said before, time in the market beats timing the market. As I have continued to buy, I have continued to reduce my cost basis. This means that even a small rally will balloon the return on my portfolio (Imagine you buy a pen - as prices go down - at $6, $4, and $2. Your cost basis is $4 - total cost of $12 divide by 3 pens owned. So even if the pen goes back to $4, and not the initial $6, you’re already at break-even. If it goes back to $6, you're at 50% return!). This is however contingent on the markets coming back. This is not always the case (read on The Lost Decade). But hey, I can still get something back from my investments. Just 24% less. That’s better than nothing. Right? Right? Until next time!