Exciting times. Huge breaking news coming every 10 minutes. I imagine the 9/11 news cycle felt a little like this.
I’ve decided to write down how I am feeling about my portfolio and how I have been handling it emotionally to look back in the future when the markets reach new all time highs and perhaps laugh at the volatility of my emotions during this crash. The current bear market is the first one I am experiencing this closely as an investor, and I’m convinced the past 4 weeks have provided the equivalent of years of learning in the markets.
It’s been a rollercoaster of emotions. As of writing, the market is down 26% from all time highs, meaning we are comfortably in a bear market. For a big part of my adult life, I have been secretly wishing for a bear market, so that I could buy my favorite equities at favorable prices. Now that this wish has become reality, I’m realizing markets dropping by trillions of dollars in value is not too pleasant. Who would have thought?
The reason my emotions have not completely degenerated is because of one simple trick: I refuse to look at the stock prices of the companies I’ve invested in and am even more adamant about not opening my brokerage account. I did open it once during this crash, and it was not a nice feeling. Seeing unrealized gains and hundreds of hours of labor being wiped out felt like when my stomach drops on a rollercoaster when the descent starts. Except that in the markets, I have no idea how long the drop lasts. And that was when the market was 10% higher. Oh well.
As of now, as an investor, I am feeling a mix of great excitement and some undecidedness. The latter probably stimulates the former. On the one hand, I am extremely excited about finally being able to purchase companies I have long admired from afar at prices which would not embarrass me in front of Benjamin Graham. Deep down, I would not mind markets dropping even more from current levels. That may be selfish of me, but I believe the market drop may provide generational buying opportunities in high-quality companies.
That leads me to the Shakespearan question several investors and I are undoubtedly asking ourselves right now: to invest or not to invest? Do we wait for the market to drop further or do we start treading in these sharky waters right now? I suspect the answer is a mix of the two, and that was why I purchased a small position in Heico two days ago. In hindsight, the purchase doesn’t make me look very smart because the stock is down 10% since then. But I intend on sucking it up and buying bit by bit in the market every time indices drop more. While investing precisely at the bottom would make for great bragging material, the odds of doing it are quite low. Warren Buffett wasn’t able to do it in 2008, and I doubt many investors will either during this crash.
I've also analyzed my actions pre-crash and another emotion I've felt is regret. As recently as November 2019, my portfolio was over 60% in cash. But Greed was whispering in my ear and I started having Fear of Missing Out (FOMO) on the great market returns that I thought 2020 would provide and was putting pressure on myself to deploy the cash aggressively. While I’m convinced I invested in companies which have long-term intrinsic values far greater than the values I purchased them at, I do feel regret in deploying roughly half of my cash position between November and January, at all-time market highs. It is easy to feel regret with the benefit of hindsight bias though, because I remember feeling giddy with excitement at the time at the idea of investing in great businesses, at what I felt were attractive valuations. Will this regret dissipate in the coming months and years? Who knows? Thankfully, half of my cash position remains (30% of my portfolio), and this 30% is one of the great contributors to the excitement I described earlier.
Another regret I have is not researching some companies more deeply beforehand. By that I mean there were some companies which I considered to be of high quality, but I did not research them too deeply because their valuations just seemed way out of whack before the crash. I believe Mr. Market may be offering some of these companies at attractive prices now, but I lack time to study a lot of these companies deeply enough to build conviction, beyond the ones I already own and a couple of others. It is said that luck favors the prepared mind, and I am learning that lesson the hard way.
On a last note, while I am quite nervous about the spread of the coronavirus, I am feeling optimistic about the long-term trajectory of the economy and the stock market, despite the shocking, and sometimes tragic, breaking news, that has me glued to the headlines all day. This optimism has gone down a little since the beginning of the drop, and it is probably when my optimism reaches a low that the market will bottom. When that happens, I will let you know, and then you can start buying stocks again.
Cheers
