Author Topic: Personal milestone: "losing" $40k and not giving a flippity fuck  (Read 1987 times)

ChpBstrd

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So the market dropped 6% over the past couple weeks. According to Personal Capital, my net worth decreased by roughly $40,000. This time is different, at least for me. I'm totally chill with "losing" $40k. So chill, I'm too lazy to do the actual math about how much I am down. In past corrections / dips, I had a tendency to stress out (even though much less money was at stake). I even used to change my investments to a more conservative allocation mid-dip, only to forehead-smack a few months later, go more aggressive, and as you already guessed repeat and rinse on the next dip. Now though, I'd be fine with being "down" $100k tomorrow.

I'm not sure when or exactly how my mentality changed. Maybe I hit some threshold of investing experience. Maybe I burned myself enough times. Maybe my net worth is at some fixed comfortable level. But here I am, calm and collected, and here's what I learned:

TENETS OF MY NEW MENTALITY

1) I've realized that ability to FIRE is based on controlling streams of income, not hitting some pre-established net worth based on that day's market prices. It would be ridiculous to be in a zig zag market and say your are FI one day, not FI the next, and FI the day after that. People who were temporary millionaires in the 2000 tech bubble, the 2006-07 housing bubble, or the 2017-18 crypto bubble found they were not actually FI because their assets represented no enduring income stream. My shares of S&P 500 and Nasdaq 100 ETFs, on the other hand, mean I control a share of the net income of each company in the index. E.g. SPY is priced at one-tenth the S&P500. The S&P500 earned about $122.48 in the last 12 mos (source: https://www.macrotrends.net/1324/s-p-500-earnings-history). Each share of SPY therefore controls about $12.25 in earnings (122.48/10). If my cost of living is $50k, I would need 50000/12.25 = 4082 shares of SPY to be FI. In this example, if I for whatever reason chose to hold no other investment in my portfolio, 4082 shares should be my goal, not 25x my spending. If SPY gets cheaper, my pace to achieve ownership of 4082 shares increases even as my net worth decreases! Dips are an acceleration, not a setback. As a retiree selling shares every month to pay the bills, my mentality might be different.
     1.a) Earnings generally find their way back to equity owners through capital appreciation due to increases in cash, buybacks, dividends, organic growth, debt pay down, acquisitions, R&D, investments, etc.

2) I've realized that market crashes are excellent news to anyone still in the accumulation phase. You get to buy more shares with this month's savings! They're on sale! Bonus shares! That means you get to control more income streams (see #1) than you otherwise would. Again, corrections accelerate your path to FIRE.

3) "It'll go back up." My grandfather became wealthy as a frugal buy-and-hold investor. At every dip, I would ask him for a forecast. "It'll go back up" was what he always said. He was never wrong. Too bad I didn't truly believe him for over 20 years.

4) Realizing you don't actually "lose" money until you sell low.

5) Realizing that cash has little utility other than the ability to (a) trade for shit other people have, or (b) buy one's freedom. To shift assets from the "freedom" fund to cash is to sell some of your freedom. The only thing that makes such a transaction not as bad as trading for other people's shit is the fact it is more easily reversible. However, when are you going to reverse it? Certainly, you'll miss the bottom.

6) The more financial freedom an investment provides for you, the more volatile the market price for it will be. During a correction or crash is the wrong time to realize you are uncomfortable with your asset allocation. It's also a tough time to figure out that market prices don't matter as much as you might think.

QUESTIONS FOR YOU:
1) Should personal finance bloggers / advisors speak more in terms of the number of shares/bond coupons to accumulate, rather than withdraw rates or FIRE numbers? Does tying FIRE to market prices rather than underlying earnings create distortions in people's minds and encourage panic selling?

2) If you agree with the tenets above, how did you go from the naive investing mindset to this? Experience? Mentors? Reading? Instinct?

joonifloofeefloo

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Re: Personal milestone: "losing" $40k and not giving a flippity fuck
« Reply #1 on: October 14, 2018, 02:19:51 PM »
This is WONDERFUL!!!

I have a much lower NW than many on the forum, but it is enough for me while I live appropriately/realistically. I too am not upset by the drop. The peace/confidence is great :)     I am getting a kick out of the fact that I moved a fair chunk out just before the drop. First time I got my nontiming right ;)

I mostly don't freak on three bases:

1. I know I have enough. I know how to live on my income and I know I will do whatever it takes (e.g. distant geographic move) to continue to do so.

2. Everything I have is more than the majority of people have, so I focus on giving (not counting).

3. I'm actively teaching my son to stay calm through the ups and downs of the market. Doing that helps me remember and live the example.

I don't have thoughts about what bloggers etc should do (or, they should do whatever they like). I do think it's weird when people get excited about certain numbers, because the numbers are meaningless. It can mean I'm being too scroogey, forgetting about the millions of human beings who don't have enough while I hoard more. It may drop tomorrow: Does it make any difference if I'm a bazillionaire today and $40k short of being a bazillionaire tomorrow? No. And so on.

marty998

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Re: Personal milestone: "losing" $40k and not giving a flippity fuck
« Reply #2 on: October 14, 2018, 02:31:56 PM »
So the market dropped 6% over the past couple weeks. According to Personal Capital, my net worth decreased by roughly $40,000. This time is different, at least for me. I'm totally chill with "losing" $40k. So chill, I'm too lazy to do the actual math about how much I am down. In past corrections / dips, I had a tendency to stress out (even though much less money was at stake). I even used to change my investments to a more conservative allocation mid-dip, only to forehead-smack a few months later, go more aggressive, and as you already guessed repeat and rinse on the next dip. Now though, I'd be fine with being "down" $100k tomorrow.

This is the first real market dip where I'm actually going to be increasing my exposure to equities (by moving out of cash and fixed income) rather than decreasing exposure by having to sell.

In that sense, I agree with you, my mentality has changed.

I am down $17k from the peak so far, but it doesn't bother me too much as I'm "up" by quite a bit more than that over the last few years.

Now if I had invested everything for the first time in September 2018, it would understandably be enough to turn someone off the stockmarket for the next 20 years....

catccc

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Re: Personal milestone: "losing" $40k and not giving a flippity fuck
« Reply #3 on: October 15, 2018, 11:02:26 AM »
Down $59K since 10/1, and glad to not care much!  Looked at harvesting losses from a $20K VTSAX investment in August and it wasn't anywhere near big enough to pull the trigger.

(I still get excited when I have paper market gains, though...)

YttriumNitrate

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Re: Personal milestone: "losing" $40k and not giving a flippity fuck
« Reply #4 on: October 15, 2018, 12:25:51 PM »
So I just checked, and Fidelity says that over the past few days I lost more than I did during the whole 2008/2009 mess. What a difference a decade makes.

Travis

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Re: Personal milestone: "losing" $40k and not giving a flippity fuck
« Reply #5 on: October 16, 2018, 09:45:50 PM »
I'm sure a retiree living off of their portfolio may have had some emotional moments this last week.  As someone still in the accumulation phase, all I got was a smile on my face for having a 'stache large enough that I could lose $60k in value.  It felt like a milestone as important as hitting some net worth figure on the upside.  If other forums I frequent weren't talking so much about it, I probably wouldn't have logged in to PC at all to look.  I completely missed the February correction until almost the end of the month.  The low information diet makes for a very restful existence.

Dicey

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Re: Personal milestone: "losing" $40k and not giving a flippity fuck
« Reply #6 on: October 17, 2018, 04:22:05 AM »
Random thoughts:
- In 2008, I went to Hawaii for 12 days. Cost me <$400 OOP. On that trip, I met some early retirees. I decided to tighten my belt until it hurt. I wanted out of the rat race with passionately renewed vigor. Forget no-spend days, weeks or months. I was all frugal, all the time. I dumped everything extra into the stock market, mostly into my 401k.

- When the markets rebounded, I felt like a fucking genious. I was so damn happy my self-imposed uber frugality overlapped with the biggest buying opportunity in my adult life.

- My six-year FIREversary is December 5, 2018.

- I haven't bothered to check my accounts lately.

- I love to toss cash into the market on dips.These wads of cash are otherwise known as our annual Roth IRA contributions.That's my form of gambling. It might be considered market timing. Yeah, down market timing. The amounts are so small compared to my total net worth, that it can't hurt.

- Thing is, we're in the middle of a very expensive house flip project. I want to keep all of our uncommitted cash liquid until the house is completed.

- I made a donation at a charitable event about 10 days ago. I need to pull it from my DAF which is 100% VTSAX. I procrastinated all last week not wanting to pull 10% of the account value out on a dip. Happily, the market closed up today.

- On Saturday,.I stopped at an Open House in my old neighborhood. The listing agent and I got to chatting and she mentioned she had pulled her retirement money out of the market the day before, because she "couldn't risk her retirement money" OMG! WTF? I about had a heart attack!

misterhorsey

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Re: Personal milestone: "losing" $40k and not giving a flippity fuck
« Reply #7 on: October 17, 2018, 05:28:38 AM »
I was thinking about this the other day. My investments went down over the past few days by almost double the amount I earned in my first year of full time work.  But yes, I didn't really care about it and it's very satisfying not to care, so I do relate to the OP.

However, it occurred to me that it's not quite right to think about it as "losing" money if the market goes down.  Or even "making" money if it rises.

Simply because you only lose it when you crystalise a loss by selling when down.  And you only make it if you sell it at a profit. 

There have been many times I've sat and watched a stock holding go up in value. And I've told myself I've been so wise to make $x on this share. Only for it to go back down again. In these instances I haven't gained anything. Or lost anything for that matter.

But the sense of self congratulation I've experienced for 'making' money by virtue of stockmarket fluctuations is just as unjustified as punishing yourself if the market goes down and you 'lose' money.

In my view, describing these sharemarket declines as 'losing' is attractive because it feels  far more dramatic than what is really happening. And I don't think it's just semantics. It's a way of describing the sharemarket that focuses on the risk of loss, without the wider context. Looking at sharemarket declines within this dramatic framework can lead one to lose perspective, be tempted to avoid further loss, and act rashly by selling when down.  It certainly provides a more entertaining story to tell others who are invested.

No-one on this thread, and very few on this forum, seem likely to be tempted to panic by these downturns.

But if we think of the key function of our investments as the continued generation of earnings and value, while at the same undergoing continual, hourly fluctuations in price, then when the stockmarket does decline, isn't it more useful and accurate to view it simply as a momentary contraction in value?  And similarly, a bullish run could be seen as a momentary expansion of value. 

This way of describing things accurately describes what's happening to the pricing of your net worth. And it's far more boring than the implicit boast of saying I 'lost' $xxx much (a boast that I've been fond of doing). But it forsakes the drama of momentary fluctuations to focus on the continuing persistence of underlying value of your investments, which is really what matters.

It may also be a more effective way of introducing those who may still feel a bit apprehensive about investing into the reality of market declines and rises, rather than a focus  on 'losing' money when there is no loss.

Just some thoughts.


Turkey Leg

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Re: Personal milestone: "losing" $40k and not giving a flippity fuck
« Reply #8 on: October 17, 2018, 05:34:34 AM »
I'm sure a retiree living off of their portfolio may have had some emotional moments this last week. 
Well, this retiree didnít. The markets go up and they go down. Iíll get excited if Iím ever down 40%.

markbike528CBX

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Re: Personal milestone: "losing" $40k and not giving a flippity fuck
« Reply #9 on: October 17, 2018, 07:51:04 AM »
I'm sure a retiree living off of their portfolio may have had some emotional moments this last week. 
Well, this retiree didnít. The markets go up and they go down. Iíll get excited if Iím ever down 40%.

As a new retiree, I was worried that a drop in the markets might spook me.  The reality, a yawn, rollover and nap. Our NW dropped by about 2x our income this year. 
Helped some by the fact that I moved 10k from VTSAX to money market in August near the high. Haven't spent that money yet, and may not need to this calendar year.
Experiance?
2002, put money in and saw immediate drop of 30%
2008, the 401k was worth 25% less than the cumulative contributions.
Does any US investor remember the Brexit dip of July 2016?