My Financial Journey

In annual tradition I list all of my investment holdings. I do not do much buying or selling, but the percentages have changed quite a bit in the last year due to market fluctuations. Last year TSLA accounted for almost 40% of my nestegg and now it only accounts for 24% and earlier this year it was over 50%!! As a result I have become much more diversified and well poorer 🙂

The other big change I would say in the last year is the amount of cash I have on hand. Now this is not primarily cash from selling – though I did take advantage of some tax loss harvesting at the end of the year, the vast majority of this money is money from a side business I started, some inheritance, and some crypto cash that I have as a start to my cash cushion. It’s very hard not to invest it given that many of my stocks are down 70%, but it is money that can be used for short term security or other short term needs. Historically this is money I would have never counted in my nestegg, but I think at this point in my life is something that I should track as it is something I would potentially leverage should I decide to stop working.

The other item I have not included in this list is in the last year I did invest $90,000 into a commercial real estate purchase with some other investors purely with the intention to learn. Now I hope I make money on the deal, but real estate is so hard to value that I will consider this money a 100% loss until some day when it sells. With leverage I personally view RE as a huge liability as if shit hits the fan you can lose like 5x your original investment where as the worst stock can only lose you 100%, but again I know there are tons of tax advantages and other benefits to real estate and while I’ve flirted it with it my entire career, I’ve always shied away because of the effort involved and the difficulty accessing the equity. I am not sure if this investment is going to change those opinions, but I was in a position in my life where I decided to give it a try.

Well this is another goal of mine which sounds counterintuitive, but in my October 2018 Retirement Nestegg Report I was commenting about how losing $100k in a month was a non event for me and then made this statement

My goal some day is to lose $1 million dollars in portfolio value.

Well today after a few weeks of carnage it occurred to me that I may have lost about $1 million dollars on paper and sure enough my portfolio set an all-time high on Nov 4th of 2021 and now today just 79 days later my portfolio has fallen more than $1 million dollars below that ATH. Mission Accomplished!!

A couple of thoughts on this.

I originally made that statement because in order to lose a million dollars you have to have a fairly large sum of money – hopefully quite a bit more than $1 million, but at least $1 million. So if someday I lost $1 million dollars that probably meant that I was doing pretty good and was in pretty good shape and the $1 million dollars was not going to be as devastating as it sounds. Percentages of big numbers are big numbers. They can work for you and against you and while I lost $1M in 79 days I gained more than $1M 64 days to hit that all-time high.

I also lost $1M and to be honest it really has added zero stress to my life. Like I mentioned I lost $1M and am back to the same portfolio I had in September. Easy come, easy go. Volatility and fluctuations in the market are normal and the price you pay for the performance. I never in my wildest dreams expected to be hitting the numbers that I have hit the last few years and so taking things down a few notches really doesn’t make me feel like I’m somehow behind schedule, in fact I’m still currently wildly ahead of schedule and have a sum of money that has me in great shape for the rest of my life.

Nothing has changed. I still own all of the same businesses I did 79 days ago and their business prospects have not materially changed. All of the factors outside of their control and my control have changed. Investor sentiment is a very fickle thing that swings wildly out of control in either direction, but at the end of the day it affects absolutely nothing other than the short term prices. Case in point for much of Tesla’s existence and them building up their company to one of the best business models in the world, investor sentiment was very much against their company and their CEO. None of that however affected what the underlying company was doing and the profits that they would be making in the future. Same with my portfolio. I feel very good about the prospects of my individual companies I own and the health of the largest companies that drive my index fund performance and over a 5 or 10 year period I will not even be able to pick out this spot on the chart of where I lost $1M. Just like the great recession does not show up on a long term chart of my nestegg growth.

Also while I am starting to tap into some of my nestegg for early retirement, do not need the vast majority of these funds for many years so the fact that my portfolio is up or down and hit a certain number today doesn’t mean anything to my future prospects unless I let it dictate my emotions and do something stupid and change my course. Just like no single day, month, or year made one iota of difference of where my portfolio is today. This is a long term game and while it’s nice to check in on progress from time to time you need to stay focused on the big picture and just keep doing the same small daily habits that have huge effects on your long term future.

I feel like I’ve made some crazy predictions on this blog and every single one of them have come true much faster than I ever could have imagined. I probably should make some grand prediction about how I can’t wait to have $10M or $100M dollars some day, but to be honest that would not change my life in any meaningful way. It’s funny how important financial metrics/numbers were to me or how important I thought they were, but as I’ve now hit that area of Financial Independence I realize that things like your time and doing things you enjoy with people you love is the only thing that matters. The numbers and metrics give you that freedom and once you have that freedom the additional dollars do not affect your life in any meaningful way. The sooner you can get to that number the greater the compounding affect it has on your life, but once you are there money becomes such a minor part of the equation.

If you are still on your journey to FI, use these short term dips as opportunities. I have no idea when the market will bottom out and neither does anyone else, I very well could be writing about losing $2M, but in the meantime I will continue to enjoy the things in life that matter.

In annual tradition I list all of my investment holdings. These do not change much during the year and I am really not contributing too much to my retirement accounts anymore and I rarely sell. That being said some of my largest holdings have grown quite a bit. Tesla now accounts for nearly 40% of my retirement nestegg which I guess is what it is. It’s not something I would feel comfortable trimming at this point in time.

Another post that I am not sure what to make of the numbers. I’ve always had a smaller percentage of my retirement nestegg allocated to individual stocks. I know that individual stocks are loaded with a lot more risk and the track record for even the professional money managers is very very poor when it comes to individual stocks. Most of the highest paid investment fund managers cannot beat the market over time.

Despite this I have always enjoyed learning about companies and what the future holds and overall I think I was blessed with a pretty laid back demeanor that helped me from getting too high or too low with the various fluctuations in the market. Ultimately I think this is why so many investors fail – even the highly educated well paid ones. They let their emotions get the best of them and make decisions based on emotions instead of logic.

I have 15 years under my belt now and I see the same themes happen over and over and over again in the market. The market as a whole completely overreacts to ever new bit of news and individual investors swing widely from always seeming to throw money into far fetched get rich quick investments when it seems that there is no way the stock or market could be pushed any higher and then when things inevitably catch up with reality and stuff starts to slide the other direction they sell out completely until the next get rich quick bubble forms.

What I think is missing from a lot of investors is the long term perspective and an educated idea of where the future is headed. Like I mentioned above people get so caught up in the short term fluctuations and don’t take a look at the longer big term picture that is much easier to see and predict.

People also repeatedly think that things are going to stay the same and that is one thing that will never happen. So they always always greatly underestimate the new companies thinking the veteran industry leaders will crush them whenever they want. But the David and Goliath story plays out again and again when the little known upstart with a good idea and a lot of ambition ends up crushing the industry behemoth who is too slow to react or can’t react as they are afraid to disrupt themselves. Netflix vs Blockbuster, Tesla vs the auto industry, Amazon vs brick & motor retailers, etc.

All in all yes any of these stories could have turned out differently had the current #1 took the innovation seriously, but they don’t and they won’t again in the future. Just like it’s obvious you should pour money into the market every time there is a 30% correction – but people don’t. Ultimately it’s always fear that gets the best of people and companies. Fear of change, fear of disruption, fear of losing money, fear of losing out on making money.

Anyway as you can see below somehow the last 15 years I’ve managed to crush the market returns with my individual investments. Now the big caveat there and something I didn’t fully realize until this year is your long term track record is really only as good as your most recent returns. Big numbers have a huge effect on overall performance. Just last year my long term annualize performance was 13.92%, three years before that it was 10.72% which still outperformed the SP500 over that same period of time, but not nearly as impressive.

If next year is a down year my returns will drop significantly. Which means I shouldn’t get too big of a head after one year of spectacular performance. I feel very confident that I will never see another year like this year the rest of my life. So I should really evaluate going forward how much of my money should be individual stocks despite the fact that I currently look like I’m the next Peter Lynch.

In annual tradition I will list my best and worst individual stock performers for 2020. As you can see from the list below which I cut off at only stocks that I have owned that have doubled for me it was a crazy year.

Tesla +720%
CRWD +256%
TWLO +228%
ZM +193%
DDOG + 181%
SHOP 177%
TTD +170%
NET 122%

Obviously Tesla led the pack and I did do some portfolio rebalancing this spring during the pandemic and bought a few new stocks all of which went bananas. Many of them were up more than the figures above, but I only listed the returns since I bought them in March.

Now for my worst stock of 2020.

SBUX +19.73%

Starbucks was up just under 20%. Every single stock that I own beat the market this year. That is absolutely crazy.

Going forward I will look to rebalance my portfolio to be more balanced. My individual stocks have performed so incredibly well and have grown to become a very large proportion of my retirement nestegg. It probably makes sense to sell off some of these stocks and put them in index funds as the risk/reward situation does not really help me much. The only thing that could change my plans is a massive drop so it probably makes sense to diversify my portfolios more. On the flip side one could argue that I have a big enough margin of error that I should just keep moving full steam ahead as even a 50% haircut would not be devastating. It’s easy to think you are smart when the market is at all time highs, but this cannot go on forever and it probably makes sense to take some of the drama/entertainment out of my life.