Like every Sunday morning, I went to run and listen to a podcast; this week it was Bill Simmons interview to Jason Segel. I am not a huge fan of Jason himself but I like a lot of movie/series he was in and it also happens we are almost the same age. At a certain point he recalls how strange it was for him when other twenty-something started to call him “Sir”, because in his mind he was still like them. He did not realised the time passing, how that was reflected on his face…and how other perceived him. I laughed (and lost my pace running) because I feel the same: I am in the ‘older’ half of the people in my office but I do not feel like it, except when some youngster comments “Spice Girls? no, I was too young when they came out” and then I realise that yes, I am old. Definitely me at 20 would have considered someone in his 40s as old.
If you are reading this blog you probably know what happened to the stock market last week. I watched stocks get hammered, go down day after day and I did not do anything; most importantly, I did not feel anything. No anxiety, no stress, no checking Bloomberg late in the evening to hope for a closing rally. Did I change without realising it? Was all the reading and studying and experiences starting to pay dividends?
The investor job is hard because the feedback loop is not immediate nor consistent. If you want to become a master in 3 point shooting, you go to the gym and start shooting 3s. You can prepare various drills, train your legs, arms and shoulders but to check your progresses, or lack of, it is easy: just go to the gym and shot: if the ball goes in, your are (probably) doing something right, if the ball goes in ten times in a row you are definitely becoming better. Try to do that with your investments: on Friday a portfolio manager told me in January he bought put options on the S&P500 because he was afraid Bernie Sanders would have been the Democratic candidate. One month later, he got a huge payoff…for a completely, and unforeseen to him, different reason. In this case, it was evident to him that he was lucky, gains had nothing to do with his analytical abilities, but how many time we buy a stock and know it went up because of the reason we bought it?
We cannot test our psychological endurance to a bear market on a whim: there is no gym where we can go and see if what we studied or our ‘preparation’ is helping our behaviour when stocks goes down 20%; we can only wait for one to come, with its own timing. I remember what I was doing in 2009 but do I really remember how I was feeling? Are those memories different now because I know what happened next?
Stocks lost something like 12% last week: while it is unusual the speed of the decline, the magnitude is nothing special. No real kudos for me for being calm. The reason I feel better is because I was ready with a plan, I put the decline in a context and I completely ignored panic messages from news (they are paid for it) and social media (they are an easy pray to it). Excluding the remote event I will pull off some kind of F.I.R.E., I would retire in almost 30 years, that is my investment horizon: this is an opportunity to buy the market at a lower valuation.
Do I know where the market is going to stop or how long it will take? No. The US are in the longest period without a recession ever, it would not be a surprise if it is going to end tomorrow but at the same time it can go on for many more years; Australia is on an open 26 years no-recession streak, why it would not be possible for the US? Or maybe this virus will be THE virus. I bought stocks for my pension and my ISA on the way up on a monthly basis, I will continue to do it on the way down…until it will be up again: this is my plan.
Will I panic when the market is down 20%? 30%? I hope not. I will try to stick to my plan, or at least learn a lesson on my real risk appetite.
As AQR would say, on Friday I also ‘sinned a little’: I have a ‘weird’ portfolio, a small (compared to my pension and ISA) portfolio where I allow myself to try new strategies or securities. The VIX was above 40, the S&P close to the 200 dma, I sold some gold and bought the World Index; the plan is to increase the (now) overweight stock position if the market goes further down.
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