How ya'll coping with portfolio drawdowns?

[Seoshin]

As the title suggests, share some tips on how to deal with double digit drawdowns. Also, in not succumbing to FOMO when everyone's posting good ytd returns because of semis. Although this isn't my first rodeo (rode the rollercoaster of 2022) I can't help this time to feel a bit bitter as I saw the writing in the wall with semis last year and did not act on it. I felt not confident and asked myself, this isn't that easy. And yet, a lot of names ran up not only last year but also this year. Anyway, might be ranting a lot right now. Thanks in advance!

[Paarslaars]

Well I was down 37% last year. I held myself together knowing:

 

- I still believe in my investments but my timing was bad. I am strongly convinced this will recover. It did teach me lessons on concentration though...

- No impact on my personal life, job pays for everything and then some.

- Still subtantially wealthier than most of my friends.

- Most importantly, I have a wonderful family and group of friends so I love my life the way it is, getting much richer will be more convenient but not necessarily make me more happy.

 

The only thing this drawdown does is postpone my early retirement with a few years. I just turned 38, the aim was retiring at 40 and I now shifted this to 45. Not the worst situation to be in...

 

[frommi]

What has helped me stay calm is creating a spreadsheet with all dividends and owner earnings my portfolio generates and just look at that. If prices change but earnings and dividends don't -> just give a fck.

[73 Reds]

7 hours ago, Seoshin said:

As the title suggests, share some tips on how to deal with double digit drawdowns. Also, in not succumbing to FOMO when everyone's posting good ytd returns because of semis. Although this isn't my first rodeo (rode the rollercoaster of 2022) I can't help this time to feel a bit bitter as I saw the writing in the wall with semis last year and did not act on it. I felt not confident and asked myself, this isn't that easy. And yet, a lot of names ran up not only last year but also this year. Anyway, might be ranting a lot right now. Thanks in advance!

There is a difference between being bothered by drawdowns as opposed to simply recognizing them as a part of investing life and taking advantage of them.   The former probably requires a change in the way you invest.  Acknowledging that the latest stock price is just that, a fleeting number subject to continual change also puts everything into perspective.     

[Spooky]

3 hours ago, frommi said:

What has helped me stay calm is creating a spreadsheet with all dividends and owner earnings my portfolio generates and just look at that. If prices change but earnings and dividends don't -> just give a fck.

 

I agree with frommi - I recently experienced a 50% draw down with my biggest concentrated position. I try and not really look at the share price itself but at the results of the underlying business. As long as the business / thesis still makes sense then the stock price will follow over time. I'm trying to break the habit of check the markets every day but it is hard. Would be better to just look at the prices on a monthly or quarterly basis. 

 

Also, try and ignore all the other people's results, it is a road to envy and unhappiness. A lot of my friends are gold bugs so they have performed well lately but it is a bad idea to change your strategy to chase short term performance. Better to have an internal score card and set the standards and goals for yourself. For instance, my goal is to compound my wealth at 10% a year with the highest probability of success. As long as I am meeting that metric I will be successful. Could be an opportunity to do a deep dive on your process and make sure it is still working in line with your financial goals. 

 

 

 

Edited April 28 by Spooky

[DooDiligence]

As long as the bills are paid, IDGAF.

Not being a forced seller is good.

[SharperDingaan]

Draw downs are part of investing; you can either attempt to hide under a rock (stay wealthy), or embrace them (build wealth).

 

On the aggressive end, and building wealth, we assume a 1/3 equity draw-down in any given year (portfolio level), NO intervening sales, NO change in living requirements, and $X in new buys at discounted prices. To achieve it, means a significant treasury/bond holding, and acceptance of the high opportunity cost that comes with it; you need that high liquidity, and high borrow capacity, as the intent is to borrow against it vs sell (tax considerations). BTC, and now maybe Canada's new sovereign wealth fund, added primarily to reduce the opportunity cost (portfolio drag).

 

It makes volatility your friend, and swing trades a largely risk free ROE booster. Time between an additional investment that reduces the cost base by 20%, and a subsequent sale at the lower cost base to recover the investment; has zero tax impact and is often surprisingly short. The additional share count ain't bad either.

 

SD  

Edited April 28 by SharperDingaan

[Milu]

I strangely enjoy it. When things are going well in the markets I tend to gradually lose interest. Then when panic strikes I start to perk up. As I’ve mentioned in other threads I’ve historically carried decent sized cash balances so I am always ready to load up when others are getting skittish. I’ve never been interested in using leverage either. And lastly I have a mostly stable job and live within means. The more drawdowns you encounter the easier it gets. So just enjoy it. 

[Gregmal]

13 minutes ago, 73 Reds said:

There is a difference between being bothered by drawdowns as opposed to simply recognizing them as a part of investing life and taking advantage of them.

100%. You invest with money you don’t need. One really shouldn’t be bothered by what’s ultimately best described as “stocks behaving like stocks”. 
 

The latest example being Nintendo, where there’s intense focus on guessing “why” the stock has gone down after going up. Pretty much all the guessing has been wrong and yielded nothing of value. Meanwhile during the same timeframe the business fundamentals continue to rapidly inflect higher…this has occurred with pretty much every stock I own. MGM…obsessions with Twitter posts about Vegas. Despite the core segments gushing cash. Fairfax, for a decade it was “Mr Market doesn’t get it” when the truth was that no, the investments were horrible. St Joe, MSG, same things. Over any extended horizon the core operating business is what matters. But that never stops people from fixating on the fact that believe it or not, stocks do move up and down and in many cases, there’s very little meaningful rhyme or reason for it. 

[SharperDingaan]

All good responses! Just keep in mind that for the most part ... they ain't Joe Six-Pack 

 

Unstated, but sadly very true; there is also a growing need to keep yourself grounded. The magnitude of all these additional returns can quickly exceed the average salary of those around you; living very well, when many around you are severely struggling, needs to be managed.

 

SD  

[Paarslaars]

13 minutes ago, Gregmal said:

The latest example being Nintendo, where there’s intense focus on guessing “why” the stock has gone down after going up. Pretty much all the guessing has been wrong and yielded nothing of value. 

 

I believe this stems from, and this is also one of my pitfalls, people being too focused on annual portfolio returns.

[73 Reds]

9 minutes ago, SharperDingaan said:

All good responses! Just keep in mind that for the most part ... they ain't Joe Six-Pack 

 

Unstated, but sadly very true; there is also a growing need to keep yourself grounded. The magnitude of all these additional returns can quickly exceed the average salary of those around you; living very well, when many around you are severely struggling, needs to be managed.

 

SD  

That's a good point.  Looking back, I've always lived within the same % +/- beneath my means.   As means rose, so did lifestyle but always well below means, allowing for lots of disposable capital to be used for investment.  The hardest part is simply adopting the habit.  

Edited April 28 by 73 Reds
words

[coffeecaninvestor]

5 hours ago, Paarslaars said:

 

 

- I still believe in my investments but my timing was bad. I am strongly convinced this will recover. It did teach me lessons on concentration though...

 

 

How concentrated were you?

[Masterofnone]

Over the years 70-85% of my stock investments were in Berkshire. I didn't sell and added every time there was a market drawdown, comfortable that the company became more valuable in those times and the prospects of good returns increased. It helped that Berkshire zealots abound and expound freely about the nooks and crannies of the company and the diverse nature of the income streams lessened the concentration risk and gave a real understanding of what I owned. No debt helps a bunch in scary times. First mortgage was at 9.375% so getting out of that in less than 6 years set the tone. 

[Sweet]

Lots of alcohol.  

[Ulti]

https://colossus.com/episode/you-retire-you-die/

 

Paul Jones touched on this subject and contrast his trader viewpoint on drawdowns with Buffet 

[Seoshin]

Thank you for all your responses. I greatly appreciate it. This is my second time having this drawdown (probably not the last as well!) and fortunately not panicking to sell either. I am financially comfortable in my current set up and in a sabbatical period before going back to work next year. Perhaps this is more of a problem of envy than not being comfortable in my concentrated positions. I have a semis watchlist from last year and I always visualize if only I've invested this X amount then my portfolio would be this right now. Such an arse problem I know. At least I'm painfully aware but still a needless self torment. 

[Seoshin]

5 minutes ago, Sweet said:

Lots of alcohol.  

Okay love this. Cheers hahaha

 

[Seoshin]

45 minutes ago, Paarslaars said:

 

I believe this stems from, and this is also one of my pitfalls, people being too focused on annual portfolio returns.

100% me as well

[Seoshin]

1 hour ago, Gregmal said:

The latest example being Nintendo, where there’s intense focus on guessing “why” the stock has gone down after going up. Pretty much all the guessing has been wrong and yielded nothing of value. 

I stopped asking the why on this and it alleviated a bit somehow my worries

[hasilp89]

knowing what you own and being honest with yourself about it.

[thepupil]

Inflows (wife and I have good w-2’s)

Decent amount of diversification

capital return from portfolio divs / buyback / takeovers 

 

focus on cheap securities that become somewhat absurd if they go down 30-50%. 
 

be somewhat religious on rebalancing to best r/r. Let winners run, but not too much (helps to have a tax advantaged be big portion of accounts

 

b/w the first 3 always have $ coming in to allocate to whatever think is best. Keep portfolio  and  margin of safety fresh.

 

the last two I think is more limiting and costs me a lot of upside, but i am not necessarily shooting to have the highest CAGR in the world. I think it’s (almost) impossible to solve for drawdowns and maximize return. If it is possible, I don’t have the talent to do that, so maintaining a degree of diversification between two people’s brains (earnings power), wide variety of assets, many of which themselves have diversification, have $$$ always coming in for new stuff whose pricing reflects new information.

 

i think you have to know what you’re solving for. If you’re solving for right tail capture and highest returns I think a lot of what I wrote above is a bad idea. 

 

nothing can make you always catch the hottest sector of the market…except for…indexing which will guarantee you own the winners of any given time. If you can’t handle the FOMO of semi’s I’d suggest indexing a portion of your portfolio. Because of 401k’s that I can’t roll until job switch as well as

some other reasons, I have a pretty significant % of NW in indices of some kind at any time. 

Edited April 28 by thepupil

[Seoshin]

37 minutes ago, thepupil said:

If you can’t handle the FOMO of semi’s I’d suggest indexing a portion of your portfolio.

This is a good idea. Will start allocating more to it in my next capital inflow. Thank you!

[Spooky]

3 hours ago, Gregmal said:

100%. You invest with money you don’t need. One really shouldn’t be bothered by what’s ultimately best described as “stocks behaving like stocks”. 
 

The latest example being Nintendo, where there’s intense focus on guessing “why” the stock has gone down after going up. Pretty much all the guessing has been wrong and yielded nothing of value. Meanwhile during the same timeframe the business fundamentals continue to rapidly inflect higher…this has occurred with pretty much every stock I own. MGM…obsessions with Twitter posts about Vegas. Despite the core segments gushing cash. Fairfax, for a decade it was “Mr Market doesn’t get it” when the truth was that no, the investments were horrible. St Joe, MSG, same things. Over any extended horizon the core operating business is what matters. But that never stops people from fixating on the fact that believe it or not, stocks do move up and down and in many cases, there’s very little meaningful rhyme or reason for it. 

 

Not to derail the thread but do you think this is an attractive entry point for Nintendo? Or the other companies you listed?

[Gregmal]

13 minutes ago, Spooky said:

 

Not to derail the thread but do you think this is an attractive entry point for Nintendo? Or the other companies you listed?

Nintendo? Certainly.