Beyond Anger and Frustration...

This morning Dr Wealth CEO Alvin Chow asked me to pen my thoughts on the context of the Great Recession of 2008 against our current economic back-drop. I decided not to do so yet because I am in the middle of aggressive back-testing on this new bear market, what I want to know is to get a real-time understanding of investment factors that fail when the market is in free-fall. The results will probably be available next week before my next preview.

But Alvin said that this is a good time to demonstrate some pathos to the investing public. I don't think the Dr. Wealth blog is ready for any pathos from me yet, like many investors I am shellshocked by recent market moves, but this blog can accommodate my more random musings.

The truth is that I'm really angry today.

This is nothing like the Great Financial Recession. During the GFC, I had one simple unleveraged portfolio and a ridiculously low expense rate. Now, while I have a substantial unleveraged portfolio supporting my family, I do have a leveraged portfolio that is almost facing a margin call this morning.

I have a personal rule to react when my margin account ratio reaches 150% - I sell away enough counters to get some breathing space regardless of my personal feelings of how the market might turn in my favour later.

Today my margin account ratio hit a low of 147%, so I took a significant number of my legacy investments (before I started using Bloomberg) and sold it off to push up the margin ratio to a more reasonable number. The result is that I took some losses and only gave myself breathing room to take in a further 18-20% drop. Doing this lifted the psychological burden on me, but not the possibility of further drops when Western governments were found to be unable to cope with COVID-19.

My personality is that I hate selling my investments. The broker takes a cut, and the guy buying from me is certain to make a huge profit if he can hold onto it for 2 years. But selling now is better than selling everything when a margin call occurs.

Naturally, when an investor sells shares, magically, the markets will rebound. As of this moment, the DJIA futures are trending up. Selling stocks is almost like making a sacrifice to some Pagan God by killing your firstborn child.

Once the margin accounts are secure and I am not going insane and thinking whether the broker will margin call me, the next thing to do is to distract me from compulsively looking at the markets. At least for today, teaching myself Python paid off as I was able to write a nice webpage using the flask library and even picked skills on Python project skeletons. After that, I even forced myself through a fairly technical book on the MBTI personality framework.

If this market event is a repeat of history, then those with strong holding power who can farm their salary into the financial markets without breaking a sweat will be almost assured a straight path to becoming a millionaire when all this is over.

As to how much leverage to take and which strategies to follow, this is something I have to explore over the next few days. There is a delicate balance, make a portfolio too defensive and it can protect you against further downturns, but defensive portfolios will not do that well in recovery.