Money Mongoose

Investment psychology: FOMO

Warren Buffett once said that as an investor, you should be “Fearful when others are greedy and greedy when others are fearful.” This nugget of advice can capture multiple ideas when it comes to investing:

  • Taking a contrarian view
  • Not following the crowd
  • Maintaining control of your emotions

Here, I’ll consider the third aspect.

I talked about experiencing emotions while investing in the post: Temperament, patience, poker and investing. While I typically avoid investing under emotional influence, when I have no choice, I try to take the following mitigating actions:

  • Recognise the emotional influence – being aware is half the battle. Knowing I am under emotional influence allows me to ask my question, is what I am doing logical? Would I make this trade in neutral conditions?
  • Fall back to objective criteria: I go back to my fundamental analysis, what is my valuation of the stock and risk/uncertainty attached to it? Does the price still provide an adequate margin of safety? Technical indicators could also be used

For the stock in question, I was driven by the ‘fear of missing out’ or FOMO. I had prepared for a race I was likely to win, but the starting gun had fired while I was walking to the starting line. I was concerned that the share price would run away from me. I had to balance two points:

  1. Risk of the opportunity slipping away as the price rises higher and higher; versus
  2. Staying calm, waiting for a better price to buy in, not being motivated by FOMO

In the end, option 1 won: the price still gave me enough headroom for profit, but unfortunately did not have the margin of safety I would have liked, but I didn’t expect to get a better price. RSI was also not terrible.

I hate to buy on FOMO as it leads to doing stupid things like joining the dotcom boom bandwagon or buying bitcoin at 19k. In this case, it was not motivated by crowds, but fear of not being able to execute on my 2018 investment plan. Time will tell whether it was a good decision or not!


Temperament, patience, poker and investing

I have said many times that there are a lot of similarities between poker and investing and you can bring lessons from the poker domain into the investing domain.

In poker, “steaming” can be said to be a state of anger, mental confusion, or frustration in which a player adopts a less than optimal strategy, usually resulting in poor play.

To be successful in investing requires several things; chief among these are patience and calm temperament. While I am calm, I am not naturally a patient person and so this requires some discipline on my part.

Well, yesterday, I was steaming. I have one speculative investment that I had started building a position in but it was only 1/10th of my desired position size. I was already annoyed that in Q4 of 2018, I was not able to add to my position (due to cash flow issues) when the price was low, but in January, I received my bonus and had funded my account on Wednesday and was ready to place my order after work.

When I got to my computer, I noticed that the stock had jumped moments before by some 5%-8% due to an announcement that I was anticipating (but expecting to happen later). Ordinarily, I would have been a bit annoyed, but thought “no big deal, let’s wait for the price to recede after the news is digested and buy when the price is right – in the worse case, there will be other opportunities”.

But not yesterday. I was frustrated. Maybe it was a bad week due to everybody at home being ill, but I just lost it and decided to buy my full position at the new high prices and not content with that, also revised the buy order on another speculative stock from my target price to the market price and bought that at a higher price too.

That seemed enough to get it out of my system and I shut down my computer and went to bed.

Maybe in future, I need to take some valium before starting any trades! 😂


2018 Results

So I finally got around to consolidating my brokerage account results from 2018 and figured out how I performed. In the last quarter of 2018, I was down over 6 figures from peak, but of course, I had made solid gains earlier in the year.

Overall, I was down in 2018 but by only a 5 figure amount about 7.5% – all of which has already been recovered in January of 2019. The loss was annoying as a single trading error in 2018 was responsible for 10% of that loss.

Worse still, a series of unfortunate events meant that I had no cash in the last quarter of 2018 so was unable to take advantage of the great buying opportunities that arose.

At least 2019 has started on a more solid financial footing and I hope further opportunities will arise!


Investment on autopilot

I did something that I haven’t done before: I put buy orders in for my entire year’s worth of stock purchases in January. I figure that this way, I can set it and forget it and maintain a better price discipline.

An interesting question is what happens if the stock market tanks and all my buy orders trigger in the next weeks and I end up in a huge negative cash position?

I guess my answer is: that’s good, I would have managed to buy everything at the price that I targeted! I could try to accelerate deposits (hopefully from bonus) and in the worst case, just pay the margin fees.


Is Nvidia a buy after the recent price crash?

I thought of buying NVDA just under the $100 range, believing it would rocket on AI hype but then crash after it is over. I didn’t in the end as I was not confident in being able to time this. While AI is a good business, there are uncertainties as to whether NVDA will adapt to this market. I doubt GPU will be the mainstay of AI compute in the future and on any switch to dedicated compute for AI, NVDA would lose the synergy with its gaming market.

On the gaming market front, NVDA runs the risk of losing this business in the long term due to commoditization of gaming (except at the top end) with GPUs being brought onto the CPU package. 7nm NAVI could already be the start of this trend.

Nvidia is not a buy for me.


Free Swiss Banking

I currently have a bank account with UBS and another with PostFinance. I prefer to have two accounts for redundancy and to avoid having too many assets with UBS (where I also have a mortgage).

The UBS costs are minimal due to reduced fees from having a mortgage. PostFinance was previously free but have increased fees to 5 CHF or 25 CHF per month.

Looking at alternatives, today, I found https://www.neon-free.ch which appears to be free (although in BETA and missing some key features) but having the bonus of English language.

ZAK is run by Cler, and appears to be mostly free (not too easy to get the info) but perhaps this will change. They currently also give a 50 CHF signing bonus and have a referral offer: https://www.cler.ch/de/landing-pages/zak/


Investment focus for 2019

After a pretty crazy 2018, I feel refreshed and ready to start 2019. There’s a lot of housekeeping to be done: last year, I opened an account with Interactive Brokers in addition to my existing Schwab account. While this saves on fees and expanded my investment options, it came with a downside: I no longer have a single view of my investments. I don’t even know what my true gain or loss for the year was as I need some work to aggregate data from multiple sources and work out how much cash was moved around. So the first task will be to make a full review of the status quo and put in place a system to monitor everything.

The second element is to regain focus and discipline. My overall picks for 2018 were good, I just needed to be more disciplined in execution and also patient in waiting for the right entry price.

For 2019, I already have my main areas of investment outlined. In fact, I already started small positions in these areas during 2018. Compared to 2018, where my focus was on US stocks and AMD in particular, 2019 is pretty ‘out there’! My 2019 focus areas are:

  • Uranium
  • Energy
  • Emerging markets
  • UK stocks

Uranium

The first is the most speculative. Post-Fukushima, an already beaten down Uranium price has tanked, there’s a glut of Uranium inventory and the spot price is already below replacement cost leading major Uranium miners to scale back operations. Then why invest? I’m a believer in nuclear energy as an important source of energy for the future, one that provides proven capacity while being clean. The existing inventory will take a while to work through, but eventually the price should recover.

Unfortunately, I’ve built-up only 10% of my target position so far, but there’s already been a double digit increase in price since my initial investment. Hopefully, there is an additional opportunity to buy at better prices.

Energy

In 2018, I pared down my holdings in oil companies, eliminating Total and paring back my BP holdings (mainly to hold in line with my desired position size and then later to make available funds for other investments).

If opportunities arise to buy into the oil majors, I will do so, otherwise, I may turn my attention to the battered down oil service companies.

Emerging markets

Prior to my small initial investment in 2018, I had no investments in emerging markets and was invested mainly in US stocks. In 2019, I plan to invest steadily to built up a position representing 3% of my stock portfolio. Due to the difficulty in investing in the emerging markets, I will not buy individual stocks, but instead invest through a fund.

UK and Brexit

UK news has been dominated by Brexit. The British pound and UK stocks have taken a beating due to political uncertainty and future economic risks. While the risks are real, in my view, the UK is oversold and there are opportunities to find good companies at reasonable prices.

I have other ideas too, but the four above are what I want to focus on. What are your 2019 investment plans?


FS:FAMA not FI:RE

I’m come to dislike the term FIRE. Aside getting into unproductive debates on the meaning and morality of early ‘retirement’, there’s also a separate pointless debate on the meaning of ‘financial independence’ whether a 4% SWR is really safe, or what you are independent from if you rely on stock markets etc.

I prefer to think in terms of financial security and define that as the state in which you no longer feel anxiety or negative emotions related to the actual or potential loss of remunerated work on a temporary or permanent basis.

The second part is instead of retiring early, which comes with quite some negative perceptions and misunderstanding, I instead put FAMA: fulfilling and meaningful activity. This could be:

  • Following a vocation (e.g. becoming the teacher you wanted to be instead of grinding out years as a corporate lawyer only for the money)
  • Taking kids out of daycare and spending more time parenting
  • Dedicating time to charity work

FAMA means different things for different people. Financial security allows them to pursue FAMA without the fear of financial inadequacy.


I lost 4 years

So I took a look at my stock market account and I am down 4 years. Four years of annual expenses. Had I cashed out my account two months ago, quit my job and did nothing for 4 years, I’d have the amount of money left in my account as I do now.

FIRE wisdom says, you need 25x your annual expenses to retire. 4 out of 25 represents a 16% hit.

It’s not great, but I’m surprisingly OK with it. I’m actually pretty excited about the stocks on offer. Facebook is getting a beating and approaching a level where I’m tempted to buy (a year or so ago I planned to buy at $80, but that edged further and further away). I’m not sure it will reach $80, but I’ll be happy to start averaging down from around $120.

CVS and FDX are on sale. Tobacco stocks (MO, PM, BTI) are at bargain basement prices. FQVTF is at a less insane valuation. ABBV is starting to tempt me. There’s actually too much out there where prices are looking good.

I just need to be patient until I get the cash to go out and buy!


Drained

The last few weeks have been exhausting. Work projects have multiplied and gone into overdrive, and at the same time, the baby has regressed his sleeping to waking up every 1-3 hours leaving everyone tired and grumpy.

In the background, my stock portfolio has tanked further. I have mostly been ignoring it due to personal exhaustion but also the exhaustion of my funds: there is no spare money to take advantage of any dip.

The more I think of stock market investing, the more parallels I see with no limit hold’em poker. In this case, I had planned to change my asset allocation to increase the cash component (which is technically negative). However, I did not manage to do this before the recent stock market crash. As in poker, making a bad decision early in the hand leads to difficult decisions later on in the hand.

In my case, I can either push through with the asset allocation change which would mean selling at the current market lows – which is unattractive – or waiting out for a better time to re-balance and committing the sin of trying to time the market and sitting with a sub-optimal asset allocation for longer.

For now, my default position is to do nothing and then start re-balancing next year when income starts to roll in again by putting half the income into investments and half to cash and then re-balancing this way gradually over several years.