What caught my eye this week.
A few readers have suggested I’ve been taking this stock market downturn pretty badly.
To which I’ve made some overly defensive replies.
Such as that it proved right to be gloomy. The growth sell-off [1] was a canary in the coal mine. There has been a regime change [2]. Bonds have cratered [3] like none of us have ever seen. And the US stock market just ended its worst first-half for 50 years [4].
And to turn the tables, some of those apparently more upbeat readers appear to me to have been going through several stages of grief – or at least self-rationalisation – without being aware of it.
“My portfolio is barely down” followed a couple of months later by “Okay, we’re down a bit but that’s normal” then “Right, we’re down a lot but everyone knew everything was expensive and so it’s healthy” to “Of course we’re down but I don’t care because there’s nothing I can do about it.”
Which is all fair enough. Whatever keeps you investing! And changing your emotional response to the market’s rises and falls will likely be more profitable than remixing your portfolio whenever your mood swings.
Still, I think it’s helpful if we pay attention to our shifting thinking, rather than waking up every day presuming that – like yesterday, last week, and last month too – we’re omnipotent.
As Richard Feynman said: “The first principle is that you must not fool yourself and you are the easiest person to fool.”
Bona fide hustler making my name
Continuing in that spirit, perhaps readers who’ve detected more angst than usual in my missives have a point, too.
Sometimes our thinking is revealed in our writing before we fully understand ourselves.
I remember that when blogger @ermine [5] flagged up my talk of turbulence in December 2021, it prompted me to re-read my own article for myself.
And on reflection I probably have been gloomier in 2022 than I’ve allowed myself to dwell on.
My net worth more than halved for a few months in the 2008 bear market [6]. Yet on Monevator I was writing about how I was selling my possessions to buy more shares.
In 2022 I’m down by far less, and yet I’ve been posting [7] videos of Tom Hardy beating rivals to a pulp.
Did I change, or did the market?
Money money money, must be funny
Two posts this week helped me admit to Mr Market that it’s not him it’s me that has a problem.
You’ll immediately see the relevance.
Firstly, Morgan Housel wrote [8] that:
What feels great is being on an upward path. That’s when dopamine takes over. That’s when you can extrapolate it and assume it goes on forever, and compare yourself to where you were before, and feel like nothing can stop you.
When that path declines – even if it happens when you have a level of wealth you couldn’t fathom a few years ago – the whole sensation shatters.
Somewhere along the line my fun game [9] of trying to beat the market grew to dwarf whatever aims I had when I started investing.
Change is fine, if it’s in the direction you want. I’m not even saying this change isn’t right for me. But I need to reflect on it more, if I’m to avoid mixing up my goalposts.
I shouldn’t feel excessively down on a six-month view, when I’m doing fine on a five-year one.
The other timely article came from Lawrence Yeo, who asked [10]:
If your basic necessities are covered, how is it that money can still trigger a survival instinct that is indistinguishable from that biological fear?
Why is it that having enough money doesn’t just alleviate this fear, but often has the opposite effect of strengthening it?
It’s true – I’m far more attuned to my net worth than when my savings amounted to just a couple of months rent.
Even after this year’s steep losses I could pay off my mortgage [11] tomorrow and still be financially independent. Certainly by my old Bohemian standards [12].
Yet I’ve grown more cautious in my portfolio – and apparently I sound grumpier on the Internet.
Perhaps I am more afraid than I realize?
When you’ve got nothing you’ve got nothing to lose
I’d summarize the difference between the 2008 crash and this one for me as:
- In 2008 I was a moderate high-earner, just into the higher-rate tax bracket, but saving and investing well beyond what you’d expect for my means. I’d been investing for half-a-dozen years, and writing about it for a couple. My portfolio was shellacked but I had no debt or obligations and I planned for many years of investing ahead.
- In 2022 I am earning much less. But as the year started my portfolio was well beyond ‘my number’ and I was in no rush to boost my income. I’d been investing for two decades and writing about it for 15. My portfolio is down but nothing like as bad as in 2008. I’m many times wealthier now – but I also have a big mortgage, and 15 fewer years to recover from setbacks.
There are clearly big financial shifts to unpick here.
I’ve got more to lose in gross money terms, most obviously. I’ve fewer years left to compound my portfolio, and less fresh income to help. I’m vulnerable to a bad sequence of returns [13]. My mortgage adds risk [14].
All factors we’ve covered on Monevator, I know. But even a nodding acquaintance with the personal lives of famous novelists, say, tells us self-knowledge is not a vaccination against human frailty.
Knowing the symptoms is only part of the battle. You have to turn the lens on yourself.
Alongside this rise and fall of my net worth, there’s also the change in my self-identity.
In 2008 I was only a few years into investing. I made my living in an unrelated field. I was just starting to become a fully active investor.
Today I should feel far more secure – except that my identity is now wrapped up in my investing lifestyle. That makes it as vulnerable to portfolio shocks as if investing were my full-time job.
In the years since 2008 investing became an obsession. One that delivered financial independence many decades sooner than if I’d kept my savings in a current account.
But it is also an obsession that has co-mingled my sense of self – and perhaps of achievement and even ‘worth’ – with the short-term, random, and always febrile stock market.
No wonder if I feel more discombobulated that I used to when the market falls.
Turn and face the strain
The truth is I’ve seemingly become a walking, blogging hunk of loss aversion made flesh.
Indeed it’s sort of humbling how universal and ever-tricky this psychological stuff is.
I often see such blind spots in readers, too (just to put you guys back on the hook…)
For instance, someone will explain they can’t retire early until they hit £5m, because of a long list of logical reasons that starkly contrast with the fact that my co-blogger did [15] it on barely a tenth as much.
Of course he FIRE-ed into different circumstances, and with different expectations.
But equally, you strongly suspect that the £5m would-be retiree will soon need £10m.
Or consider my married friends who are from Mars and Venus when talking about [16] their finances.
One of them has never acknowledged how childhood shaped their money beliefs.
The other can’t see how now having made more money than they once expected to earn over several lifetimes should prompt them to revisit their stance on spending.
There are also the regular Monevator commentators who predict one market outcome adamantly, and then a few months later apparently always thought the opposite.
They change their past to fit the now-likely future.
I don’t believe they are deceitful – except in as much as Feynman says we all fool ourselves.
But it does seem a bit like a way to feel good about yourself, whatever happens.
I’m certainly not immune to fooling myself, but I can (sometimes!) admit when I was wrong – and I’m also happy to feel bad now and then.
I’m sure those are more profitable mental habits to cultivate in the long run.
That ain’t workin’, that’s the way you do it
On the same score, it seems 2022 is telling me too to do a wetware update on my mental attitudes, if I want to better enjoy the pros and cons [17] of where investing has got me.
Unlike many people who needed to change a spend-y mindset to get to financial security, I was born with the saving gene. For me that was easy.
But I don’t think I know how to feel secure about having financial assets, now I’ve got them.
The market will bounce back one day. So will my portfolio. Despite a gloomier 2022, my belief in that hasn’t changed.
And of course for the majority of readers still in accumulation mode, cheaper shares and bonds due to a correction are the windfall they’ve always been.
But this is the first bear market when I’ve been as mindful of wealth preservation as of growth (which I’ve certainly not given up on…)
I made some changes, such as in February when I ring-fenced a big chunk of my net worth from the quixotic pursuit of outperformance – by moving it into a duller and lower-volatility basket that I track separately from my unitized [18] return-seeking portfolio.
But I may need to do more to disentangle my money in my mind.
Do you? Let us know below, and have a great weekend!
From Monevator
Bear markets: what they are, how long they last, and how to invest during them – Monevator [19]
From the archive-ator: Thoughts on a very British banking crisis at Northern Rock – Monevator [20]
News
Note: Some links are Google search results – in PC/desktop view you can click to read the piece without being a paid subscriber. Try privacy/incognito mode to avoid cookies. Consider subscribing if you read them a lot!1 [21]
UK balance of payments gap hits record 8.3% of GDP, but ONS urges caution over data – Reuters [22]
The US stock market just posted its worst first-half since 1970 – CNBC [23]
Two million more people are paying higher-rate tax in the UK since 2019 – BBC [24]
UK pension schemes confronted by growing liquidity strains [Search result] – FT [25]
No. 10 considers 50-year mortgages that could pass down the generations – Guardian [26]
Monthly house price growth slows to lowest level since 2019 – Your Money [27]
Ryanair chief warns fares will rise for five years because flying is ‘too cheap’ [Search result] – FT [28]
[29]
Only hard-to-access managed futures have diversified in 2022 [US investor perspective but relevant] – Factor Research [30]
Products and services
Could you save money by taking out a ‘green’ mortgage? – Which [31]
Halifax slashes minimum deposit to buy a new build home to just 5% – ThisIsMoney [32]
Open a SIPP with Interactive Investor and pay no SIPP fee for six months. Terms apply – Interactive Investor [33]
Is it time to ditch your Curve card as new limits come in? – Be Clever With Your Cash [34]
Beware of cheap car insurance that’s too good to be true – Which [35]
The best homes for eating al fresco, in pictures – Guardian [36]
Comment and opinion
Skimpflation: the hidden curse of 2022- Guardian [37]
When should you hire a financial advisor? – Of Dollars and Data [38]
A harsh reminder for a should-be passive investor – Humble Dollar [39]
Investing as a lifestyle choice – Morningstar [40]
How CNBC’s Jim Cramer invested $100 a month in his 20s, even while living in his car – CNBC [41]
The three levels of conviction – Validea [42]
In the mushy middle of the stock market crash – The Reformed Broker [43]
Making decisions is exhausting. Automate your finances [US tax details but relevant] – Flow FP [44]
Is your imposter syndrome costing you money? – Refinery 29 [45]
Five areas to focus on that actually move the needle – Thomas Kopelman [46]
US market valuation reset mini-special
A mental model for the stock market – Banker on FIRE [47]
The S&P 500 CAPE ratio says the crash has much further to go – UK Dividend Stocks [48]
Crypt o’ crypto
Have the crypto bosses learned anything at all from the collapse? – The Atlantic via MSN [49]
Grayscale sues SEC after rejection of bid to turn the largest bitcoin fund into an ETF – CNBC [50]
BlockFi set to be acquired by FTX at a 99% haircut to its last valuation – CNBC [51]
TedX Talk: the future of digital money – via YouTube [52]
Down big, Microstrategy, the largest corporate holder of Bitcoin, is still buying – CoinTelegraph [53]
Naughty corner: Active antics
Beware thematic funds’ siren song – Morningstar [54]
US financial conditions have tightened incredibly fast [See graph] – San Francisco Fed [55]
Metals haven’t crashed this hard since the Great Recession – Yahoo Finance [56]
Is the overnight drift the grandmother of all market anomalies? – Elm Wealth [57]
Kindle book bargains
Superfast: Lead at Speed by Sophie Devonshire – £0.99 on Kindle [58]
Find Your Voice: The Secret to Talking with Confidence by Caroline Goyder – £0.99 on Kindle [59]
Ultralearning by Scott Young – £0.99 on Kindle [60]
The Dealmaker: Lesson’s From a Life in Private Equity by Guy Hands – £0.99 on Kindle [61]
Environmental factors
[62]
This could be the coolest summer of the rest of your life – Vox [63]
When Extinction Rebellion met BP [Sort of] – Prospect [64]
Electric vehicle share is finally taking off in US, now 5.1% of total cars sold – Axios [65]
Off our beat
The various ways Wimbledon makes money – Huddle Up [66]
Roll your own DALL-E-style AI images [Interactive tool] – via Hugging Face [67]
How flowers are ‘put to sleep’ for long sea voyages – BBC [68]
The golden age of the aging actor – The Ringer [69]
When offered the chance to do some work remotely, 87% of US workers take it – McKinsey [70]
There are more two trillion galaxies in the universe: the maths – Big Think [71]
And finally…
“The cost of not revisiting your allocation of time is great, leading to massive regret at having spent too much time on a startup, marriage, friendship, or investment that is destined to disappoint you or destroy your soul.”
– Jason Calacanis, Angel: How to Invest in Technology Startups [72]
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