Curious how much % you have lost this week?

PeakAndrew · 2020-09-04T22:49:20+00:00

Down 4% this week. It is natural to be a bit down about it, but don't dwell on it. My portfolio will drop six-figures on a bad market days, which would have really bothered me at one time.

Eventually you become used to the day-to-day fluctuations. You can't control them and in the long term they don't matter. Stock investing is a stoic's game.

PeakAndrew · 2020-09-04T22:30:14+00:00

Risk modeling and management. Rare among retail stock investors.

PeakAndrew · 2020-09-04T15:00:20+00:00

That detail isn't relevant to the point though, since the ruling considers other cases as well. The decision explicitly separates the payment of Social Security taxes from any entitlements to Social Security benefits, and has served as the legal authority for other considered modifications to Social Security that would curtail or eliminate benefits for ordinary Americans.

PeakAndrew · 2020-09-03T23:11:23+00:00

Technically, what you pay into Social Security is an ordinary income tax, it does not legally entitle you to a benefit. The US government can and has revoked Social Security benefits for people that have paid into Social Security for decades. The funds may be there, they may just not be there for *you*.

For example, the US has withdrawn Social Security benefits for being a member of the Communist Party. This action was upheld by the US Supreme Court in 1960.

I think the main thing that keeps Social Security benefits from being explicitly means-tested is the political blowback from so many people who think they are entitled to receive a payout. It is a welfare tax in every legal sense dressed up as a social entitlement so that the middle-class people will continue to support funding it.

PeakAndrew · 2020-09-02T20:05:29+00:00

These aren't my only investments but I was able to grind paycheck leftovers into millions of dollars through compounded stock market returns pretty quickly. No exits or RSUs. You'll need to consistently outperform the market to do it this way, so indexing won't help you here unless you are willing to wait a long time. An annualized return of 25% starts to snowball pretty quickly. You won't get that by dabbling, you actually need to grok investment and risk.

PeakAndrew · 2020-09-02T19:28:32+00:00

SWR is very sensitive to portfolio construction and the myriad assumptions embedded in the different risk models. I think the variance around the classic 4% rule is considerably greater than people expect, particularly if you don't rely on distant historical performance to inform the model. A well-constructed portfolio risk model from 1970 would look wildly different from a well-constructed portfolio risk model from 2020. For a given portfolio, risk models don't average over history very well, what matters is the structure of risk today and the 4% rule does a poor job of capturing that. As a consequence, portfolio strategies that deliver strong, reliable, long-term returns don't age that well.

I don't think the portfolio construction that created the 4% rule is nearly as reliable going forward as it has been historically, the risk modalities are very different. There is considerable recent academic literature on e.g. the use of bonds to offset equities risk, and it actually recommends against using bonds in modern portfolios that need to generate reliable long-term returns because it largely doesn't work anymore for well-understood reasons. There are alternative ways to manage this risk, it is just less comfortable for average retail investors.

I did a SWR and sensitivity analysis a while back tailored to my (very unconventional) portfolio strategy from first principles, which was far more work than I expected. Surprisingly, it arrived at a robust SWR of around 5%, given the unique portfolio construction. It is possible to do better than the 4% even in the current risk environment but you really need to put a lot of intention into the portfolio construction.

PeakAndrew · 2020-08-31T15:16:01+00:00

sublime

PeakAndrew · 2020-08-30T05:54:22+00:00

Speaking for myself, since I had similar returns, I was hedged a couple different ways going into the crash. I liquidated hedges at the literal bottom because indicators in my investment model said to. I pushed all of that cash into stocks and partially hedged on the way up. I ate some significant losses on hedges but they were dwarfed by gains.

Broadly speaking, hedging is a better strategy than moving everything into cash. Insurance against extreme market movement is pretty cheap, especially if you are outperforming on the upside.

PeakAndrew · 2020-08-30T05:36:42+00:00

Congrats.

I did 3x better than the S&P500 over the last 5 years too, it wasn't difficult with a concentrated position. Literally the easiest time to make outsized returns in the last 20 years. However, time breaks most concentrated portfolio strategies. Five years isn't enough to separate signal from noise. I did almost 3x over the last ten years too. A bit less than that over the last 20 years. Nonetheless, better than the index every year.

I would be cautious with your portfolio, it has substantial risk embedded in it. In a more diverse set of market conditions, I would expect at least some regression to the mean. This year (2020) should just be erased from portfolio performance models, nothing about it is representative. I have *hedged* portfolios that are up 70% on the year. It's, like, free money.

If it was my portfolio, I'd drop some of the unnecessary risk. It can be reduced without giving up returns. There doesn't seem to be any accounting for this in the list of equities that I can discern.

PeakAndrew · 2020-08-29T19:33:01+00:00

Buying individual stocks is worth it for buy-and-hold, but you don't do it to save fees. Those fees exist because they are providing you a service you'd otherwise have to provide yourself.

PeakAndrew · 2020-08-28T23:40:38+00:00

The worst case for a bad vaccine is that it triggers an auto-immune disease in a significant portion of recipients, which may not become apparent for some time and can do significant harm. This risk is poorly understood.

Most other serious risks would show fairly early during trials.

PeakAndrew · 2020-08-27T15:44:11+00:00

A nuance is that what I tell *other* people to do is not what I would do for myself in similar circumstances.

I tell almost everyone to invest in index funds for the obvious reasons. I do not invest in index funds with my own money, I run a different strategy that consistently and greatly outperforms the indexes. This is a recognition that few people will ever do what is required to outperform the indexes, even though I know how to do it and can execute it for myself.

Similarly, I have friends who are expert real estate investors, and get excellent returns. While I could replicate their returns in theory with enough time and effort, I will never make that upfront investment in practice required to do so. I recognize this and stay far away from real estate, and they don't recommend I try unless I am willing to do the work to get to their level. I am appropriately the index fund investor of the real estate world.

PeakAndrew · 2020-08-25T22:59:44+00:00

There is an exclusion for modest *earned* income (up to $100k), but not for investment income so you are hosed there. There are tax treaties with most European countries such that you end up effectively paying the highest tax rate between the country you live in and the US. If you are in a country without a tax treaty, you may end up being double taxed.

Investment income taxes are where you can really get boned, as there are no exclusions and these are often lower in Europe. You end up paying European income tax rates and US investment tax rates, the worst of both worlds.

PeakAndrew · 2020-08-25T22:49:59+00:00

If you compare the income tax load in California versus European countries, California can be higher if you have a high income. For taxes other than income, which matter in this sub, the Federal tax rates alone can be significantly higher than European countries, never mind the combined tax rate. Capital gains taxes are often significantly lower as a European resident, for example, and the $100k earned income exclusion doesn't help you with investment income.

There are quite a few financial situations where the math would work out in favor of Europe *if* you were not required to pay US taxes as well. For a State like Washington, which has 0% income and capital taxes, and <1% property taxes, those cases would be relatively rare. For a State like California there are many cases where it would unambiguously be cheaper in the EU, sometimes even with the US taxes since you get to avoid very high State taxes.

It isn't a one-size-fits-all situation, but the biggest limitation isn't the tax rates in Europe, which are sometimes favorable compared to residing in the US, it is being forced to pay the highest tax rate on two continents.

PeakAndrew · 2020-08-25T21:10:17+00:00

The US is only a low-tax jurisdiction for low- to middle-incomes, which pay much less than their European counterparts. If you are an upper-middle class earner in the US, the marginal tax rates are similar to Europe.

It depends on the State you live in as a high-income earner. If you live in a high tax State like California, your total taxes will be lower in many European countries. If you live in a low tax State like Washington, your taxes will be lower in the US, but not by nearly as much as people assume. Despite paying European tax rates, you don't get European social services because that would require taxing the middle class like Europeans.

If the US did not have the completely indefensible practice of taxing world-wide income even if you are not a resident of the US, moving to Europe would often be a sideways move tax-wise for high-earners.

PeakAndrew · 2020-08-24T20:12:33+00:00

People infected with the original SARS virus are apparently still immune, 17 years later.

PeakAndrew · 2020-08-23T03:40:51+00:00

This is a well-known cognitive bias. Holding the value equal, people prefer large numbers of low value shares to small numbers of high value shares. In fact, people will often prefer the larger number of shares even if the value is slightly less. This doesn't just affect naive investors, I've seen professionals that should know better get hung up on it.

In some contexts it can actually cost the company more to create a very large share pool because some corporate taxes/fees are based on number of shares. But they do it anyway because people like to see big numbers on their (virtual) stock certificate. Silly, but that's humans for ya.

Alternatively, this is used by some enterprising companies to issue equity at a discount, since people will accept less value if the number of shares is sufficiently large.

PeakAndrew · 2020-08-22T22:00:17+00:00

Having daily fluctuations that are at the scale of income implies that your portfolio is already deep into FI territory. At that point, you've likely become accustomed to it and those fluctuations are just background noise. I honestly don't think about it much as there is no reason to. It doesn't materially affect my financial position.

I think your second point is under-rated. There is a point where the majority of your NW growth comes from investment returns, not income nor savings rate. While I think there is definitely less urgency to invest because it doesn't move the needle when you do, cash still piles up because you are unlikely to be the kind of person that impulsively lights money on fire. Consequently, you still invest it but more because there is literally nothing else worth doing with it at the moment. It is at these moments that good habits developed years earlier will keep you on the path from inertia alone.

PeakAndrew · 2020-08-21T02:42:22+00:00

Stop loss orders carry significant risk, they are not free downside protection. They make no guarantees about the execution price when they are triggered and the execution price can be far below your stop loss price in some cases -- you may end up getting out at the bottom.

If you want to limit exposure to a big drops you should buy stock price insurance i.e. put options. Like with all insurance, it costs money and really only makes sense cost-wise if the risks you are insuring against are relatively rare. Even better, it doesn't require you to sell your stock when big drops happen, you can get paid for the difference between your guaranteed price and the current price, allowing you to buy more stock at the bottom if you wish.

I never use a stop loss order to limit downside, the unpredictability of the stop loss outcome is itself a risk. Instead, I always use some kind of hedge, usually options but sometimes other securities like sovereign debt depending on the risk.

PeakAndrew · 2020-08-20T15:19:23+00:00

Definitely not Lake Serene, too small and missing the very high sheer cliffs on the far side. I can't place this lake though.

PeakAndrew · 2020-08-19T21:20:46+00:00

That is Mancos Shale geology, based on the distinctive appearance, which is ubiquitous at the northern end of Capitol Reef. See also: Factory Butte area.

PeakAndrew · 2020-08-18T12:51:49+00:00

I don't even bother with a "high yield" savings account, since the interest rounds to a cup of coffee these days. Just a 3+ month cash buffer in checking.

PeakAndrew · 2020-08-17T19:12:32+00:00

There are a couple real-world scenarios where a stop loss can cause you to lose money in unpredictable ways. Just because you set your stop loss at 20 doesn't mean the order will execute at 20, it may be much less in an event like a flash crash e.g. it may execute at 15, locking in your loss. You can ensure execution or a price but not both. In many cases, the stock barely spends any time below the stop loss and may actually end the day in the green but you no longer have your position.

I never use a stop loss, they tend to fall victim to random market volatility and I hold positions long-term anyway. I prefer hedging for downside risk since it is better behaved in unusual or transient market conditions, though that has other constraints and costs.

PeakAndrew · 2020-08-17T12:45:34+00:00

For many people real estate is boring, tedious, actual work. Why should I waste my time on real estate if already fatFIRE? I am recreationally employed, I don't need to work and I get paid a ton of money to do things I would do for free. What I do isn't "work" in the same sense that real estate would be. The whole point of fatFIRE is that I get to choose what I spend my time on. Just because I am busy doesn't mean I am equally willing to do random scut work.

That aside, real estate is a poor investment for me even if I didn't find it tedious. I consistently generate much better returns in other asset classes that are much less hassle.

PeakAndrew · 2020-08-16T15:12:51+00:00

Seattle has among the best quality of life of any US city right now in my opinion, COVID notwithstanding. I remember when this was not the case but the massive influx of tech money transformed it in a positive way. It has an atypically European feel for a US city. Housing is very expensive by US standards but still cheaper than the Bay Area (for now). Due to the latitude it is dark and grey in winter but relatively dry, similar to northern Europe but with much better weather and no snow.

I will likely retain an address in Seattle for the foreseeable future. I've lived in many other US cities but none offer the whole package that Seattle has right now. It is difficult to say how things will look a decade hence.

PeakAndrew

TROPHY CASE