So, the stock market is in a sell off.
Or a correction.
Or a panic.
Or a downturn.
Or being manipulated by the Deep State.
It depends who you’re listening to, I suppose.
This morning the DOW (DJIA) hit a low of 23,778 which is a 10.7% drop since January 26th.
The technical definition of a correction is a sustained 10% drop.
We’ve since regained 733 points to put us at 24,511 representing a 7.9% correction.
What’s Causing This
A few things.
1. Inflation fears.
2. Interest rate fears.
3. Automated trading selling off as stop losses are hit.
Should I Be Worried?
Markets correct and sell off occasionally.
It’s the nature of the beast.
If you’re a short term investor – day trader or swing trader – then this is probably causing some heartburn.
If you’re positioned like we are at the Investor Insights, it’s not that big a deal.
We focus on alternative investments across 4 categories that are fairly insulated from the public markets.
Investments in PRIVATE companies mainly on a revenue share or interest-paying basis.
Investments in PRIVATE debt held by consumers and private companies.
Investments in microcap and nanocap cannabis stocks and exchange-traded debt securities.
Investments in PRIVATE syndicates, note funds, and eREITs.
Across all of these categories, there is only one asset class we invest in that’s effected by the market and that’s pot stocks.
And that portfolio is currently showing an average gain of 95.63%.
Our crowdfunded revenue share investments are still paying us 14%.
Our private loans are still paying us 8%.
And the opportunity I shared in the inaugural issue of Real Passive Profits, my premium passive real estate investment newsletter, is still paying 12%.
So, I’m not worried.
When I hear about people panicking and selling, I remember a few Warren Buffett quotes that have served me well over the years…
“Be fearful when others are greedy and greedy when others are fearful.”
Which is the value investor’s mantra.
That’s when they start scouring the market buying up blue chips at deep discounts and holding them forever for steady gains and dividends.
“The stock market is a device for transferring money from the impatient to the patient.”
I see so many impatient people selling and announcing they will get back in.
I’m not even sure what that’s about but it probably went something like this:
1. They bought a stock.
2. It went up and they had an unrealized gain.
3. It went down and they sold and had a realized loss.
4. Now that they have lost money, they will look for an opportunity to get back in on the way up.
That makes no sense unless their job is to make it super easy for the patient investors to swoop in and lock up those future gains.
The way I manage the only part of our portfolio that has market exposure, our cannabis stocks, is this…
1. We bought a stock. (23 of them, actually)
2. The portfolio went up and we had unrealized gains.
3. I identified 7 stocks that had gains of 200%+ and I sold enough shares to cover our initial investment. (We booked a realized gain of 300.67% and $4,273.27 in cash)
4. Now that we have eliminated our risk, we hold long-term and enjoy the ride back up.
And a lot less stressful.
Don’t panic and let the other guy win.
I started reading a new book this week, The Intelligent Investor by Benjamin Graham.
Warren Buffett calls it hands down the best book he’s ever read on value investing and he considered Graham his mentor.
It’s a beast of a book – over 600 pages including the endnotes and appendices!
I am a little concerned that I may not finish it before the next Ice Age but I’m even more concerned that I’ll run out of highlighter pens.
Graham had a set of five core principles about investing that are just as valid today as they were back in his day.
Three are really resonating with me…
1. A stock is not just a ticker symbol or an electronic blip; it is an ownership interest in an actual business, with an underlying value that does not depend on its share price.
2. The market is a pendulum that forever swings between unsustainable optimism (which makes stocks too expensive) and unjustified pessimism (which makes them too cheap). The intelligent investor is a realist who sells to optimists and buys from pessimists.
3. The secret to your financial success is within yourself. If you become a critical thinker who takes no Wall Street “fact” on faith, and you invest with patient confidence, you can take steady advantage of even the worst bear markets. By developing your discipline and courage, you can refuse to let other people’s mood swings govern your financial destiny. In the end, how your investments behave is much less important than how you behave.
Patient Confidence is my new mantra!
It’s applicable to us because I am in a couple of markets with HUGE volatility – cryptos and cannabis – and both of these markets have experienced unsustainable optimism AND unjustified pessimism in just the last two weeks.
Staying the course and maintaining confidence in a company’s stock is a test of patience.
I’ve been investing a long time and occasionally I’ve exited trades much too soon because I lost confidence – losing out on lots of profits as a result.
I’ve also stayed in too long sometimes, not realizing profits when they were there for the taking.
A great recent example is Kush Bottles (OTC: KSHB) a company we hold in the CannaVestor Lab portfolio.
I first bought KSHB on November 15, 2016 at $3.96 a share. It didn’t do what I expected it to do and, even though I knew this company would perform well, I chickened out and sold it on May 15, 2017 when it dropped to $2.55 a share.
But I kept thinking about it.
And researching it.
And even as it kept going down I just knew that it would turn around at some point.
So I bought back in at $1.91 a share on October 16, 2017 and the stock is trading today at $6.20 a share – up 225%.
In that trade, even though I lost confidence in my ability to cope with a “loss”, I never lost confidence in the company.
I practiced patient confidence in that scenario and was rewarded.
So, patience and confidence are two things I work on a lot.
What about you?
They say that success leaves clues.
If that’s true, and I believe it is, more traders should pay attention to what Goldman Sachs’ trading desk does.
This is from their 2016 annual report.
29 trading days with a loss.
222 trading days with a gain.
19 of those posting DAILY gains in excess of $100 million.
I decided to dig a little deeper into their methodology and discovered that most of their trading is execution trading and/or market making.
So, that’s just marking up orders that clients – institutional and individual – call in.
But that’s not all of it.
And 222 days of #winning is pretty impressive.
I was in a trading class recently about market timing.
Worst class ever. But the instructor made a comment about millennials.
He said, “their idea of the American Dream isn’t what their parents or grandparents were sold.”
I realized that I have been on a journey of self-discovery lately that led me to the same conclusion.
Only not about millennials. I’d realized MY idea of the American Dream had changed.
It used to be about getting a great job, buying a beautiful home, having a couple of kids and retiring after many years to travel and spend time with the grandkids.
I have many friends who are all in on this model.
Everything about that model seemed like a trap to the entrepreneur in me – except the beautiful home.
I had this idea in my head that a great house was the thing to aspire to. So, in 2014, we sold our restored Victorian and bought a brand new modern home (twice the size) for $899,000.
After two and a half years it was worth $1.18 million thanks to Denver appreciation and this was where my self-discovery story actually starts.
I had a problem.
I was in debt.
A LOT of debt.
Six figures to the IRS plus about $60k in credit card debt.
Not a great place to be at 51 years old when I should be focused on pumping up the jam on my retirement account.
In fact, it was crushing.
And on January 4th of this year, my Mom died.
It was unexpected. She was in poor health and we had been battling about her refusal to move to an assisted living facility.
After she passed, I was settling her affairs and discovered that she had nothing.
She died at 76 years old with $117 in the bank and an empty Meals on Wheels container on the floor of her living room.
I got scared.
It felt like I got a glimpse into my future and I didn’t like what I saw at all.
My financial insecurity and the debt load I was carrying could very well put me in the exact same place as my Mother at the end of my life.
And I’m not going out like that.
My debt problem was my own fault.
A big mistake that I made when we bought the new house.
You see, when we sold the Victorian, the couple bought all of our furniture, too.
So we moved into a 4,000 square foot home with a bed, some patio furniture, and two dog beds.
I had set aside money for taxes – savings of about $200,000 – but I spent every penny to furnish the house and install an audio/video Smart home system.
The house was amazing.
But then my business started to decline as a result of boredom and bad advice.
It doesn’t take a rocket scientist to figure out that my American Dream had quickly turned into my American nightmare.
It wasn’t like we were poor. Or couldn’t pay our bills.
We were fine.
It’s just that the crushing debt load wasn’t going to go away anytime soon.
So, I sold the house.
And paid off 100% of our debt.
All of it gone.
Socked away a few hundred thousand in the bank and moved to a “dee-luxe apartment in the sky.”
Just like George and Weezy.
And in the afterglow of sitting on the 16th floor overlooking the Rocky Mountains and all of Denver, I realized that this life is the better deal.
THIS life is the American Dream.
Not being tied to a house and experiencing financial insecurity.
But renting a fabulous apartment with a concierge and a maintenance team.
I am literally responsible for nothing except the well-being of Hank and Harper.
It feels good.
A few weeks ago, I ran some numbers to see what my real return was on the sale of the house.
At first glance, the math is simple. I bought it for $899k, put down 20%, and sold it for $1.18 million.
That works out to a cash on cash return of 56%.
But when I ran the numbers to factor in all the money I had invested in the house after purchase, my total return worked out to just 2%.
I would have been better off putting the money in an index fund and calling it a day.
So, yes the American Dream is changing.
And not just for millennials.
For me, too.
I don’t need a house.
I need financial freedom.
And, to me, that comes from having zero debt, a credit score in the 800’s, and great returns on investments in my retirement account.
I know some will say, “But Susan, what about the mortgage interest deduction or the tax advantages?”
Like most everything, it’s a trade off.
But for now, especially every afternoon as I sun a bit next to the fabulous 7th-floor infinity pool, I feel like I’ve made the right choice.
THIS is an American Dream I can get used to.