Tag: t_stress@eq

(de)stressor in eq-investing #w1r4

Posted on by tiger40490

I guess for most equity investors, stress [like all-at-once stressor moments, distraction, sleep in peace,,,] is like an “occupational hazard”, a fact of life.

I practice mainly two forms of eq-investing AA) SP500_ETF, BB) recreational MOETF. All other forms of eq-investing are unfamiliar to me, and by default too risky in terms of “wildfire getting out of control”  .. such as those 3episodes@ non-recreational trading. It’s worthwhile reviewing stressful investing experiences.

Note the key benefits of AA and BB are unavailable in “my” other asset classes like FXO, leveraged FX, gold, bond mufu, Singapore ETF

== AA) mindless investing .. SP500_ETF (not other indices, not mufu) is one low-stress, buy-n-forget form of investing. What about $200k in it? Should be fine. Buy-n-forget SP500_ETF relies on the index committee as stock pickers. Other ETFs, like sector ETF or other countries’ ETF are usually less successful than SP500_ETF. (Note buy-n-forget a single stock doesn’t involve exit-timing. Can rarely beat SP500_ETF.)

How about “balanced” mufu? It is supposed to buy “stability” at the cost of return but in my experience it doesn’t reduce stress cf SP500_ETF. Actually I always maintain my own bond ptf + speculative ptf + …. I can rebalance them, something I can’t do with a balanced mutu. Also the expRatio is not worthwhile.

== BB) recreational MOETF .. a classic positive stress comparable to other analytical and active-learning pastimes, in tech, magazine-xx, healthy food preparation,,
However, as I commit more funds into MOETF, this recreation can get out of control. Therefore it requires a robust firewall.

The positive stress is felt in a few specific stressor contexts listed in Q9.

  • Heavy allocation to growth ptf .. leads to net_negative effect on my overall stress profile, net_negative after considering firewall, buffer build-up.
  • Overwhelming allocation to dividend stocks .. has a 50/50 chance to net positive or net_negative stress, depending on the context

— destressor: firewall .. is designed for 1) stress protection, 2) portfolio protection.
Q: what frequency of ptf review is the max before it would lead to net_negative stress? Give a single number please
A: [3->6] a quarter
— destressor: steady DYOC .. (from my income portfolio) supposed to /defray/ a lot of annual expenses, reducing cash flow stress, but I have low cashflow stress in the first place.

Substantial DYOC should reduce the impact of a down turn, to be verified ..

— destressor: price buffer build-up has limited efficacy in stress reduction.
— destressor: diversification … meaningful diversification is not easy. Any evidence of that within a stock portfolio? I have not seen any.
=====
— Q: your notion of a wise investor? Beware not all “experienced” investors are successful in stress-management.

  • stress reduction .. keep the growth portfolio small (relative to…). This is my idea of a wise investor.
  • stress prevention
  • stress protection .. is hard to achieve, even for experienced investors
  • portfolio protection … defensive ptf? I don’t think this is a standard strategy among wise investors. Many wise investors don’t mind high volatility in a small ptf.
  • SP500_ETF .. (rather than mufu) is probably popular among those “wise” investors.

— Q9: (personal experience ) when I came under _certain_ types of stressors (but NOT other stressors), I would increase my recreational MOETF hour-allocation and dollar amount allocation. A paradox!

There are too many types of stressors even in a single person’s life. Let’s first focus on those stressors “friendly to” MOETF:

  • the stressor of plateauing growth: 江河日下,自强不息, midlife crisis #timetable@self-growth? Yes. MOETF represents a new frontier of self-growth[learning]. MOETF increases my sense of relative superiority. Recreational MOETF generates positive stress.
  • OC-effective? T_semiKai3mo2? FOLB? presumably effective : stress-reduction by recreational MOETF
  • BMI stagnation? workout frequency?
  • boy’s academic motivation?
  • spouse quarrels? probably a positive diversion

price buffer build-up: effective@@ #w1r3

Posted on by tiger40490

In use multiple parking funds in FSM sub-accounts, I wrote that

For a few slightly-volatile parking funds, X months after buy, when the position has accumulated a 2% margin of safety, then the entire position is unlikely to go underwater. This asset thus becomes liquid i.e. At any time I would feel free to liquidate the entire position.

That is the first asset class of this blogpost.

In what stocks to sell, I wrote

Also, the price increment provides a buffer against a down turn.

However, for a highly volatile low-yield stock (like NOK, GE, MRNA,, a second asset class) even a 100% m@s [margin of safety] can evaporate overnight, or over a month [1]. Suppose bought at $1k, rose to $2k and back to below $1k.

The buffer build-up is like the vulnerable levees along Yellow river giving people a false sense of protection.

That’s why I prefer stable utility stocks or defensive consumer staples  (a third asset class). I do feel protected by a m@s [margin@safety] build-up  after my purchased stock rises by 50% and …. maintains dividend. The dividend stability is more reassuring than the price rise. Dividend stability often reflects healthy cash flow. Price rise reflects SnD, often irrational demand.

— market momentum .. can favor the buffer build-up
When the buffer gets eroded we can ask why. Suppose the stock has no real bad news. Then it’s likely “broad market”. This would be good news for the believers of the buffer. Broad market usually recovers in months or years.

In the short term, many investors would see that this stock has reasonable fundamentals, and has fallen a lot and is now a bargain. Some bargain hunters would buy at least a small quantity, like a fractional share. The key reason for the appearance of “bargain” is the $1k->$2k price buffer build-up.

Note blue-chip stocks with long history have a visibility advantage and command a high investor mindshare.

— [1] realized return to protect a position from going underwater
The “evaporation” scenario described above is real. In my CRBP case, I bought around $5 and had a 80% profit, when the free fall (to $2) wiped out that buffer. For my twin brother who bought at $8, the free fall would be more devastating. Therefore, a free fall probably wipes out 9 out of 10 investors, but the “evaporation” is not the same simple end for every one —  Size of the previous buffer still makes a real difference:

  • trough duration depends on the previous buffer
  • depth of the trough depends on the previous buffer. 95% drawdown vs a 40% drawdown are very different when forced to liquidate.

For free-fall there is a preemptive protection — realized profit. With CRBP I had no realized profit or dividend. Here’s a simpler illustration. In our previous example, you invested $1k and now it’s worth $2k, so you have an unrealized profit of 100%, but this buffer can evaporate. Now what if you cash out $300? So the price must fall from $1700 to below $700 to become “underwater”.

buy-n-forget→ sleep]peace, focus@work

Posted on by tiger40490

k_babysit4exit

See also

Motivation  — hazards of stock investing

  1. Sleepless night and work distraction are the most serious hazards of ANY online gambling
    • Note tcost/distraction due to pre-trade due diligence is less or a concern.
  2. lost time/energy for workout; overeating induced by active investment
  3. lost time for parenting and academic coaching

These hazards are more stoppable during the due diligence. However, as your position builds up, hazards become increasingly burdensome, unwanted,,,,,, Therefore, Position holding should be a focus for risk management, tcost management.

In div investing, I want to practice buy-n-forget, and collect dividend. Buy-n-forget is my answer, my solution to the challenges.

—  In recreational investing … I want to sleep in peace every night
Q: as my committed amount increases beyond 10k, 20k, how do I maintain that peace?
A: buy-n-forget. steady passive income .. is the ideal I am seeking

ETF can help, since the constituent names are hidden.

— If I must list the G5 derailers for buy-n-forget

  1. #1 factor: size of capital
  2. DYOC above 4% .. in theory can be a shield against the hazards. Note leveraged positions often have negative DYOC.
  3. 100% upswing .. can be a temporary shield against the hazards.
  4. extreme (rare) volatility .. can derail buy-n-forget and cause loss of sleep

— case studies
Q: which past investments caused loss of sleep, loss of focus at work, or affected my workout or diet?
A: 1997 commodities day trading
A: 2013 FX Options

Q: which would become the first stock to cause loss of sleep etc
A: T:US?
A: XOM?

— url of this blogpost

https://tanbinvest.dreamhosters.com/wp-admin/post.php?post=17998&action=edit

firewall to contain moetf volatility #Sachin

Posted on by tiger40490

volatility in MOETF can add to stressor profile.

Once a few months I hit an all-at-once situation

——

My friend Sachin.K asked how I build a firewall around my stock portfolio.

A firewall is built to contain the volatility to within a portfolio (which tends to spill over), to support buy-n-forget, to prevent excessive babysitting, and protect our sleep, our concentration at work, our family time… A firewall is crucial if we want to keep recreational investing as recreational.

  • focus on DYOC. If I can hit 8% DYOC, then over 5Y cumulative div would recover 40% of my capital
  • check dividend trec
  • ask myself periodically “Can you sleep well if total committed amount depreciates by half?” If not then sell some stocks. Overcommitment is a necessary (but insufficient) condition of excessive babysitting.
  • stand aside if price rises after I buy. This reduces the risk of firewall breach.
  • — some generic tips on diversification in depth. Real diversification strengthens the firewwall from the “inside”
  • diversify using large variety of single stocks, not ETF. In a down turn, I will hope to have a non-trivial number of positions above water
  • avoid high concentration in one name. Buy incrementally if price falls after I buy
  • avoid high concentration in any sector
  • diversify internationally, to reduce correlation with SP500
  • — generic tips on portfolio protection
  • prefer defensive stocks, hopefully recession-proof
  • build up a buffer in price appreciation. Buffers can absorb impact of market crash

— My stance on hot growth stocks
I keep very small exposure to hot stocks, perhaps 1-5% of my NAV. Hot stocks tend to be overpriced and more volatile. They are almost always low-yield, hard to buy-n-forget.

In good times, these stocks tend to outperform the indices, and leave my portfolio /in the dust/. Talking to investors in those stocks can be uncomfortable, so I remind myself

  • Those fellow investors often invest only small amounts (like $1k) in a given “high-flyer” stock. I too own some high-flying stocks in small quantities.
  • Those fellow investors often bought fairly late, so their actual return is probably not as high as in the media.
  • The extra return comes at a high emotional cost (like sleep, family time…). This is similar to the WonderWomen1984 dreamstone — You get a wish granted, but pay a heavy price.

In bad times (can be any time, even amid the good times), these hot stocks tend to fall faster. Hot stocks, by definition, attract hot money. Hot money comes fast and goes fast, often driven by news. They are the trouble-makers that threaten to break my firewall. Owning a hot stock looks almost like riding a tiger. I worry more about my peace.