January 24, 2008

But I'd Become One with the Horrible Grinding Losses

THIS IS TYPICAL -- ROUGHLY 23 seconds after I finally got comfortable with the idea of a prolonged downturn in the market, the market shoots up and all my positions shoot up with it.

Of course, I am not complaining about this. Not one bit. Like almost everyone else, I had a wonderful day on Wednesday, to the point where I nearly broke out in song at the office. (One of these days, I shall -- I daresay I'm close to having Monty Python's "The Money Programme" skit memorized, so that will be fun and exciting and draw weird looks from my coworkers, who are not as enthused as I am about business matters). I'm just saying I have an impeccable sense of emotional timing, that's all.

Now, the way I saw it (and see it), there was nothing inherently wrong with the downturn, even though I looked forward to its arrival the same way I look forward to having termites invade my apartment. After all, if we must have a downturn, let's get it over with -- let's flush out the wound, clean out the pus, cauterize it, and move on. Since I dollar cost average most of my investments, a downturn actually works to my advantage*, provided there's an eventual upside. Of course, there's always an upside -- we just don't know when it will come. So it thus made sense to keep doing what I was doing and then lie in wait for the inevitable switch in direction, allowing me to clean up on the back side. It is simple, and not all that risky, and it works.

Of course, it took me a while to get to this point. This is because downturns, in and of themselves, are not fun for long-term buy-and-hold investors like me. Sure, I could become a speculator and try to make money on the market falling, but given my capital and portfolio that is far too dangerous. Being young, I can tolerate risk, but at the same time that doesn't mean I should risk it on ventures in which I could suffer huge, capital-eating losses. So over the past few weeks, I found myself in the position of watching my positions slowly fall lower. Thus I entered the five stages of grief. And right at the moment I hit "acceptance," the Fed dropped rates 75 basis points.

No, really. At 8:04 a.m. on Tuesday, I sent out an e-mail saying something to the effect of "it's going to be a wild ride," based on the crazy futures reports we were seeing at the time. My exact words, in fact, were: "Getcha popcorn ready." Immediately after I sent this, the Fed dropped rates. Immediately.

Which I'm cool with, I would note. Like I said, I'm not complaining. That's especially because this could just be a hiccup on a long ride down into the cellar. If that's the case, I'd better start looking for bright sides again pretty quickly.

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* This is because I'm able to buy more shares with the stable value of my periodic investments than if prices were high; when an upturn comes, those shares will consequently be worth more.

Posted by Benjamin Kepple at January 24, 2008 12:01 AM | TrackBack
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