All this is good advice, but I haven't seen any prospective on personal budgets:
- Remember that money exists to be spent on useful things, it's not a video game score
- Understand your monthly spending and monthly take-home. If you're in a role that grants equity, I bet you've got a healthy surplus. If not, I bet you could make some lifestyle changes to achieve that.
- Take a moment to really accept that you are fine. You are not in danger, and shouldn't carry a fight or flight anxiety.
- Then think about your future. Can't sugarcoat it, you might have had more vacations or whatever if your options didn't decline, but I bet that you can chart a course to a decent retirement. Use an online calculator. Again, your future is fine. Not great, but fine.
- Think about what your future looked like when you graduated high school (or equivalent, wherever you did it). Did it definitely include being rich? If not, then you have lost nothing relative to that. And it's possible that on this company, the next one, or the one after that, you'll end up there anyway.
- Finally, spend a little money on something you like, and cut a little money on something you hadn't gotten around to canceling (streaming service, routine meals out, etc) You have so much control over your life.
This is great advice. One of the things I learned from the pandemic experience was how little money I needed to spend to be happy. I spent countless hours making music using iOS apps that cost next to nothing. The possession that’s given me the most joy over the past year is an old acoustic guitar that someone gave to me, free of charge, that sent me down the path of learning a traditional musical instrument for the first time.
I used to think that if I had enough money I’d travel. We have savings now that would support living abroad, and I can work anywhere, but after doing a bunch of traveling I find I’m always happy to be back home. I like cooking my own food, seeing family and friends, sticking with my familiar routines, and so on.
I recognize that sometimes funds are needed for things that would truly make a material difference to happiness, such as being able to sponsor family to immigrate or pay for a child’s education. If your decline in wealth impacts those things, then you (OP) have my sympathy, and I hope if you are patient then these things will still be possible for you. But if that is not the situation, the old aphorism that money does not buy happiness is very true. We don’t often live like it is, but it is.
Sorry that this happened. You're not alone feeling this way.
I have lost about 95% of my liquid net worth this year, due to hubris, basically. The first half of 2022 for me was waking up every morning and feeling like puking a little as I get more under water, closer to that margin call, plunging through my stops.
After almost a year of this, I have found a perspective that is helpful for me and may be helpful for you.
It is my firm belief that you are meant to learn certain things in life, and your subconscious very carefully and meticulously arranges your life circumstances to learn these things. This is why you often find yourself shaking your head and saying "I got myself into this".
It may be different for you, but I have realized that the thing I needed to learn is that my net worth is not my self-worth. I realized that I've desperately been trying to make money my whole life so that people will like me and I can avoid the pain that I saw caused by poverty when I grew up.
I have been blessed to have money and realize that neither one of those things are true, and then I guess I have been blessed to be tested on what I learned the first time around by losing it.
I have also come to realize that I don't need all that much money to live a comfortable life.
These are the things that I learned. They may not be what you are intended to learn.
So, take it easy on yourself. What happened may have been completely out of your control, or it might have been something that you contributed to. Either way, it's done.
Take some time to feel shitty, because you will, but consider changing perspectives and start looking at what you can learn from this and maybe even what opportunities have opened up because of it.
> “I have realized that the thing I needed to learn is that my net worth is not my self-worth.”
This is a really important point. I’m not a native English speaker. When I first heard an American use the expression “he’s worth X dollars”, it felt extremely wrong. Someone’s worth should never be attached to a dollar value!
I’ve got used to it by now, but I still wish Americans would come up with a more constructive way of talking about wealth than “personal worth.”
To make money, why else? Look folks, this wasn't my retirement money, it was money I didn't particularly need and had no idea what to do with.
It always worked for me before. My investing history is a long string of huge successes beginning in 2014.
I've always invested in companies I believed in and that had solid fundamentals.
It appears the market doesn't give a shit about company fundamentals right now. Most small growth companies are down ~80%. The two companies I lost everything in are currently priced below liquidation value.
Yeah, I bought on margin, so that gave me 2x leverage, so if it goes down 50% you get margin called.
I know you're joking, but as much as i've learned that my self worth doesn't come from making money, it doesn't come from bragging about losing it either :)
It is my firm belief that you are meant to learn certain things in life, and your subconscious very carefully and meticulously arranges your life circumstances to learn these things. This is why you often find yourself shaking your head and saying "I got myself into this".
@jeremyt care to elaborate on this thesis and wondering how you came to this conclusion, was it a self journey
I was attempting to keep religion out of it, but this is the Buddhist worldview.
I believe that my soul chose this life to learn what I'm learning. And whether I'm conscious of it or not, the "higher self" part of me hangs around in the background to ensure that I learn what I need to. This isn't typically what one would expect from what other religions would call a "guardian angel", but that's kind of how I see it.
Like, sometimes I can't take losses. That's deep family karma from being afraid of being poor. However, being unable to take losses means that you make poor decisions. Not being able to make good financial decisions makes people poor, and just continues the intergenerational cycle of poverty.
So, my unconscious "higher self" carefully arranges events such that I encounter maximum pain for going along with this karmic thing I'm supposed to transcend. The pain facilitates the learning, and thus the freedom from the karma.
Ultimately, the point of existence is to experience everything that can be experienced in every lifetime and learn everything that can be learned, resulting in ultimate freedom from karma and liberation from the cycle of birth and death.
Or, you can just meditate a lot, and I guess I'm working on that.
I'm not spiritual at all, but I did resonate with the Buddhist principle to acknowledge your emotions, rather than to react (or avoid) them. Something I'm trying to apply in my own life.
Strategies that result in 95 % drawdowns are not in the "making you money" bucket.
Since growth is compounding[1], the most important property of a money-making strategy is to keep drawdowns at at optimal level. This optimal level is a thrill ride on its own, but 95 % is plain overbetting and will never make you money in the long run.
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[1]: If you draw down from 100 to 10, it takes as long to go back to 100 as it would have taken to go to 800 had you only drawn to 80.
This is correct only if you look at single bets in isolation, or at bets small enough that you can actually make so many of them you get the EV in the end.
Once you look at a long sequence of large bets (where 95 % drawdown absolutely indicates a large bet), you'll find that those where big drawdown can happen grow slower because a big drawdown simply sets you back too far. It's worth earning a little less for each bet if none will cost you a huge loss.
> It appears the market doesn't give a shit about company fundamentals right now.
Fundamentals have never mattered all that much. Stock prices are based on demand for the stock itself, which is largely dependent on economic conditions. When the Fed was increasing the money supply a lot of that excess pumped up stocks because there was nowhere else for it to go, now that money is drying up causing the market correction.
“In the short term the market is a voting machine. In the long term it is a weighing machine”
- Buffett.
Fundamentals matter over long periods, but in short time spans it is, as you say, about demand for the stock which can have nothing to do with fundamentals.
Sorry to hear about your losses and this might sound like lecturing but I think it's worth saying.
What price did you pay for those businesses? When you say they had solid fundamentals what does that mean? A pretty common mistake is to overpay for a business with good potential. Unless you have some unique insight everyone already knows the business has potential and it's priced that way. The market as a whole had crazy crazy multiples which means it was overpriced even including the growth prospects. Sure, if you think Tesla can get to a point where it's selling all the cars in the world then you definitely should buy that stock at the price it was trading at.
Overpaying on margin is just compounding your problems. I never ever buy stocks on margin (and generally I avoid borrowing money for anything but the most solid investment, like buying a house). You have to always think about the worse case scenario and be willing to live with it. Ofcourse gambling a lot of money can lead to making a lot of money- it's just that the expected value is negative.
The other thing you always need to consider is how the company you're investing in will perform in an economic downturn. Recessions aren't an if, they're a when. There's a certain chance of recession every year. If you believe the company has strong enough fundamentals to survive a recession and strong enough management/leadership to steer it through difficult times then just hold on. Presumably you have a mix of those so on the aggregate you should do ok. If these great companies are below book price then double down on them but keep in mind the market is disagreeing with your evaluation. Otherwise you've miscalculated the expected value of your investments i.e. your belief in the companies and their fundamentals was incorrect.
And as long as you truly learned things, and apply them later[0], then it is not money wasted. I graduated from Wall Street University about fifteen years ago, and paid some steep tuition fees, but I came out a better investor for it with consistent returns. (For clarity, WSU is not a real university, but a metaphor for “blew a lot of money in the stock market”.) Take those lessons learned, and go make even more than you originally lost.
[0] Examples including, keeping emotions in check or out of the decision-making process, disciplined stop limits/losses, and, umm, staying away from margin unless you have reasons beyond “margin let’s me buy more shares”. But these are my personal examples, go find your own. :-)
Same here. My biggest bets were facebook, uber, and netflix, and they went down the most. Still, I still think that there’s no way these companies won’t continue their growth so I refuse to sell.
Facebook has 14% YoY growth, P/S of 3, P/E of 10.6, with 80.5% gross margins. If those don't sound like strong fundamentals, let me know what companies have better metrics, I'd actually be interested...
The path you took was not an advisable one. The wins of the past decade were way past normal. The game seemed too easy.
Now that you have the experience, go read bogleheads.org and begin to learn a more sustainable path to wealth. (It's still very much attainable, especially for the typical HN reader.)
> It appears the market doesn't give a shit about company fundamentals right now.
I don't think it ever did. I think it's all about the free money pouring into the economy due to low interest rates set by the federal reserve. They turned off that tap, the flow stopped and the economy screeched into a halt.
The everything bubble gave a lot of people the mistaken impression that they were genius tier investors. I know I personally spent a lot of emotional energy on checking my own ego.
I’m involved in a few personal finance communities and this is very true. I especially see it in people who are in their 20s or 30s and started investing after the US subprime crash.
> I realized that I've desperately been trying to make money my whole life so that people will like me
Money themselves have zero value and certainly shouldn't be viewed from that perspective. Their only value as a tool to get things done or buy something. Nothing more.
Fidelity did a survey of thier customers whose 401k did the best over the years. The most popular response (about 1/3) was 'I don't have a 401k at fidelity'. They had forgotten about it and left it alone to grow through good and bad. If you know how your investments are doing you know too much
Your first and second sentence made me laugh out loud because I thought it was a joke. The explanation makes perfect sense though - buy and hold beats the average attempt at market timing.
The finance academic literature has advocated for years that buy and hold is the best strategy for individual investors. However, anyone who bought the stocks at the market peak in 2021 will have to hold them for a looooooong time before they can break even. And that too in terms of nominal returns as break even in real returns will take forever! So the pain is real for the people who started stock investing last two years.
If you started two years ago you should have a loooong time to wait. Stocks have never been considered a great short term investment. Those of us who started 20 years ago have put only a small part of our net worth in the past few years and so are still well ahead
> Well, maybe. My Fidelity contact has not heard of such a thing, nor has Morningstar's Fidelity Canada contact. Suffice it to say that none of these citations came linked to the original source. (Such is the Internet.)
I mean, simple Google produced result I shared, which you might have easily cited to in your original request and added the clarification you just added, but you didn’t do that.
Or strange thought, you could contact Fidelity and ask them yourself — and if it is urban legend, let them know, and suggest them survey their records and see if legend is true — since for sure mainstream media would cover it and given current economy likely be good for business too.
Yes, and that was an interview between Barry Ritholtz and James O'Shaughnessy of O'Shaughnessy Asset Management, and not someone from Fidelity. Here's O'Shaughnessy again on that anecdote:
> 1/That story was told to me by a former colleague which perhaps allowed me to lower my guard on it. When I went looking for it, I found nothing. Pure Urban Legend. Underlying the importance of seeing the source material. My passing it on in an interview gave it more life.
> Or strange thought, you could contact Fidelity and ask them yourself
Many, many, other people have already done that, and Fidelity has told them there is no such study, as the link I cited states:
> Well, maybe. My Fidelity contact has not heard of such a thing, nor has Morningstar's Fidelity Canada contact. Suffice it to say that none of these citations came linked to the original source. (Such is the Internet.)
> Mean time, no shortage of research on the topic:
I'm well aware of the advantages of passive investing and practice it myself (as my comment history in this thread will show). But if you're going to encourage people to do it perhaps use studies that actually exist.
Interest rates have been on the decline for this period resulting in everything going up (the everything bubble). Rates now have to go up because inflation is running rampant, and so we need to see valuations (as a whole) reverse.
My perspective is a bit different since I don't have stock options, just plain retirement and such. So, take this with that in mind.
I would recommend giving yourself a break from following it. My reasons for not looking are these: Values of assets change a ton day-to-day, and a year or two from now who knows what it will look like! I also don't have any control over prices. I could shuffle assets around, but again I don't know what will happen a few years from now. So, I don't gain much by looking at the numbers often.
Sorry it's a stressful sad time for you though. It does suck!
This is something covered very well by Taleb in "Fooled By Randomness." Simply by exposing yourself to random fluctuations on a shorter cadence, you are experiencing stress reactions that would never occur if you checked it on a less frequent cadence. Anyone who has played fantasy football will be familiar with this. If you check your players' scores every five minutes, it is infinitely more stressful than just checking them once on Monday morning.
I used to write software for financial traders, so I know it's possible to make money by following second-to-second shifts in the market. But it's a zero-sum game, and I saw our traders take a lot of money from people who were responding to second-to-second shifts in the market.
These days I put my money in long-term investments and then look at them every few years. The other day I saw mention of the big market price jumps. I thought, "maybe now's the time to rebalance things?" And then I sat very still until the urge passed, because reacting to headline news strikes me as a great way to lose money.
Also why defaulting to hooking up mothers in labour to continuous monitoring is a bad idea. Better, unless something else is medically called for, to check in at sparser intervals instead.
Also a good reason not to get these "breathing monitors" for infants, again, unless medically indicated.
Same advice. Unless you're a day trader, just pick strong assets and look at them once in a while. You'll get sick if you keep reacting to the fluctuations every day.
Since the GP talks about stock options I’m guessing these are part of their total compensation and not a discretionary investment. I’m in a similar boat - stock is about 50% of my total compensation but its value has dropped by 90%. It’s hard to be blasé about losing almost half my income.
Unless you are aiming for the C suite you should NEVER have any company stock as that is putting too many eggs in one basket. If you have all your eggs in one basket you better watch that basket on a level that only C suite people have access to. (I'm not sure if they do,but at least they can unlike those below)
In this case, you don’t have much choice if company stock makes up a large portion of your income. You can sell immediately but the money you receive from that transaction is much less - it’s lowered income even if you immediately diversify.
I.value company stock offers at zero. If I get it and can sell it is a nice bonus. I've seen too many burned by then. The only reason i'm not one is I knew this could happen so I didn't count one things. (They have worked out once in a.while too, but until the money is in my bank account I don't count it)
Yeah, exactly why I mentioned it. I don't have that setup, so it's different for me. Don't want to be dismissive of that point!
How does it work though? Do you sell stock to use as income? Do you hold onto it and get by on salary? I'm not really familiar with how people use these kinds of setups in total comp.
If you are not retired, then markets being down are a good thing, because everything is "on sale" / at 'discounted' prices. At least for the US† (S&P 500, NASDAQ, Russel 2000), the historical 1-, 3-, 5-, and 10-year returns after a 25% drop are quite good:
You should really start making regular contributions to get back in. You should always be fully invested: having cash on the side long-term is generally not a good investment. Even if you new ahead of time when the dips in the market would occur—which is impossible—it's still better to do regular contributions:
As for myself: I have no idea if I'm down, or by how much, since I haven't logged into my brokerage/trading account since January when I topped it up for the new year; almost all of my investments are automated so I don't need to see/touch things. I have several decades until retirement, so why worry about what happens of the course of a single year?
At the end of the day you should always be invested, and if you're worried about market undulations then you should own some bonds. And besides reducing gyrations, bonds give another advantage: a source of 'dry powder'.
If stocks get "too high" you rebalance by selling off some equities and buying bonds to 'lock in' the returns. When stocks drop you rebalance again by selling off bonds and 'buying low' in equities. Bonds/diversification can really help returns:
> By sitting in cash you're also losing money through inflation:
Also by sitting in Stocks, you not only lost 20% this year, but also 9% due to inflation for a total loss of ~30%+.
Cash is cash. It gets the job done. I'm not saying go 100% cash btw, but it has its place in this time of uncertainty. You cannot buy the dip if you're 100% invested, you have to be holding cash.
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I suggest holding 10% cash and rebalancing as needed. As the market goes up, you naturally sell stocks for more cash. As the market goes down, you naturally sell cash to buy more stock. This stabilizes the portfolio significantly.
Surely you have some cost-basis lot where selling just 10% of your portfolio results in a capital loss (ie: a tax _break_) if you were going to switch into Cash today.
> you would have to time the bottom to get back in.
Think of cash as a call option premium for being able to buy future investments at a lower price.
People tout the "cash loses to inflation" mantra as an absolute - they forget that in large market downturns, cash availability compresses while assets become in greatly less demand. So cash being available when everyone desperately needs it, but few have it, gives cash a value explodes on a opportunity basis for a window of time.
By keeping your stocks you lost your money to inflation too, and then another 20+% because you held through a bubble pop.
I think a lot of the personal finance investing advice given to people in the vein of “solid advice for 90% of people to follow without too much expertise” is becoming some weird dogmatic religion. You must never time the market (even at a loose monetary policy induced bubble), you must always hold total market/sp500 ETFs (even when they’re filled with overpriced companies), you should diversify into bonds (the most garbage asset class available for the past 20 years, until the last 6 months, when they became only partially garbage).
This advice has gone from being labeled as generalist advice with asterisks, through many rounds of telephone, to now being something that invites angry replies if you disagree with it.
"Losses" only occur when you lock them in. If your trading account is down now you have lost nothing—just like you haven't made money until you sell your holdings for cash.
Marking to market (looking at unrealized losses or gains, ie. the value of your portfolio before you sell) is useful if you trade on margin, use this as a collateral (borrowed against it), or plan to sell soon.
In all these cases, this is because you need to sell (directly or indirectly) and thus lock in whatever the current value is.
But until you sell, you have no actual (realized) loss (or gain).
That sounds great in theory, but you can't implement it in practice. It's often easy in hindsight to identify where are those suboptimal 5%-away-from-perfect-timing points where you should have done a rebalancing, but we have no idea how close we are to the next peak/trough.
You also have to get back in at the right time. A lot of people called that the market would drop in March 2020. But how many realized that by August, long before vaccines were in sight, that the market wouldn't go below the pre-covid peak again? Somebody who sells in March and then buys in October loses a lot.
I started investing during this downturn. I'm investing for 30 years. Either this is the end of the world as we know it and my money is going to be worthless or it'll be fine over 30 years.
Don’t. Wait for a few more years to see how inflation and interest rates and your portfolio goes. Retirement now is a massive gamble as major variables affecting your entire retirement plan are a complete lottery right now.
Are you in Europe or the States? The two areas have vastly different economic outlooks.
The outlook in the US can best be described as "uncertain". Valuations are down because the market doesn't like uncertainty, but it doesn't necessarily translate into a future recession -- many of the economic indicators in the US are very positive.
OTOH, Europe is facing a hard winter unless an energy miracle appears.
The market is down 20% on the year, so that means that a lot of people are underwater on their options, so that the fact that yours still has some value means that you are doing better than many.
Huh? nonfarm payroll growth is up 263,000 in September.
The most predictive indicator is the unemployment ratio, and it's very low right now.
Perhaps inflation is a better predictive indicator, but we really don't know since we haven't had any for ~40 years. As I said, it's the uncertainty depressing markets IMO, not necessarily the outlook.
Unemployment really needs to be paired with the Labor Force Participation Rate. Unemployment is low, but LFPR is down as well. 10 years ago it hovered steadily around 63.5-64%. The pandemic crushed it, but we're still only back up to around 62.5%.
That's a lot of people not working that simply aren't in the market anymore, unemployment would look a lot worse if they were included.
LFPR is above the level it was pre-pandemic. Immigration is the best way of driving up the LFPR, but that was essentially nil during the pandemic and is still way down. Combine that with the aging population, and a slight increase in LFPR over the last 3 years is much better than could be expected.
Sorry, missed this reply! Here's my source for the LFPR stats I mentioned above, we haven't recovered from early 2020 yet (and are way off from the rates pre-housing crash)
At no point did the parent allude that. Perhaps the poster just doesn't have insight into every economy on the planet and didn't want to give nonfactual info.
Make sure you are personally prepared if you get laid off. Have enough cash on hand to cover 6 months of expenses.
Accept downturns are a part of life and are overall a good thing. Every bull market accumulates cruft (NFTs, ahem), and a downturn helps clear that out for the next bull market.
Downturns can be a fantastic time to buy. The old adage is to buy low and sell high. S&P 500 is down 25% this year. If you believe (as I do) it will more than recover, then if you buy today, you will earn more than 25% return when it does.
Lastly if your stock options are hit more than market, assuming you believe in long term health of business, that probably means they will recover more once market recovers. Tech stocks are getting unfairly punished now because of tampered growth expectations. Don’t sell them. Let them vest and ride. In fact buy more if you can (see point above).
Perspective. Rather than spend the day looking at your portfolio, go outside, take a drive, amd volunteer or even just have a few conversations with those less fortunate than you. Folks that don't have investments, 401ks, but are still beautiful humans. Perspective will help you tp see what you have, not the small percentage you are loosing.
1) we're likely in a declining/sideways market for at least another year until inflation subsides, possibly longer
2) the Fed has most of the control over the inflation/deflation levers (on demand side)
3) markets will most likely recover over the long term, historically speaking
The Fed is purposefully reducing their asset holdings and increasing interest rates to slow down demand, which in theory should cool inflation. Once the economy cools enough, they will "flip the switch" back on to supporting markets by reducing interest rates, at which point #3 should begin. Educate yourself on the Fed and their impact on markets.
So if you sell at the lows, you're accepting the losses, can move on and invest again later. If you can afford to hold through this bear market, you may recover some of your losses on a longer timeframe. You can also position your portfolio with some downside protection (e.g long dated put options on indexes, selling covered calls on your stocks etc) to reduce the pain, you don't have to just watch your portfolio decline.
I agree with most of this, but note that stock prices don't track real-world events as closely as you're suggesting. They're based on competing predictions of the future. The market will (or has already) hit bottom when the average prediction starts being less pessimistic, not when inflation actually subsides or the Fed actually lowers rates.
The defining feature of bear markets is not direction, but high volatility -- they look like a random walk without a clear upper or lower bound.
Yes predictions are a part of stock prices, but the price ultimately comes from supply and demand. If there are more people that want to buy the stock (demand), than people selling (supply) then the price goes up. In this environment where inflation is everywhere and it costs more to borrow money, demand has come down and will likely not return until the Fed switches their policy stance. At least for US markets.
This is something of "the exception that proves the rule." Literally everybody brings up this specific index as the example. And further, it saw a ridiculous growth prior to its collapse. A regular investor still made out like a bandit. The only people who got crushed were hypothetical investors who put all of their money in right at the top.
A different take on the same thing: the best models we have of the risk-free returns of equity markets are unbiased random walks, or martingales. Whatever value the index is at now is the best guess at what value it will be in the future, at least when absolute polynomial loss is the error function.
Investments doing so well these last 40 years is the unusual part. Vast majority of the gains in the stock market over its history happened from 1977-2007.
Bretton Woods was a defacto global* monetary system with other currencies tied to the dollar, and the dollar convertible to gold at a fixed rate. Nixon ended it in 1971, at which point the government was unconstrained by any external forces when determining economic policy. The debt to GDP ratio in 1971 was about 35% and declining. Today it's 122%. Even before COVID it was 105% and rising.
If this is not sustainable, then there will be a generation which will simultaneously be the last to benefit and first to suffer for this.
If that period really was remarkable, I think the outcome of a worse period is just lower expected returns, not the end of the world. Japan is often used as an example. But, if you invested regularly in Japanese stocks over that period of stagnation, I think with dividends its still a fine investment.
The FTSE 100 is almost at the same level as in 2014, those betting that the S&P 500 will always be different than the rest of the exchanges/indeces might be in for a nasty surprise.
Europeans have significantly different attitudes and values towards work and the economy, not to mention constraints. It certainly shows what's possible, but I don't think it's a great comparison.
1) we're likely in a declining/sideways market for at least another year until inflation subsides
Gonna be a lot longer than that, at least as far as inflation goes. Q3 2022 is the median date for retirement of the largest generation, the Boomers. When they retire they take their capital with them. Expect the cost of capital triple for at least the next decade.
Most people will have their capital in accounts the rebalance towards bonds on a yearly basis. They aren’t going to be just pulling a ton of acapital out of the market to live off of
The US population pyramid is no longer a pyramid, and neither are those of most of the rest of the world. Not having to pay to raise a larger generation created a golden age that's lasted thirty years. It's now time to pay the piper.
Millennials are the largest living generation. The total population of the Boomers, and their economic impact, was higher. It's just that some of them are dead now.
This was in the NPR recently [1]. It has a good perspective: just like jump ups in your portfolio aren't worth anything until you cash out, drops aren't losses until you cash out.
Or the Warren Buffett philosophy[2] is, don't make a number be the source of your happiness or sadness. Play with your kids, enjoy life, even if that number is horrible, will you be fine? Probably yes...
My stock options have gone to basically zero twice in my career. It's OK. I knew going in they were gambles on companies I wasn't sure would take off, and I made sure I still had a decent salary from those companies. I also got a LOT out of those companies in experience.
You don't have to buy options that are underwater, or that you're not sure will go back up. You might choose to buy some anyway for Reasons (in both my cases I did do modest purchases, and nothing has come of them), or you might decide to go put your money elsewhere.
My advice to you: particularly if it's early in your career, don't put all your eggs in one basket, and don't have only one iron in the fire. Find other ways to squirrel money away. Diversify your holdings over time. Consider all the investment vehicles your company may offer: US companies I've worked for also offer ESPP, 401(k) contributions and matching, and RSUs (which unlike options are actual shares given to you), for example.
Finally, go talk to a financial advisor if you haven't already and come up with a long-term plan that makes sense to you. That should give you some peace of mind!
I am not a financial advisor, but I think markets are far from bottoming out. NASDAQ touched the resistance line, if it breaks it, we will go down even more.
I also have multiple stocks that are >50% down, but if the fundamentals of the company has not changed since you invested when the price was higher, why not to buy it cheaper with discount to DCA.
As for me, in this market turmoil I just keep saving cash for the bottom and put small sums to DCA in my current positions, as I think it is a great opportunity to buy for the long hold.
Just try no to look at our portfolio every hour, because it will no change everything the less you look, the calmer you will be.
If you want to pick stocks, and not just use a roboadvisor like betterment or wealthfront you have to understand that the market does not always go up.
This means you have to have a bear market strategy and know when to switch modes from bull to bear by watching and deeply understanding the federal reserve. Otherwise, just give up and use a roboadvisor.
In my case, I sold my tech portfolio when it was clear we were in a bear market when the war broke out and inflation was roaring. There's a reason people spend crazy amounts of time analyzing the fed. When they start raising rates a lot, like 75 basis points, the market WILL crash.
I then started playing around with swing trading energy and monkeypox stocks and options and I'm now a little ahead of break even for the year. Generally government spending (monkeypox) and whatever is driving the inflation (energy) does well in an inflationary depression, which is what we're in. You have to watch the news though to see if monkeypox is a dud or if opec is going to throw a tantrum in response to world events, like when probably the U.S starts destroying energy infrastructure.
Sure, swing trading is short term capital gains, but the key to investing is DON'T LOSE MONEY. You can only use $3000 in losses a year, so losing money in the stock market is double bad.
I will eventually become a bull again when the fed decides to start lowering rates. Permabears are just as big of stock market losers as permabulls.
I skimmed an old book (whose title I don’t remember) that simply recommended: when the Fed raises rates, move from bonds to stocks; when the Fed lowers rates, move from stocks to bonds.
Tracking the Fed like that seems like a lagging market indicator. It was probably more effective when bonds had double-digit returns.
A longer-term perspective might help ease your short-term emotional swing… see longer-term asset class graphs at https://totalrealreturns.com (my side project)
Options are leverage. If you can’t handle the levered-up volatility, reduce your leverage.
Without any context on the poster (age, net worth, career status, etc) it's not possible to say anything concrete.
So I'll just speculate. Perhaps the poster is young enough to have entered professsional life after the 2008 crash. If so, they have only experienced a bull market going mostly only up with minor blips. But that's not normal, markets also crash and also sometimes meander down for a long while. Don't ever be invested in a way that such an event will be catastrophic to you.
The dot.com crash turned my ~$1M into about 20K. At least they were options, so wasn't money I really ever had in my hand, but it was still a bummer.
The money is gone but you have a lot of qualities, you can learn from this valuable lesson and do better in the future. For example, I know someone who buys companies that have 20 years of consistent profits. He is down 9% this year, but fell far behind people who were making money from technology stocks in the boom times. He only looks at his stocks every 3 months and worries about nothing.
In one of the Market Wizards books, an investor said that if he cannot sleep from worrying about his positions, he sells them until he is comfortable.
If your company is granting you call options, all your new ones will be at lower prices and they may even lower the strike prices on the old ones to retain good employees.
Try to get investments that are not correlated with the success of your company or industry or where you own property.
The boss that hired me 15 years ago told me to save 20% of my take home income and invest it in quality companies with consistent earnings. He later retired at 55.
Cut your costs, pay off your debts and lower your personal overhead, so that you are more resilient if you have to switch jobs or earn less money.
Timing the market over the long term is very difficult and it is better to assume you cannot. It has been known for decades that if you miss a couple dozen up days because you were flat or short the market, your returns over decades are much lower.
https://www.marketwatch.com/story/how-missing-out-on-25-days...
If you are going to buy stocks or an index like the S&P 500, take a look at 50 years of data and see how bad the top 10 declines were and how long it took for those investments to reach new highs. The stocks I own have gone down 50% previously and I assume they could top that with a 60-70% decline. The worst time it took almost 3 years to get back to new highs. Once you know that about your investments, you can rest easier.
Look for chances to buy quality companies so you do well when profits improve. You have all your valuable skills, you know more now and will do better in the future.
Are those stock options for a public company? If not, I don't know if this would cheer you up or not, but you should have assumed they're worth zero anyways.
With respect to the market it goes up and it goes down. If you have a good portfolio and you're invested for the long term just ignore it. To help you feel better look at how quickly the market recovered in the dot com bust, and in 2009. Keep dollar cost averaging. Never put any money into the market you might need in the short or medium term, stocks are for long term investment.
If you bought options your base case should be that they expire worthless, except some very special cases. If you sold options your likely case should be extreme loss, exceeding the premium in double digit multiples.
If you don't know this then you shouldn't have traded, and were misinformed. They're considered complex instruments for a reason, and the ease with which the masses trade them is something of a tragedy.
This has happened multiple times in the past and will happen many times again, as there's nothing new under the sun (from Livermore, one of the greatest speculators).
A fun little book that I like to recommend: "Confusion of confusions". It was written by a Jewish trader working with the 1600s Amsterdam stock and bond exchanges. It is a good proof of how little things have changed, you'll understand pretty much everything once you map the terms and concepts to their modern equivalents.
In which case - and sorry for not having any consoling words here for the OP here - I can unfortunately not really have much empathy here. An overwhelming majority of people especially here on HN laugh at you if you discount variable aspects of renumeration. Employer issued options or RSUs are down 90%? So what! You accepted a variable renumeration scheme. You knew ahead of time. You are no longer making 200k base + 200k in options/RSUs that you expected to actually yield you 500k in value for doing nothing? Well that's the deal you took.
EDIT: From the down voters I would appreciate some substantiated reply as to why this isn't true. Don't get me wrong, if I had taken such a deal and was now under I'd be miserable as well, especially if I counted on that money and maybe bought something on credit expecting a windfall later. Such as getting a huge mortgage I thought I'd be able to pay off very fast soon. I took the opposite deal. I rejected offers that wanted to give me a lot of variable renumeration and a small base salary and was laughed out of the room.
I’d hazard a guess that you’re being downvoted because of your lack of empathy, which is the point of the post, but also because of your gotcha position around variable comp.
If you work for a startup and reject variable comp, you are wasting your time. Go get a safer, easier, better-salaried position.
If you aren’t working for a startup, you’re in no position to comment on the validity of the approach people take there working with variable comp.
You just walked into a funeral for people who got hit by a train and said “what’s the big deal? I never cross train tracks, they’re too risky.”
We don't know about the OP. He didn't say what his situation was. For the hypothetical situation of my parent my stance stays even if voted into oblivion. And I knew it would likely happen given the overall sentiment on HN. Like with variable renumeration itself knew what I was getting into. FWIW I have a variable mortgage and I knew what might happen and is now happening and that is why I didn't buy at the top of what the bank would give me.
If you work for a startup, like you say, there's usually no option to get more base comp. Absolutely understood. You do that when you are young and take a chance to hit it big. Don't complain if you don't hit it big though.
I never said I applied at a startup though and the example I made is more indicative of Amazon or Google.
The way I see the parents example the appropriate analogy would be a funeral for people that liked standing on the train tracks knowing a train was coming and trying to jump before it hit them and I wonder why everyone is surprised that it happened.
I’m not saying your position is wrong or irrational. You chose not to participate in an upside which can be a lottery ticket. It’s a fairly rational position. You asked why you were being downvoted so I tried to explain the reason, which it seems like you were already mostly aware of.
And even if the funeral is as you describe, my point is that people don’t usually want to be told at a funeral why the deceased was wrong. It’s for emotional support. Like this post.
Fair enough. Just to be clear tho, I was asking for a rational discussion (or as I put it "substantiated reply as to why this isn't true", not for why I was being down voted ;)
And again fair enough that in this situation it is very easy to not apply this to the original poster's question and situation (which analogy wise would be shouting at the entire group of people gathered at the funeral that it's this guy's fault for crossing the tracks vs. having a side conversation w/ someone who posited that maybe the guy was one of the ones that actually stands on tracks for thrill when he knows the train's about to be there ;))
This was the general sentiment here 8 years ago and I’ve always trusted it. As such my various equities have always been treated as “funny money.” If it works out, great- but I don’t count on them.
If that sentiment has somehow reversed… well, you picked a bad time to do so!
Without additional info, telling a stranger that they had “200k in options/RSUs that you expected to actually yield you 500k in value for doing nothing? Well that's the deal you took.” is likely to gather some downvotes for tone, lack of empathy, and a bit of strawmanning.
It was a side conversation after my parent poster created a hypothetical situation precisely because the OP did not specify. Also see longer reply here: https://news.ycombinator.com/item?id=33141941
Another way of framing it: you can now buy a bunch of stocks at a 90% discount :)
Of what little I have in my Fidelity account, literally everything's in the red (except, weirdly enough, the single AMC share I own). Doesn't bother me too much; just means I can get more bang for my buck right now. At some point that'll flip around (with inflation the way it is, there's certainly some investments that'll depreciate slower than the dollar over the next decade or so), so even if we ain't at the bottom of the market yet, I feel like now is the time to be squirreling away bits of pocket change here and there.
The sun is setting, and the night will be long and dark, but at some point the sun will rise, and now's the time to prepare for it.
...that, or it'll prematurely supernova, at which point stock prices would probably be among the least of our concerns.
You crying over money you never had. I’ve been on this ride a few times. I’ve learned that it’s not real money until you can (and do) cash it out. It’s intoxicating to think about your imminent ability to retire, but the mistake is allowing yourself to become intoxicated in the first place.
In the markets, the hardest thing to mentally is usually the correct one over time. The markets goal is to trick everyone - so you have to be strategically, but intelligently, able to craft contrarian perspectives.
Based on my understanding of you’ve said, you are down bad on holdings (on paper) as I’m sure most all of us are but are you in need of liquidity (cash)? If not then it really doesn’t matter. Try to focus on what you need to survive/live and let markets do what markets do.
Eventually markets will stabilize/return to previous levels at least historically speaking.
If you are in need of liquidity you could look to sell your current (even your future, yet to be vested holdings) but I’d recommend sitting on your hands unless you are an active investor or in dire need of liquidity.
Options have this thing called "time value", so you lose just by nothing happening.
It's unclear if OP is getting options as part of his remuneration or if he is gambling, so impossible to advise. If he is gambling, he should just stop.
If you still feel like investing, then just continue. It's called dollar cost averaging. The modern term would be buying the dip. Also you could save cash and wait till you think the market has bottomed. Now some stuff has crashed more than others. You could find new opportunities which are really undervalued in these markets. A lot of the weighting has changed. So what I'm saying is, nothing stops you from continuing. You may lost a round but not the game.
Diversify asset classes. When you do have the chance to exercise stock options, do - to a basket of stocks (like a total market ETF) and other assets (such as bonds, cds, notes).
If you're worried about stock options and other Corpo nonsense to such a point if affects your general wellbeing - get some perspective. You're still the top 0.0001% of humans whom even have the opportunity, and you're still not happy.
You've got limited time left to live, do something more meaningful and you won't be worrying about stocks into your 70's.
So sorry this happened. Can’t help you feel better other than to say you are not alone. I didn’t suffer as much as you. I went more conservative, or so I thought, and went heavy into bonds, which most 30% over the past year. I guess the moral of the story is stay diversified, and if every asset class goes down, well, we all lose together. Misery loves company.
Know that relative to previous events it is possible for a much larger drop. Be mentally prepared. Stick to your plan. If buy and hold is your plan you should already know that it routinely has 30% drops for months or years at a time. If you have all your money in one company stock then your plan could use some diversification.
Markets go down and up. Your money isn't real till you cash it out, and it's unhealthy to let short term changes in headline numbers control your emotional reaction - positive or negative.
Your focus on the short term is causing the issue here, so try to move on from that.
Stop watching the markets, stop reading the news, do something fun and engaging. This is the best advice you'll get (which is why so many people are giving it). If you're serious about feeling better, please take this advice.
Remember that the only number that really matters in terms of your bank account is 0. As long as you can hold off 0, you are doing fine. A lot of other people are in the same boat.
Otherwise, you don't need to look at the value of your options.
Hey I can related, my stock options have a similar value, but we have to think that is temporary the market goes up and down with time.
Also I recommend you looking into Stoic philosophy it helps a lot on these times.
doesn't take paragraphs to explain this. you invest better by remaining emotionally attached from your investments. if you've invested well over the past 5 or so years you should be sitting on a nice pile of cash. spend it. the dollar is strong, inflation is at an incredibly high level. don't just waste it all, treat yourself to something nice. if you haven't been invested over the past few years, you should devise a plan for doing so as a bear market/market downturns are the best times to invest.
If the value shrinked 90% and you're not buying tons of shares of this company (or negotiating more shares instead of $ if it's a private company), it means it was all bullshit to begin with.
According to the Buddhist doctrine, thinking of temporal things as if they were permanent is the chief source of human suffering. Certainly it does apply to economic growth.
There's nothing wrong with the markets being down. It means the dollar is up? It's perhaps a good time to buy. The problem is with your bets being wrong.
As long as you don’t sell you haven’t lost. Could recover in the next 2-3 years. Stock market is a risky investment. Own it and move on. Take responsibility for it and don’t feel bad. Brush it off as a loss. It is what it is - you took a risk at the end of the day.
Good time to buy. 90% loss seems severe, possibly also good time to change employer (which is also essentially buying the dip - you get $N of RSU at the low valuation)
Changing employers might still mean a big drop in stock from when you start. Unemployment still hasn’t ticked down, the Fed is not done with its job of squashing inflation.
Good companies are giving solid refreshers to ensure you are paid more fairly moving forward. See if your company will do that, it’s sorta the same as getting a new offer elsewhere. If your current company won’t do that, that is a bad sign they are worried about bankruptcy and you should indeed leave.
A company worried about bankruptcy wouldn’t seem overly worried about issuing new options (which will become worthless if bankruptcy happens, so cost nothing but some paperwork).
There are many good reasons to leave a company whose performance is declining and where your compensation is cut to well below what you can make elsewhere, of course.
I will never forget the words of a previous tenant of mine. The profile is silicon valley worker, remote outside the us due to the pandemic, total “comp” 500k: “i dont invest in real estate because its too much hassle and i made my money on the stock market with shares earned from my employer”. Fast forward to the onset of the market crash, my real estate sold, his “portfolio” down one million. I feel sorry for him but i am glad i went the only way that can’t fail (unless there’s excessive taxation): real estate. You dont get rich but boy am i doing fine.
Getting back to your question, i’d wait it out. Markets go up and down all the time.
In January 2021 the market seemed overheated so I mostly cashed out, and sold a lot of my 401K stock, putting it into safer assets.
From May to September as tech indexes got cheaper I began buying them up in my rollover IRA. Two and a half weeks ago I started loading up on tech indexes with my spare liquid assets - I am down about 2.3% on that right now.
I still have some spare liquid assets, but it's easily possible the market can go down more. IYW is down over 35% YTD, IGV is down 34.71% YTD. Then again, if conditions are rosy, you're not going to get to buy Google, Salesforce etc. at such discounts off their highs.
The price of tech stocks has been too high for me for a long time, so I have had a lot of cash. The past two and a half weeks I piled most of my spare liquid cash into the market. I still have a little bit more I can put in, but more than that and I start tapping into my rainy day fund. Any how, I don't think I would buy more on a small dip at this point, it would have to be a bigger dip for me to buy more tech indexes now.
I don't even like buying stocks, but it's hard to resist buying the tech stocks at such a discount off their peak at the end of last year.
You are right, it was indeed getting quite overhyped and extremely euphoric in both the stock market (and crypto). I quite frankly saw it coming months ago. [0]
It just had to end very quickly with a market crash after all what happened in the last two years.
- Remember that money exists to be spent on useful things, it's not a video game score
- Understand your monthly spending and monthly take-home. If you're in a role that grants equity, I bet you've got a healthy surplus. If not, I bet you could make some lifestyle changes to achieve that.
- Take a moment to really accept that you are fine. You are not in danger, and shouldn't carry a fight or flight anxiety.
- Then think about your future. Can't sugarcoat it, you might have had more vacations or whatever if your options didn't decline, but I bet that you can chart a course to a decent retirement. Use an online calculator. Again, your future is fine. Not great, but fine.
- Think about what your future looked like when you graduated high school (or equivalent, wherever you did it). Did it definitely include being rich? If not, then you have lost nothing relative to that. And it's possible that on this company, the next one, or the one after that, you'll end up there anyway.
- Finally, spend a little money on something you like, and cut a little money on something you hadn't gotten around to canceling (streaming service, routine meals out, etc) You have so much control over your life.