Losing 7-Figure Amidst The Covid-19 Pandemic

The Stock Market Drop

The U.S. equity markets have made quite a nice rebound.

The equity market started reflecting in earnest the health and economic effect of Covid-19 on the US.

Within the span of 1 month, the market went into a nose dive.

The S&P 500 went from a high of 3,386 on February 19, 2020 to a low of 2,237 on March 23, 2020. The  34% drop in value happened against the backdrop of uncertainty and fear.

People were not only worried about their finances, but also about their personal health and the well-being and safety of those important to them.

At the time in late March, the equity market reflected all that sentiment.

Things were looking bleak if you were an investor in the stock market.

An immediate wipe-out of 34% of your investments is a tough pill to swallow.

What can be a tougher pill is if you have millions invested in the stock market.

$3 million invested at the high of the market is now reduced to under $2 million given the 34% drop from top to bottom.

I had more than $3 million invested in the equity market at the height of the market a couple of months back and loss a 7-figure sum over the span of a little over 1 month.

What Goes Down Must Come Up

Now the stock market has made quite a nice recovery.

The S&P 500 is nearing 3,000. It is less than 10% down for the year, a far cry from the more than 34% down.

If you compare the stock market one year ago this date to where it stands today, we are actually up a bit (by my calculation about 2% on the S&P 500).

There seems to a positive sentiment to the stock market now.

Maybe it has to do with all this talk about certain states reopening their economy.

Or maybe it has to do with companies getting closer to a vaccine or, at least, medication that can help critical Coronavirus patients do better.

Maybe it has to do with the numerous stimulus packages passed by the Federal government to help her people in financial needs.

Or maybe it has to do with the Federal Reserve in essence back-stopping asset prices by committing to loose monetary policies and bulking up the balance sheet by buying assets.

Regardless of the reasons, the 30% increase from the low experienced in March has almost been as quick as the fall from the high in February.

In a month and a half since March 23, the equity market sure does feel and look different.

Now I don’t know what the future holds. But I can look back at that time in March, having loss more than $1 million, and reflect upon it with a clearer head.

Here are some of the take-away I have after losing over $1 million in the equity market in the span of 5 weeks:

Hang Tight And Don’t Over-react

I’ve discovered a couple things about myself after over 20 years of investing in the stock market.

First, I stink at picking individual stocks. Historically, out of every 5 stocks I’ve invested in, 4 would be great and out-perform the broader market. 1 would under-perform the broader market.

That one underperformance would be enough to drag down the overall portfolio return to just about where I would have ended up if I just put my money into the S&P 500.

But my individual stock basket would be have more risk and volatility. Not a trade-off with no real excess return against the index.

Second, I stink at market timing. But maybe in my defense, most professionals are terrible at market timing as well.

From time to time, I do make some bets on the market by either taking money out of the stock market (selling stocks), putting money to work (buying stocks), or just holding onto cash and not adding to my exposure.

But I suspect that I would be better off just dollar cost averaging into the S&P 500 than trying to time the market.

The one thing I am good at is that when the market does drop and drop significantly, I tend to stay put.

I didn’t pull money out during the early 2000 tech bubble bust and 9/11 attack. I didn’t pull money out during the Great Recession.

I didn’t pull money out during March of this year when the market was falling fast.

Now that stocks have recovered a chunk of their losses, I am glad that I didn’t over-act and remained invested during the turbulent time.

It’s Give Back On Some Of The Historic Stock Market Gain

I’ve been investing in the stock market for over 2 decades now.

The US equity market has had a tremendous run during these two decades, although not without disruption along the way.

2019 was a strong year for the S&P 500. The index returned about 30% for the year.

I was far ahead financially by the end of 2019 then when I started the year.

The rise in the equity market was a greater contributor to that.

I had one of my best quarters in net worth growth in the 4^th quarter of 2019, thanks in no small part to the increase in the US equity market value.

My net worth went up, by my calculation, 7-figure in that quarter alone.

The great reversal in stock market value in March resulted in a substantial dollar hit to my net worth.

But I kept on reminding myself that the million dollar loss in stock value is only a paper loss. That paper loss was simply a give back of the paper gain from the raise of the stock market from the year before.

Now if I started my investing journey at the end of 2019, that drop in stock value during the first quarter of 2020 might have been more painful.

However, for me, I viewed it as less of a gain in my returns over the 2 decades of investing in the stock market.

With the recent market rebound, I’ve recouped some of the losses. But I am still down for the year. If I look at it from a 12 month perspective, I am actually up.

Even if the market does revisit its low, I will still view it the same way. It is just give back on historical stock gains I’ve experienced during the 2 decade of investing.

Overall, I am still up, and up big.

There Is No Impact To Life Style And Living Situation

A loss of a million dollars is not easy to brush a side, even with the above said.

I have the great fortunate of building my financial situation to a point where even with the loss of a million dollars; it doesn’t impact my life style.

I think this point cannot be understated.

There was no panic to have to sell stocks to pay my bills or put food on the table. I do not depend on the proceeds of my stocks for any household expenses or to maintain my lifestyle.

That is a luxury for sure when faced with a huge drop in value. I am not force into a selling situation and can hang tight and wait it out.

I still went on with my day, spending as I would normally spend given the new reality we live in now under a shelter-in-place order.

As much as a painful experience it is to see a 7-figure wipe off of net worth and equity value, it did very little to impact my own living situation.

That most certainly blunted the impact of a million dollar loss.

This is a reminder the importance of having numerous revenue streams and living below my means.

I never want to be put into a position where I would have to decide on making my mortgage payment or putting food on the table because something happened to one leg of my revenue stool.

Perspective Is Important

At the end of the day, having perspective is important. I never want to lose sight of what is truly at stake.

Many people are suffering because of the pandemic in a number of different ways including worrying about the safety and health of love ones.

Tens of millions of people in the US seek unemployment over the past 2 months.

There are many people worried about making their rent payment, putting food on the table, or having enough money to pay for everyday expenses.

Against the background of this pandemic and the current stay at home order, many people have been impacted in so many negative ways.

In light of all that people are currently facing in this challenging environment, it really puts my stock market loss into perspective.

My stock market loss doesn’t impact my lifestyle or living condition. I am not dependent on the amount to make ends meet.

I currently don’t have any concerns about putting a roof over my head o putting food on the table.

My financial loss in the stock market seems very small and insignificant compared to the conditions other people have faced and are still dealing with during this challenging period.

Time To Loosen Up The Purse Strings

Not only am I a believer in frugality, I am also a practitioner.

I believe strongly in the power of savings, especially very early on given the incredible power of compounding.

I have been a saver my whole life, ever since I got my first paycheck.

Sometimes I believe I go overboard with my savings.

I continue to live the frugal life and below my means.

I often wonder how I can shift gears a bit now that I have a comfortable financial nut and start to spend a bit more for increased life enjoyment.

That is not an easy change for a person who has practiced being frugal for over 2 decades and grew up financially poor.

The quick million dollar loss in the stock market earlier this year has really pushed me to re-examine how I spend money.

Since money can be so fleeing, why not spend it on a better life for us. Otherwise, we might lose it all at the whim of the stock market.

I am revisiting what I can do to construct a better lifestyle for myself and my family.

This time, I am more open to using money to help fund this lifestyle.

To The Audience: How has your investment portfolio fare? Did the loss in the stock market teach you anything about finances or about yourself?

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SoM @ SportofMoney.com

Many people work hard to better their physical and mental health. What about their financial health?

I started this blog back in 2019 to help people better their financial health as well.

My financial journey began with tens of thousands in student loan debt. Over the span of 20 years, I am close to achieving financial independence.

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