A stock I bought as recently as mid-February 2020 is down 60% from my original purchase price. I bought more of the stock after it fell 20% from my first purchase, more after it fell 20% from the second purchase, and more after it fell 40% from the third purchase. My total investment in the stock is around 3% of overall stock portfolio, and it is down 55% from the total invested amount.
My total equity investment – stocks and funds – is down around 25% in the last one month.
My total financial net worth is down 15%.
So, what saved the day for me as far as my total financial net worth is concerned? Cash in hand, that I started building up from the end of 2019, in search for investment opportunities that were not to be found anywhere. Plus some income that came in over the past few weeks.
“Life,” John Lennon said, “is what happens to you while you are busy making other plans.”
Investing is not any different. While we were all pinning hopes on an economic recovery to justify high valuations of our stocks, as no crisis was visible on the horizon, we were handed a crisis of unfathomable proportions.
Anyways, the reason I am writing today’s post is because a few readers and a lot of my friends have asked me how I am investing my own money through this crisis brought about by the COVID-19 epidemic and economic recession fears.
“Nothing much has changed,” is my usual response.
While what we are seeing now feels like a combination of the past few deep crises the world has been through, your investing process must be designed in such a manner that takes into account the worst of times anyways.
So, here is how my broader financial planning and actions look like as I wade my way through this crisis –
1. I have always had around eight months of my monthly household expenditure saved as emergency fund, which I have raised to 12 months now. Almost 20% of these funds stay as cash in hand, and the remaining are in couple of liquid funds. I don’t use or plan to use these funds for any purpose, including investing in stocks, however enticing the opportunities may seem. These funds are only for family emergencies, and thus sacrosanct.
2. I have term insurance of Rs 1.5 crore for myself. My medical insurance covers me and my family for Rs 20 lac. I haven’t changed any of this, nor do I plan to for some years.
3. As far as my family’s total financial investments are concerned, approx. 80% is invested across 18 stocks, 10% in three equity fund schemes, 5% in two liquid fund schemes (apart from the emergency fund), and 5% in PPF. I don’t keep much cash in hand, and anything extra in my bank account is shifted to liquid funds. Amidst the ongoing crisis, I have kept some additional cash at home, but that is to take care of necessities, as the idea to go to a bank or ATM isn’t a good one as of now.
4. We also have some gold in bank locker. I don’t count it as an investment anyways, as it doesn’t generate cash flows. But it just lies there, and I don’t wish to do anything about it (don’t ask me why!).
5. I save more than 70% of my monthly income that I keep investing in stocks, month after month. I am doing that now too, and without worrying about what has happened to my existing portfolio over the past few weeks, and what may happen to my new investments over the next few months. A high savings rate is important at all times, and especially during times of high uncertainty. Because you learn to live on less, you are pardoned a few investment mistakes and also stock market downturns. Basically, high savings help you survive such mistakes and bad times, and survival is all you need to ensure for building a long-term track record.
6. Having taken care of emergency funds, insurance, and any significant money I may need over the next 3-5 years, my plan is to invest in stocks for the long term, which is a period beyond 15 years. Nothing much bothers me given this time horizon and that my family’s critical and essential needs are taken care of and will be taken care of if something happens to me.
7. I don’t maintain an online portfolio, but maintain one in excel. So, most of the times, I don’t have more than rough idea of what my stocks and funds are worth in totality. It’s only once in few months, or when I need to calculate stuff to write articles like these, that I bother to update my sheet. I would rather spend my time on my work so that I am able to grow my income and subsequently save and invest a large part of it sensibly, than keep a score of what I am worth at all points in time. Such a round-the-clock score-keeping either leads us to an inflated, or deflated ego. Both are not worth it anyways.
8. As far as the ongoing crisis is concerned, I plan to keep buying stocks where I find bargains and businesses that provide great value at cheap prices. I am not worried if my stock, bought now, falls 50% in the next 1-2 months. That may indeed happen looking at what the world is going through. But I plan to keep investing in a staggered manner, and more if the prices get even cheaper. Again, this is money I will not need in the next five years. Hoping to be a net saver for the next many years, I am always looking for lower stock prices. And the current times provide such opportunities.
I survived the 2008 crash, thanks to high savings, low financial liability (that stands at zero as of now), and a lot of good luck. Living through the current downturn hasn’t been easy, and if the situation remains as it is or gets worse from here on, it would be nothing short of brutal.
I am pinning my hope on cash in these times, and humanity that I believe will be able to tide over this crisis though after tremendous pain.
Money is the last thing I must worry about as people die everywhere. But I will keep investing, without the regrets of what has already happened and worries of what may.
“Life finds a way,” said Dr. Ian Malcolm in the movie Jurassic Park.
Life, I believe, will find a way yet again.
Given that I don’t have any control on what’s happening all around, in the world and in stock market, I must not worry about anything anyways. If I survive this crisis, this time won’t matter. And if I don’t, nothing would anyways.
Life would still go on in its full glory, with or without me.
My dear friend, I wish safety and survival for you too.
P.S. The idea of writing this post came from Ben Carlson’s post.