I Made a Rookie Mistake During Yesterday's Market Selloff
"I know I'll perform better if I rub my nose in my mistakes." -Charlie Munger
This is the type of content that I usually only share with our paid members, but I want everyone to learn from my mistake.
You would think that based on the amount of time I spend reading, writing, podcasting, and live broadcasting about the rational approach to investing that I might be immune to making a psychological mistake.
I thought so, but I was wrong.
Yesterday, as the market was in a nose-dive, I unloaded VTI from my taxable brokerage account.
I had my reasons…
Here is how I assessed the situation, according to my decision log.
I purchased VTI for $234 on October 26, 2021.
When I sold yesterday, the price was $215, meaning I was down 8.1%.
My thinking was this: Everything is going to go down a lot more, and I would rather have the majority of my VTI investment back, in cash, so I can use it to buy a bargain if/when one presents itself.
Not terrible logic, but it’s based on a false premise: I cannot predict the market.
My ‘feeling’ about the market’s direction is not congruent with reality…
Time-in the market > timing the market.
The experience taught me some new lessons.
First, clearly my surplus cash wasn’t enough to cushion the psychological distress of seeing my portfolio dressed in all red yesterday afternoon.
Related Podcast: Cash Is Not Trash [Apple Podcasts] [Spotify]
Second, I may have over-done it with buying the Vanguard Total Stock Market ETF (VTI) in October of last year. I already hold a hefty amount of the Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) in a separate account. One of the reasons I was quick to cut the VTI yesterday is because my position is redundant.
Third, I need to avoid looking at my brokerage account during the day. The green, the red, the changing prices, and the news headlines; all of it is anxiety inducing. It contributed to me taking action. I wanted to be in control. But action is almost always not in our best interest as long-term investors. It often comes at the expense of the compounding process.
And finally, I am proud of myself for one thing: At no point did I even consider selling the individual names in my portfolio. As you know from the podcast and live broadcasts, I was prepared for a day like yesterday. My individual stock positions are those that I am comfortable weighing on a scale. I will be holding them for many years to come, no matter what the market does.
The hilarious part is how the market bounced back yesterday. Had I held on to VTI, I would be down 5%, which is still better than where I was when I pulled the trigger.
Sure, yesterday could have gone a lot worse. That downward spiral could have continued. I was okay eating the 8% loss on the broad index. The cash that came from the sale would keep me from needing to tap the emergency savings account if/when it’s time to buy a bargain.
That was my thinking. It sounds reasonably intelligent, but it doesn’t change the fact that I had a minor freak-out moment.
This is me rubbing my nose in my own mistake.
I like people admitting they were complete stupid horses' asses. I know I'll perform better if I rub my nose in my mistakes. This is a wonderful trick to learn. —Charlie Munger
Should I make more posts like this? 🤔
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