Saturday, July 14, 2012

The Big Picture

This chart made me realize how little market sell-offs actually impact my portfolio. It is a chart of the progression of my net worth (assets minus liabilities) since I graduated from university and began working.

The reason there are no liabilities, is because I've expressed my condo mortgage as the net owner equity (estimated market value minus mortgage debt). It helps preserve the scaling frame of reference. If I included the entire property value and mortgage debt, some of the earlier bars would become invisible (due to their small values vs. property value) For privacy reasons, I've removed the numerical indicators on the left, but the chart scale remains a linear one.

In case the dates are a bit hard to see:

  • The chart begins in August 2006, and ends in July 2012, spanning exactly 6 years
  • The first big circle is the 'Great Recession' of 2008-2009
  • The second, and smaller, circle is the mid year market correction of 2010
  • The third blip is the 2nd half market correction of 2011
  • The fourth dip is the current 2012 market correction
The later dips are a bit easier to see, as I have more assets invested, but even those blips are barely noticeable in the overall picture.

One of the reasons for the ever increasing net worth picture, is I've been fortunate to have a decent job during these years, which have provided a continuous stream of free cash flow to put towards building my net worth.

Yet when I wake up and see -200 in the pre-market (or -200 in the real market if you live on the west coast), it really is quite easy to get worried, and for some, panic. I admit I often begin second guessing myself, and questioning my investment decisions, when faced with steep paper losses. I've made some bad decisions in the past, some of which are still being held, and some of which I've sold to reinvest the assets elsewhere. 

A couple pieces of advice on managing your own portfolio that I try to follow myself
  • Try not to dwell too much over bad investments. Mistakes happen, and sometimes things don't turn out the way you want to. Use the mistakes to learn, and try to not make the same mistakes in the future. 
  • Do not look at how much money you've lost, or gained, on a position, because that is an event in the past. Instead, your decision about whether to sell a losing position, or take profits from a winning one, should be based on current valuation, estimated future prospects, and expected future return.
  • Don't ever sell on days where the market is in panic, or buy on days when the market is euphoric. Calm down, breathe, and review the first 2 pieces of advice.

This just illustrates the important of taking a moment to step back, breathe, and take a 35000 feet view of things, to avoid making emotional decisions that will come back to haunt you later.


  1. That's a very good steady climb. I'm surprised that your portfolio didn't take that much of a hit back in 2008. I guess all your holdings didn't suffer that much! I like how keep such a good detailed record of your investments. I myself never did.. but every year, I have a little gain I think! My biggest coming out of real estate investment that I shared with my parents!!

    Too bad, you don't wanna reveal the side bar :P

  2. thanks!

    it dropped something like 45% ex-currency, but the USD gained a lot during that time, so it helped dampen my paper losses

    i use Quicken and it generates that chart for me automatically. its nice :)