Holding up the mirror to my own trading behaviour

Idling away an hour on the long weekend, I found myself examining whether my mental model of how I invest is actually honest.

In particular I have an investment philosophy of holding for the long term, of buying (not selling). Is that true? How often do I in fact sell things?

My philosophy is also to reinvest dividends manually, not automatically, so that I can rebalance as I go – rather than ‘high buying high, and low reinvesting little’. Moreover, my minimum amount for a trade in Mrs FvL’s account is only £1000 – the amount of cash that must accumulate before we reinvest it. So my philosophy leads to me making plenty of transactions, for which Mrs FvL pays full price. Does this lead to high trading expenses?

To answer my own questions I did the following analysis:

  • I looked only at Mrs FvL’s portfolio history. I manage her portfolio, using the same investment philosophy, but in a simpler/cleaner way than my own. I track all of her transactions in one place, unlike my own funds. And though her asset allocation is slightly different (lower weight USA, more domestic bias), this shouldn’t materially affect a transaction analysis.
  • I looked at the last tax year – i.e. the 12 months to 5 April 2019. This was a year in which I moved significant funds into Mrs FvL’s accounts, so there was more money to invest than normal – more than just dividends.

Mrs FvL’s portfolio has around 80 unique holdings in it. This is fewer than the ~200 in my portfolio, but is nonetheless highly diversified. Half of the value is in passive ETFs/index funds. The largest holding (an Australian Equity ETF) is about 8% of the total value, the biggest single stock is about 3%, and the smallest holding is about worth about £2k.

Here is what I found:

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I’ve lost everything through a cyber theft

This post is a response to @SavingNinja’s Thought Experiment #4.

@SavingNinja poses the following challenge, and asks for a ‘stream of consciousness’ reply:

You wake up one rainy morning and after checking on your accounts you find out that you’ve been ‘wiped-out’ by a cybercriminal. You’ve lost all of the money and assets that you’ve ever owned and you can’t get them back. What will you do?

Thought Experiment #4 by @SavingNinja

My first reaction is to clarify exactly what I have lost. I don’t accept the premise that I have lost all the money/assets I’ve ever owned; for starters, I’ve spent some of those! So for purposes of this discussion I’ve lost all the assets that can be retrieved via online / written instructions to banks/brokers/etc.

This loss is catastrophically bad for me. It amounts to:

  • £100k+ of cash in various accounts
  • £millions of publicly quoted investments in my own numerous brokerage accounts
  • £00ks of assets in Mrs FvL’s accounts and brokerages that I have access to

SavingNinja tells me I can’t get them back. I am not going to take that at face value and am going to find a very competent lawyer, agree a performance-related fee structure, and send them hard at everybody that moves. I am going to consider going public with my predicament and creating an almighty fuss that my banks, brokers, etc will find embarassing at least. But, for the sake of argument, SavingNinja proves right and I can’t retrieve more than, say a few £000s of goodwill gestures.

I do however have a few remaining assets.

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Declaration of financial independence?

Over the new year break I found myself really enjoying the blog post by {indeedably} in which he breaks down his assets and income.

He has an unusual way of looking at his state of financial dependence, as shown by his image below:

i-own-buying-control-of-my-time-e1535807204287

His core point is that his level of financial independence depends on

  1. the amount of his expenses – some of which are ‘wants’ rather than ‘needs’,
  2. the level of investment income he can expect and
  3. how much ‘time he wants to sell’ (i.e. paid work he wants to do). He isn’t fully independent, but only ‘sells’ about half his time.

One thing that shows up clearly in {indeedably}’s graph is that investing can be expensive. In his case, a significant portion of his assets are property, and as a result his investing expenses appear to include a) mortgage costs b) property management and c) property maintenance – among other things.  I think they will also include his investment fund expenses/fees too.

Putting on {indeedably}’s glasses

I spent a few hours bashing my expense tracking data into a similar format to {indeedably} and now can view my cashflows on a broadly comparable basis.

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