Q1 2019 QPIR and the psychology of investing

Following on from the theme of creating your own luck if you follow this space I recently made a few grand taking advantage of a stock market correction (I incorrectly termed this a bear market before). Of course I didn’t try to employ the infamous “buy low sell high” strategy and based on common sense I wouldn’t recommend you try either.

During the stock market correction a few months ago my portfolio dropped a small five figure sum. I had done the work in my earlier years (ages 22 – maybe 25?) by reading countless blogs of great FIRE advocates before me to understand stock market psychology and having started investing at a relatively early age I was aware that I would undoubtedly encounter more than one emotional roller coaster in my life. Having said that I didn’t feel much emotion at all as I stared at the numbers on the screen.

During the correction the investing subreddit was completely full of young investors in their 20s and 30s panic-selling.

Imagine the entire stock market is $100 (There’s no GBP sign on this hong Kong keyboard). Buying low and selling high means you’re waiting on the sideline with your $100k for example until (haha) the price drops to $80. You purchase all your stocks at this 20% discount before selling when the price hits an all time high of $120 before rinsing and repeating.

The obvious problem with this strategy is that you could be waiting 10 years (the last bull market/correction was 2008/9) in which case you’re missing out on a lot of stock market gains. Next when the stock market tanks, do you have the balls to throw your $100k into the heap? Thirdly when the stock market rallies again when do you sell – $105? $115? It can keep on increasing…

I’m sure there are a handful of people in the world who could implement such a strategy deliberately and successfully (such as Warren Buffett) but most fail. And of the people who have overcome all three hurdles most likely achieved this through luck.

I would never dream of doing this as I’m aware of my limitations – I’ll be the first to also admit I’m a very lazy person who isn’t willing to put in the work to improve at investing. Notice that in the three hurdles the only one you can control is the second one – also known as your stock market investing emotional quotient (EQ).

What I recommend for anyone getting into investing is to invest most of your savings in a tax-efficient account. If you did this from 2008 onwards for example you would have done very well. Keep some of it as “dry powder”. When the stock market corrects like it did a few months ago, you can use this dry powder and “buy low”. When the market rallies you continue and do not try to sell high. Make several of these decisions in your lifetime and I think we’ll do very well.

The creating your own luck part is having the self awareness that FIRE is a very important concept; that investing will turbo-charge your journey; and being able to get your head around side hustles, dry powder and other concepts.

	income	expenses	total
p2p side hustle jan	£25.65 £108.32	- £45.49	£25.65 £62.83
p2p side hustle feb	£62.14 £73.24	- £30.76	£62.14 £42.48
p2p side hustle dividends mar	£23.34 £71.54 £800.47	- £30.05 £57.09	£23.34 £41.49 £743.38
q1 2019 total			£1,001.31

This post is starting to get too long so I’ll wrap up. From the passive income it may seem that the absolute numbers have not changed much over the last couple of years. However the composition has completely transformed from an over reliance of p2p income when I was young and naive to a strong dividend income portfolio.

My one decision to invest a decent five figure sum when the stock market tanked and many people panicked essentially paid for this expensive HK holiday.

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