What a difference 3 weeks can make in a person’s life. I know several people close to me that are (were??) considering retirement in the next 1-3 years. The last 3 weeks makes me wonder if those plans are still on after a 28% drop in the market. Their predicament reminded me of the Beatles song Yesterday.
Yesterday
Lyrics from the Beatles song “Yesterday”
All my troubles seemed so far away
Now it seems as though they’re here to stay
Oh, I believe in yesterday
I’m still 5 years aways from retirement so what I do now can have a big impact on my retirement. Honestly, I was hoping for a correction of significance so that I could invest the proceeds from my increased savings rate. Well, that moment has arrived and even I’m surprised at the timing and severity.
I thought it would be instructive to review what I’ve done in the last 3 weeks and see if there are some lessons learned. It’s hard to stay calm when the market is falling off a cliff. And you know what they say about “catching a falling knife” …. never do it. Those are hard words to live by when stocks look like they are on sale.
My Moves In The Last 3 Weeks
Just a month ago, Goldman Sachs and several other experts considered the US economy to be almost recession-proof. They all said unless a Black Swan event occurred, we’d be just fine. Even then, they thought that event would have a minimal impact. Well, the coronavirus is a Black Swan event and the impact is significant.
On top of all of this is an untimely oil price war between Russia and Saudi Arabia. That was the icing on top of the virus cake. A Black Swan event on steroids.
This market will test even the most seasoned investors. I thought it would be “fun” to review what I’ve done in the last 3 weeks. And please know, I’m now betting that we probably aren’t out of the woods yet. More downward pressure could still come.
401(k) Moves
Going into this significant correction, I was sitting on lots of 401(k) cash … $306,000 to be exact. This was the opportunity I was hoping for and I was a little too eager to pounce in the first week. In the 401(k), I put my cash to work in the Vanguard Total Stock Market Index (~80%) and Vanguard International Growth (~20%).
First Week
The first week of the downturn, I moved $40,000 at the bottom of the first major move down. Of course, we didn’t know about the oil price war that was coming a week later that totally rocked the market. At the time, I was actually happy about the move but in hindsight I’m not so thrilled.
The 11 year bull market run has been ruled by a “buy the dip” mentality so I bought on the first dip. I bought after a 15% drop in the market but it only took us to October prices. Thank goodness I only spent 13% of my 401(k) cash. Hindsight now says I should have only put about $20,000 into the market or waited even longer.
2nd Week
After another drop in the market – now down 19% at this point – I plunked another $20,000 into the market. It’s hard to be disappointed in this move. Putting only 6.5% ($20,000) of your cash to work after a nearly 20% drop sounds like a good move.
I wish I had taken $10,000 of my 1st week’s $40,000 and put into the market in the 2nd week. It’s interesting that I only put $20,000 into the market versus another $40,000 so I must have sensed that something was still to come. That leads us to the 3rd week after President Trump’s address about banning travel to Europe. That dropped oil prices even further, along with the market.
3rd Week
President Trump addressed the nation after the market closed on 3/11 and the market didn’t like we he said. So it tanked another 10% the next day. We were now down 28% from from the peak just 3 weeks ago. So on 3/12, I moved another $30,000 into the market.
Again, why didn’t I move more into the market when it was down 28% in 3 weeks? Probably because I’ve now moved 30% of my 401(k) cash into the market. Plus, there is still the possibility of more shocks that could create even better buying opportunities. I’m now at about 35-40% equity in my 401(k).
If I’m wrong then at least I’ve put $90,000 back into the market at various price points. But if the market does go down another leg then I’m prepped with over $200,000 in cash and ready to pounce. This seems logical and I’m good with the approach.
If we do go another leg down, then I’ll probably put another $100,000 in to the market. This would leave me with $100,000 in cash and ready for a 3rd wave down if that terrible move were to occur. Let’s hope that’s not going to happen. If it does occur, it would mean I’d be at about 60-65% equity in my 401(k).
I’d be ok with 60-65% equity even though I’m only 5 years away from retirement. Why? Because a good chunk of that would have been bought at lower prices so my downside risk would be lower.
What could move us down further? The coronavirus testing is going to hit full stride in a couple of weeks and the results could scare people. Also, earnings come out in a month and that could shock people. Odds are more volatility is still to come so it’s not a bad ideas to have some cash available.
Taxable Account – Stock Moves
Holy Moly … it’s like a kid in a candy shop when prices go down and you have some cash. I had so many things on my Watch List but the market collapse made me rethink some things.
In about 6 trading days, I spent just over $33,000 on new stocks. I had my watch list ready but when things drop so fast I had to rethink my list. I wanted to focus on severely oversold companies. Additionally, my attention was on those that had pretty good balance sheets.
Quality and High Yields
I never thought I’d be a high yield investor but some areas of the market are so beaten down. Though my taxable dividend portfolio is far from mature, Exxon Mobil is now (and by far) my biggest holding.
I’ve been purchasing Exxon since last summer. I purchased some in January and have continued buying all the way down. This isn’t like buying some near bankrupt company, it’s one of the largest energy companies in the world. They are now the definition of quality and high yield.
Though I owned a little of Phillip Morris (PM), I finally initiated a new and small position in Altria to complement PM. I also opened a small position in Wells Fargo and Pfizer but probably bought both a little too soon. I’ll hold these for the long-term and reinvest the dividends so I’ve got no regrets.
Dividend aristocrat Aflac had always been too expensive for me but the market soon corrected that. I bought it twice and I couldn’t be happier. Aflac has a strong balance sheet so I know they’ll survive and likely continue paying their dividends.
Finally, Coca-Cola gave me an opportunity to add to my position. I’ve made a mental commitment to add to my KO each year until retirement. It has the potential to be one of my largest holdings … at least top 3-4 by the time I retire.
Conclusion
Here’s the good news … I didn’t panic sell. I’ve been waiting for this opportunity and I had some cash available to buy. I wish I had more cash in my taxable account but you never have enough when the market is on sale.
In hindsight, I should have been a little more patient. And I probably should have seen that this “event” was a little different than something we’ve seen in a while. But I focused on quality companies that were on my Watch List.
I’m probably done with stock purchases for a while in my taxable account. Having no more cash can do that to you. But my 401(k) is different. I’ve still got about $216,000 in cash and I’ll probably keep it there just in case we have a 2nd major leg down in this bear market.
Even Warren Buffett said before this all started that a 50% correction was possible. He wasn’t trying to predict the market but he knows things can go from bad to worse very quickly. If that happens, it would be horrific but at least I’ll have $216,000 in 401(k) cash to plunk into the market.
I’m still 5 years away from retirement so this market downturn doesn’t concern me too much. Honestly, I’m happy to see it because I got some cash and I’m got a little time. Plus, I’m not going to need my investment portfolio until later in retirement thanks to my pension.
Yes, all my troubles of a significant market downturn did seem far away in January and even mid-February. And with all the fear in the market it does seem like it’s here to stay. But I believe in the future (not yesterday) and I’m using this correction to my advantage.
Good luck, stay safe, and wash your hands.
Thanks for reading!
Mr. TLR