I lost 1.5 Million Dollars in the stock market
Keep your profits close, keep your losses even closer
Being smarter than you look is better than looking smarter than you are.
What could be more pleasurable than making profits in the stock market? Talking about them, of course. We’ve heard so many anecdotes about that great find that made millions for its investors, or people ahead of their time when it came to crypto or NFTs, that we want to be among that elite crowd - and we talk incessantly about our genius picks.
But I think it’s as important, if not more, to talk about your losses. Not only will you get an unbiased look at your own track record which will help you plan better, but it will also let you focus on the bigger picture and not be perturbed by temporary fluctuations. With that context set, let’s talk about my million-dollar loss.
Losing millions
I have been a proponent of indexing into the stock market continuously, but my equity investments went up significantly only in March-April 2020, when I thought the market was oversold and had the potential to correct itself. Who could have foreseen that it corrected itself as fast as it did? Even since then, my plan hasn’t changed much, but the stock market has. Though I have continued to increase my investments into VTSAX which gives exposure to small-caps, mid-caps, and large-caps, the S&P500 has shown a 7% Year-on-Year decline. Due to this, my regular positions are all down, anywhere ranging from 6 to 18% - And I have lost about $1.5 Million in my equity portfolio, with the value fluctuating by ±300k in a single day.
But you know the old saying, “Make hay while the sun shines and harvest taxes when your stocks are down.”
Tax harvesting
Though the majority of my investments are in index funds, it wasn’t always so. I had allocated a small portion of my equity investments to individual stocks, and while some of them won big, there were a few which were highly speculative and didn’t do so well. In November 2021, at the top of the market, I decided to tax harvest to make the most of it.
Tax harvesting is a simple concept - You sell the stocks in your portfolio which are trading at a loss when you are realizing capital gains so that the profits and losses cancel each other out, and you reduce your taxable gains. The proceeds from the sales can then be reinvested back into your portfolio into more profitable assets. You get to sell off your worst-performing stocks when they hurt the least, and you also save on taxes - It’s a win-win!
At the same time, you have to ensure that you don’t reinvest in a “substantially identical” stock, or you would lose your tax benefits due to the wash sale rule. When I sold my loss-making stocks, I reinvested the amount into an index composed of small-cap, mid-cap, and large-cap stocks. Though I technically made a loss, I limited the amount I could have lost in the future and saved on taxes!
Next, let’s talk about my real estate portfolio - Here’s where things get really interesting.
Real estate
This is the part of my portfolio where I have invested the most, and I keep a close eye on it. I started investing in real estate in San Bernardino and slowly expanded into LA. I currently own eight 1-3 unit buildings that are fully rented out, and their market value totals $9-10 Million depending on the demand.
The last year was an interesting one for real estate with housing prices surging up by 20% year on year - There was no way these increases could sustain themselves! And sure enough, what we’re seeing now is a slowdown in the market, a sign that we might be returning to normalcy with more reasonable growth.
As for me, my holdings have stood the test tremendously well! My philosophy has always been to invest in good deals that I would buy and hold on to forever, and a dip in the market is just another opportunity according to me to find great deals to which I can add value by renovating and adding new features - Like the one I found in Phoenix recently, a 44 unit building in a good location with strong demand that I partnered up with Ryan Pineda to buy.
That’s why, if you’re a long-term investor, monthly fluctuations in real estate shouldn’t matter at all!
Tough time for start-ups
There’s one portion of my portfolio that I talk about a lot, and it’s something where I could end up losing all of my investment - Private equity. But there’s a good reason I do it. This kind of investment lets me fund a growing, non-public company whose apps and products I use and love on a daily basis!
I’ve invested around 3 to 5 Million dollars in companies like Yotta, Creative Juice, and Public (and a few others which I can’t disclose yet), and it’s tough to predict how the downturn in the market has affected their valuations. But Y-Combinator recently issued a warning to start-ups to prepare for tough times, stockpile reserves, understand that the last two years were not a realistic indicator of market conditions… and on the off chance that start-ups do manage to raise capital, it would be at the worst possible time.
The companies that I’ve invested in are quite big and should be able to weather out a tough time that will weed out unsound businesses. But I’m mentally prepared for the possibility that all my investments in this sector could drop to zero, so any return beyond that is a bonus - These are high-risk, high-reward ventures. If they do fail, well, then it’s out of sight, out of mind.
Alternative investing
Apart from these, I have some experimental investments as well:
About 8% of my portfolio is in Bitcoin and Ethereum - which have taken a substantial hit, and for the first time in a long time, I am below cost basis on these. Yet, I’m sticking to my plan to keep buying regularly because this is a high-risk, high-reward strategy and I don’t mind losing all of it.
My beautiful cars - The Ford GT which I bought at $306k, and my Tesla Roadster that I cashed out my Tesla shares to buy. I don’t know where their value will be 5-10 years from now, but till then I get to enjoy them!
Franchise businesses - I am working on expanding my investment in them in a recession resilient way, and you’ll hear more in the upcoming months!
And finally, I have about $2.5 Million in cash - To buffer the bad times and grab the good deals when they present themselves! Yes, it’s a bit much to lose to inflation, but I value the peace of mind that cash gives me and that is invaluable.
Conclusion
In the end, I’ve realized that I hate investing in individual stocks. During the pandemic, I did have some fun seeing stocks go up but keeping track of different stocks, watching some go up and others go down, and wondering if they would all beat the index funds at the end of the day is just too stressful. I would rather put most of my money into a single index fund that covers everything and stay idle, which is what I have been putting into practice since last year.
And though, my index funds are down by 17%, my international ETF has lost only 12%. Yes, I have lost about $1.5 Million on average, but I am not changing anything - I'm using this time to do tax harvesting, and rebalance my portfolio to a few core positions, and that's it. Rise or fall, this is a part of investing, and it doesn't matter in the grand scheme of things.
I know I’ve said this a million times, but it’s the truth. The fundamentals of investing are boring, and staying realistic and sticking to the plan of dollar-cost averaging into index funds is what makes sense for most people. The returns we saw in the last two years are not realistic, and eventually, we should see a return to a more sensible 7-8% average as has historically been the case.
See you next week with another deep-dive!
I lost $1.2 million ($800k in 2 weeks) trading short term options. I’m devastated as it was more than 50% of my savings. I’m hoping i can recover some of it next year. How long can i carry my short-term losses and is there a max limit on the amount?