My main goal* was to build an investment and cash portfolio of $1,120,000* in 1500 days**, starting from 1/1/2013 and ending in February of 2017. I made my goal in 2016, my 1500 Days are over, and I’ve left my job. In the interest of openness, I’ll continue to share my numbers.
Too Many Teslas
I noticed something interesting at my children’s school last year. Someone was dropping a child off in a new Tesla:
I took notice for two reasons:
- I love cars and am obsessed with Tesla.
- This dude was parking illegally in the handicapped parking spot. SUPER NOT COOL.
I also thought it was interesting that someone was driving a $100,000 car to school. Some parts of my town are well off, but there is also a significant percentage who live in poverty. Many of the students at our school receive free meals. In any case, seeing a Tesla was a bit of surprise.
Fast forward to the current school year when another Tesla showed up:
And then I noticed other luxury cars throughout the lot:
I own a luxury car myself and know nothing about the financial situation of any of these folks, so I’m in no position to pass judgment. And I won’t. However, I wonder if something else is going on…
The Tesla In The Coal Mine
Joe Kennedy once famously said that he knew it was time to get out of the markets when the shoeshine boy offered him a stock tip. His thought was that if the shoeshine boy was giving him investment advice, the market was ‘too popular for its own good.’ While not a perfect analogy, I wonder if the abundance of Teslas is painting a similar picture?
Stock market cycles follow the same trajectory and humans usually think about them wrong:
So now, I wonder if the Teslas are a canary in coal mine, warning us of an impending crash. Perhaps the auto excess is a reflection of market exuberance:
Why am I talking about all of this? What am I going to do with this knowledge? Absolutely nothing. Zoom out and the long-term picture looks like this:
Over the long term, markets rise.
In the near term though, it’s cyclical. It always is. It has to be.
But there are lessons in this:
- Mindset: Don’t freak out when the next crash happens. Know that it will happen and get your plan in place now. The time to plan for the storm isn’t when it starts to rain, but when the sun is shining.
- Dollar cost averaging: When the crash happens, keep contributing. You’re buying the same index fund, but at a lower price.
I don’t have a clue when we’ll see a 20% downturn, but I’m 100% confident that it will happen. It may be next week or next decade. Speculation is silly for anyone and irrelevant to the long-term investor.
September Performance Update
Our net worth started at $2,195,959 and ended at $2,171,793 for a loss of $24,166:
2018 (as of 10/1/2018)
- Days elapsed: 274
- Investment portfolio gains: $129,092 (including 401(k) contributions**** of $33,650)
- Net worth gains: $179,092 (investment portfolio gain of $ + home appreciation of $50,000)
Since the start (1/1/2013)
- Days elapsed: 2098
- Investment portfolio and cash: $1,656,793
- Gains since 1/1/2013: $1,070,750
- Needed to quit work ($1,120,000 in investments): Mission accomplished!
We have a diverse portfolio that includes real estate:
- mobile home park (elevated home living to the easily offended and politically ultra-correct)
- private loan (only one outstanding)
- syndication deals
And stock market holdings:
- individual stocks (old thinking)
- index funds (most money goes here now)
This is the first month that our stock and real estate portfolios both saw a decline. Regarding the latter, we have about $100,000 in the Vanguard REIT which took a hit.
- Stock market: $887,699
- Monthly gain: –$23,003
- 2018 gain: $97,913
- Real estate: $749,094
- Monthly gain: –$1,114
- 2018 gain: $31,179
- Cash reserve: $20,000
Market declines are an opportunity for experienced investors. Back in 2011, I remember looking at a 12,000 square foot home that was for sale. The builder had run out of money before completing it and had filed for bankruptcy. It needed kitchen cabinets, counters and bathroom vanities. The listing said:
First person with $400,000 in cash gets it.
I nearly cried because I didn’t have $400,000.
Today, this home would sell for well over $1,000,000. While I don’t want a 12,000 square foot home, if I had the cash, I would have bought it. While I owned the McMansion, I would have pranced around in a robe (Hugh Hefner style) all day smoking cigars and wearing sunglasses at all times. Just kidding. Maybe…
When prices recovered, I would have donated the robe to Goodwill and moved on to more modest accommodations, but with a fat check in hand from the sale.
While I don’t think we’ll ever see opportunities of that magnitude again, the next time the market crashes, there will be discounts to be had. And if I see a Tesla Model 3 for half price, I’m totally going for it.
*My goal wasn’t to have $1,120,000 at the end of 1500 days, but at any time before the day count was up. Why? It all goes back to the 4% Rule. Remember that our little friend, Mr. 4%, is nothing more than the most conservative safe withdrawal rate. So, if I were to quit my job now, I could spend about $60,000 in my first year of retirement.
**My original goal was $1,000,000 and no debt, I later raised the goal by $120,000 to $1,120,000 because I will have debt in the form of a mortgage and I firmly believe in not paying it off. My compromise is to have enough money put away to cover the mortgage at the time of retirement. So, to retire today, I would need about $1,120,000.
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****My 401(k) contributions include my own, Mrs. 15oo’s, and the contributions from my corporation. Self-employment with a solo 401(k) is a very powerful savings tool. I should have done this years ago.
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