My First Bear Market as Creator & Investor
Experiencing my first 35% market drawdown, an instant 20% decline in my financial net worth, and the exposition of my many mistakes.
I bought my first stock in 2013/2014 during the post 2008-2009 bull run-up period after the Great Financial Crisis (GFC).
Though I lived in Asia during the Asian Financial Crisis + Dot-com Bubble and lived in North America during the GFC, the 2020 COVID-19 bear market is the first where I’m directly experiencing the impact.
Honestly, lots of thoughts come into mind. To be frank with you, most are selfish thoughts I have no shame in voicing out loud. It truly is the first time I’d been concerned about the safety of my grandparents and relatives trapped in South Korea. All in the year when I planned to visit them during the Summer of 2020.
But bigger echoes were on the dread of the economic landscape to which I exist as an unemployed solo-creator. I would be lying if I said the thought of being employed in any of my corporate accounting, consulting or investing jobs didn’t feel massively appealing about now.
Especially when I was gearing up to build partnerships with companies to generate cash flow for my business. Needless to say, almost all discussions halted immediately with the quarantining and shut down in Canada in March.
As I passed my birthday in self-isolation into an uncertain future, it seems only natural for my lizard-brain to worry about the safety, security and the warm-fuzzy-feeling that everything will be alright in the bosoms of a stable job. Classic accountant.
Though such thoughts exist, I must say that they have taken up maybe 10% of my mental capacity…during those moments when I decide to let my mind stop. The fact is that this has probably been one of the most exciting moments in my life.
As I use this essay as a tool of reflection, the cracks in my system are oh so evident. As many mistakes are made clear, so are opportunities and more about myself and my natural disposition.
I’m sure I will have many more learnings come out through this process but I decided to jot a number of them down now.
Predicting the Future is a Fool’s Errand.
This is obvious. I’ve read about it in so many books. I’ve heard all my investing idols talk about it. But in the 5 years, I’d been plugged into the financial markets, I heard time and time again how the market would crash the next year.
All kinds of macro investors, value investors, traders, economists had predictions of how geographical risk, leverage, technology, pension funds and all kinds of reasons would lead to a recession. Many also spoke about how we would not have a sudden recession this time around but that it would be gradual.
My view I iterated to people who’d ask for my thought was that it would hit hard when no one was expecting it. So, with all these talking heads on TV talking about recessions, I took the stance nothing of that sort would happen.
The one thing I never heard mentioned in the 5 years was a pandemic causing a recession.
Cash Is King.
Simply put, Buffet taught me that cash is a call option to capitalize on an opportunity. Then, I got deeper involved with the investment community and eventually worked at a fund. Throughout this time, the argument to be nearly full-invested was pounded into me. I can see the logic for both sides now.
But during a time like this, oh do I lament not having enough cash. Cash is the most liquid asset because it can immediately be deployed into investing opportunities and not having a cash fodder kills me right now.
Don’t Reach For Yield.
This is tight to why I don’t have enough cash. In an interview where Buffet was asked how life insurance companies will pay out 3% when interest rates were close to 0%, he said the insurance companies should stop promising 3% instead of trying to reach for 3% with poor investments.
In essence, that became a huge mistake that came to haunt me as much of my net worth decline came from such investments. Extremely poor decisions I made in the pursuit of reaching for yield.
The fact is that it didn’t matter that I stayed strict for 3-4 years. It was the final year when I made a series of questionable calls in the last year prior to a crash that I am now paying for my stupidity and greed. Again. It’s not what you know but what you do with what you know.
Throughout this downturn. It’s been my most high-quality businesses that have stood strong in the face of the downturn. They also happen to be less liquid than many other businesses.
Illiquidity Exposes Conviction.
A part of my investment philosophy is investing in less liquid investments managed by owner-operators. From my experience in the institutional world, I learned liquidity to be a major restriction that prevented funds from owning more of good businesses and that became an edge for an individual investor like myself.
As expected, in a market decline… these illiquid names started trading at extremely wide spreads and even with my small amount of capital… it would be extremely difficult to pull it out without materially impacting my gains. Selling is a tricky business but what I learned more is how the illiquidity can be used to further shore up that I only invest in investments I have so much confidence in that I’d be fine adding more to after a 30%, 40%, even 50% drawdown.
It’s a way to sharpen my edge further.
Build a Foundation for Practice.
Though investing is a major part of my life, it seized to become a source of major time allocation in the past 2 years as I focused on building OMD Ventures.
Not every day of those 2 years was spent with the most efficient use of time but it was a process in building systems and processes to build a media platform, and most of all to figure out what I wanted to do with the remaining years of my life and how I wanted to structure it.
In hindsight, I regret not building a foundational practice for investing during those 2 years. This comes as a result of dedicating the last few weeks of March to catching up on reading about all the various businesses out there. I’m finding ways to make it as efficient as possible but this has been a failure from a lack of constant practice.
Just like how my personal development to be wiser and healthier has benefited from journaling every day, reading every day and training consistently…. I should’ve made time to build out a practice of working on my investing practice. As I frantically try to catch-up and build a sustainable practice for the future, I hope to be ready for the next crash I’ll see in my lifetime.
Paying Attention to the Excitement.
Various articles point to online media consumption increasing with COVID-19. Especially in traditional leisure like Netflix, PornHub, Twitch, etc… Some people are losing their minds with boredom apparently.
I’ve been going to bed most nights with business/stock reports and analysis essays infant of me during these times and might I say… it’s been something to take note of. Whenever I’m not looking at public equities, my mind is racing with creating more podcasts to talk to interesting people… specifically investors and entrepreneurs… and this is further accentuated by excitement to combine the two… I still haven’t figured out how to generate a legitimate business (one that creates positive cash flow) but this has been exciting.
Though I mentioned how fear, doubt, and anxiety with regards to my financial security does creep in as I see this recession unfold in front of me…. It’s been paying attention to the things that excite me during this period that’s given me the conviction and certainty that everything will work out.
Opportunities exist in Decline.
On a macro level, I do believe that humanity will come out stronger as a result of this pandemic. I believe the healthcare sectors around the globe, international affairs between nations, trade supply chains and everything that led to COVID-19 becoming a pandemic will improve as a result of this time in our lives.
On a micro level, I think this period is an opportunity for everyone to dig deep into realizing what is truly exciting for them. I think it’s an opportunity to really test your beliefs on what you seek to do with your life. I think it’s an opportunity to stray away from the externally-driven fads (i.e. like starting a VC-backed company because everyone seems to applaud it) and focus on doubling down on the undervalued asset of yourself.
This feels like such an opportunity for me. I’m young, healthy and blessed so it seems that this is the time for me to get extremely greedy with all the assets I have at my disposal.
Disclaimer - I’m writing this for myself. For my past, present and future self. Much of what I write is my opinion. If it somehow ignites agreement in you then great, I’d love to hear about it. If it sparks disagreement in you, don’t reach out because I don’t care for it. There always are obvious exceptions and the flawed person in me hasn’t considered them all.