My eToro portfolio is falling 19% 😵 Will I still be able to retire by 44-year-old with my feet in the sand?

How do my gains look over the last 3 years?

This simple question is more complex than it looks, depending on how your broker displays your info. In eToro's case, they make it quite hard. I had to download 3 annual account statements, navigate the glossary to understand each line, and finally came up with the following numbers (where gains = final equity - beginning equity - deposits):

• 2019 (when I started investing more seriously): 3k gains (14%)
• 2020: 67k gains (79%)
• 2021: 9k gains (5%)
• January 2022: 37k loss (-19%)

My head spins😵 a bit while I am writing that I "lost" 37k in 20 days when it took me 3 years to gain 79k. This is at least hard to swallow...

Will I still be able to retire by 2030?

Now that we took the red pill, let's take a step back and look at the 3 years CAGR: it is 20%, even if I count the 19 days bloodbath from 2022. I am still on track for the 19% yield objective, albeit giving me less margin of error for the future.

On the more stable side of the equation, our family got a boost in income, increasing our savings capacity and my projection of passive income through dividends.

Objective of retiring by 2030: on track ✅

Why is my portfolio in red?

Most of my portfolio is composed of disruptive companies that are potential multi-baggers, which served me well in 2020, but crushed my results in the past few months. The market is punishing "high growth" stocks because of the increase in fixed income yields, making the risk-reward ratio less attractive, lowering their valuation. This affects most of the market, but it is harder on stocks that have been priced with a high level of future growth and earnings. Why? Because the future is less valued today due to the "discount rate" used to value future cash flows (the discount increases with the cost of capital or interest rate).

Should we change direction, away from these "high-growth" companies?

Yes...and no. Yes, we should be more careful about picking stocks, particularly on the valuation side, since we could still see lower valuation multiples (the ratio used to value a company) for the next few years. A lot of high-quality, high-growth, anti-fragile, and game-changing companies are now available at really attractive valuations. The highest risk-reward ratio I have seen since March 2020 market crash. But there are also a lot of these companies that still look at least overvalued. We need to be extra careful when choosing the stocks we buy and sell. Nobody really agrees on one superior valuation method, but I found the one that makes the most sense to me.

And no, because the framework I have been using already helps me choose "quality companies". These companies proved with numbers they either have a strong moat, strong potential, strong cash flows, strong growth, strong grit or a mix of all of it. These features make these companies more "anti-fragile", and have better chances to strive in turbulent times /which is why most of them had a stellar 2020).

Strategy shift: not fundamentally, but on the weight, I put on the valuation side. I also put more focus on verifying this valuation over time and am less afraid of pushing the "sell button". Having fewer positions makes this easier, I will try to maintain around 35 positions over time, down from 53 today.

What happens to my savings if the economy gets crushed?

Let's go nuclear: total war is triggered by the Russian invasion of Ukraine, and the Chinese take the Russian side for it to become the third World War. Things get even worse when the climate change at a faster pace and heat waves, hurricanes, and floods hit about every corner of the planet daily. The world economy is on its knees, company earnings get crushed, capitals flee the market and stocks tumble all over the world... You get the picture.

Let's just say you better have a plan B which is not the stock market. Forget about your savings in this case, if there is anything left of it you may not even be able to access it (asks Argentinan about the "corralito").  Plan B could be crypto, although It is still to be proven its price is uncorrelated to the market. Plan B could also be a heavy hedge that goes the opposite way of the stock market, but timing and weighting it is hard, and you still may not be able to access your gains in the formal economy.

As for me, my plan B is to buy land in the extreme south of Chile, where there is plenty of water, some agriculture, and not many people (yet). Let's call it the "nuclear shelter" ☢.

What would a worst-case scenario look like?

Armageddon put aside, the worst-case scenario would be that the US stock market fare like the Japanese market did for the past 30 years. The Nikkei index is about the same price as it was in 1991... In that case, it would take 22 more years before getting the same levels of savings and dividends than it would take me if I manage to keep an average 19% yearly yield. It would then have 66 years old. That sucks, definitely not my plan. This is why I NEED to build passive income independent of the market performance. I have made very little progress on that side. I recently sold the e-commerce venture I was testing to focus more exclusively on The Rookie Investor. I am not sure this would be my definitive "muse", but I think it has much potential, plus I enjoy a lot more writing this newsletter than building e-commerce. Makes me happier.

The biggest lessons I have learned in 2021.

Disruptive techs with exponential Growth potential are very volatile. Volatile is risky if you are not absolutely sure why you are holding it in the first place. Holding long is not a strategy in itself, you need to buy and verify, not just by and hold.

As the prices of TWLO, FSLY, FVRR, ROKU and ZM skyrocketed above any reasonable valuation, I wish I had applied this concept sooner, so that I could have gotten out before getting hurt. I started using it in August, which got me out of DOCU before tumbling about 50%.

Conclusion

No one can take away the gains you/me have made in the last few years, but we can learn how to get less exposed to these situations in the future. It is also vital to keep in mind your big-picture objective to cope with stress and not withdraw from the market in turbulent times.

The 'Life Plan' is a template spreadsheet I created to help me define and track this big picture objective. It's been an excellent tool for me to stay on track, especially when running into problems or getting distracted from my goals.

If you've made a resolution to be more productive, more focused, this can be a great tool to help you achieve it! Let me know what you think of it.