3 Steps for Emotionally Sustainable Investing

Author

AJ Neeme
September 10, 2024

 This week’s edition:

  • 3 Steps for Emotionally Sustainable Investing

  • This Week in Business

  • The Big Green Vault

3 Steps for Emotionally Sustainable Investing

Look at this beauty.

I Love seeing the stock market fall. Love it.

It’s a great time to buy. Everyone is panicking.

Meanwhile, I’m just sitting there having my pick of fantastic companies like the cool emotionless investor that I am.

The above is absolute bullcr*p.

I wish it would constantly move up.
Predictable 7-10% per year returns per year for decades.
But, that’s not the stock market. 

There will be pullbacks, crashes and failed investments.

If you want to survive with your sanity intact, you need to build an Emotionally Sustainable Investing System.

Beginners often start with “What should I invest in ?”
“What do you think of Bitcoin ?”

“Is it a good time to invest ?” 

If I could do it all over again, I would answer these questions last.

Instead I would start by doing this:

  1. Get Organized

    Build an Emergency Fund: if you don’t have enough cash on the side to cover unexpected expenses or loss of income, stock price drops will wreck you.
    You’re suddenly less able to cover your basic needs and that’s when panic sets in. I’ve previously covered how to build an Emergency Fund here.

    Determine what you can afford to lose: beyond your Emergency fund, you have cash you can’t afford to lose.
    Maybe, you need it for taxes, a house deposit, and repaying loans. Adults have tons of obligations I’m afraid… whatever it is, this is money you this money needs to be kept safe.
    So, make sure to invest it or hold it somewhere “Risk adequate” (To be covered in a future edition)

  2. Get Detailed: 

    Why are you Investing ? What are your goals ? By when do you need to accomplish them ? What type of investor are you ?
    Your situation is very different if you’re investing to have a nest egg for your retirement in 30 years VS you’re a 55 year old who wants to make sure you have enough cash flow to quit your job now.

  3. Mental Preparation (the most underrated):

    Premeditatio malorum (“the pre-meditation of evils”) : Strap in for the ride. You have a plan, you’re financially ready for volatility. It’s still going to test you when it happens. How do you prepare for this ?

    The Stoic Exercise of “pre-meditation of evils” is one of my favorites. You basically imagine that the things you fear have already happened.
    Try to put yourself in a situation where the stock market crashed by 50% (think Covid) and you’ve been laid off. How do you feel ? What are the consequences (ex: if you’re an expat what does it mean for your residency ? what do you need to do ?).

    It’s not about pessimism, it's about expecting the best but being ready for the worst.

This Week in Business

  1. Oh September: The weather isn’t the only thing cooling off (at least here in Switzerland). US Stocks have historically had a terrible month in September and 2024 is no different. Nearly $1.8 Trillion in Market Value wiped out. Ouch. You can blame economic data, the stock market being overvalued or a case of self fulfilling prophecy (if everyone thinks stocks will drop in September and acts accordingly… stocks will drop…). That’s the stock market for you.

  2. Record breaking Nvidia: last week we talked about Nvidia’s record breaking results. This week they broke another record albeit not one they’d want to: the largest market cap drop ($280 Billion) in history. It’s still the same company.
    But, the questions remain: are market expectations of quarterly record shattering
    Results sustainable ?

The Big Green Vault

  • The Memo by Howard Marks - The Indispensability of Risk: In keeping with this week’s theme, Howard Marks discusses why not taking on enough risk might be the riskiest strategy of all. I’ve found understanding risk and chance has helped me manage my emotions during turbulent investing times. 

The information contained in this newsletter is for general informational purposes only. It should not be construed as financial or investment advice. Please consult a qualified financial advisor before making any investment decisions.