How I handle a $100k drop in my portfolio
Investing in marijuana stocks has been insane lately. If you have been following me on twitter, you would have seen my account value recently dropped by $100,000. This was a short-term drop and didn’t hold.
In this post I will go over how I didn’t panic during this huge drop
Long Term Mindset
I’m investing for the long-term, this means I basically need to ignore the day-to-day fluctuations in market prices. You could say, I should just not look at my portfolio for 2 years, check back in and see what’s happening. I probably should do that, it would make things even easier, although I know that will never happen.
The long-term mindset helps me believe that 2,3, 5 years from now many of these companies will be valued much higher than they are today. Even if the current growth doesn’t last and we see a decline heading into legalization I believe the long term will end up in higher valuations.
Example of how this helped in the past, we saw a large increase in November 2016 and then a pull back and eventually a decline. But a year later we were back above the peaks of Nov 2016. The history of my account goes over this in more detail.
Focus on % drop instead of $
$100,000 is a lot of money to see vanish in front of you, but it is all relative. Now that my account has grown exponentially, the dollar value changes are much larger. As the account grows the dollar value changes will continue to grow.
During this dip, my account was down about 15%. This is a large amount to drop in one day and you wouldn’t see this kind of movement in a safe ETF or dividend stock unless some major bad news came out. The 15% drop was ok, as there were a many days in a row of 10% gains. A 15% drop after seeing about an 80% increase in overall value just made sense.
Market moving in tandem
The marijuana stocks tend to move in tandem, when really good news comes out, usually the entire sector will move together. Having a portfolio helps in that I see all the stocks are dropping together. I would be more worried if I was all in one stock and it was dropping, is it due to bad news, is the company going bankrupt etc.
When the entire sector drops it’s easier to see that the market is just correcting itself after going up a bit too much.
Short sellers, stop losses, profit taking
I’m not a pro at the market but, I believe the short sellers could also have a hand in pushing the stocks down. People might start taking profit and the stocks start to drop, the short sellers are also selling. This can trigger peoples stop losses that may have just bought in and down want to lose any money. The stocks are pushed down to force the stop losses to trigger and then bounce back up.
With huge increases in the short amount of time, it’s just a matter of time until people out there are going to take their profit and run. This can cause the stocks to stop jumping up the 10% per day.
Large Profit Buffer
This goes back to the large increase in the account, almost doubling in a few week. My account is now sitting with around 500k of profit, so I can see large fluctuations without cutting into my original investment. Yes it sucks to see the value drop, but I haven’t lost any of my original investment.
My most worrying time was actually when my account value was around 130k back in April when the marijuana stocks all were declining, by the time July hit I was very close to being back to my initial investment amount. This was the point where I would start losing my initial investment…I was really worried about seeing my account drop below that.
I can’t time the market
November 2016 we saw the marijuana stocks spike up, doubling or tripling in just a few days. At this time I didn’t sell any of my holdings, while I could have sold and bought back in lower there was no way for me to know that.
This is pretty similar, there was no way for me to know when this correction was going to happen. Sure I could have sold everything and bought back in lower, but it could easily go the other way.
The sector had been going up about 10% every day, each of those days could have been the “peak”. Holding long term has allowed me to keep my holdings through the actually peak of the run up. I could even sell now and be happy, if that was my goal, vs selling too early during the run up.
In the following section you can see how my account continues to jump up, if I had sold after the first day or two of gains I would have missed out on a massive amount of gains. This is why I will continue to hold these stocks, even though there has been a pull back we could see another leg up as more money comes into the sector.
With huge gains comes huge pull backs
I did a post a while back on expecting a pull back. Any time we see huge run ups in prices there is always a pull back eventually…
The sector was growing at 10% per day for days on end. Dec 21 my account value was 378k by Jan 3 my account had risen to 668k. This over about 5 or 6 trading days. Almost doubling in 2 weeks, which is pretty much unheard of when investing.
Seeing that amount of growth in such a short time meant that there had to be a drop in prices eventually. Seeing as my account went up 300k it was ok that it retracted 100k for a very short amount of time.
Below is the crazy growth over that short amount of time, peaking at the 668, the day after that was the 100k drop.
So after dropping 100k, my account bounced back up to being down 55k. The next day I was back up 22k. So stabilizing out a bit here after the major run up. Down 30k from the peak. Now I just sit and wait to see if these stocks can hold these valuations.
Hope this post can help you hold through a dip.