September 2021: 3Q 2021, One Terrible Trade, A Loan for Stocks

In September¹ our household net worth inched up .74% in USD and 1% in EUR to $111,947 and €95,518 respectively. For the third quarter 2021 (July-September), it rose 9.46%. Year over year was a net worth 42.15% rise.

Portfolio Performance

If the Portfolio Analyst feature of Interactive Brokers is to be believed, my taxable brokerages and IRA portfolios returned -.65% for the quarter. I was keeping pace with the S&P 500, but my portfolio fell harder during the September drawdown.

There's some uncertainty around that number because of the loan - more on that later - and because I added external accounts to the Portfolio Analyst system, which is kind of wonky. Let's just say the way PA works is kind of opaque. Long story short², I slightly underperformed the S&P500, but by the exact amount is a bit unclear.

I'm not pushing stocks on anyone, so I don't know how much people care about that sort of number. As I've matured as an investor, I've looked at how things will perform given longer future time horizons. I don't know if I'm good at that yet, but I've learned that three month stretches don't really give me much information to work with.

Additionally, I rarely look at any individual position as "full" or "complete". I like adding to positions, and lower prices are helpful for that.

I'm happy, on the one hand, that I didn't crash and burn during these last three months, but given how I close I was to the index, I'm probably more or less closet indexing with a handful of small wildcard positions that have small effects on the portfolio. I'm trying to get away from that by making more educated and larger bets that I can hold for the long term but that will likely perform much differently than the major indexes.

My Worst Timed Trade Yet

I did have my single worst timed stock purchase though. On September first, I bought my first 50 shares of AbbVie. In 15 minutes the stock fell by 10% because of some FDA news. It was pure bad luck because if I'd bought 15 minutes later, I'd likely be sitting on a small gain rather than the loss I currently have. It's not a disaster, and I don't regret the purchase, but there's a real, "You pays your money and you takes your choice," feeling here. Stocks are risky after all.

Speaking of risk...

I Took Out a Loan to Buy Stocks

In September, naturally with my wife's input and consent, I took out a €30,000 loan with an effective interest rate of 2.39% and a repayment over 7 years. You can see the effect in the stacked column chart by looking at both the asset and liabilities side.

It's surprisingly easy to shop for loans in Germany, and the banks are desperate to get euros off their books and some positive cash flow coming in thanks to negative interest rates.

It's taken me years to act on this idea. I discovered the loan shopping sites several years ago, but I didn't act on it, and even in the last several months, it was an idea that I bounced around but left in the drawer. While deliberating, I priced out loans and had bankers calling and emailing me. I had to psyche myself up for it by listening to Rich Dad, Poor Dad a few times³ and listening to a terrific episode of The Investors Podcast about using debt proactively to buy assets.

In my case, I've borrowed to buy stocks rather than borrowing to buy real estate, for example. In fact, the terms of the loan explicitly state that I may not use it to buy real estate. A mortgage would likely have meant a lower interest rate, but RE in Germany is a much different animal than in the US.

I had a few guidelines going in:

• The interest rate needs to be an achievable return. As in, I need to be more or less assured that over the life of the loan, I don't lose any money to interest.
• The monthly payment needs to be lower than the amount I normally save towards my stock purchases. I'm still going to be adding money monthly in addition to the loan amount, and I never want us to feel pinched by the monthly repayment plan.
• The stocks purchased should help diversify away from large cap tech stocks (which are the largest single positions in my portfolio). Doesn't mean I can't buy any tech if a great opportunity arises though.
• The combined dividend yield of the companies I purchase should pay a growing dividend in excess of the loan's interest rate.
• Since I don't want to lose the principal either, the companies purchased should have reasonable-to-great valuations while also not being value traps, melting ice cubes, junk.
• Diversification away from the U.S. would be nice, but is not required.

The stocks I've purchased thus far satisfy those requirements and have been in healthcare, real estate, homebuilding, and banking. I've added here and there to smaller growth positions. I've achieved the dividend/interest rate goal already and still have about $10,000 left. I've probably done more stock research in the past week than I've ever done before in order to decide what to do with this $10,000. It's exhausting, but I've learned a ton, so maybe I'll delay indefinitely and just keep learning until I find more 1 foot hurdles.

October Forecast

We'll have to pay our tax preparers, which will eat some money, but otherwise October should be a pretty standard month for us.

Reminder: I, like all Americans living in Europe, find myself forced into individual securities. The dual taxation/regulations placed on US citizens in Europe via FATCA, the FBAR, PFIC taxes, and MiFID II rules mean that we are excluded from buying financial products such as mutual funds and ETFs unless we misrepresent our actual residence. In many cases, US citizens in Europe are denied simple bank accounts. We are a group that is actively being discriminated against by multiple countries for the crime of being US citizens abroad.

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1. As of September 26. ↩︎

2. Basically, after adding the loan to the PA feature, it made the portfolio look like it had fallen by 25% or so. They don't treat their own margin debt that way, so I'm not sure why it was different for an external loan. Additionally, adding historical data for external accounts is very counterintuitive. ↩︎

3. Don't listen to Robert Kiyosaki's market predictions though. ↩︎