Update October 2021: Q3 Earnings Season Gyrations

In October our net worth (measured on October 26) rose 1.74% in USD and 2.8% in EUR to $113,899 and €98,189 respectively. Year over year, that's about a 52% rise in USD and 55% rise in EUR.

This small monthly gain was entirely due to the stock market gains. Our savings rate was negative because we had to pay our German tax preparer, which means withdrawing from an account set aside for infrequent but recurring purchases. We also paid off our piano, which had been on a rent to own plan. I characterized the balance remaining on the plan as liability when we agreed to it, although it didn't carry an interest rate, and payments to it counted as saving in my scheme.

But since we were also saving up a large cash balance to make the final payment, it's a wash for our monthly savings rate. You can see that in the chart because both assets (the ~€5000 in cash) and liabilities (the balance) decreased simultaneously.

Stock Market Volatility

On the whole, our portfolio did fine in October, however, it was not without its drama. Of the companies that we own that reported earnings, the market's reaction to the majority of them was swift and terrible. Apple, Amazon, Facebook (now Meta), Intel, Ally, and Charter all fell sharply after earnings were released. Sometimes earnings bled into other names, such as when Snap (not owned) announced their earnings, which caused sell offs in Facebook, Alphabet, and Amazon.

While there was some justification to these downward moves, the intensity of the sell off was surprising. It is no secret that Intel is trying to right its ship after years of product delays and encroaching competition. It is no secret that Amazon is investing heavily in its workforce and logistics operations and that it will likely face some bad year over year comparisons. It is no secret that Facebook is pivoting hard towards the "metaverse" and VR/AR and that this will cost a lot.

Nevertheless, the stocks were punished, and that's one of the aspects of single stock investing that anyone who wants to do this just has to become accustomed to. There's no escaping it.

Some companies did well, to be sure. Alphabet, AbbVie, Bank of America, and Sony had strong post earnings reactions. Absent earnings releases, Greenbrick Partners did very well in October. My two small hyper-growth names Dutch Bros and Cloudflare both grew wildly in October, though their earnings aren't until November. I honestly don't know what to make of their relentless price appreciation.

Regarding Cloudflare, at least for now, I have to conclude that my subconscious was right: selling Cloudflare back in May was a colossal blunder. Had I sat tight, I'd be sitting on my first "ten bagger". Whether that price appreciation continues indefinitely is unknowable, but my current cost basis is a more vulnerable price than my original $19.27/share cost basis.

Somehow, I am reacting to all these gyrations with a decent amount of equanimity. Occasionally I will feel some stab of stress, but I know that:

• Selling too early has been my biggest mistake.
• Companies that I've sold often continue to do well, which means that I'm generally fishing in the right pond¹.
• Despite that, drawdowns are part of reality, and there’s no prudent way to avoid them entirely within my set of priorities.

A healthy reminder has been that, were I to stop adding new money entirely and only reinvest dividends, this portfolio will likely do very well over time. This is in line with Warren Buffett's admonition that "Wall Street makes its money on activity. You make your money on inactivity." That doesn't mean that it will "beat the market" or that every name will be a long term winner, but left alone, I likely end up with decent price appreciation over the long haul.

November Outlook

We expect several large expenses:

• We're planning a few trips. I have some time off around Christmas for once, and we want to take advantage. We also plan to visit a friend in a far corner of Germany, which will demand train tickets and a hotel.
• We still have one tax preparer to pay. Fun times.
• October has a two week school vacation, which many adults choose to also take for themselves. That means that my wife's income this month will be lower due to reduced working hours. She would have gladly worked, but her clients chose otherwise in many cases. Ah, Europe.

We also expect several refunds:

• My wife will receive a refund of part of her health insurance premiums from 2019.
• The estimated taxes we paid in September will be refunded due to a new estimated tax appraisal.
• We expect a tax refund from 2020, but the Finanzamt might take its time delivering that.

And naturally, the market might behave wildly, which is outside of my control. Until next time, stay healthy and happy.

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. This idea was taken from a recent episode of The Investor's Podcast with Dev Kantesaria ↩︎