Liquid net worth – April through June
Hey folks. Hope you all had a great financial quarter, unlike me. 😅
My household liquid net worth dropped $138,000. Oh man. That’s a bummer.
But it’s important to put things into perspective.
I’ve had 6 consecutive quarters of growth before this most recent downturn.
So I see these last 3 months as more of the exception than the rule.
Overall my net worth is still going in the right direction. 🙂
What I did over the last 3 months
Buy more stocks
I don’t think it’s a surprise to anyone that I’ve been a net buyer of stocks lately. The market just keeps getting cheaper. Here are my new positions, all purchased due to my options being exercised, lol.
- TFI International (TSE:TFII) x 100 @ $105.
- Etsy (ETSY) x 100 @ $130.
- Ford (F) x 300 @18.
- Ginkgo Bioworks (DNA) x 200 @ $4.
- Meta Platforms (META) x 100 @160.
- PayPal (PYPL) x 100 @145.
- Sea Limited (SE) x 100 $180.
In the short term I may have overpaid for some of these companies. But let’s see how things play out over the next 1 to 3 years. 🙂
Rebalancing
I’ve also rebalanced a bit. I sold $20,000 of my mortgage fund (fixed income investment) and used the money to buy 100 Meta shares at US $160 per share, which comes out to be roughly $20,000 CAD.
The mortgage fund I sold was Antrim MIC, which I’ve held for 8 years now. Each year it distributes 6% to 7% interest to unit holders. The reason I decided to sell a portion of my holdings is because I believe there are better opportunities to make money elsewhere. For example, I expect $META will be worth at least US $200/share one year from now. That’s a 25% ROI compared to single digit for a mortgage investment corporation.
Options earnings
I made $8,456 in net premiums from trading options in Q2. This is actually lower than the previous quarter because I had to take some losses in May. Overall I expect to earn around $10,000 per quarter trading options moving forward. Making $3k to $4K a month selling covered calls and naked puts appears to be a sustainable level of income. I’ve tried making $8K a month before with options, but that was a perilous endeavor and I just ended up losing money the next month. It’s important to find the right balance between risk and reward.
Almost got a margin call
Lastly, I transferred another $40,000 from my HELOC to my IB margin account over the course of the last 3 months. I got a warning in May that my margin requirements was running low. Had I not deposited extra money into my brokerage account, IB would start to automatically liquidate my holdings if my portfolio fell another 10%, which could definietely happen in today’s high volatility environment. 🙂
Email I received from IBKR:
Portfolio breakdown
Here is how my liquid portfolio stands on June 30, 2022.
Liquid Assets:
Cash = $12,000 (-$2,000)
Canadian stocks & bonds = $386,000 (-38,000)
US stocks & bonds = $266,000 (+10,000)
Retirement = $259,000 (-9,000)
P2P lending = $20,000 (-1,000)
Mortgage funds = $24,000 (-22,000)
Total = $967,000
Liquid Liabilities:
Margin loan = $123,000 (+31,000)
HELOC = $60,000 (+50,000)
RRSP loan = $0 (-5,000)
Total = $183,000
Liquid Net Worth = $784,000 (-$138,000) -15%
All numbers are rounded to the nearest $1,000 and in $CDN at 0.80/USD
Commentary:
To put $138,000 into context it’s about 15% of my liquid net worth. It’s also about 7% of my overall net worth which includes the equity of my real estate holdings. This is certainly going to leave a dent in my overall finances. But I’m curious to see how things play out next quarter.
First it was meme stocks that fell. Then the fast growing technology sector was hit. After that it was the broad S&P 500. And finally now, even energy and commodity stocks have began to fall in the last month. This bear market has been relentless.
And no wonder.
The reason asset prices across the board are falling is because the cost of money is more expensive. For example, mortgage interest rates doubled literally in months.
My plan for the next 3 months
If you’ve been watching my YouTube videos recently you probably saw that I shorted the Nasdaq 100 by selling 100 units of QQQ. This is a temporary hedge that I’ve put in place to protect myself in case the stock market continues to fall. I plan to remove this hedge when the QQQ rises back up above its 10 week moving average.
Other than that I plan to keep an eye out for signs of the market bottom. The first half of this year was pretty bad for stocks. However, with the worst part behind us, I believe the second half will be much better so I want to be prepared with cash on hand and not miss the opportunity. Fortunes are made in bear markets because that’s where you can find the best value for your money. 🙂
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Random Useless Fact:
The Tesla Model S is often considered one of the best cars ever made.
Good to see you have a strategy to pick stock at attractive levels using options strategy. In my view the recent market downturn has affected all portfolios and values would have declined slightly, moderately or significantly depending on the composition of stocks and how much they went down. I recently had some cash from stock sold couple of months ago, but neither I have confidence nor sufficient funds to go and buy some. Sale was to get rid of stock and for personal need for funds. Secondary reason is due to recent downturn and fear I’m trying to shift focus away from markets or investments and give attention to personal finance aspects, career and other aspects of life. That gives me a break and strengthen overall finances rather than worrying about portfolio value. I’m still following markets but not doing any transactions as such. While I’m not doing it myself I believe there are great opportunities for good stock picks at reasonable prices if one has some extra savings and long-term view (atleast 2-3 years). This can be a challenging phase for people who work in certain industries or sectors such as hospitality, airlines, food and beverage, etc. Although the… Read more »
Thanks for the comment Sridhar. If you sold some stocks in recent months then you probably got a higher price than in today’s market. 🙂
In terms of certain sectors like hospitality and food services slowing down, I have heard others give the same sentiment. Retail shopping also seems to be down from a year ago. Whether we are already technically in a recession or not, what really matters is how consumers feel. And right now I would say people definietely feel like this is a recession.
What if you do all these transactions and takes all these uncompensated risks but end up no better than someone who just buys VEQT?
I would not be okay with that but YMMV.
Best of luck.
That would definitely suck for me. Once this bear market ends and it turns out I did not beat VEQT then I will probably sell all my stocks in my brokerage account and simply hold a combination of dividend growth stocks and a low-cost diversified stock ETF, lol. This has been working for a lot of other investors I know.
Right now it’s a bit hard to tell because we are in the middle of a downturn. My portfolio has been hit harder than VEQT because my holdings generally have higher Beta. This should help me on the way up during the inevitable recovery. I think we’ll have a more accurate gauge of overall performance after the next few quarters. 🙂
Hey Liquid what was your ExLiq when you got that email about margin call from IBKR?
I believe the excess liquidity was about $25K. My portfolio’s net liquidation value was around $250K at the time.:)
Thanks for sharing Liquid. Although your buys in the past 3 months look overpriced in hindsight, we don’t have a magic ball and I agree with your thought process that these are some amazing companies with promising long term potential. When you mention “I want to be prepared with cash on hand and not miss the opportunity“, are you referring to your ~ 12K or are you planning to deploy more funds into market if you feel that the market has bottomed?
Hey Moe. Good question. By having cash on hand I actually mean deploying more money into the markets when I think we’ve reached a low point. Timing the bottom is nearly impossible, but making lump sum purchases each time the market falls further is a reasonable long term strategy I’m using. 🙂
So far I’ve already borrowed $60,000 from my home equity line of credit to buy stocks this year.
If the S&P 500 falls another 10% or so I plan to borrow another $100,000 to invest in high quality companies. For example a 10% fall for Black Rock (BLK) will put the stock at $536/share. That would make it trade at 13x P/E. The dividend yield would be enough to cover the cost of borrowing. Over the next 3 years I expect BLK to return 50% minimum. 3 years later I can repay the $100,000 I borrowed + interest. Not a risk free strategy. But I think it should work out.
I have been in a similar situation as I was pretty over sold on cash secure puts. I did roll sever forward about 3-6 months and doubled down along with increasing contract size. I’m on the hook for more risk as I bit off more contracts. But there is a good chance some of these end up expiring or I get in lower since I was able to reduce my strike quite a bit on all of them. I still like the long term thesis and his is just a normal market cycle.
I’ve got about 5 or 6 options that I’m constantly rolling and will likely be underwater for the next several months. What I’m looking forward to is once this bear market bottoms and heads higher again my portfolio is going to just rip. 😀 Those put options I’ve shorted are going to lose value so fast, lol. I’m sure yours will too. I think the strategy is still solid overall, despite the short term pain.
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I guess I’m in good company then 😂. I’m down about the same percentage since the start of the year.
We will make it back. Just have to keep being patient, I hope, lol.
What’s your basis for your pricing estimations for specific stocks that you’re referencing ie facebook, BlackRock. You provide price targets but don’t tend to validate your statements.
Thanks!
For those particular stocks I look at the P/E ratios and compare them to previous years.
For example, the average P/E of Facebook (META) over the last 5 years is about 25x. Right now the stock is trading at roughly 12x.
It’s a different interest rate environment today than in the past. But even if Facebook can get back to 18x P/E, then that’s a 50% ROI assuming 0% earnings growth. 🙂
For more growth oriented stocks with higher revenue growth, but little to no profits yet, I look at the price to sales ratio instead, and compare that with previous years. I pay attention to the EV/sales ratio as well.
[…] it wasn’t as bad as the drop from Q2, but it’s still a bummer seeing the stocks I own fall more and […]