Losing 10% of your net worth

No, that person wasn't me! ACCICB told me he heard of somebody who lost that much last year in the stock market. Regardless of how much the person's net worth was, 10% is a huge amount to lose in a year! I was asked to guess the dollar value of the person's loss and even after 10 guesses, I still didn't hit the magic number! 

Let's just say that it is impossible for most people to have that kind of money in a lifetime and the amount lost can feed 10 families comfortably throughout their existence on earth. That conversation triggered off this post as most people have probably already calculated their realised /& unrealised portfolio loss/ net worth loss now that we are in the early days of 2016.

Since investing typically means waiting for the value of a stock to appreciate, in such economic doldrums, valuations get slashed and usually so does dividends. I can't help but wonder with the changing nature of the world, valuations would be calculated differently and even if the global economy gets nursed back to health, the formula for success would no longer be the same.  

We may never see the kind of valuations for the stocks we hold in our portfolio or we may see them but that could be years later, nobody knows for sure but the red ink in your portfolio is something staring at you everyday. It could take years of dividends to offset the drop in valuations for some stocks and I would be so grateful if the valuations would recover in my lifetime. 

I was cutting stocks last year during the dead cat bounce whereas everyone else was accumulating with the notion that the market has recovered. I was delighted that I had the chance to escape as I had and still have the view that 2016 would most likely be more of 2015 but a tinge more bearish. I have to be more careful with any investments that I make this year but I'll likely be spending most of my time on trading. 

Comments

  1. Joyce,

    10% is very mild. To most traders anyway.

    But if I were to express it in dollars and cents as in a 10 million loss from a net worth of 100 million, man, it hurts!

    Similarly, a 10 bagger is very common in Toto fraternity - buy $1 quickpick, strike 3 numbers, win $10 - an instant 10 bagger!


    I've learned never to put myself in the position where I am hoping the STI to double so I can breakeven.

    Making mistake is OK; making the same mistake twice is not OK ;)

    ReplyDelete
    Replies
    1. Hi SMOL,

      Agree that 10% is mild for Traders...unfortunately the person is an investor so can only long and with the STI performing as it did last year, you can imagine how much the loss was...I gave up on STI last year....decided that currency risks could be much better hedged than the STI.

      Delete
  2. It's quite bad to lose 10% of net worth. 10% of equity allocation is possible if heavy in China, sg etc. last year most private bank balanced portfolios would have been -2% (+/- 2%) in usd terms. In sgd terms, maybe up a little if unhedged. So for this guy to lose 10% of net worth, implies very bad management.

    ReplyDelete
    Replies
    1. Hi Der Shing,

      Yup private bankers sold this person a bunch of stuff, bulk of it was in equities...if you hear the dollar value, you'll faint or do a double take or have your eyeballs enlarged with mouth wide open which is why I refrained from putting a number in this post.

      Delete
  3. Absolute value I understand can be huge so we need to manage our portfolio with watchful and not be numb to losses. However in reality 10% is mild. In fact for LT investor this is really not abnormal ! Talk to those who invest in 2008. It can get a lot more worst.

    ReplyDelete
    Replies
    1. Hi Cory,

      I didn't even dare to ask how 2008 was for this person! I Guess this situation is more of a people say, you listen kind...although the listener probably heard this story as he's more successful as an investor

      Delete
  4. Believing that investment is a sure thing to riches then there will be no poor people around. In investment, one must be well prepared to lose his pants.

    ReplyDelete
    Replies
    1. Hi Money Honey,

      I agree, even the world's best investors have made poor investment decisions before....

      Delete
  5. Hi Joyce,

    I met Mr. K on a plane trip last year. He told me he lost $40 mil in 1997.

    And that was the best thing that happened to him!

    Please read :

    http://www.rolfsuey.com/2015/06/fujian-trip-part-2-pleasant-encounter.html?m=1

    ReplyDelete
    Replies
    1. Hi Rolf,

      Thanks for dropping by and yup I've read this article on your blog before. I think Mr K is worth much more so that was I don't know 1 or less than 1% of his net worth? But they are brilliant at making even more money to cover their losses!

      Delete
    2. Hi Joyce,

      Not quite true. Bcos of the losses even with his reputation, he has no money to have a decent wedding for his daugther (who I remember was student further studies)...

      It took him more than a decade to cover his losses.... I was told.

      Delete
    3. Hi Rolf,

      Which is why I personally think that great businessmen may not be great investors as it requires different mindset and skill set

      Delete
    4. Yes agree totally. That's y most biz man prefer to invest excess money into their own biz than invest elsewhere.

      Delete

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