State of the Stash: Q2 2022

Apparently, I forgot to do my Stash update for Q1 2022. Oh well, it would have been depressing anyway. Time moves more slowly in a bear market so it’s ok.

It is (past) time for my personal finance and investing journal update. Let’s update the State of my Stash…

If you are new to my blog, or this series of posts, I am tracking my liquid savings/marketable investments. I am using these posts as sort of a finance and investing journal, so I can look back and see what I was thinking and (hopefully) how I achieved certain financial and savings goals. The primary benefit for me, really is to be a forcing function to make me drill down and see what’s going on.

CURRENT PORTFOLIO ALLOCATION

As I’ve mentioned before, most of my stock exposure is through index funds. I do tweak the allocations to these funds based on valuation and/or trend, depending on the account.

In my biggest account, I basically allow myself to allocate between 50% and 100% to stocks (equally split about 1/3rd each between SPY, VXY, and EFA). As discussed below, I also alter allocations in my value + trend account.

So, I definitely did not come into 2022 long and strong. As a result, I am only getting half-smashed (or something like that). Of course, that’s probably after years of “performance drag.”

At the end of Q2 2022, I had about 7% in SPY and 5% VXF (or their equivalents). These allocations went down a lot from the last update, because they got smashed and also because of changes in my trend+value account (discussed below). About 15% was allocated to foreign stocks (~15% EFA and 0% VXUS…VXUS is what I use in my trend account).

EFA was down (18.82%) YTD though end of Q2 in 2022 (12/31 – 06/30). The S&P 500 was down (19.98%). The completion index (VXF) was down (28.11%).

I’ve got about 15% in accounts where I pick stocks. The remaining ~58% is in bills and cash equivalents. [This includes a relative buttload of $PSTH.]

MINOR ADVENTURES IN CAPITALISM

As stated, I allow myself to pick stocks with a “sleeve” of my portfolio. It’s at ~15% of the total portfolio at quarter end. I have not really been contributing to this sleeve (other than funding my HSA which is in this bucket).

In addition to the stocks I have discussed in the Fun Fund articles, I own a decent slug of BRK.B. Not much to say about this section right now. I haven’t done anything lately. I have been mulling LAMR, GOOG, and JHG.

VALUE + TREND

I also manage some of my portfolio based on a very simplistic, systematic trend and value strategy.

When long, the account is divided equally: 33% each to the S&P 500 (SPY), the Dow Jones Completion Index (VXF), and foreign stocks (VXUS). Basically, if the valuation of one of these indices/funds is rich (as determined by me, based on a somewhat discretionary “process”), then I apply a simple moving average trend-following rule.

The idea is to have some risk management in place when stocks are expensive by selling when they have negative time-series momentum (for example, when stocks are down over the last 12 months or below the long-term moving average).

When stocks aren’t expensive, I just want to be long and strong (so no trend-following). I only allow changes once a month in an effort to limit the number of “whipsaws”(when I sell and later buy back into the equity fund at a higher price than I sold, because the trend rule says so, resulting in a loss).

If you’re interested in learning more about trend following, I would recommend you start by searching for info on the Alpha Architect and Meb Faber sites. Jeremy Siegel also touched upon the subject of trend a little bit in Stocks for the Long Run.

I have about 22% of my investments in this account/strategy. I am prioritizing contributions into this account. It should become a larger allocation over time (unless the relative performance stinks).

As of 06/30/2022, I was 100% in t-bills/cash in this account. Since March 2022, this account has been 100% in cash equivalents. YTD in 2022 this account is down (5.20%). This beat the primary benchmark I’m using: $AOR. AOR tracks a globally diversified version of a “60-40” portfolio. AOR was down (15.67%) YTD through 06/30/22.

I remain pretty pleased with the performance of this account. It put up a 17.29% return in 2020, smoking the 10.75% return for $AOR (and basically matching the 17.24% return for SPY).

While I took a loss to SPY in 2021 (+30% vs. +14% for this account), that was due to the 33% each in VXF and VXUS (there were no trend rule signals/changes). I’m just not sold on concentrating everything in U.S. large caps. As I’ve said, this account is winning in 2022 YTD. SPY got smoked (19.98%) and AOR didn’t fare much better with a (15.67%).

I also like how the strategy has continued to serve as sort of a psychological “release valve,” providing reassurance that even though the market was expensive I am rolling with some risk reduction. I have taken a few whipsaws over the last few years (for example a small one in 2020 during the covid collapse…which could have been worse), but those haven’t been huge or bothered me much. I basically view it as cheap insurance that I only buy when the market is dear.

STASH STATS

Now on to the balance update. As a reminder, I ended the last update in December 31, 2021 at about $423,000.

Since that date, I continued to automatically save. Automating my savings is my strategy of managing my behavior (and limiting the willpower required to stay on plan) by basically saving/paying myself first and then dealing with the consequences in the rest of my budget.

I have been saving about $5K per month automatically into my relevant accounts.

Whelp, that was all for naught as market losses incinerated all of my additional savings. After paying the penance to the market gods, I ended Q2 2022 with only about $411,000 in my portfolio. That is the wrong direction.

In 2021, I started tracking the rate of how quickly the stash is growing, including both savings and investing gains (or…losses). This is an odd metric for most use cases, but it’s easy and does reflect both levers that I am trying to use here (saving and investing). Thanks to an idea from a twitter friend (@DadInvest, follow him if you don’t), I also started tracking the 5-year trailing CAGR for my total invested assets (also including gains and contributions).

First, my percentage increase in the stash from saving and investing YTD for 2022 was minus (2.84%). The five year trailing portfolio/savings CAGR is 25.13% (06/30/2017 to 06/30/2022)(again, this includes contributions and is not offered as evidence of an investing savant).

This 5 year CAGR is much lower than the almost 40% rate when I computed this at year end 2021. I guess it is still a decent motivator.

THAT’S A WRAP

So anyways, that’s the mid-year state of my stash. I threw tons of cash into the abyss. However, I guess it would have been much worse if I were fully long stocks coming into this year.

Just taking my year end balance, adding my contributions YTD, and applying the SPY’s decline (and including my contributions in 2022), I would have been down to somewhere around $360,000, versus the current $411,000. I suppose that’s some consolation.

Thanks for reading!