Introduction:

It’s normal to experience negative emotions when our portfolio isn’t doing well. Many people think professional investors don’t experience the same feelings that amateurs do. I can assure you that for the vast majority of us, that isn’t true. Losing money is horrible. When my portfolio isn’t doing well, I often feel awful. That’s compounded by the fact that when I’m not doing well, that means DKI’s subscribers probably aren’t either. Having a hand in the losses of others can feel even worse than losing my own money.

 

Last week, I had one day when I was up about 2%. That’s a great day. When the market was roiled by the war in Iran, climbing oil prices, and fears of a worldwide recession, I was up big. Look – I’m a genius! The following day, I was down about 3.5% within an hour of the open. Look – I’m an idiot! I then recovered some of the losses and finished the day down about 2%. That’s a lot of emotion to end up flat over just two days.

 

Through the last two volatile weeks, my portfolio was down 10bp. That’s one tenth of one percent. If you had a $10,000 portfolio, that’s the equivalent of losing $100 – the cost of a nice steak dinner. (Or ten steak dinners in my current location in rural Cambodia.) In you had a $1MM portfolio, that’s the equivalent of losing just $1,000. Not great, but certainly not worth feeling anxious and upset for half a month.

 

The important issue here isn’t whether you have those feelings or not. It’s what actions we take in response to those feelings. That’s where good money managers excel. Don’t let your negative feelings cause you to take unwise actions. Here’s what I do:

 

Step 1 – Identify the Emotion:

This might seem obvious, but if you want to manage your emotions, you need to identify them. It can be as simple as “I feel anxious because I lost money today”. Try to identify the reason it bothers you. Is it “I lost and like to win”. Is it something tangible like “I’m worried I won’t be able to make a down payment on a house”. Is it something personal like “If I don’t have a certain amount of money, then I’m worried an important relationship will suffer”. This feeling doesn’t need to right or wrong. It doesn’t need to be rational. Just start by figuring out what you’re experiencing.

 

Step 2 – Accept the Emotion:

These feelings are yours and convey information. Losing money is unpleasant and scary. Negative feelings are normal. Accept that you are experiencing a particular emotion. In my case, I like to go a bit deeper. Here are some examples:

• I feel embarrassed and upset that my performance on a particular day or week was negative. I can acknowledge that those feelings are normal, and also acknowledge that losing 0.1% in half a month doesn’t change anything for me.
• I feel worried that I’ll lose my money and not be able to afford my life. I can acknowledge that those feelings are also normal, and make note of the fact that I have years and years of my annual expenses invested. Just accept the emotion whether rational or not.

 

Step 3 – Put the Feelings Aside and Evaluate the Position/Portfolio:

Now that we’ve identified and accepted the feelings, it’s time to put them aside. Those feelings merely tell us what worries and scares us. They DO NOT get to choose our course of action. Here are some examples:

 

• Gold has been volatile this week. My thesis on gold is that the US government (and the governments of all major western countries) are overspending by massive amounts. We can’t save in dollars (or any fiat). But we can save in gold. Gold has been down several days in the past couple of weeks because people sell profitable assets that are liquid. That’s gold. Congress isn’t going to stop overspending, and war isn’t going to make them cut anything. My long-term thesis is intact.

 

• I used $TPL as an example in this week’s 5 Things. Higher oil prices increase the value of company assets. Fears that higher energy prices will reduce datacenter demand means fewer companies might want to locate those datacenters on $TPL land. Does anyone believe that the long-term demand for energy changed in the past week? Does anyone believe that the hyperscalers will stop spending on AI anytime soon? The long-term value of this property in Texas isn’t any different today than it was a week ago.

 

• $LVS is down on fears of slowing Chinese growth and fears of a potential oil-induced worldwide recession. This fear is valid. That could happen. That’s the reason I’m currently carrying a large market hedge. If $LVS is down due to a recession, the same equity indexes I’m short will be down as well. I have constructed a portfolio to hedge out this exact risk.

 

Accepting Uncertainty:

Human beings are hardwired to despise uncertainty. I’ve seen situations where a company expecting a binary event like a Court ruling got the “bad” outcome…and the stock rose. The only thing the market hates more than a bad result is not knowing which result is coming. We’re facing incredible levels of uncertainty right now.

 

Early in the war, it was obvious the US and Israel were achieving objectives. Yet, Iran seems like they have no interest in surrender or negotiation. Many have suggested that so many Iranian leaders have been killed, military commanders are just executing the last orders they received and don’t recognize political authority from anyone still alive. If this is true, Iran couldn’t surrender if it wanted to do so. I don’t know how long this will continue. Do you?

 

Israel successfully bombed the location where the 88-member group that selects the next Iranian Supreme Leader was meeting. Some claimed all of them were killed. Others said there were some casualties. Still others claimed that the building was empty and the leaders were meeting via Zoom (or some similar app). I saw one person commenting today that the Iranian leaders intentionally met in one location in person because they wanted to die and become martyrs. I don’t know who was in the building. Do you?

 

Every day, I see reports that Tel Aviv has been destroyed. There are typically photos or video, but always from other locations in other years. One enterprising social media “reporter” tried to use video of Tehran and claim it was Tel Aviv. Today, someone tried to show the devastation in Israel, but forgot to remove the Claude watermark. The image was AI and was labeled as such. I sent a quick message to a DKI reader in Tel Aviv who let me know that the city was fine and that most people weren’t even going all the way into the bomb shelters when the sirens sounded. He did say he and his friends had been to some good Purim parties. (Enjoy them, E!) This one I know for sure – Tel Aviv has not been destroyed.

 

Today, oil traded up almost 30% on legitimate fears that storage is filling up quickly and that some production facilities had taken damage. The Strait of Hormuz is effectively closed right now. Then, oil traded down almost 20% because G7 countries talked about releasing some of their strategic reserves.

 

I don’t know how long this conflict will last or how much damage oil production assets will sustain. I don’t have a way to day-trade assets where a press release from the G7 or a social media post from President Trump can move prices by 30% in a few hours.

 

Here’s the checklist to stay sane and avoid bad decisions:

• Don’t believe everything you hear, see, or read. Much of it is designed to fool you.
• Accept uncertainty.
• Accept that uncertainty and portfolio volatility will feel uncomfortable.
• Don’t fight those feelings.
• Then, set them aside, and make rational decisions based on the long-term prospects for the assets you own.

 

Reach out if you want help.

 

 

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