We couldn’t resist writing a bit on ‘marking your portfolio to market everyday’.
As income investors we are looking to lock in a decent yield while having the maximum safety we can possibly find consistent with our goals.
Certainly there are some income investors that are purely and simply looking to lock down the income flow with little regard for the net asset value of the portfolio, BUT IT IS OUR EXPERIENCE IN 47 YEARS OF INVESTING that MOST investors cringe when their holdings are falling fairly rapidly–we know we do.
The other saying you hear is ‘I don’t lose money until I sell’. This is pure baloney and an excuse by someone failing to face up to reality–we see this over on Seeking Alpha all the time. Let’s face it-if you bought at 10 and now it is at 5 you have lost money. Maybe you will get it back in the long term or maybe you won’t.
The reason we say ‘mark to market each day’ is that if you are not mentally facing your loss you won’t ask the hard questions. Are the issues I hold as solid as I once believed? Are my goals correct (maybe one should be all in money markets instead of stocks)? Do I need my money in the next year or so (if you need it in the next few months it should be in near cash)? Has anything in the local or global economy changed so much that I should be getting crushed?
Sometimes investors can’t sleep at night–literally can’t sleep–years ago we were that way. If you can’t sleep because your portfolio is getting crushed you need a higher cash type portion.
For us we absolutely hate that we had an overall loss of maybe 6/10% this week–we hate it. But in the end the loss is not of real consequence to us, but I don’t deny any losses–they are real. I guarantee you when we have the news on tonight and they talk about the big DJIA down day and my wife asks how we survived–saying ‘we didn’t lose anything because we didn’t sell’ won’t cut it.