Beware when getting off the train! - February action plan review

Commuter train: Serampore by Saptarshi Sanyal on Flickr

Shit! I haven’t updated the blog in quite a while now. A review on my February action plan is quite overdue. In my previous post Mr Market is panicing: What to do? I was looking at the high volatility of the market and decided on two actions:

1. Sell and re-buy instruments for tax loss harvesting
2. Look at buy opportunities

Let’s see how I did on these two action points.

The good

My goal with selling and re-buying was to generate technical losses to minimize my taxes on dividends as since this year, a Finnish tax payer can deduct also capital losses from dividends (previously they were only deductible from capital gains).

I did manage to sell off positions for a total turnover of about 11 200 euros and a realized capital loss of about 1 200 euros. This means a future net tax savings of 1200 * 30% = 360 euros. This loss is deductible for the next 5 years so I’m certain I’ll be able to use in it’s entirety.

I also did some changes to investment instruments, e.g., changed my frontier market ETF from DX2Z to FM (from swap to physical replication and from 2% TER to 0.79% TER). I also got rid of my only bond holding which was Vanguard’s BSV. I didn’t see holding bonds as such a good idea anymore because of the low interest rates environment we’re currently experiencing.

The bad

But. I only made new purchases in the value of 6 600 euros. Oops! This means that I was holding about 4 600 euros more cash after than I had before commencing the February action plan.

This was a learning point in investor psychology. After seeing the low-low prices of the (temporary) bottom, it was not as easy to commit to repurchasing the same instruments back at a (little) higher price. Learning points:

1. Beware of getting off the train. The train may take off while you’re on the station. Commit to getting back on.
2. It doesn’t have to be sell-and-buy only, but you can also buy first and sell later. You can actually diversify your risks by mixing buy-and-sell and sell-and-buy 50-50.

The ugly

The previous also means that I didn’t succeed in my secondary goal of buying more. Mid-February would have been a nice dip to buy something more but that didn’t happen. I don’t believe in timing the market but acting on these kind of dips could and should be done. I’m sure I’ll be more ready next time.