30 Aug 2023

Direct equity investing is a bumpy ride

We bought a house in February 2023. My original plan was to sell my Google shares to fund the house purchase. I have always had “too much” exposure to Google shares. Selling Google shares to buy the house was a way to reduce the concentration risk. But by the time we finalised a house, the price of Google shares had fallen pretty badly.

You can see the stark difference between the left half of the following price graph and the right half.

Google share price has appreciated by 21.42% in the last 12 months. But it was in the negative territory for the first 9 months.
Between August 2022 and February 2023, Google share price fell by 22.58%!

When we knew which house we were buying and how much money we needed, Google shares were trading for around $90. I felt it was too low a price to be selling at. I changed the plan and found a different way to raise funds. It felt unnerving when I did that because selling Google shares had always been the plan. Changing the plan in the final weeks is essentially dancing to the tune of the market — something I want to avoid.

$GOOG’s performance since then is nothing short of amazing: almost 50% growth in the last 6 months! It made up for the previous ~20% loss and appreciated further to post a +20% increase year-over-year!

Between March 2023 and September 2023, Google share price grew by 49.47%

Lessons learnt

  • Price swings of 2% or 3% in a day is a regular event. 20% or 50% up/down in a year is also fairly common. Direct equity investors should accept this bumpy ride.
  • What does that mean in practice? You may have heard people advising to not lose hope when the price falls. But the reverse is also true: we should not celebrate if there is a rally and the price is going up. The price can fall any day.
  • Well-diversified mutual funds are a much better alternative for those who don’t like so much volatility. For example when investing towards a financial goal. Directly holding 20+ diversified stocks is not a comparable alternative because deciding how much of what to sell may not be straightforward.
  • Direct equity investors need to be nimble-footed. They should be willing to change plans when needed. It would have been a bummer if I had sold off my Google shares for $90.
  • In addition to having the willingness to alter the plan, a direct equity investor should also have the ability to alter the plan. My situation would have been rough if selling Google shares was the only option.
  • This one I am not so sure about, but… maybe I am better at making investment decisions than I give myself credit for. (Or maybe I just got lucky. What if $GOOG had never recovered? What if $GOOG kept falling?)

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