2020 has been a tough year.  Nobody would have imagined the devastation from COVID-19.  But Hong Kongers knew.  Since the SARS days, the trickery, the propaganda, and the hypocrisy have never been more clear.  Ironically, something happened in this pandemic to my advantage.  With this post, I’m hoping not to brag, but to document the unique experience and to make a few points I’ve always wanted to make.

All the uprising in 2019 in Hong Kong along with the sustained, almost relentless warning of China’s implosion from a foreign currency reserves and debt crisis by people like Kyle Bass got me on high alert.  As COVID-19 broke out and we realize the more we wait, the earlier we found the pandemic started.  There was this period of time over here in the U.S. when we seemed to be just waiting for things to happen.  Yet we know that either the U.S. has enough business in China or there are enough Chinese traveling to and from the U.S.

Call it a hunch. Or the circumstances were becoming very unfavorable. On January 27th, at Dow Jones 28,535, I sold off the majority of my retirement portfolio.  And I told myself not feel sour if the stock market continued to climb.

It Happened

About 1,000 points later, the market finally reacted.  From Feb 19th to Mar 23rd, when the market bottomed, it dropped a whopping 10,757 points, or 37% off the peak.

“Whoa”, was how I felt.  Of course I didn’t just rejoice.  After a few days of large drops, I then knew for sure that the massive selloff began.

Tax

Once the mind is made up, the selling part is actually the easiest.  But as with any financial transaction, one irrevocable outcome, if not thought-through, is taxation.  I had all the retirement funds that I wanted to sell in a Rollover IRA account.  And that behaves the same way as my 401K, meaning that taxes are levied based on my tax bracket at the time I withdraw from the account after retirement.  And that means, there will be no tax consequence for my case.

The most notable case to watch out for is if the investments that you want to sell off are in a non-retirement investment account that has no tax advantages.  In that case, when you sell off your investments, you’re subject to short-term or long-term capital gain tax, which can totally drain your profits.  The outcome can still be better than losing 37% of your portfolio’s value, but the tax consequence is definitely something to consider.

Buying Back In

After I had dodged the selloffs, the most difficult part was buying back in, because you wouldn’t know when the market had reached bottom.  I started buying back in at xxxx points, often doubling in amounts when it dropped further.  At some point, I decided it was still quite uncertain where the bottom was going to be.  So I stopped buying more and waited.  After the market showed a clear rebound, I started buying more again.

The Result

On top of all the gains made during the 4 years of Trump’s first term(which was already outstanding), so far I’ve gained another ~30%.  The ETFs I invested in have returns mostly between 60% to 80%, being inflated further by the massive money printing.  While I never fully invested back in, this was truly impressive.  Since then, I’ve started adding REITs and commodity into the mix, hoping to diversify the portfolio further.

Taken near Sept 2020, this was what the account’s worth over time looked like.

Invisible Hand

One of the most important message I do wanna bring up is how there’s no such a thing as the invisible hand in capitalism.  Pretty much every single system we have in the U.S. has loopholes and is subject to abuses.  I cannot think of a single investment vehicle that you can confidently put money into without any intervention/care and still be profitable enough.  Enron, the Tech Bubble, the Financial Tsunami, and now COVID-19 were all major disruptions to the market that a lot of us didn’t have the means to avoid.  Ultimately, we need to be diligent in managing our portfolio.

Some actions can and should be taken:

• Convert from mutual funds to ETFs.  ETFs trade instantly just like stocks.  Mutual funds, however, are sold based on the price at the end of the trading day.  By then, you could have lost more on your investments.  Also most ETFs have much lower fees compared to mutual funds.
• Rollover your 401K at a former employer’s plan.  By rolling it over to a broker, you get unlimited investment choices in addition to the ability to trade as you please.
• Stay current.  Watch news, youtube and other media to stay current.
• Diversify.  You should already know this.  Bonds, precious metals, etc are the typical ingredients.  But I’d recommend adding REITs and commodities.