Surviving Bear Market - Margin Call

Updated: 12 March, 2020 seen 186

I once read that an investor can call himself a pro after he/she has survived at least 3 bear markets. I just survived one. At least I hope so.

In fact, from my short active investor's career, I feel this is already my second bear market, with first happening back in December 2018,

March 2020 market was scared from Covid-19, Trump travel Ban for EU citizens, Russia- Saudi oil war. Panic, real panic. It took about 3 weeks from all-time highs at the end of February to a 20% drop in mid-March 2020. And nothing is over yet. 

Portfolio value as of March 12, 2020

Portfolio value as of March 12, 2020

By March 12, 2020, my total portfolio has lost in value by more than 30%. 30% in 12 days. What a speed.

If counted from my portfolios all-time high at the end of January the drop is even more bearish 37.95% drop. Now these drops are quite Okay for crypto investments but with the stock market, hell this asks a lot of nerves

Entering Negative Value For Ethereum Investment - Crypto Bear Market 2018

For me problems started with my plan buying PFE shares once in a month for my partner, using the so-called wheel strategy. Selling naked puts ask cash locked on margin. About a month ago I took a larger assignment of CSCO stocks and my account balance turned negative, as I was buying on margin. My balance turned to a negative EUR 5,000 which I was able to reduce down to -EUR 3,500 by March 12, 2020, but as the market kept falling with 7% daily I quickly faced liquidity issues

Here is the long story short:

On March 12, 2020, I faced a margin call and the broker closed my positions (with a huge loss) to take my account balance back to positive. As these stocks are a cornerstone strategy for my dividend income, it didn't feel Okay taking an impressive dividend loss.

Here is what was sold:

  • Sold 60 RA for $14.85 per share (loss $468.25) / yearly dividend loss $121.80
  • Sold 206 PNNT for $3.90 per share (loss $740.07)  / yearly dividend loss $126.07
  • Sold 17 CSCO for $33.97  per share (loss $233.26) / yearly dividend loss $20.74
  • Sold 100 PBCT for $11.38 per share (loss $504.96) / yearly dividend loss $60.30
  • Sold 244 XIN for $2.54 per share (loss $506.83) / yearly dividend loss $78.44
  • Sold 15 PFE for $30.40 per share (loss $138.72) / yearly dividend loss $19.35

Total sold shares worth $4,494.65

Total loss after sell: $2,592.19 / dividend loss $426.7

After selling these stocks my account balance was brought back to positive and I decided to close some of the suffering options to buyback  and increase positions from lost shares

Here is what I bought:

  • Bought 100 RA for $15.42 per share / yearly dividend $203.00 
  • Bought 24 PFE for $30.96 per share / yearly dividend $30.96
  • Bought 147 NRZ for $11.28 per share / yearly dividend $243.1
  • Bought 100 ET for $6.55 per share  / yearly dividend $76.8
  • Bought 100 PEI for $1.05 per share / yearly dividend $71.4

Total spend $4,703 / yearly dividend $625.26

To free up some buying power I additionally deposited EUR 700 and closed put option on PFE, took a loss here $542.80

Additionally, I closed with a loss options trades on SPX and Gold futures, took a loss here $894.60. I don't plan to trade options on indexes or futures. The risk is not worth it.

My dividend income for the rest of the year before the margin call was $2,449.38, which lacks behind my goal for $3,600 in 2020

After I bought back and increased some positions my planned dividend income for the rest of the year raised to $2,594.71, that's a growth of $145. Awesome

With markets recovering I believe I will be able to gain big from today's buys + increased dividend will help to get closer to my yearly dividend income goals ($3,600 for 2020)

My real loss today comes from options trades, in total I lost $1,437 here. Unlike in my previous experience with bad managed options trade when I lost about $5,000 I wouldn't say these were bad managed trades. I just faced margin call and wanted to use cheap stock prices fro future growth. Will I turn right, time will show.

The Bottom Line

If there are lessons learned from this bear market, then I have found following for myself

  • always have a cushion for security at least 20% in cash, better bigger, make it 30%
  • puts on dividend stocks are Okay, stay away from trades on SPX and Gold futures
  • implement more ratio backspread options in the future

Trade safe!