Over the last few months, I've had the distinct displeasure of watching the value of my investments take a very significant reduction in value. Not only did I not sell anything when prices were much higher, I kept convincing myself that shares were, if not cheap, at least good value in the context of a market that was trading at below its long term averages (in terms of PB, PE etc). In rather blunt terms, I got it very very wrong.
I spent a significant amount of time over the weekend crunching numbers and working out where I stand in terms of my possible retirement in early 2012. While the numbers still make sense on paper, the margin of safety has largely evaporated and, subject to finding a job when I go off contract, I will likely continue working until that margin of safety is restored.
I have also considered where we will be if I find myself dealing with an extended period of unemployment. Some back-of-the-envelope calculations suggest that I would have enough cash on hand in Q1 next year to cover about 42 months of living expenses (including mortgage payments) if I don't pay off the home mortgage or 14 months of living expenses if I do pay off the home mortgage in full. (These numbers assume no new investments made and no existing investments sold.) Given the number of variables involved, I need to put together a spreadsheet to get a more accurate picture but it is unlikely that I will have any kind of near term cash shortage.
Lastly, I have to consider whether I should keep buying shares, take the losses on some of the existing portfolio or just do nothing and let the cash build up. I have not reached any conclusions on this issue.