My Children’s Laughter

Loading UpIn my mid-20s, it dawned on me that I had saved enough money to sail around the world.

Instead of a trip, I took a promotion.

By my early 30s, my net worth had grown and I took a leave of absence, to effectively, exercise all-day everyday.

It wasn’t a feeling of financial security that pushed me to make the change.

It was a set back, an unexpected divorce.

Other major changes have been triggered by unemployment or massive financial loss. In buddies, I’ve seen health issues as the trigger.

Most recently, it’s been misery. Unexpected misery has proven to be the most useful part of parenting.

A story about coping…

BelleSince 2008, I’ve done, or seriously considered…

  • Studying ministry
  • Teaching my kids, my wife’s family’s religion
  • Selling my house, buying a catamaran, sailing around the world – this would include boat-schooling my kids
  • A bioscience degree
  • Various start-ups
  • Returning to finance
  • Pursuing a world-title in a niche sport
  • Pursuing a world-title in another, even smaller, niche sport
  • Relocating to Australia
  • Relocating to California

Pretty big list but I’ve discovered that major change is unlikely to be the solution to a question, that I’ve had difficulty framing.

In my search, two mantras popped up…

2016-01-28 10.03.11Everything I need can be found at home – there is no happiness available in a new sport, new town, new house, new job, new partner… that isn’t available within my existing life.

2016-01-27 11.38.06Meaningful work is part of the solution – everything that I’ve enjoyed in my life is a result of effort. I’m constantly trying to fool myself that doing less will create more happiness. I have the means to make myself miserable through sloth.

Road tripBut what to do?

There are two traits with guaranteed huge payoffs to myself and every person with whom I interact – patience and kindness.

Patience moves my inner life towards serenity.

Kindness vaccinates my mind against anxiety and the opinions of others.

At some stage in your life, I hope you realize that you are free. When that realization touches fear, and a feeling of “WTF now?!”, I hope you remember to fall back on kindness and patience.

What does all this have to do with my kids’ laughing?

After five years of effort, I wouldn’t describe my inner life as jovial. However, I live with three of the happiest children in the world.

When I listen to their frequent laughter, I know that I am happy enough.

 

Two Gifts

2016-01-09 19.05.25For a number of years, I’ve chosen one thing and constantly reminded myself that I have far more than I need of this item.

If you’ve heard me talk about my experiences with finance, or sport, one theme that I emphasize is a feeling that I was far more successful than I expected to be.

Another example might be talking about living with preschoolers… it’s the most hugs I’ve ever had in my life. I’m very well loved.

Or what it’s like to be married to my wife… sharing my life with her is far from a hardship posting.

This habit need not be built with the “big” things in our lives.

2016-01-09 16.56.53Each time I leave a tip at a restaurant, I might pause and say, internally, “isn’t it wonderful to be in a position where I have a little extra to give.”

Each time I reach into the fruit drawer of my fridge, “pretty amazing that we can have crispy apples, year round.”

If I shovel my neighbor’s sidewalk, “it’s so cool to have the time to help this person out.”

The point being to create, and reinforce, a trigger than reminds me that I am surrounded by examples of having more than I need.

So the first gift I wish for you is a feeling of having enough, in at least one area of your life.

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A new habit I’m seeking to build is paying attention to how I feel when I’m walking.

I picked this one up from The Art of Power, by Hanh. It’s a wonderful book, filled with stories about how I fool myself!

I have found walking a little slower feels better.

I’ve noticed that breathing a little deeper feels better.

Strengthening those two habits will lead to better outcomes.

Because…

Most my errors come from quick action when anxious.

So the second gift I wish for you is short, pleasurable breaks whenever you find yourself walking.

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My Silver Year

2015-12-27 13.50.08It was my 47th birthday last week.

Borrowing from the late Oliver Sachs, I decided to look up 47 on the periodic table. I was happy to discover it’s the element Silver (47Ag). So the next 12 months will represent my Silver Year.

When I’m going through a tough patch, I tell myself to live-every-phase.

I have two tendencies that distract from a goal of living every phase of my life.

The first is wishing backwards – mourning the loss of peak physical power.

The second is wishing forwards – feeling like I am trapped in a perpetual holding pattern with my preschoolers. Wishing for freedom that, I believe, will come later.

The above thinking is not useful.

A useful antidote is to reflect on the advantages of my Silver Year.

My life is straightforward, surrounded by wonderful people, close to nature and simple.

While I’m past my athletic sell-by date, nearly all my physical changes so far have been positive.

Staying healthy is easier, and requires much less time, than I expected. As a former ultra-endurance athlete, the toughest part has been changing my belief system to reflect what I’ve seen with my body.

With that in mind, I’ll offer this observation about my younger self.

  • If you have the capacity to convince yourself that total focus towards your goal is “necessary”
  • If you have the capacity to commit significant, sustained attention towards a narrow field of interest
  • If you have the capacity to recover from high workloads
  • then you have what it takes to succeed.

Yay!

However…

You also have the capacity for sustained, extremely poor judgement.

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Success in a narrow niche is about getting a lot of work done, shedding non-core and motivating others to help you achieve.

However…

As we age, we’re likely to value connection more than success.

…and connection is about being good enough across a wide-network of relationships.

…and my relationships benefit from what I don’t do, don’t say, don’t indulge

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Now, at this stage of my life, there is a growing realization that the people around me don’t care about my personal productivity. They want to see me happy and serene.

However, I notice that time is passing and the window for getting-stuff-done is closing.

But what stuff will “I” value having gotten done if I arrive at my Golden Year (79Au)?!

I deal with this tension by pausing and paying attention whenever I feel happy, content and serene.

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The motto “live every day” always makes me feel like I should be enjoying myself.

For my Silver Year, I prefer “live every phase” — giving myself permission to experience my difficulties as they come and vowing to keep moving forward despite knowing how the story will end.

 

Buffett and Munger For Familes – My Wife’s Cats

Two Cool CatsWhat can a family learn from one of the most successful investment partnerships of my lifetime?

Last month, I read Tren Griffin’s book on Munger and re-read Warren Buffett’s Owner’s Manual for Berkshire Hathaway.

I read them NOT to figure out how to make money. I read them for ideas to make myself more useful to my family and make less mistakes in my decision making.

A successful partnership is characterized by:

  • Shared responsibility and shared benefits
  • Trust and open communication
  • Confidentiality, only when necessary, rather than secrecy

The role of the managing partners:

  • Allocate capital
  • Structure incentives
  • Seek to embody shared values
  • Communicate via stories
  • Resist the urge to seek an edge

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Financial Strategy, for capital allocation

This is important. Even financially-sophisticated families get caught up in the noise that constantly surrounds us.

Keep It Simple

  1. Focus on sustainable cash flow divided by capital employed
  2. A fundamental reference point is the 30-year rate on US government securities
  3. Treat deferred tax as a valuable, unsecured, non-recourse loan from the government

My recent article on the Boulder real estate market used the above.

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Understand the value of deferred taxation

If you sold everything you owned (right now) then how much tax would you have to pay?

Many would be proud of a low number. I know that it would make me feel safe.

Buffett and Munger would argue that you want this number as high as possible.

In my family’s case, we would have to pay 6% of family assets, on a portfolio with an average investment age of less than five years.

Historically, we’ve earned ~15% per annum on family capital. I don’t expect that to continue, so let’s assume the family earns 7.5% going forward.

What’s the value of NOT selling and letting the 6% deferred tax asset continue to compound?

7.5% of 6.0% is an extra 0.45% per annum.

Let’s make that number real.

Express it in dollars and compare to your family budget.

  • In our family, it’s equivalent to our federal income tax bill
  • In a friend’s family, it’s equivalent to what they pay for professional advice
  • In another family, it is more than they save each year

If your advisers churn your assets then they are costing you much more than their fees.

View percentages in dollar equivalents.

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Berkshire has bought sub-par business in the past. However, so long as the businesses have decent management, good labor relations and generate a little cash… they stick with them.

It’s like my wife’s cats.

  • When she goes out of town, they pee on our bedding and furniture.
  • Most weeks, they barf a few times around the house.
  • However, the kids love them and are aware of their faults.

By sticking with the cats, despite their faults, I demonstrate loyalty to the entire family.

That said, I’ve made the point…

We’re not replacing the cats.

 

 

 

 

What I Learned This Year

LexiMyLexiHealth Is Wealth: In my peer group, wealth can be measured in terms of vanity/victory (athletes) or consumption/conquest (materialists).

Since putting athletic competition to one side, I’ve done better with my physical health. I was fooling myself with a belief that extreme exercise was a requirement for personal satisfaction. Even moderate exercise leaves me as a 1-in-10,000 exerciser.

With improving physical health, it’s clear that my inner experience is what’s next.

With a young family, there are moments when I feel trapped.

Well, despite my tendency to blame others, there’s only one person who can free me!

  1. Freedom to take actions to support my physical, mental and spiritual health
  2. Freedom to control my schedule
  3. Freedom from thought patterns that aren’t useful

With the above in mind, I ask: Who should allocate my capital and my time?

In my case, the answer is “me.”

The last year has been driven by “volunteer” work, mainly with my family.

As I’m prone to over-doing-it… there have been times when I’ve driven myself into the ground.

The symptoms are concerning.

I lose my ability to concentrate, which shows via impaired hearing, sight and memory. I even got a little delusional after the 55-hour week with the kids.

Not fun, and a strain on my marriage, but I do a reasonable job of getting myself back on track.

Knowing my family history, and taking personal responsibility, I’ve decided:

  • to share experiences with the people that are close to me
  • to reduce noise in my daily life
  • to free myself for daily exercise in nature

This requires doing less “for money” and spending money “for time”.

This requires saying “no” or “not yet,” depending on the circumstance.

This requires facing unfounded, but deeply held, fears:

  • letting people down
  • sliding into ill-health
  • financial ruin
  • failed marriage

Do my facts fit my fears?

Usually not.

But when they do, change slowly.

Small, Negative Suprises

Sneaky SquirrelPart of being human is a tendency to over-react to small losses.

As this error has cost my family (big) money, I’m going to share a case study that illustrates the point.

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One of my jobs is to manage a small portfolio of local real estate. From time-to-time items come up that need to be sorted. Each of those items represents a small dose of unexpected pain.

In most years, there will be a dozen items that require action. Total cost of these items is on the order of one-month’s living expenses.

To give an idea on scale of the “pain”, the portfolio is worth ten-year’s living expenses and, annually, it generates cash equivalent to seven-month’s living expenses.

Combining the above, you could calculate that the portfolio has a cash yield of ~5% on net realizable value.

When compared to all of the alternatives, this investment is one of the best places to invest.

But the random, little bits of pain hurt — jammed sewer lines, flooded basements, six-foot high marijuana plants, missing tenants, leaking toilets… none of this is unusual, or unexpected.

The small doses of pain hurt so much I’ve been considering selling the portfolio and switching into a less attractive investment.

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To escape the small and random pain, I am willing to accept certain, large and immediate pain! A discount on market value and payment of significant tax liabilities. The total cost would be more than two-year’s living expenses.

In a fantastic investment, with less attractive alternatives, I’m willing to pay 25x more than the cost of the pain to make it go away.

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Rather than pay two-years living expenses to make the pain go away, I’ve hired a property management company to insulate me from the pain.

Annual cost is 0.6% of net realizable value and less than a month’s living expenses.

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Beware of quick reactions triggered by small, negative surprises.

They are often irrational.

 

 

Teaching Up The Tree

cottonwoodLast spring, a friend asked for my advice.

He felt his elders were making mistakes and wanted to get through to them.

I drew a blank on his question and have been considering it for some time!

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2015-10-05 16.05.12I saw two components…

  1. a desire to help others
  2. an opinion that someone else is wrong

For the first component, I asked myself, “What is the most powerful form of teaching that I can bring to my family?”

If I’m looking to maximize my impact then nothing beats sharing stories about how I repeated one of my family’s most common mistakes.

So… I pay attention to what needs fixing in the elders, notice when it needs fixing in myself and share a funny story about my error with my kids.

My kids love hearing about my mistakes.

Adults hearing about their own mistakes?

Less so.

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IMG_4860The second component of my friend’s desire to teach…

I asked myself, “Am I sure?”

  1. Am I sure that my way is correct?
  2. Are there circumstances that would make my way incorrect?

My buddy and I were discussing long-term financial security. At the time, we were 100% certain that “our way” was the right way. I agreed that his elders were mismanaging their affairs.

As fate would have it, a few months later I heard a story about a pensioner.

An elderly woman had most of her life savings sitting in a local credit union (earning 0.1% per annum). Instead of telling her that she had to change, her family initiated a discussion to understand why that decision made sense to their mother.

It turns out the lady had thought through her rationale in detail. Her strategy recognized a personal lack of knowledge, a lack of trust in financial advisors, fear of loss and zero personal upside from positive investment returns.

Sometimes it is my lack of understanding that needs to change.