Winning The Loser’s Game – personal finance book, Charles Ellis

2019-06-16 08.44.50This one sat on my shelf for a while, probably due to a concern that I might have to change my mind on something if I read it!

Well, just because something is unpleasant to consider, doesn’t mean it’s wrong.

Besides, I can handle bad news.

+++

Fortunately, there wasn’t much bad news inside this book and it was an excellent read.

Takeaways…

Nearly everyone will be working into their 70s, at least part time. This is a result of success, not failure.

  1. Success in following a healthy lifestyle and benefitting from modern medicine => much longer lifespans.
  2. Success in financial well being => implies our baseline spending at 50, 60, 70… is higher than anticipated.

A working life of 50+ years implies:

  • We will be technically out-of-date before we’re halfway done!
  • Multiple careers, unexpected transitions, continuous technical education
  • Start with something the enables you to get paid well on an hourly basis and become world-class in a niche market
  • If you spent your early career not doing a whole lot then you still have many decades left in your working life. Hit the reset button and get yourself educated without borrowing a ton of money.

Despite “retiring” 3x (!) since my 30th birthday, I’m still working part-time. I had been expecting this to end at some stage. This is not going to happen, and I shouldn’t wish for it to happen.

I should be on-the-lookout for attractive part-time employment and training myself for my next career(s).

+++

As you’d expect from a bestselling personal finance book in its 7th edition, there are excellent sections:

  • Six self-assessment questions (p 80-81)
  • Living under your means as a form of savings (p 161)
  • Annual personal review questions (p 197-198)
  • Contributing time, talent and money to your community (p 227)

I was also reminded of my personal weaknesses as an investor by the author’s advice to “give compounding time to work.”

Across a 50-year working life, that is a lot of time!

Better Relationships

2019-06-12 15.56.43June’s a happy month for me.

June 2000, June 2004, June 2005, June 2011 => milestones of a better life.

Before I arrived at better, I had a lot of experience with making my life more difficult than it needed to be.

“Relationships” was a particularly weak area.

When I got married (for the second time), I had no experience of being in a good marriage.

However, I had a willingness to look carefully at my role in creating a divorce.

Invert.

Do less of what moves you away from your goals

+++

As a coach, I would advise my athletes to:

  1. cut your intake of alcohol, sugar & cheese in half
  2. pay attention to what causes you to binge
  3. pay attention to what causes you to miss training

What were we doing?

  1. Learning how to take things out
  2. Learning how to get out of our own way
  3. Training the ability to look at our shortcomings and, gradually, address them

+++

What are the things that screw up relationships in my demographic?

Avoid being away for long periods of time. With no kids this meant business trips under 14 days duration. With three kids (6, 8, 10) this means I’m rarely alone.

Why’s the above important?

Let’s see…

Athletic couple, physically attractive, raising their heart rates independently, frequently apart.

Don’t come home tired. My wife put this on me a decade ago and it made an immediate difference. I’d go further…

Be seen to help out. When you’re smoked, don’t park yourself in the middle of the house and do nothing! I’ve made a habit of puttering around doing housework. It serves me well.

Away a lot, coming home tired, not assisting… if I wanted to create the perfect storm for my spouse to burn the relationship down (and feel relieved doing it) then that is a good place to start.

+++

Anyhow, we got to “better” and then we had kids!

Six years ago, our crew was 0, 2 and 4 years old.

Back then, my wife’s goal was pretty simple… Get. Through. The. Day.

Working through that period is when we noticed 1-2-3 (above) resulted in better.

Better, not easier!

+++

But the kids grew up and it does get easier.

And I looked around and discovered that I know what a great marriage looks like.

Nothing like what I would have expected!

 

Cash Holdings in Context

2019-06-09 07.03.52The Algebra of Happiness is a great read. Professor Galloway has a hit on his hands.

In the book (page 83), Professor G says “I’m 80% in cash.”

I am used to hearing about wealthy guys’ portfolio allocations, I didn’t give it much thought.

However, his statement caught my wife’s attention (Big Time) and I spent a while explaining why I’d give the Professor an “incomplete” on this short section (of an excellent book).

Here’s what I said…

Start by laying out your sources of income:

  • Social security
  • Day job
  • Consulting gigs
  • University professorships
  • Unearned portfolio income
  • Rental property income
  • Tech fund consulting
  • Royalties from bestsellers
  • Spouse’s income

The segments, and the total, are useful to review.

These are figures you should know, roughly, off the top of your head.

Now, consider the information against your core cost of living.

I guess Professor G’s core cost of living is well covered by his sources of income. I’d further guess that his balance sheet has his family’s living expenses covered for the next hundred years. He is unlikely to be hurt by any investment strategy he selects.

The spread of your income sources will show concentration and diversification. Concentration can ruin life as you know it. You are likely to have skin in this game.

Addressing concentration can save you from ruin. Tweaking asset allocation, less so.

+++

Next, consider the areas of your life that hold option value:

  • Youth
  • Education
  • Ownership (bi-coastal real estate, start-ups, portfolio investments)
  • Wealthy relatives
  • Carried interest in tech firm general partnerships
  • Fame
  • Bestsellers
  • The ability to spend less
  • Equity stakes people toss you for being an entertaining non-executive director
  • World-class skills in well paying, niche specialties

When successful people talk about holding a lot of cash, they rarely mention the MASSIVE option value in the rest of their lives.

+++

What is cash?

As I write this I have six weeks’ living expenses in cash.

Seems really low!

  1. What if I add my US government bond portfolio?
  2. What if I net my unearned income sources from my core cost of living?
  3. What if I take a part-time job in one of my niche specialities?
  4. What if I downsize my house by moving?

In that case, my six weeks of cash should see me through to my 75th birthday.

Incidentally, I did all of the above 2009-2012 after my professional life was crushed.

Thankfully, I had a large cash holding at the time! 😉

+++

What should you hold in cash?

When allocating capital, most people want to receive a forecast of the unknowable.

Avoid pundits, forecasters and the predictions of others. They are worse than useless.

Each time I make an important decision, I write a file note to myself. Sometimes I publish these notes! Do this for 30 years and you’ll have a written record of your strengths and blindspots.

I use my limited attention to consider the implications of being wrong.

Overweight in cash and I am right:

  • Rich already => no implication, if you’re not satisfied with what you have today then you will not be satisfied with more tomorrow
  • Rest of us => Need to decide when to invest
  • Rest of us => Need to decide what to invest

The track record of “rest of us” is clear. We do an awful job at market timing and dynamic asset allocation.

Overweight in cash and I am wrong:

  • Rich already => no implication, my unborn grandchildren inherit less unearned capital
  • Rest of us => my widowed wife runs out of money in her 80s
  • Rest of us => I become a financial burden on my adult children

Some games you don’t want to play.

 

18 Months to Make a Habit

2019-06-05 05.33.55Dalio’s book (Principles) shares that habits sustained for ~18 months are likely to become permanent.

Aiming for 18 months (~550 days) was a change because my typical time horizon is a 30-day test.

30 days is not enough time for the impact of a change to percolate through your life and impact your peers, family and spouse. Changes are still happening from an adjustment I made in December of 2017.

My main thing was “wake up in the 4s.” I got the “wake up early” from Jocko’s book (Discipline Equals Freedom).

It appealed to me because it fits into lessons I’ve learned:

  • Try faster before going slower – Daniels
  • Prove you can do it by diving into a cold pool – Purcell
  • If it’s important then do it first – Covey
  • 4:55 is more than ten minutes different from 5:05 – Willink

I can make my life experience a lot better by making my daily life a little more difficult.

“How am I going to wake up in the 4s for the next 18 months?” is good problem to have.

The problem (up early) points me towards solutions in other parts of my life:

  • Exercise early (what else is there to do at 5am when the kids aren’t up for another 90 minutes)
  • Drink less alcohol (being binary, I simply stopped)
  • Fall asleep (if not tonight then most certainly tomorrow)
  • Start every day with a win

What does winning look like on the home front?

By 8am:

  • I’ve done a workout (win for myself)
  • My kids have eaten, read and brushed their teeth (win for my family)
  • I’ve done an hour of visible housework (win for my marriage)

There’s a TON of noise associated with the above.

Does it really matter? Is this the best use of my skills? Dude, you’re only squatting 95 pounds! My “career” is taking out the compost every morning?!? Shouldn’t I be sub-contracting the busy work?  Blah, blah, blah. Why so angry, bro?

Apply those thoughts to what happens after 8am.

Memories of a credit crunch

2019-05-28 06.43.39I’ve been offline for a bit.

Spending time with my family in Mexico.

+++

I’m fond of reminding myself that the cost of the status quo is hidden.

I like to take breaks from my “status quo” and pay attention to what I have been missing.

+++

Since last July, I’ve been pulling the plug on the internet for 5-7 days at a time and writing notes in a memo pad.

Via my breaks, I am able to see the cost of constant connectivity…

….reduced creativity, clarity and cognitive ability!

+++

It’s tempting to think great opportunities will never come again.

It’s also human nature to forget anything that is further back than about three years.

So I’d like to share memories of what happened coming out of the 2008/2009 credit crisis.

Ancient history in the collective memory!

2019-05-28 13.59.14

In 2010-2012…

  • I bought two buildable lots, one with an older house, for under $300 per sq ft.
  • I then bought a two-unit downtown site for $375 per (very, very old) square foot. This seemed like a stretch. I didn’t expect the deal to show much progress for a long time.
  • I was able to buy Tucson condos at $49 per sq ft. Shouldn’t have furnished these! Sold them early as I was running tight on cash (due to living in a big house with no yield).
  • My last decision was NOT to buy a 5,000 sq ft house in Gunbarrel (City of Boulder) because I was concerned about the “hassle” of cleaning it up. This deal could have been had at $99 per sq ft! What was I thinking! Instead I put everything I had into a well-constructed home at $244 per sq. ft.

Cost to build (excluding land) is now around $400 per sq ft.

The figures above included land and building.

In hindsight, for three years, Mr. Market was giving land away in the City of Boulder.

Are you ready for the next tightening of the credit cycle?

Your Future Self Will Thank You

2019-05-03 19.25.51-1As a young man, 50 was well beyond the furthest I could imagine. I find myself living in a future I never imagined and it’s pretty good.

This (enjoyable) future is humbling because, on reflection, I had a tremendous amount of bad ideas along the way!

Fortunately, I failed to execute on my worst ideas.

Watching my kids navigate the world, I see bad ideas appear to be universal – at least in our household.

Two things I’m teaching them to help reduce the impact of their impulses:

First idea, not, best idea // it’s just my first idea. It might not be my best idea. I don’t need to act on, or believe in, everything I think.

Change slowly // I’ll use a recent example. I’ve been thinking about moving across town. As I think more and more about moving, I can get myself worked up about the move. The “move” is purely my creation.

Each time I notice the above, in one area of my life, I see how I create stress from forcing myself to execute my (first) ideas quickly (and these ideas might not be good ones!).

+++

You are much more likely to predict your reaction to future events than the events themselves.

Here’s your crystal ball… Research from your older mentors, friends and family:

What do people like me value when they are older? There is a rich history of people, like each of us, that have walked the path we follow. While my life is completely different than ten years ago, my values are similar.

Invert the question and watch… What do people like me lack when they are older? The easiest way to understand what the psyche lacks, is to listen quietly to what people say.

  • Control (over schedule, over self, over others)
  • Sex, Connection, Intimacy, Release
  • Stability (financial, emotional)
  • Health & Vitality (strength, energy, capacity to execute)

So perhaps you spend 30 years chipping away at:

  • Spend less than I earn
  • Make myself marriage material
  • Get to know my kids

And you arrive at a wonderful middle middle-age, pat yourself on the back and wonder what’s next?

Where to make an effort?

  • Friends
  • Strength
  • Health

Choose wisely.

Get Up & Follow Through

2019-04-15 14.05.46When I get myself worked up about some trivial thing, I pause and remind myself that my kids get it right about as often as I do.

Like me, they can struggle a bit when we are all together, or tired.

Here’s a filter I use to make better decisions when I’m in my role as “Dad.”

If I want to offer correction…

  1. Get Up
  2. Follow through

No talking from the other room. No shouting from downstairs…

  • Calmly get in front of the kid
  • Let them talk it out
  • Ask them “what am I going to say now?”
  • Follow through, regardless of the inconveniences

Every. Single. Time.

Avoid the trap of constant negative feedback, that both of you are ignoring!