Vision Sixty

2019-08-20 07.58.18Seven years ago, I asked my smartest pals to share their experiences with sabbaticals. It was a very useful exercise. Rather than a sharp, and sudden, sabbatical, I made a choice to change slowly. I gradually shrank my working life and replaced it with more family engagement.

Over the last year, I’ve been tapping my supervet buddies in a similar exercise. I am asking about their 50s => any lessons, any tips, how’d you find it?

2019-08-20 06.26.25The answers have been all over the map.

  • Everything gets easier
  • Worst decade of my life
  • Best years of my life

ZERO consistency in what people say, but clear themes when I look at what they actually do. They keep on, keeping on.

Despite what we tell ourselves, there is little practical decline through 60. Obviously, I’d be miles behind my 37-year old self in any sort of race. However, even in my sedentary pals, it’s more of a “slowing down” than a decline (in function). I saw this in the supervet athletes I coached. A clear, annual, decline didn’t start to happen until ~70 years old.

In comparing me-with-me, there’s very little lifestyle change forced upon us. The changes are more about coming to terms with “less.” Less vision, less skin tone, less aerobic capacity, less recovery capacity…

Middle age struggles tie back to seeking “more” => relationships, heart problems, injuries, dissatisfactions… the damage comes from the stresses of striving.

My happiest older pals have found a way to come to terms with what they have, and what they’re not going to have.

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If “more” is going to challenge you then it will be obvious (injuries, depression, a-fib, drama, binging, addiction).

I like to remind myself, “Reality is enough.”

My mind is ALWAYS spinning ideas for more. I pay close attention to how “more” makes me feel – exhausted, neglecting my family, worried I’m going to get caught out.

2019-08-17 09.20.59Get your winning done early and pay attention each time you taste a lack of satisfaction after striving.

Look deeper into your drive, passions and interests => what lies beneath your compulsions?

For example, I like spending time in forests – my speed of movement through the forest is something I track, but has no impact on my satisfaction.

What’s your gig? My gig is sharing a connection to nature with people I love.

The “lack” is deeper than the “more” we seek. I had to back off to find out that satisfaction was behind me.

2019-08-15 17.22.14How would you describe your desired outcome over the next 5-10 years?

Active, polite, easy-going, positive. These are the traits of my older pals that I enjoy spending time alongside.

Thinking through consequences

2019-07-16 08.01.59A friend confided in me that his FOMO (fear of missing out) is running hot. Stories of easy money have got to him and he wants to get in on the action!

This reminded me of 2005 – a year when I was planning a future life of luxury. I had a road map for how I would spend my paper profits… a house in Santa Barbara, a flat in Paris, summers in the high-country. The constant focus on acquiring more should have tipped me off, but I didn’t notice.

For Christmas 2005, I bought myself a copy of Fooled By Randomness.

It humbled, and deeply concerned, me. You should (re)read it.

In my business life, I had a personal guaranty outstanding. The guaranty was a modest amount of my “paper” assets but more than 100% of my liquid assets.

In my personal life, I had established a line of credit to pay my living expenses.

I realized I could be wiped out.

2019-07-16 08.21.00Taleb’s teaching…

There are some games you don’t want to play.

Some risks we should never take.

Across 2006/2007/2008, I secured my financial life. This decision saved me from ruin.

I had NO idea about what was going to happen (still don’t).

I had a clear idea of the scenario that would wipe me out. Approaching 40, with a new wife, I didn’t want to get wiped out.

I addressed what I controlled: my cash flows, my debts and my obligations.

Do you know what could wipe you out? Look to your borrowings, your obligations and your cash flows.

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Do you notice triggers that could create a shock to the system? In what ways is the recent past skewing our vision of the future?

  • Debt-fueled political stability in Asia
  • Negative yielding sovereign/corporate debt in Europe
  • Easy money at a time of multigenerational employment highs in the US
  • Global debt double 2008 levels

Across all markets, a low-interest rate policy:

  • Delaying the consequences of poor decisions
  • Pulling forward future returns
  • Reducing interest service obligations => while global debt has doubled the price of debt has more than halved

It impossible to predict when the credit cycle will play itself out.

It is possible, and advisable, to understand how you are exposed to ruin.

  1. Cash flows compared to fixed commitments (taxes, debt service, core cost of living)
  2. Asset purchases via debt finance => particularly negative yielding luxury purchases
  3. Credit quality => Who can go bust and hurt you?

Things go wrong when people build assets, and debts, to the top of the credit cycle.

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The photos were taken on the Twin Sisters in Rocky Mtn National Park – mountains provide an opportunity to teach about consequences.

How Bad Ideas Get Funded

2019-06-26 14.43.54After a decade of asset price inflation, I’m tempted to shuffle the deck. I remind myself:

  1. Each time I change, I crystalize tax liabilities, pay transaction fees and introduce the possibility for error.
  2. A key benefits of an attractive position is the freedom NOT to change it.
  3. NOT following through on a mediocre idea => can be a great decision.
  4. My greatest investing weakness is the desire for change, for change’s sake.

Against the above, I’ve developed a hunch that assets are going to be cheaper 2 to 3 years from now.

Fully invested, with yields at historic lows, there’s little reason to rush into changing strategy.

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Costly mistakes happen when we overpay late in an expansionary cycle.

Where are we?

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Start with yourself => write out your ten largest items for the last year.

  • Childcare
  • Ski Season Accommodation
  • Food
  • Mortgage
  • Taxes
  • Healthcare
  • College and Retirement Accounts
  • Disney Cruise
  • Ski Passes & Gear
  • Insurance
  • Harry Potter World

How does your current rate of spending compare to 2009/2010? I’m double my bear market rate. Sitting at a 2007/2008 rate of spending (with 3 more dependents).

Are you considering any big-ticket items?

I am:

  1. Vacation property
  2. Trading up my home
  3. New vehicle

There is information in what you are willing to consider. #1 and #2 are rarely on my radar.

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What’s happening locally?

We are doing well in Boulder County, 2% unemployment, significant investment in schools, parks, and recreation facilities.

Some things stand out at the margin,

  1. multi-million dollar homes being left empty by seasonal residents
  2. houses being purchased for ~$1.25 million then torn down
  3. properties selling for double 2007/8 valuations
  4. local governments seeking to borrow HUGE and take technology risk on utilities / broadband

There are many people choosing risks they do not need to take.

There are many people sharing stories about quick money being made.

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Risk being ignored across all levels of society.

State => We have an active State Assembly passing laws and regulations as fast as the Governor can sign => at the margin… they are seeking the repeal of TABOR so they can spend money even faster.

Federal => in the news… medicare for all, national student loan forgiveness and a war of choice with Iran. No constraint on the ambitions of government.

Interest rates => at the top of the cycle, moving away from rate increases and a yield curve showing sub-2% money five years out.

VC to Public Markets => rapid internal dealing to ramp valuations prior to IPO => weak post IPO performance. The smart money is shifting risk, fast.

Every political viewpoint, local to global:

  • acting as if capital is unlimited
  • taking on risks of choice
  • increasing debt burdens
  • agreeing to future commitments of unknowable magnitude

These conditions are how bad ideas get funded.

  • Asset prices at all-time highs => a price umbrella influencing EVERYTHING
  • Cost of debt back at a generational low => easy money

If you are smart then the marginal idea that gets funded might be your own! Right now is THE time to raise money, sell businesses and unload illiquid positions.

If you are concentrated then consider taking money off the table (link is a blog of mine that’s worth your time).

Stay variable.

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.

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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).

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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!

A Little Economic History

2018-10-31 07.52.14It is much easier to position your life before, rather than during, an economic crisis.

It’s also truly amazing how fast a credit crunch can sweep across markets.

This month, a decade ago, was the mid-point for the toughest 90-day stretch of my financial life. Taking it back to October to December 2008…

  • My prospective earned income went to zero at a time when…
  • My Business/Personal cash burn rate was $10,000 a week. Simultaneously…
  • My net worth dropped by 67% and…
  • I was facing a potential claim 20x in excess of what remained. The one bright spot was my family life…
  • Our first child was born and we were very happy within our marriage.

The only reason I didn’t follow a friend into bankruptcy was a pre-crash restructuring. I had been scared by four events :

  1. The US was offering loans without income verification.
  2. The UK was offering loans without bank covenants.
  3. Down in New Zealand, I used both of the above and borrowed to pay my living expenses at a time when…
  4. I had a personal guarantee outstanding that covered most my assets, and all my net worth.

There is a line in Fooled By Randomness about Russian Roulette. It goes something like…

Even if the gun has a million chambers, there are some games you don’t want to play.

I was enjoying my life and didn’t want external circumstances to force a financial reboot at 40-years old. So… 2005-2007 was a time of significant change.

The restructuring took three years (2005-2007). It prevented ruin, but still resulted in a lot of pain when credit markets slammed shut in 2008.

At the time I was working in the UK. The entire chain of my business life went from Great-to-Insolvent in 180-days (bank, joint venture partner, developer, general contractor, sub-contractors, employer, CEO).

Just like that.

Gone.

2009-2012 were spent clawing back.

Key steps:

  • Downsized family home, spending and aspirations. Embrace Your Hubris!
  • Invested the downsized capital into a Downtown Boulder rental property. Two units, where the little unit’s rental income would enable us to live for “free” in the larger unit.
  • Invested our remaining funds in a redevelopment opportunity that I could hold FOREVER, because it was debt-free and cash flow positive.
  • Turned a loss making triathlon hobby (draining $75k annually) into a cash generating consulting business ($4,000 per month).

By 2013, we achieved cash flow break even. We were so blasted from our young family (up to three kids) that I don’t remember appreciating the significance of what we achieved.

Within my financial peer group, our story is not unique. Lots of people had a similar ride. However, they don’t necessarily blog about it.

Financial memories are short.

Remember.

You don’t get killed by prices falling — price volatility is emotionally painful but not financially fatal.

Companies, Your Personal Ethics, Friends and Families… All can get crushed by running out of cash in a banking crisis.

Where’s your cash flow statement?

A Million Dollars of Education

What first got my attention on education was realizing that a month of my daughter’s pre-school was costing more than a semester of my finance degree at McGill University. Digging a little deeper, the long-term cost of education blew me away when I ran the numbers.

Like most parents, we believe our daughter is a gifted genius and we want the best for her. Since I’m the CFO of my family, I’ve been approached to share my thoughts on private education.

What’s the default option with private education?

  • We want the best for our kids
  • Private education costs more so it must be better
  • I can afford it, today
  • Therefore, let’s start down the path

Duscussing education with parents I see the full range of human misjudgement. We all want our kids to succeed so our most-human tendencies manifest. I won’t give specifics as my sources are good friends. Just ask around and you’ll see what I mean.

Similar to our discussion on housing, let’s run some numbers using actual education costs in 2012 dollars. The first figure is Colorado and the second is California. These are figures for the private track:

  • Pre-school: $6,000/$12,000
  • Elementary/Middle: $15,000/$25,000
  • High School: $25,000/$50,000
  • University: $50,000/$62,500

I did a little research on education inflation and it’s been running at 6% per annum. I created a spreadsheet to look at the cost per kid at a 5% inflation rate, which also matches my forecast portfolio return if I don’t spend that money on education. If you want to play with my assumptions then make a copy of the spreadsheet (file/make a copy).

Depending on where you live, the private track has a future value of $875,000 to $1,375,000 per kid.

Knowing that we won’t be rational when we look at our own kids, think about the brothers and sisters of your peers, spouse’s family and your cousins (that’s your reference group). Would it have been a good investment drop a million bucks (each) on all of their educations?

The questions are worth asking but most of us don’t ask, we default:

  • I love my kids
  • Private is better
  • I can afford today
  • I’ll do it

Stack the education default on top of the housing default and many of my peers are looking at $3-8 million worth of expenditure. That kind of money can make a lasting difference in your city when directed wisely.

Likewise, if you think carefully about your goals (and frame broadly) then you might discover alternative uses for those funds.

…you might enjoy working less and teaching your kids what you know

…you might have superior ethics because you haven’t placed pressure on yourself to earn millions over the next two decades

…you may be a better spouse without all that pressure

…your kids might do better if you back them financially as adults

…if you’re in a weak public school district then your relocation budget might be bigger than you think

A very successful friend of mine always wondered why his father refused to pay for any of his education. My friend got himself through MIT and, as it turned out, didn’t need help from anyone.

Perhaps his Dad ran the numbers.