Monthly Archives: March 2014

Beware Of The Fun Police

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Can you write a list of the things that make you laugh?

Since last summer, I’ve been working on three traits:

Humility – taking the appropriate space for a situation. My work with hospice challenges me to listen, to not-solve and to focus on quiet presence.

Equanimity – practicing not-reaction, not-replying and letting it roll. First in my actions, then in my words and eventually, I hope, in my thoughts. To challenge myself in this department I’ve opened up my social networks a bit. I’m doing well with not replying in writing – less so with not replying in my head!

Enthusiasm – I’ve noticed that the best parents and teachers have managed to hold onto their childish enthusiasm. Discipline, divorce, insolvency, fraud and positive feedback from being serious… have driven away most of my boyish enthusiasm. It takes a lot of exercise, or alcohol, to get me to let loose.

Why is fun important?

I’m awful at predicting what will make me happy. My default response to stress – sleep more, drink more, do less, eat more and take it easy – is a personal disaster for me.

It’s been this way for a very long time and I have learned to cope via two main strategies:

The Big Hairy Goal – via external validation – I wrap my identity around achievement of something most people find too difficult. The “can’t” of others becomes my reason to live.

Habit – flowing from the BHG, I create a plan that requires me to get out of bed and do work.

I’m not convinced that my method works for serving my wife, kids and family.

So I’ve been paying attention to what makes me laugh.

Laughing happens at times, that are very different to what I believe will make me happy.

  • Adversity – especially extreme weather adversity
  • Riding uphill at altitude
  • Jogging in a forest – trees (and oceans) make a difference to every experience
  • High quality coffee – strong – as in, coffee you feel
  • You Tube – the Fun Police would look down on the stuff that makes me laugh
  • The Onion – my #1 news source
  • Memories of Molina, my buddy KP and Penfold – I’m grateful that my mind skews my experience
  • Being with my wife
  • Aussies – the more abrasive the better
  • Chris Rock – this one makes sense
  • My son, Axel – laughing with a two-year old? I thought “less toddlers” was the answer
  • Sunrises – isn’t getting up early supposed to be a hassle?

Combos are even more effective – riding uphill, after strong coffee, in the snow, thinking of Molina… that’s a powerful laughter inducer.

The most dangerous fun police are the ones living in my head.

Staying Young

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Following my Endurance Corner article last week, Alan wrote a blog with ideas about what’s required to stay young. Alan excels at capturing the psychological reality of being an athlete.

Specifically… What’s truly driving my compulsion for excessive exercise and performance?

What rang true to me was Alan’s observation about “staying young.” When I think about my fears, and choices, that desire explains a lot.

Past 40, my athletic errors have started to stand out. Some of these errors make me feel “old.”

Would it surprise you to find out that big training screws up my sex drive. I could supplement around the issue but I’ve made a choice to experience things more naturally. This is a seriously adverse side effect from athletic greatness! When I was crushing it, and living alone, it was a weird sort of blessing.

Take home point: if virility is a consideration then high training load will impair off-the-field performance.

Strength training, particularly anabolic phases where I lift heavy on my legs, boost my recovery response, and sex drive.

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When it comes to performance, if you’re focusing on age then you’re missing the point.

For highly active populations, aging isn’t the real concern. I have coached world-class athletes into their 70s, the key thing that screws up fitness is injury, specifically the loss of strength that results from taking a forced break. Injury is mostly caused by bike crashes.

Cycling is the most dangerous thing I do and the statistics greatly under report the injuries that cyclists sustain. I denied the reality of cycling danger because I knew that I had to maintain high cycling volume to achieve my reason for living (AKA my athletic goals).

Tip the balance in your favor by:

  • Becoming a more polite, more cautious, cycling version of your current self.
  • Protecting the capacity to run daily. Daily running is more important than great run workouts. A daily easy run, when combined with twice weekly strength work, captures everything you need from long term sport.
  • Stay strong – the difference between a soft tissue injury and orthopedic surgery is often the amount of lean body mass you have (on impact).

I’ve gone further by shifting most of my cycling volume to a full-suspension 29er (disc brakes and fat tires are safer) and avoiding most highways.

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I also had to face that my ambitious race goals were encouraging me to make poor decisions.

However, I can still remember when ambitious race goals were my top priority.

How to balance?

If performance matters then know that you are playing a game of attrition. To stand out, you must become crafty at managing your total stress load. Injuries, divorce and lack of motivation are, at their root, a product of excessive stress.

Every great athlete that I have worked with has been caught by the season-ending trap of:

  1. Fit
  2. Fitter
  3. Fittest
  4. Totally Blown

You must get crafty!

Specifically, change your focus from chronic load to acute load. If you can keep your life in reasonable balance, and your body ticking along then you’ll be able to “act like you’re 25 again” for 2-3 days a month with your pals. With the realities of our busy lives, that’s going to yield nearly all of the benefits and have minimal costs.

Every few years, the stars will align with your family, job and connective tissue… when that happens you’ll be able to hit-the-gas for a month and get yourself into great shape.

The best case study that I know is Molina’s race report from Ironman New Zealand.

My buddy, Scott Molina, just went 10:10 at Ironman New Zealand, on his 54th birthday. That blows my mind! I know he wrote the race report so he can remember that day for a long time.

When Scott was my age, he used to smile and tell me, “I’d rather look fast than be fast.” More and more, I understand Scott’s decisions.

At the end of my elite career, I felt sore, blown and kinda old. A few years on, I’m grateful to be feeling much better. I can’t dominate my pals but, like Molina, I can sneak in a KOM when they are distracted.

Whatever your current path, remember that it’s OK to change. The tenacity that serves us well as young athletes can cause us to make choices that hurt ourselves.

I didn’t expect to have this much fun from doing this little training.

Working For Your Spouse – Family Tax Planning

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In finance and sport, we find participants that make a lot more money than their spouses (bankers, executives, athletes, doctors, lawyers). Even when a couple files jointly, there can be benefits to splitting income.

If you are an athlete then you might want to hire a coach or agent.

If you are a professional then you might have a separate consulting business that requires the services of an administrator, executive assistant or bookkeeper. This separate business might need it’s own office premises and these premises could be located in your home.

Providing there are real services exchanged, at fair market values, there can be benefits to your family with having your spouse own, and run, a separate services business.

The benefits come from:

  • Improved financial power dynamics within your relationship.
  • The ability to compensate a member of your family, for services that you’d have to hire independently.
  • The ability for a younger, or lower earning, family member to qualify to make their own retirement account contributions. See single-k for more information.
  • A reduced overall tax burden by bringing business expenses (occurred by outsiders) into the family’s allowable deductions. Examples might be travel or professional fees.
  • Improving the credit rating of a family member, thereby saving the family money on it’s overall cost of borrowing.

What’s reasonable will vary on your situation and an experienced tax accountant can guide you on what’s appropriate.

Parenting with Objects and Belonging

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More tips from Dad School.

Being social creatures, we share a deep need to belong.

Early in our development, the need to belong manifests through objects. If you’ve ever taken a two-year old’s favorite toy then you’ve seen this need in action.

Toddlers can get locked between tasks when they don’t belong to anything. This is when many meltdowns occur. Quite often, during a transition or when they are feeling nervous, my kids will reach for an object. My son (2.75) loves to pick up a rock when he’s transitioning. I have a pile of rocks and sticks at my front door.

It’s important for me to remember his need for an object. I can push him over the edge if I try to get him to walk without any object.

With our oldest, her need for objects was so strong that she was constantly picking up cigarette butts and bird poop covered leaves! It would have been helpful to have my current experience back then. It was a hopeless task to try to get her to walk empty handed. Wasted over a year on that effort.

Anyhow, the object focus can’t be removed without freaking the kid out. So I’ve grown to accept it and look for props – blades of grass, sticks, small box at the grocery store, tissue, penny. It’s not about the specific thing, it’s simply about having something.

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As my kids grow up, the belong shifts towards doing. An engaged mind is a calm mind.

It’s tempting for me to calm my daughter (5.5) by using the iPad, with headphones, to zombie her out. However, far more effective is getting her engaged in a story, especially real-life stories about me, or working on a coloring project.

Tip for the coloring project. Have her pick out the picture (kids coloring pages on Google Images). Set her up with a work station near you (kitchen, office, living room) and start her out on the project.

My oldest generates 150+ pieces of art/coloring a month and she’s slowly teaching herself how to write/spell. It’s a win-win but takes a little more energy than defaulting to electronics.

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By the way, getting the kids engaged in their own project is a much better option than continual banishment via time outs. Time outs were our previous strategy but they were becoming ineffective with our oldest, and most spirited.

We were getting into power struggles and it was making everyone stressed out. A far more effective approach was to address the underlying lack of engagement/belonging and setting her up with her own project.

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Final Tip for a multi-kid household – if we want our kids to use words, rather than physical actions, then we need to back them up when they use their words with their siblings.

I also need to use my own words carefully and follow through, even when inconvenient.

 

The Cool Kids

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Every so often I find myself captivated by someone that entertains me by being a complete dick to strangers.

Careers and fame are built around this quirk in human psychology.

Look to the opposite side of a polarizing issue and you’ll find yourself attracted to someone that uses “justified hate” to bring down one of your opponents.

I might even find myself wanting to appeal to the bullies for approval – to fulfill my own need for acceptance.

Bullies love to build teams around themselves – you don’t want yourself, or your kids, on those teams.

I’m grateful that I can see it…

…and not act on it.

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Protect yourself, and your kids, from people that don’t like themselves enough to be kind to strangers.

Be particularly wary of bullies in positions of power – when I think about the most dangerous priests, teachers and coaches that I’ve known – the bullying was a red flag visible to all.

The secret lives behind the self-loathing, reflected in wanting to bring down strangers, were tougher to see.

We have a choice with who we follow, what we read and what we share.

 

Moving Into An Equity Position

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A friend asked how to gain equity exposure via the stock market.

I recommended John Bogle’s Book and shared what I do for my own family.

Decide what pot of money to invest – in order of priority

  1. Tax deferred retirement accounts for me and my wife
  2. Tax deferred 529 accounts for my kids’ education
  3. Taxable investment accounts for my family

In Colorado certain 529 accounts also have the benefit of a 1-for-1 deduction from state taxable income in the year of investment. However, the 529 accounts have a higher expense ratio than the funds I access for our retirement accounts (0.45% vs 0.05%). The Colorado state income tax rate is 4.63% so the tax savings helps me justify a higher cost.

For #1 and #3 I prefer to use Vanguard’s Admiral Shares for their Total Stock Market Return Fund (VTSAX) – it has an expense ratio of 0.05%.

I always compare expense ratios for products. For active managers, and fund-of-funds, make sure you get the total expense ratio that looks all the way through the final investment products. Many advisers have a financial incentive to layer fee-generating products and you may have additional taxes due if your portfolio has a lot of (largely unnecessary) churn.

It is important to remember that most people lose the majority of their return via investment churn, taxes and expenses.

Let’s use an actual case study with numbers…

If I wanted to invest $100,000 then I’d move into the position gradually with a fixed dollar amount of VTSAX purchased each week. An example would be $10,000 initial investment (to qualify for the Admiral Shares) then $360 automatically purchased every Wednesday for the next 250 weeks. Five years later, you have your position.

The toughest part about the above strategy is leaving it alone. There will be times when you want to invest more, or less, depending on the emotions involved with following the market. Research shows that our emotions are lousy investment guides. So…

My recommendation is to set the automatic investment at a level that you can sustain FOREVER and leave it alone. Let surplus cash build up in another account and use that for opportunistic investing.

Don’t believe the fallacy that you need a portion of your portfolio “for fun.” The purpose of investing is to earn a return on investment, period. When I want to have fun I go for a bike ride with my pals, I don’t speculate with my family’s capital.

When I do a portfolio review, I look at my total exposure by $ amount and asset class. I review the position “right now” as well as how the position is likely to change, based on future investments, earnings and expenses.

If I’ve lost you at this point then you’re not alone. Sitting down with a financial planner can be extremely valuable. Make sure your adviser makes money by advising you, not selling you products. Firms, like Vanguard, offer financial planning services for a very reasonable fee.

Last week, I shared that I felt over-invested in Real Estate so I’ve made a decision to reduce my holdings. Once I’ve reduced my exposure to real estate, I need to figure out what to do with the cash. Today’s blog post is one option (buy equities over five years). Another option is do “do nothing” and wait for the next crisis. It’s really hard to “do nothing” so, perhaps, I’ll do something really slowly and buy equities over 10+ years.

A long range projection of your family finances (5-10 years) is useful to figure out what dollar amount it makes sense to invest. Consider if you want to retain cash for opportunistic investments: examples might be starting a company; buying investments in a crash; or buying real estate in a recession. In my own life, a handful of opportunistic deals have been what made a difference to my portfolio. These deals were made possible by the ability to deploy cash quickly.

Consider a cash reserve to cover unexpected illness or unemployment. Here’s my post on Lifestyle Insurance. Over and above insurance products, I feel better when I have at least one year’s gross expenses held as a cash reserve. In terms of life changing financial security, here’s my post on Taking Money Off The Table.

I’ve yet to regret selling early – I’m easily frightened by bull markets. A recent trip to the Bay Area set off all kinds of warning bells!

What I’ve described is more generally known as “dollar cost averaging.” John Bogle’s book explains how to use this strategy to give yourself financial security. Highly paid professionals (dentists, doctors and lawyers, particularly) are prone to exploitation by my peers in the financial services industry. Read the book.

A bull market is an ideal time to pause, take stock and ponder long term positions. Right now is when it’s most easy to adjust portfolio strategy.

Preschooler ABCs

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I wanted to pass along two tips that I learned from attending “Dad School” in January and February.

Always Build Competence – it’s tempting to “save time” by doing things for a little person. There’s no greater time saver than up-skilling our kids.

The first ABC leads right into the second…

Always Build Confidence – little people have ZERO ability to differentiate between their actions and themselves. Poor performance, failure, losing… these are devastating to a little kid. Living in a highly competitive, athletic town, it is important for me to remember to protect my kids from environments that they can’t handle.

If my goal is to build confidence, through competence, then it’s all about trying. Backwards letters, messed up spelling, “breaking” the rules at simple games – I need to remind myself that the main goal is to support persistence and joy from effort.

I’ll end with some ancient wisdom…

Never discourage anyone who continually makes progress, no matter how slow.

Thinking About Real Estate

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  • The chatter about real estate deals has started again
  • My estate agent friends are slow to reply when I send them deal outlines
  • Mortgage rates remain at historically low levels
  • Inventories are down

…so you might be thinking about buying real estate.

It is worth thinking about “why”.

Beware if you are motivated by a fear of missing out. That’s a boom mentality and we’re all susceptible to herd thinking.

Beware if your local market has swung so that the cost of ownership is more than the cost to rent. You are likely being tempted to speculate, rather than invest.

When I’m ruled by my head, rather than my heart, I am able to remember what follows. I’m writing them out to remind myself to be smart!

Other People’s Money – when interest rates were under 4%, it was a “no brainer” to borrow 30-years fixed to buy a house in a great school district that was less than my cost to rent.

What swung the deal for me was access to the mortgage, which made the long-term cost to own significantly less than the cost to rent. My cost to own is 75% of my cost to rent locally. My cost to own is 30% of my cost to rent in the San Francisco Bay Area (an alternative location I consider frequently).

While interest rates have risen, they remain low by historical standards. I’m in the process of borrowing some more money to take advantage of the inflation insurance offered by long-term, fixed rate lending.

While private equity firms, hedge funds and investment bankers get to use other people’s money, we don’t.

If you are using your own money it pays to remember the next two tips.

Real Economic Growth drives wealth creation and liquidity drives pricing.

Put simply, if you are thinking about buying real estate then what’s likely to happen to the local economy over the next 25 years.

Can’t hold for 25 years? Don’t buy.

Why? Because you lose the option to move quickly and easily. Your mobility is a highly valuable asset. Don’t give it up easily.

As you age, and if you choose to have kids, the value of your “move option” will decrease. At 45, with three kids and a low cost base, it would be expensive for me to move.

That’s OK – my cost of living is so low compared to my Tech/Finance peers (HK, London, SF Bay Area, New York) that I suspect many of them will move to me instead (and support our local property market).

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Understanding Crowd Psychology

While I’m sure YOUR memory is excellent. How long is the memory of our fellow citizens?

Institutional memory is about three years long – the clean out of 2008-2010 is fading from our collective consciousness. How bad was it? It was awful but we’re unable to remember. I spent this weekend reviewing papers from 2006-2008 and was amazed at what I’d forgotten.

Always remember that our mood is skewed by the recent past. 2013 was a very positive year compared to the five years that preceded it.

Let’s recap… if you…

  • can hold long term
  • have the funds available to buy
  • like the long-term growth prospects of your location

…then my advice is to sit and wait for a crisis.

How often do we get a solid crisis opportunity? It’s more often than you think. Key ones that I’ve lived through…

  • Stock Market Crash of 1987
  • High UK interest rates, and tanking property values, 1990/1991
  • Mid-90s Asian Crisis
  • Tech Bust of 2000/2001
  • Great Recession of 2008/2009

Five great buying opportunities and that only includes one’s that I lived through.

Because it takes three years to forget the boom that preceded the bust… you need to allow 2-3 years to move into your position. You’ll see this pattern repeated over-and-over in real estate.

Be patient, balance your holdings and wait for the next crisis.

The Dad Abides

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Best advice from the smart women (and one man) that have been helping me navigate fatherhood.

Roll With It – my 30 years of writing are a shrine to over thinking.

Don’t Postpone Joy – it’s OK to have fun, love each other and enjoy time together – this balances the inevitable periods of difficulty as we learn to live together.

Success Is Love – I have friends that have become successful adults despite growing up in crazy home environments. Across the insanity of their home lives was a deep understanding that they were loved.

Don’t Act on Anger – it’s easy to get caught in a cycle of being angry at my anger. It’s a lot more useful to make a habit of not acting on negative emotions. Deciding that I don’t yell, don’t hit, don’t respond… creates a habit that gets ingrained over time. 

Balance life with mindfulness – the crazier my home life becomes, the more valuable my mindfulness practices become. I need to take responsibility for creating space in my schedule, serenity in my mind and removing unnecessary sources of noise. This keeps me off autopilot, when I am at risk of acting on anger or creating a habit of self-pity and misery.

See Me Beautiful – there are times when it’s easier for me to see the beauty in kittens, puppies and nature than my kids. I was given a copy of this slogan and stuck it beside two favorite pictures of my kids. I see the slogan many times a day. When I see the beauty in my kids (and my wife) the love flows naturally, without effort.

Share Adventure with the one’s you love. Create memories of sharing joy.

Ten Lessons For My Kids

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I like to think that I’ve learned the lessons that I’ll share but past history indicates that I’m currently fooling myself in new, and undiscovered, ways.

In my 20s, I was hardwired to favor risk and had large financial incentives to overlook lousy decisions by my peers. I had a rough set of values based on my experience, church, parents, peer group and friends.

Historically, I over-react with regard to my Big Four:

  • Drunk Driving
  • Infidelity
  • Recreational Drug Use
  • Fraud

Of these behaviors, fraud is the toughest to spot. If you think that you haven’t been touched by fraud then you’re not paying attention. Fraud varies by scale and demographic:

  • Athletic Fraud – doping, course cutting, drafting
  • Financial Fraud – falsifying accounts, lying to a client, creating assets
  • Business Fraud – bait & switch, substandard products
  • Tax Fraud – tax evasion, undisclosed accounts, subsidiary in tax-free jurisdiction
  • Insurance Fraud – misrepresenting loss, lying to support a claim

Because fraud is tough to spot, I pay attention to the rest of my list.

As you get to know people, drunk driving and recreational drug use are usually the first to surface. Most of us tolerate ‘a little’ drugs and drunk driving in our societies. Thing is, my brian is crappy at calculating when ‘a little’ becomes ‘too much.’

I make better decisions when I give myself binary choices and create large negative consequences from bad behavior. For example, my wife can easily access my email, my financial information and my net worth.

Have a look at the table below. It’s best viewed on a desktop and explains why it’s futile to expect clean sport at the elite level. If you disagree then I bet your happiness, or paycheck, depends on seeing a different reality. That’s ok. My happiness isn’t contingent on changing your opinion.

Source Link.

USPS Cycling Salaries

The table provides insight into the salary range of an organization that places a high premium on winning and supporting winners.

The leader makes over 100x the lowest paid employee. The larger the compensation ratio, the greater the rewards for individual risk taking.

Pay (and taxation) scales are neither right not wrong. They are a cultural expression of values and create incentives that influence behavior.

The compensation ratio of the 2002-2004 US Postal Cycling team (226x, 160x, 180x) is similar to my experience working in Private Equity. When I started my career in finance, my initial salary was similar to the bottom end of the USPS pay scale, and was a good deal for me at the time.

Young men don’t need encouragement to make decisions that work against our collective interest. Fortunately, a group of juiced cyclists isn’t going to bring down Western Civilization. However, unregulated leverage nearly destroyed world-wide financial prosperity in 2008.

Rather than working to change the system, it’s more effective to focus on reducing the damage that the system can do to society. War, leverage, tax policy, products that kill us – these issues can bite your family in the butt.

The Kiwi approach to drunk driving is a useful example of successfully changing behavior:

  • Severe negative consequences
  • Large hassle factor of getting caught
  • Targeted advertising to make the risk behavior uncool within the peer group – if you don’t drive drunk you’re a legend
  • Targeted education to scare the crap out of young drivers – the police drop the deceased’s car off at the entrance to the high school

Basically, remove the incentives and crank up the penalties.

As a social policy issue – safe driving is a good one. It is tough to argue in favor of a ‘right’ to drive drunk.

Things get tougher as the issues come closer to home:

  • the ethics of my favorite sports team
  • earning money by selling cigarettes, alcohol or gambling
  • polluting a river
  • over treatment of patients
  • selling products that benefit my firm more than my clients
  • changing to energy efficient lightbulbs
  • and on and on and on

Too difficult!

The easy way is a belief that we all have a ‘right’ to not change.

I don’t know the right answer to each question. However, I have learned to be wary of people that pursue low incentive, high penalty, risk seeking behaviors – seat belts, speeding, helmets… the odds are overwhelming that risk-seeking behavior pattens carry across lives.

Because the financial upside from driving drunk is the cost of a taxi ride, society had a pretty good shot at convincing young people to modify their behavior.

With financial markets and elite sport, we’re fooling ourselves if we think we will ever win the “battle” while penalties are low; incentives are high; and glory is skewed towards the victors.

We don’t need to change. Keep enjoying sport. Enjoy it for what it is and be grateful that you don’t have to lie to yourself to pay the bills.

Pay attention when you are tempted to cover the lies of your peers and teach your kids that telling small lies can result in living a big lie.

Most the crooks I know started small, were mostly justified in their early behavior and don’t think they’re cheating.

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What To Do?!

It is tempting to throw my arms up at the futility of it all. However, quitting ignores the influence that I have over my young children.

As parents, our most valuable currency is love and respect. If our highest values are vanity/victory (athletics) or money/sex (finance) then our children will naturally, and unconsciously, gravitate towards pleasing us via those methods.

If we have different ideals (kindness, good humor, empathy) then our kids will gravitate towards them. Sticking my kids in a Buddhist preschool was one of my better decisions. It’s a mystery how that community had had such a big effect on me, but their values are becoming mine by osmosis.

To break the chain, I need to own the negative aspects of my value system. It’s near impossible to balance my genetic programming to favor height, beauty, wealth and power. I try to counter my idiosyncrasies by sharing them.

To help my kids and myself, I skew behavior via simple mantras.

  • We’ve already won
  • We have more than we need
  • It’s ok to say no
  • Train every day – no zeros
  • One small step, daily
  • Focus on love
  • It’s better to tell the truth
  • Jimi (Hendrix) died from too much liquor
  • Cocaine stops your heart
  • Herpes is red sores on your penis

Sorry about the herpes reference but multi-sensory sexual imagery sticks in the human mind. If we want to change behavior then best to use vivid imagery of the negative consequences.

Break the chain.

Pay your family with love and respect.