Monthly Archives: December 2015

My Silver Year

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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

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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.