Write a kid, it will do you good.
“If you want to determine the nature of anything, entrust it to time: when the sea is stormy, you can see nothing clearly.” Seneca — Daily Stoic (@dailystoic) May 5, 2020
I noticed that Buffett sold out of airlines, completely. Elsewhere, I read about his concern about being an owner of businesses that consumed cash.
The quote above is another Buffett/Munger point => how difficult it is to wait, watch and be patient.
The challenge of no-action, waiting for the sea to calm => made easier by a combination of cash-generative assets and cash.
I was asked for my opinion about inflation/deflation.
Before offering thoughts I want to share a portfolio. The ratios can be tailored to your personal situation.
- Net Cash Generative Real Estate [See Note 1, below] => 2 years core cost of living
- Equities => 3 years core cost of living
- Bonds/Cash => 2 years core cost of living
- Recourse Leverage => none
(a) I like to think in terms of “years” because it provides a big incentive to keep my spending aspirations modest. (b) The 3:2 ratio, above, implies a 60:40 equity/bond portfolio. (c) Core cost of living => cash it takes you to survive one year.
Pause and think about the above portfolio in deflationary, as well as, inflationary environments.
- The portfolio is not optimized for any scenario, there are aspects that will get hit hard. This is OK and to be expected.
- The portfolio can survive different scenarios.
- You can spend a lot of time tinkering at the efficient frontier but it won’t get you much in the real world.
- Get yourself to a position that’s “good enough” and lets you sleep at night => then go out and focus on living your life as best you can.
- Pay careful attention to decisions that impact time, rather than money => time you have in your week, time you have in your life, the quality of your time and what you will spend your time thinking about.
The portfolio need not contain solely financial assets: education, time, youth and other options are important sources of family wealth.
About the likelihood of hyperinflation and depression-style deflation…
- …the levers being pulled have no historical precedent => from this morning, US Federal Government borrowing $1 Trillion per month this quarter
- …the levers are being pulled different directions by governments, corporations, consumers and central banks
- …the levers impact the price of goods, services and capital in different ways
The system is complex and opaque, with feedback loops, 2nd and 3rd order effects => the system is fundamentally unknowable => I should constantly remind myself of the truth of unknowability and avoid people who have a vested interest in impairing my thinking.
- my most challenging work is increasing human capital via home school, while modeling a strong marriage for my kids; and
- not decrease human capital by becoming a casualty, myself!
I’ll end with a picture of what I saw when I came downstairs this morning.
Our youngest, mirroring what she sees around her.
Warms my heart!
[Note 1] Real estate that is a net cash drain can be a source of stress (for you) and fragility (for your family).
One of the two best investment decisions I made in the last 24 months was renting in Vail. The other solid decision was not redeveloping a site, at a time when people were making (on paper) $1 million per flip with high-end renovations.
Capital, used wisely, gives you to ability to not-act and be comfortable sitting in an enviable position.
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