I graduated from university in the summer of 1990. I didn’t know it at the time but it was an excellent time to start a career in finance.
The price of money has been falling ever since I graduated (1st Class Honors, Econ/Finance, McGill). My first real finance job was the most junior member of a very successful private equity team in London.
It doesn’t enter into popular consciousness but many of us have had the benefit of a 30-year tailwind. This tailwind impacts every aspect of our lives and, like oxygen, we’re largely unaware of it (while it continues).
For the first half of my finance career, a modest interest rate cut was sufficient to get everyone excited.
At this stage of the cycle, it takes a healthy dose of shock & awe to move, or steady, the markets.
It’s important to remember:
It is impossible to know the future in real time. If you find yourself saying the Fed is making, or not making, a mistake then you’re fooling yourself.
It is possible to assess the risk in the system => leverage, debt service, off-balance sheet liabilities, derivatives obligations, debt:equity ratios, months of cash on hand vs monthly cash burn rate… there are a lot of useful measures. You should know these measures for your country, state, county, firm, family and self.
I don’t want to comment on right or wrong. I simply want to share observations that, hopefully, will help you think better about money.
In my line of work, I hear a lot of themes.
I’ll share a couple themes and my counter-dialogue.
The market is so high, I need to sell or I will lose money.
Volatility isn’t loss – come back to this one in the next down cycle.
Constantly tracking the price of anything will cost you time, lower your return and lead to misery. See Fooled By Randomness, by Taleb, for the best explanation of why you should ignore the volatility of a good-enough portfolio (or life for that matter!).
My entry prices are 30-60% below current market. Instead of focusing on a fear of loss, I focus on the cash flow being generated from wise past decisions.
If you exit then you need to put the money somewhere. The benefit of a good position is you don’t need to figure this question out. The less I need to think, choose and act… the better.
Every positive action costs expenses, taxes and introduces the possibility for error.
Most the people who worry about money, don’t need to worry about money. Beware of using financial news as a distraction from what you really should be doing with your life.
Price vs Happiness vs Wealth
Price is an illusion – all assets move in cycles.
Price changes are not wealth changes.
If you build a habit of happiness with price increases then you will experience a multiple of pain with the inevitable declines.
Equanimity must be trained, and re-trained.
Financial wealth comes from productive capacity, which is the ability to give the world what it wants.
What does the world want? My world wants…
Cash flow generation
When you create a lot of money (see chart above and, note our constant, longterm Federal stimulus), the money needs to go somewhere. When money “goes somewhere”, especially when debt is available on top, prices go up.
The effect is not wealth creation, the effect is asset price appreciation.
The first principle is that you must not fool yourself – and you are the easiest person to fool
Feynman’s rule on foolishness
In 2020, all this money creation might be saving us from disaster. At best, we’ll get a chance to argue in hindsight.
Don’t fool yourself by acting as if your wealth has been increased.
Babies and preschoolers were so overwhelming, I was forced to make choices/changes. If you’re struggling with a young family then the struggle, the process of choosing, is a useful teacher.
Where’s the point of “good enough”?
As I get older, I find myself saying “good enough” a lot more.
As a younger man, I might have considered this process settling for less. It doesn’t feel that way. What’s happening is I have a clear idea of the work required to get a little bit better/richer/faster and I know that work is going to get in the way of what gives my life meaning.
These days, I don’t get meaning from more.
With planning => where are you seeking to go? how will you know you have arrived?
If the goal of the plan is to have something to avoid existential angst then own it. Own it and know that you don’t need to push yourself quite so hard.
If the purpose of planning is to “have a plan” then the plan itself need only be reasonable. Most days… tick the box. Occasionally, push the envelope.
The news cycle isn’t my friend. It’s a distraction from what gives my life meaning. It’s an easy way to pass time spinning my wheels on topics I can’t influence.
So, to sort out my thoughts, I need to address the fire hose of information flow that arrives daily.
The best technique I know for clearing the mind and setting priorities is a cyber-break => pull the plug completely for 7-14 days.
It’s wonderful and, while difficult to execute, the world has yet to miss my absence.
I’m going to try the “light” version in August => shutdown my computer after each use (it takes forever to boot up, major friction), remove Safari / Twitter from my phone (more friction), and take notes but don’t publish.
That’s probably 100 hours going back into my August. As well as creating time, it will create space because there will be less noise arriving.
Simple, not easy.
Similar piece from 2011 – based on a conversation with the most successful guy you’ve never heard of – despite having a ton of financial wealth, his mode of operation has nothing to do with money. I’d forgotten about his tutorial to me.
What’s the cost of a life with meaning? From 2016 – Pay The Price.
~100 posts during COVID and over 66,000 words published this year. Do a little bit each day and you’ll get somewhere.
How’d you spend lockdown? Wrote a book, educated my kids, loved my wife and got really strong.
I got a large eye roll when I told Monica that I’d been asked for some thoughts on balance. A moderate approach isn’t something I’m known for.
That said, I have some ideas that I’d like to pass along.
If you are going to lead an unbalanced life then you’re likely to know before you are 21. It’s going to appear in your temperament, your interests and your ER admissions.
You will serve your family well if you create alternatives for positive addiction => in yourself and everyone you live alongside.
So that’s my first tip => consider your alternatives.
Many “unbalanced” people have a history of highly unattractive alternatives.
In addition to alternatives, it is important to teach that there is zero personal cost from being considerate. In fact, you are likely to get more support, and freedom, in your quest-of-the-moment if you’re considerate to those around you.
#1 => Positive choices in which to place my personality.
#2 => An understanding that there’s no cost to consideration.
When I was hanging on (to my compulsion) so tightly that I was losing my ability to be considerate… I was giving away performance.
What the heck does balance even mean?!
When I think about it, I can it take to two different ways.
Internal balance => serenity => yes please!
External balance => as a young adult, this would trend towards a desire to win at everything I touch.
Not going to happen, when performance matters, I need to make choices.
Extremely counterproductive when I try to “win” at my bad habits.
In seeking that internal balance => serenity => being OK with the direction I’m heading:
Repeat the week – seek control of a simple schedule
Seek mastery – there’s satisfaction to be found in overcoming one’s self
Keep promises, most importantly to myself
Say no to non-core, most importantly to myself
Trust me about the ER admissions – that’s a clear sign somebody needs better choices, a change in peer group and a new direction.
Our school district asked us to confirm our plan for the start of the year so we officially decided to start with online-only and watch what happens when the 6,000 college kids return to our zip code.
Our oldest started doing Peloton yoga workouts and we agreed to get her a set of bike shoes. She also downloaded Duolingo and started with Spanish. Our two youngest started with Spanish School Bus.
A family friend has been using this site to find tutors: https://www.wyzant.com/ => we’re going to roll a few weeks of online school and try to fill gaps with local teachers.
Another family friend was threatened with termination if they didn’t return to full-time teaching => private school, not our public district.
Tying Federal funding to reopening schools creates the opposite incentive to what our nation needs. It’s a similar screw up to the delay with Federal guidelines for wearing a mask. We should leave decisions to local authorities with guidance from state health departments.
The last week has let us see the domestic consequences of the Global War on Terror => two decades of the militarization of our society.
Bush 43 set up the DHS to protect us from foreign threats. ~18 years later, Trump is using the DHS as his personal militia (the words of Tom Ridge, hardly a snowflake).
The Federal goon squad was filmed using pepper spray and breaking the hand of a Navy Vet, Chris David, who was exercising his constitutional right to verbally remind the goons of their oath to protect the constitution. The video pissed me off – military-style uniforms, kicking the crap out of citizens.
I doubt Colorado has much to worry about – we have a Republican senator up for re-election and I have a hunch we will see a Blue-State bias wherever the goons appear.
Less good news was this quote paraphrasing what my Medical Mentor told me back in March => there are places that have had their cases and places that will have their cases.
In other words, local communities don’t respond until they have experienced local pain. The story of my own life, for sure. No lesson is truly learned until I experience negative feedback, myself.
Our State health authority has been promoting DVD – distance ventilation duration – to help us consider risk.
Our Governor made last call for alcohol 10pm for 30 days – read a quip this was because the virus was nocturnal. My view is this change gives an incentive to stock up and head back to a private residence.
Saw another observation => we are arguing about reopening bars/restaurants/etc… at a time when we can’t open all our schools. This rang true.
There is a lack of national leadership on setting priorities for reopening and using red/green zones. I heard this week that our military is using red/green zones internally. It would be straightforward for the Feds to make the system public. I did start to see some Federal guidance on this yesterday with our President standing in front of a hotspot map of the country.
Masks are swinging into national favor – Red State hotspots, Republican business interests, swing state polls, a return to record death rates… have had an impact on public opinion. We still have a ways to go on public action.
A lot of the negative commentary, nationwide, implies the governors are enjoying placing restrictions on people. Folks should think through that point of view – no politician wants to make voters unhappy. They’re each doing their best. They’re doing it differently but that’s OK. We should pay attention to what works, we probably have enough evidence for what doesn’t work.
A friend tried to rope me into a discussion at the edge. I didn’t fall for it. Speak to the middle.
Someday my kids will move out. This is a summary of what I hope they take with them.
Here’s what’s most important to remember:
We’ve already won
It’s ok to say no
We can handle the truth
We can do difficult things
There’s a great book out there called Winning The Loser’s Game – a “loser’s game” is one where you win by not beating yourself. The book has an investment angle but, in many ways, a successful family is created with a similar approach of avoiding error.
Errors such as… financial ruin, substance abuse, fractured relationships and emotional upheaval.
Many unforced errors occur, and repeat, because their causes are deeply programmed into our consciousness, and family culture.
To avoid errors, we need to think slower and whittle away at the habits that hold us back.
So how do we slow down our thinking?
We take away feelings of obligation, feelings which can lead to blame and lack of personal ownership => All family is optional
We don’t let pressure build up… Everyone can speak, about whatever they’d like to discuss, and we commit to a “no secrets” policy.
Secrets, taboos, not being able to speak => these habits make it easier for evil doers to do bad things.
Ask child abuse survivors to describe their family culture and you will find a consistent pattern, of repression and secrecy, that enabled their abusers.
I got the next tip from a four-generational family, where the patriarch was deeply successful (work, family, financial, community). The family has multi-generational quarterly meetings and has successfully managed two transitions between generations.
Close but not too close – via staying in your own space – via sorting your own food – with a respect for differences.
Take the above and invert them…
…a feeling of obligation, never being able to say what’s on my mind, staying in close quarters, eating different food…
then… add alcohol, relentless toddler noise, politics or any emotional trigger..
What does winning look like?
We enjoy sharing experiences with each other, usually in nature.
It is about shared experience and, frankly, it need not be all that fun. My son and I find meaning enduring difficulties together.
Each generation, each household, each adult needs to affirm its own set of values and define winning on its own terms.
If there isn’t a consensus then we remember… it’s OK to say “no” and all family is optional.
Also… we don’t need to agree to be buddies and I’ll respect your right to not have an opinion.
Some multigenerational thoughts…
Seek to connect not correct. Do not put a spotlight on people, just ask an easy, “how are you doing.”
Down, and up, the generational chain remember our goal is shared experience, not optimization.
Joys, and disappointments, with founders/followers/descendants are best used to motivate positive personal change in myself.
The most powerful form of teaching is living an open life where people see us modeling the best we have to offer.
Pay attention to those who bring out your best.
What about money and finances?
The fundamental point is everyone pays their own way and we do not create incentives to consume more. By the way, COVID gives you a useful opportunity to make changes in your family spending choices.
Any capital that become multigenerational is managed in a custodial capacity.
What does that mean?
It means you take care of things you didn’t create so others can enjoy them.
When financial decisions need to be made, we remember we are less likely to make errors if we keep it…
Low cost to hold
Focused on long term capital gain
If it won’t make a difference then wait
I use the above as a checklist because it slows my decision making.
For me, the three most important factors to remember are: cost to hold, leverage/borrowings and wait if it doesn’t matter. Together they nudge me to avoid the most common errors of investing => fees, tinkering, borrowing leading to ruin, cost to hold resulting in cash crisis….
After I’ve taught the above, I will hand it off and focus on modeling grace through what remains of my life.
I know many parents are facing the same decision as our family.
Background – my main job for the next 18 months is stay healthy, love my family and educate my kids. When COVID clears up, I can sort everything else.
Location – we live a half mile away from CU Boulder. The university administration will shortly welcome back 30,000+ students, during a global pandemic. ~40% of those kids come from out of state. ~6,000 students live in our zipcode.
Community Transmission – it’s been rolling all summer.
Our positives have moved from our at-risk population to our younger residents. There’s plenty of hospital capacity.
Testing has been coming back 96% negative since the start of June. This is great news as our actions are misaligned with our words. With social distancing and masks, we talk a better game than we are executing. Collectively, we are not acting like COVID is a serious situation.
Taking all of above together, our district will be reopening in late-August with a hybrid model. For the full details go HERE and click “Level Three.”
Basically, every Monday off and the other four days are split between at-home (2 days) and at-school (2 days). Kids will be placed in cohorts to reduce mingling and staff will limit their interactions with the cohorts.
Positive test results will trigger 14-day at-home periods by cohort, or school, to be determined.
Testing expected to be offered to staff on a 14-day basis, aiming for 2-day turnaround.
We have a great school district by the way => lots of smart, dedicated adults and kids.
Here is an extract from a note I sent the head of the School Board…
With 30,000+ CU kids returning, and testing on a 14-day cycle, I don’t see how we catch the outbreaks early. Off-campus transmission, in the 20-something age group, seems likely to lift the City of Boulder community spread. We might not see that in the numbers until after Labor Day. Denver’s decision to combine a delay with two-weeks online makes sense for City of Boulder schools. This is an observation, not a criticism of the Phase 3 reopening plan.
Cohorts make sense to me. It wasn’t clear to me if cohorts, or schools, were going to be moved to online-only after a confirmed positive. With each confirmed positive, please consider shutting the whole school for 14-days. Shutting schools will be an inconvenience early in the year but you will find out quickly if you avoided a much larger outbreak. I see avoiding large outbreaks as fundamental for keeping the BVSD in-person system operating.
As a family, we greatly appreciate the option to start online with our neighborhood school. We’re going to start online: (a) to reduce in-person class sizes and let teachers focus on the kids who have fallen behind; (b) to support teachers, who wish to work online-only; and (c) to eliminate the risk of disruption from rolling closures, which appear inevitable.
We’re going to wait until the end of the summer to make our final decision.
Our local situation is fluid and the district might be forced by external circumstances to change their plans.
Personally, I want to pull back the time that COVID took away from me. Going in-and-out of school openings/closings will cause more hassle than the benefit we get from sending kids back for a couple in-class days each week.
Most importantly, I have a guiding principle… if ruin is avoidable then avoid it. If I get sick, even mildly, it is a large hassle for my family. If I die, or get long-term disabled, then it’s a disaster for them.
The district is offering me a option to reduce my risk of ruin. My premium is foregoing two-days a week of in-class instruction. Properly framed, their offer is very attractive.
Their offer is online support four days a week, that’s a big increase from our summer school plan where we had to organize everything. In the “time of COVID,” the online-only offer is good enough to meet my objectives for my kids, while helping me work towards a personal goal of “get sick later”.
My kid objectives are easily achieved within the framework of online school.
Girl, nearly 8, going into Grade Two => reading, spelling and intro to times tables
Boy, 9, going into Grade Four => just keep him ticking over, Summer School got him where he needs to be for post-COVID (hopefully) Grade Five
Girl, nearly 12, going into Grade Six => #1 stay busy! Home school without outside support doesn’t work for her, or me. Continue with essay skills, start Grade Seven math, intro to basic sciences.
Overall, I’m brainstorming at-home modules the kids can do.
#1 // Each kid picks a scientist and teaches the family about them — create a huge white board about the person and dress up (as the person) for the presentation. If this goes well then pick a country and do the same. That gets me to Halloween (or beyond) and I can figure out 2021 later.
#2 // Duolingo for kids on iPad. We’ve had a couple false starts with Spanish as an after-school activity. A little bit each day might enable the (very) basics to get into their heads.
#3 // Teach the kids to uphill, and nordic, ski. Dropping the significant costs associated with resort skiing (especially seasonal accommodation) is a simple way to create space in the family budget for extracurriculars and supplemental schooling.
#4 // Create a board game the family can play.
The kids have told my wife that it’s OK for me to be the Home School principal but they don’t want me teaching!
I’ve always been respected for my project management skills.
What one thing, if it happened, would change everything?
Well, if you’re a family then your “one thing” might be having your kids achieve the capacity for independent living. We achieved it, briefly, this past week.
Wake up, sort breakfast, clean up, do home school, snack then light housework.
The kids were occupied long enough for me to do a classic Colorado hike and get back for lunch. This is big because it frees us from needing our school district to open => to provide childcare.
The kids, working together, can educate and feed themselves.
What’s this worth? As much as 20 hours a week, every week, until a vaccine is deployed.
Spend time to get time => the process was 8 weeks, involved 3 tutors, ~$6,000 and a lot of project management from yours truly.
COVID is a binary life for me – I am either on my property, or in the backcountry.
Five days a week, I’m inside two square blocks.
This is not my first choice for the next 25-75 weeks!
The kids tested out of their next grade-level math, which gave them a confidence boost.
I don’t see how they will be able to mix into a higher grade’s math class but that’s a problem for the future.
For now, we’re basking in a job well done!
Knowing the kids are ahead makes me feel more relaxed about how the fall will play out. School districts across the US are delaying their re-openings.
The above provides me with a case study to share a high-performance mindset with you.
In personal planning => use time to create time => life is about time. If you are surrounded by people that think otherwise then you should change your situation!
It cost me eight-weeks of effort to free as many as 1,000 hours.
This is a highly valuable option => especially in terms of removing the fear, and horror, of a full academic year worth of online learning!
In performance => we need to think clearly to perform at our best => placing yourself in a position where you have the feeling that you have already won will calm your mind and enable your best to flow through.
Now, I certainly don’t feel that we’ve won against COVID (unforced errors aplenty at the Federal level) but it is clear our household is doing well => just need to keep myself out of the hospital.
I am chipping away at the crisis’ ability to disrupt my life and clawing back my ability to direct my own time, within the constraints of the reality of the virus (masks, social distancing, closures).