Record prices, driven by easy credit, in a time of impaired fundamentals. I see this phenomenon happening all around us.
In times of uncertainty, I like to focus on maintaining:
- The ability to change my mind
- The ability to cut my cost of living
- The ability to reallocate my capital
Holding onto these options requires careful, continual effort. For example, it’s easy to join a “tribe” with fixed views, or publish blogs (!), thereby making it much more difficult to change my mind later.
I try to be careful with what I write, say and think. An interesting tip I came across this year about knowledge…
Be wary of using current knowledge as a belief system.
I first heard this advice via the son of a surgeon. When the son finished his surgical training, the father shared that half of what he learned in med-school proved to be incorrect over the years that followed.
With capital allocation…
When I buy, I lose the option to “buy later” and create switching costs if I want to change my mind.
- The ability to decide later
- The size of my switching costs
- The liquidity of my position
- The impact on my debt capacity
The future value of the above is difficult to estimate, therefore, our minds tend to latch on to the perceived value of an immediate purchase.
We always underestimate the value of options.
Caution with your allocations at cyclical highs…
At the end of last year, I wrote about real estate in Vanity Markets, the key thing I liked about renting was the ability to change my mind later. The option to change direction became much more valuable during COVID.
A real-world example, we’re going to change the way we approach ski season.
- We are not changing because I think I know what will happen.
- We are changing to remove (some of) COVID’s ability to screw up our lives.
I wrote off a lot of money this year due to the virus. More importantly, COVID has been a continual drain on my time and emotion.
Money, time, emotion => you can earn the money back.
The time and emotion are gone for good.
So… we made a decision to ski local.
The savings are material: ski club, driving, ski passes, lockers and seasonal rental => my budget is 5% of last season’s actuals.
Besides saving money “now”, I get the psychic benefit of looking forward to adding back a “better experience” once COVID settles down. I’ve been watching myself for many years and looking forward to an experience is a key part of my enjoyment.
The ability to painlessly change my mind arose because I didn’t buy previously. I stayed variable in my discretionary cost of living. I followed this rule of thumb… Never capitalize luxury spending.
Longer version of the same advice… until your retirement is fully funded, focus on income producing assets (not ramping up current consumption).
There are other benefits.
- By “going local” I give myself an incentive to teach my kids to uphill ski and camp on snow.
- Knowing that I am saving (a lot of) money in one part of my life, reduces financial stress across all other areas of my life.
- I also have a way to fill weekday afternoons, which have been challenging during online school: Morning school, Dad ski, Evening school, Bed. Do that Tuesday/Thursday and I give myself a mental respite from trying to fill the Noon-4pm slot.
A quick update on online school. My zip code contains several thousand CU Students, and all the frats!
Our positives are trending up, again. From Saturday’s paper…
I’m living in the hottest “COVID zip code” in Colorado right now. That said, if you were going to infect a bunch of Coloradans… we’re a healthy cohort! 😉
Because we were cautious “opening up” our bubble, there isn’t much change for us. The main challenge is we are in Week 26 of Home School.
It can be tempting to toss money (and other people’s time) at my “problems.”
During the pandemic, tossing my kids into the private education channel could reduce my short-term pain – if the angel of COVID flies past their new school without creating an outbreak.
However, one thing I’ve learned from six months of home school – the academic demands are easily managed by a policy of a-little-bit-a-day. The real challenge lies in the emotional demands of being around kids all day!
Similar to the ski example, I frame home school as paying myself to figure it out. I did private school math a few years ago. It would cost me significant time, and emotion, to earn the money for the private channel.
I’ll end today with the two best things I have learned about problems:
#1 => My “problems” will NEVER disappear => my mind simply focuses on something else. It’s my focus, not my problems.
#2 => I had better accept that I’m going to be chipping away at stuff daily, for the duration. While I’m chipping away, keep in mind the true goal is “better problems.”
Figuring out how to enjoy spending time with my kids is a great problem to have.
Feel The Byrn 
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