Monthly Archives: December 2020

Why Would They Own That

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I started thinking about this with negative-yielding sovereign bonds. When something makes no sense to me, I pause and reconsider my assumptions.

The phenomenon, of not being able to understand buyers, has now spread across markets and asset classes. In markets I know well, I’m being out-bid by 20-25%. Missing by a lot, makes it easier to sit out.

The goals and incentives have shifted, and it’s taken me a long time to notice.

A big chunk of global capital sits as a hedge against the value of money declining. A decline in the value of money:

  • is not a risk for anyone rich in youth and skills
  • is seen as a risk for the financially wealthy – a very human trait of worrying about wealth that’s far above one’s requirements for a meaningful life

Over my lifetime, we’ve shifted to a society where wealth is controlled by:

  • People managing Other People’s Money, with access to debt and options on gains
  • Fewer and fewer people, managing more and more money

Toss in near-zero rates and we’ve reduced the incentive for investment discipline.

A shift away from treasuries is painful when they are yielding over 5%. Less so, today. The shift in attitude has happened very slowly – it took more than a decade.

For a species that worries about $4.99 shipping charges (when they save TIME from leaving the house)… Cash Returns Matter – the absence of cash returns gives an incentive to devalue safety.

With negative 10-year (!) rates, the European incentive (to flee safety) must be extreme.

Last 40 years – USD 10-year rate – check that bottom right hand corner

It’s emotionally easier to own marginal assets when cash yields nothing (and you are seeing paper gains across most asset classes).

Risk has been rewarded and reinforced across a generation, maybe two generations.

While it started with good intentions, recent monetary policy has had the unintended consequence of rapidly inflating the assets of the already (super)wealthy. When I think about the resulting incentives for risk tolerance, government spending and borrowing, that strikes me as bad policy.

I’ve no idea how, or when, this play out. Fortunately, I’ve set my life up so I don’t need to be correct with uni-directional bets.

Careful with margin-debt and recourse leverage, it’s been one heck of a run.

With yields this low, there is tremendous leverage built into the system.

I’ll be back posting in 2021 – it’s been a solid year of writing.

Thanks for reading.

Middle Age in the Free Money Era

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Controlling my greed is a useful first step.

But how does one do that?

Build a peer-group with better ethics, and less financial wealth.

Then let human nature pull me where I want to go.

Looking around, with my 1990s financial up-bringing, many popular assets look expensive at half their current values. That said, people are making big money and this can be tough to watch.

I work on creating a vibe that I can afford to miss out and seek to temper my envy.

I acknowledge I’ve done enough winning.

So. Much. Winning. 😉

Yesterday, I shared thoughts for my younger self. What about this time in my life?

I’m not young enough to earn it all back, nor am I old enough to lock-it-in and forego further capital appreciation. I checked our joint life expectancy and we’re 50/50 to get another 40 years.

Given that I’m debt free, I’m hurt more by a doubling, after selling, than a halving, and still owning.

Think that through – it goes against every emotion I have with regard to money (and I’ve had a lot of training).

Married, at 51, I need to be taking a 30-50 year view.

Accept the reality of my personal situation and remember the financial reality of near-zero rates.

  • Stay invested
  • Lean into severe downturns
  • Maintain options, and skills, to add value-added work
  • Stay debt free – while this is a great time to borrow against cash flow, borrowing against margin is nuts – at some point, the debt cycle will snap back and I do not want to get closed out in a sell off
  • Keep my spending choices in check – know that every choice I make sets a baseline for my kids to follow AND creates a cash flow requirement for the rest of my life

Here’s the key lesson from my early retirement => If I’d gotten spooked and sold out (I get nervous in rapidly rising markets) then I wouldn’t have had the capital to buy back my existing positions, which remain “good enough” for my needs.

In a Free Money Era, the risk many of us face is acting on our fears and being priced out of a portfolio we never needed to leave in the first place.

Control your risks by focusing on skills, spending, relationships and daily exercise. These are things I control. Global macroeconomic policy, less so.

Tomorrow, why the heck are people buying non-, and negative-, yielding assets at current pricing?

Sorry about the dud link yesterday at the bottom – it was the same as the one at the top of the page, which worked. Here is is again, it’s the link to a calculation which led to some major changes in my life. Putting a price on my time.

Young People Looking Forward

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What about our kids?

Build a skill set that serves winners in the global economy.

Even though my net-per-hour was capped (link explains personal pricing), my triathlon coaching business served “winners”, while generating cash flow and letting me train with interesting people.

Similarly, I’ve yet to meet a professional family where I couldn’t generate $100,000 in a half day review session. Family management is a field where you help others by telling them the truth.

Serving winners, sharing my truth and making money for, rather than from, families.

What if you don’t have 25+ years experience in a field?

Think about sectors of the economy where there is an urgent need for problem solvers => in the news this week…

  • Life Sciences
  • Programming
  • Private to Public
  • Logistics

Build skills => find problems to solve.

How might one do that? Assuming you can’t get into med-school (yes, I am projecting) then an engineering degree, with a minor in finance/financial accounting.

The minor (outside your major) is essential, see below.

Follow a technical undergrad with something like Lambda School, rather than an MBA. You will be technically educated, with a challenging STEM background, and debt free, by your mid-20s.

15 years of hitting it and you’ll be ready to change gears by your 40th. The combination of finance, accounting, STEM and programming makes you robust in a rapidly changing world.

This assumes you can’t get into Med-School and don’t feel a calling towards a Military Academy.

No matter who you are, get formal training in finance, and financial accounting, before you are 25.

Every family I meet would have done better, at ZERO happiness cost, from starting financial education earlier. My earliest financial memories are from Grade Six. I started my kids in Kindergarten.

150 hours of formal instruction will change the trajectory of your financial life. It’s unlikely to happen unless you sign up, complete the course work and get tested.

Getting this done will shorten your working life by a decade.

In my own case, early financial education enabled me to shift to flex-time consulting after a decade of traditional work. Coming up on 52, I’ve had 20 years of self-directed time and a wide range of careers.

Tomorrow, what the Free Money Era implies for families with middle-aged Dads. 🙂

PS: following this outline is main reason I have an influence on my family. My first child was born two months before my 40th birthday and I was in a position to change gears. More on “pregnancy to middle school” once I finish this series.

PPS: the 2014 article is essential reading for grown ups. It makes the trade-off between time and money real.

The Declining Value of Ownership

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Yesterday, I described the forces creating rapid lifestyle, luxury good and financial asset inflation.

What to do?

Aspire to skills, ignore asset-driven status.

Near-zero yields have created a very different world than I grew up in.

  • The skillful can easily lease their needs, at a tiny fraction of the cost to acquire.
  • Businesses, like property management, that charge based on a %age of revenue are bargains, for both sides of the relationship. Managers can scale valuations at PE ratios over 50x net earnings. Owners pay 0.1-0.25% p.a. (of capital) for expert services. Both sides of this equation were unimaginable 30 years ago. Another way to look at this => “Vanguard” pricing is moving across asset classes.
  • In a world with tiny cap-rates and huge PE ratios, Human Capital is very, very valuable.

Let’s look at an example.

I like to follow real estate, particularly Luxury and Vacation markets. In these markets, there are many people who own $1-10 million places.

Annually, these places cost $15,000 – $100,000 p.a. (cash) to own and, often, sit empty. The cost to hold is not a big deal for these owners because they can afford it.

I’ve always wanted to visit Jackson, WY so I jumped on Airbnb and had a look around. I can lease a Jackson Hole penthouse, roughly equivalent to my net worth, for a few days.

My cost is…

  • 1/20th of the annual cost to own,
  • 1/1000th of the capital cost, and
  • maintenance is someone else’s problem.

Thanks to Airbnb, there’s real value here, especially as I am the one who keeps his freedom.

  • freedom to leave
  • freedom to change my mind
  • freedom to allocate time, share of mind and capital elsewhere

This will be rolled across every under-utilized (negative-yielding and/or depreciating) asset class within our economy. Airbnb’s $100 BILLION market cap, Free Money and the 1000-fold increase in VC gains will make it happen.

Don’t get caught up in the ridiculous valuations we are seeing – what’s important is understanding the process of change.

In a micro-yield world, it costs me 1/1000th of the capital value to get all the annual consumption I desire.

The only reason to buy is to show off, and that’s what humans do. Actually, there is another reason to buy and I’ll touch on that in a couple days.

Given we will stay human, I do not see these changes as a bearish case for asset values, which are driven by the price of money, mood and scarcity.

However, I do think it changes the mental calculus for a young person. In a highly mobile, rapidly changing environment, the assets your (grand)parents aspired to own are a lousy place to put your financial capital.

Tomorrow, some nitty gritty for 16-21 year olds.

PS – I didn’t book the penthouse. I went for a (refundable) 3-bed condo across the street from a playground. I make most decisions assuming they will be multiplied (x3) by my children when they grow up. I like to leave my kids room to (hedonistically) improve on my choices.

The Free Money Era

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Watching DoorDash and Airbnb go public this week, brought home how much markets have changed from the 90s.

Big deals are up 1,000-fold in 40 years.

I graduated university in early 1990s, and was born in the late 1960s => part of the first generation to come of age after the very inflationary 70s.

The mentors, and wise-old-men, of my early career had been heavily influenced by their experience with price-inflation. In turn, when those vets had been young stallions, they were influenced by survivors of the Great Depression.

I received a very conservative financial education.

The two “mountains” are annual inflation peaks of ~12% and ~15%. Mid-70s and 1980. I have early memories of “grown-ups” buying CDN government bonds at ~15% with all available cash resources. Note the recession frequency (shaded) from 1970 to 1982.

These days we’re told we don’t have enough inflation.

I’m not sure about that => the price to buy $1 of cash flow has skyrocketed.

I’ll post the last 40 years of price inflation below.

Forward to now – from the 1980 peak. I agree, not much price inflation there.

Watching Airbnb/DoorDash/Bitcoin/Tesla, and looking at luxury real estate, I see inflation at work, but differently.

Inflation is not necessarily a bad thing – there’s never been a better time to be world-class at solving problems for people. More on that later.

I see a tsunami of money.

The tsunami is caused by a long-term decline in the real cost of money => approximately the gap between the red and the blue line in the chart above. Compared to the 80s and 90s, we are living in an era of “free money”.

At market tops, it is easy to find people congratulating themselves for their vision. A favorite quote (from a very successful friend of the family) is “some see, others saw.”

Something I failed to see, when I was on the inside, was the benefit received from:

  • The global money tsunami
  • Constantly dropping long term rates (the current 30-year rate implies a PE ratio over 50x)
  • Increasing investor allocations to our sector

Add non-recourse leverage, ring fence the deals/funds and there was no way to lose.

Of course, we didn’t see it that way => we were smart, we worked hard and we were visionaries.

Now, I’m not so sure.

Tomorrow => what this era might mean for my kids, effectively, two generations behind me.

COVID Diary 10 Dec 2020

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If you didn’t see Scott G’s opinion piece in USA Today then you might want to give it a read. LINK

Across the constant noise of 2020, Scott’s been mostly right. You can track back through his writing on Twitter. I’m amazed at the hate directed to him, and others who have been making best efforts to help.

Three data points that caught my eye.

1/ After coming down with COVID, Giuliani (76) checked in (Sunday) then out (Wednesday) of the hospital. Rudy appears to be another high profile, high risk, survivor.

Less high profile, a very good friend’s father survived COVID. His son, my buddy, had a pulse oximeter delivered for home monitoring. The pulse ox enabled him to get to the ER before he became critical. He had a very tough 12-hour block but turned the corner with treatments you might have read about (dex, remdesivir, oxygen and prone sleeping).

Pulse oximeter’s are cheap and easily obtained. I use them on myself, my kids and carry one in my first aid kit. You should own one.

2/ FDA meeting today to consider the Pfizer vaccine.

3/ UK vaccine roll out continues.

Tens of millions of will have been vaccinated, for a while, before anyone offers me a shot. I’ll continue to watch the rollout and see what happens.

Our school district is asking the community to volunteer to be in-class monitors. This is an effort to keep schools open, when staff have to quarantine.

Teachers are in Phase Two of the vaccine rollout. Phase One is focused on saving lives and front-line COVID workers. Non-paywall summary of Colorado’s rollout.

For the first time in the pandemic, I find myself thinking reality will be better than the current news.

Either way, we’re going to keep on keeping on.

The days of being scared to touch our Amazon packages are behind us.

Competitive Diversity

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Source: https://election.boco.solutions/ElectionResults2020G

This post is another 2021 initiative of mine.

Thinking better from exposing myself to a wider range of ideas.

Allow me to explain.

Have a look at the picture above => 95% of votes via mail, 80% of registered voters voted and 77% of votes for Biden.

Within our demographics, we’re 77% White and 10% White Hispanic.

So you’ve got a ~90% White population that’s mostly left, lean left and moderate.

It’s a homogenous external reality, different from where I grew up (Vancouver).

Locally, we are following a wide range of initiatives in an effort to more towards a more Diverse, Inclusive and Equitable society (DIE).

The challenge with these initiatives is they can default into visible measures of DIE.

That’s a shame.

The useful part of diversity is invisible.

I started my career working in the most diverse investment team in London (1990s). We were diverse across nearly all measures (ethnicity, sex, age, wealth, BMI, politics, home country).

I say “nearly all measures” because we were united in respecting experience, intelligence, work ethic and reality.

Our diversity, and a ton of Type-A personalities, created conflict. We didn’t mind the conflict as it, eventually, led to better decision making.

Our conflict was not about driving out people who thought differently – a key risk for homogenous groups. Our conflict was about seeking to make better decisions.

Our true diversity was impossible to measure => diversity of thought.

  • The ability to generate an idea outside the local consensus.
  • The strength of character to share that idea.
  • The skill to present the idea in a way others could understand.
  • The capacity of the group to re-consider its own position in light of this idea.
  • The ability to let go of our own position and follow the lead of the more experienced.

This measure of diversity is where the competitive edge lies.

Smart people, proven doers, who think differently.

They will drive you crazy.

That’s OK, you can work on your tolerance while you make better choices!

PS – We have a very bright spot locally. Our local school district. The District has a “no place for hate” initiative, and an overall culture, that has provided an essential education (in tolerance) for our kids.

PPS – Where can I find the best thoughts from the other side? First, seek to understand.

2021 Habits

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In the news this morning, the UK starts its public vaccination program and the safe harbor deadline for the Presidential Election.

Today is the beginning of the end game for 2020’s drama.

I’ve marked my calendar for February 1st, 2021 => a few days after the inauguration. I made a date with myself to consider…

How am I spending my time?

Specifically, what do I notice about my habits:

  • …of engagement
  • …of conflict
  • …of attention
  • …of seeking confirmation (bias)

I put the reminder into my calendar because when I’m paying attention to Trump, elections, COVID… it crowds out bandwidth for better ideas, for creativity, for the good life.

In business, one good idea can be worth a lot of money.

In life experience, my personal reality is created by where I focus my attention.

Am I taking myself where I want to go?

Way too much negative focus in 2020.

Searching For My Inner Viking

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Placing myself under quasi-house arrest after Andy died proved to be a disaster for my mood management. I find myself short-tempered with frequent unforced errors with my kids.

When it comes to darkness — both inner and outer — my Nordic pals embrace their annual trip to the Dark Side.

Historically, the challenges of the Winter Equinox have proven useful. Somewhere across the winter, I get so pissed off with my funk that I resolve to get-something-done. I’ve written books, started companies and thrown down outstanding base training.

This year, with schools closed, a recurring feeling is “leave me alone and let me do my time”.

  • <100 days away from having our teachers vaccinated
  • <20 weekly house cleanings
  • <5 months before I’m vaccinated
Grinding, the summit slog

There’s a desire to push everything away, seek silence and grind.

When I get pissed off, I think about my Nordic friends. At their best, they laugh at the Dark Side and let the energy build for their return in the Spring. I’ve been trying to follow their example.

Last week, my wife was going through the roughest patch I’d seen since she successfully managed some postpartum depression in 2012, I made a sign…

Don’t Control => Feelings

Do Control => Actions

She bounced back by lunchtime.

I’ll repeat from a few weeks ago. Resiliency is a resolve to carry on, despite how we are feeling.

My son was shocked by the reality of winter hiking, but he stuck with it, to the summit.

The two most resilient people I know are the two kindest.

Rather than seeking to understand the connection between kindness and strength, I’ve started following their lead.

The pictures are from a hike we did on Saturday. My son ticked the box on his goal of a Winter 14er, before winter officially started. If I’m honest then I didn’t enjoy the experience at the time. That said, I’m very happy looking at the pictures, and even happier that I can share them with you.

I couldn’t control my hike feelings (oh so tired), but I overcame my feelings, got out of the house and my son was happy.

Another positive step => Our oldest is an online education master. I let her know it, in front of the rest of the family.

Step by step => controlling my actions, having faith in a better tomorrow.

Sharing positive vibes, patting myself on the back when I carry on (despite my feelings)… those are lessons from my wife and son.

Telling the world about the challenges I face and living an open life, that’s a technique that dates back to the 90s.

I feel better already.

I’m smiling now, probably wasn’t when this picture was taken!

An Education In Crazy

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Due to normal teen-anxiety, some of my daughters friends are at the early stages of self-harm.

There’s nothing unusual here, these patterns have been in my family since before I was born.

To help my daughter understand, and navigate, irrational choices, I’ve been introducing her to the neurotic athlete archetype.

Allow me to introduce…

Neurotic means you’re afflicted by neurosis, a word that has been in use since the 1700s to describe mental, emotional, or physical reactions that are drastic and irrational. At its root, a neurotic behavior is an automatic, unconscious effort to manage deep anxiety.

The entire Web-MD entry might sound familiar – it applies to 90% of the champion athletes I know. A constant quest for high performance can be an effective management technique for anxiety, that never quite clears.

Normally, I exit deeply-neurotic people from my life. I do this because I have my hands full dealing with myself!

As an athlete, you need to watch out for three traits: (a) a willingness to hurt one’s self; (b) the desire to chronically under-feed yourself; and (c) an addiction to stress hormones (hooked on breakdown).

If you find yourself in a training group, or alongside a coach, who embraces self-harm for “performance” (or as a path towards his own sexual gratification) then you need to exit ASAP. As a young woman, my wife found herself in that position. It took a shattered wrist for her to listen to an inner voice that was telling her “this situation is not good for you.”

This situation is not good for me.

If you hear that voice then get out.

Get out.

Watch for “development” squads led by sketchy men. Their mode of operation is breaking down healthy people and they need a steady supply of young, healthy athletes to fund their operation.

Sports that embrace the “breakdown” of girls are constantly in the news for long-term sexual abuse of multiple athletes. Steer clear! You can not fix a sport where breakdown is a design feature.

These groups are very dangerous when run by a sexual predator. The leader will seek to isolate anxious, young and inexperienced athletes. For many of these young people, it will be their first time away from home and the leader will be the first authority figure who expresses confidence in them.

You don’t want that type of man to be the first person to believe in your daughters.

I tell my most anxious daughter, frequently, she is a star.

I do this in word, in writing and by reflecting her own good choices back to her.

My message…

You have the capacity for good judgement.

You know what’s good for you.

If you’re dealing with anxiety in yourself, to the point of driving the good out of your life, then get professional help. Get professional help, break the cycle of spin.

Feelings of anxiety are a universal part of human experience. These feelings are useful when successfully managed. A good chunk of my writing is about this topic. I don’t point it out because nobody likes hearing they are are headcase!

Here’s what works for me, the topics link back to the Web-MD article.

If your life is a shambles then I’m willing to bet you’ve inverted much of this advice.

I know I can make myself both irrational and miserable by doing the opposite of what follows:

Self => if you want to teach this to others then sort yourself first. The best education my kids receive is watching me manage myself.

Routine, routine, routine => change slowly, change later => if you are a parent to a highly anxious child (or a neurotic spouse) then do not call a lot of audibles!

Be Open, Connect, Do Not Self-Isolate => anxiety builds when not discussed, make time to let mentally healthy, objective people influence you. On the flip side, secrets are a huge part of the lives of the neurotic. You will not learn that everyone is feeling the same way if you keep everything to yourself.

Exercise every morning => it just seems to work => if you have a neurotic child then set a minimum for them and stick with it. I’m way over the minimum, but I’m a fairly extreme case.

Sleep => the time you get to sleep is just another thing to obsess about. Forget about it. Focus on waking up at the same time, every single day. Same deal for your kids.

If you’re wrecked then you can have a 20-minute nap before noon – that’s all you get. OK to go to bed early but wake up at the same time!

Stop doing too much and making yourself exhausted => wean yourself from chronic fatigue.

Nutrition => know your binge triggers, know the foods (usually highly-processed carbs and refined sugar) that screw up your neurochemistry.

Abstinence does not work for sex education – abstinence also doesn’t work for anyone’s nutrition.

Focus your attention on portion control of triggering foods, boosting the quality of your intake, making veggies easy to eat and getting the timing right on sugar/carbs.

For example, if I eat 3-6 squares of chocolate before a bike ride then I’m far less likely to eat an entire bag of Halloween candy before bed.

Positive Male Attention => call it “essential masculinity” => Fathers, if your kids (and spouse) don’t get it from you then they might get it from some creep.

In yourself, seek approval from individuals who bring out your best, rather than feed your intrinsic rage.

Best tip for the end.

These feelings will be with you for a long while. Make friends with them, they are a very useful aspect of your personality profile.

The most effective management technique is to replace your “worst” triggers with a habit of making better choices.

Transcendence comes but it takes years of persistent work.

Replacement works.

Don’t mess with a streak => be willing to say no (nicely, don’t freak out) to well-meaning people who tempt you away from a life structure that works.

Finally, teach your anxious kids, they are at a very high-risk for getting hooked on socially-acceptable depressants.

There’s a big chunk of our society self-medicating, most days, with wine, sleeping pills or marijuana. Athletes tend to replace the drugs with fatigue, to the point of breakdown.

It works, but only at a superficial level.

I encourage you to look deeper…

When I looked deeply into my own strategies, I realized that being sensible was no worse than being medicated/exhausted.

Being medicated is more pleasurable, I don’t dispute that reality.

Being exhausted also has a form of pleasure associated with it, the pleasure of being able to fall into a deep sleep, for example.

However, being sensible is far more useful, particularly to manage anxiety, get stuff done and avoid the risk of ruin from negative addictions.

If you’re an athlete, who is “hooked on hard”, then making better choices can feed directly into your deep desire to challenge yourself. It’s not easy for me to avoid becoming a headcase! 😉

Choose wisely.

I sincerely hope this helps someone. Winter is a really tough time for the anxious, even more so due to COVID isolation.

As I told my wife this week…

Hey! Pay attention. This is a topic I know well.