Monthly Archives: October 2021

Angel Birthdays

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The many lives we will lead are hidden from us in the present moment.
Pic is Little Andy.

My wife has one angel birthday in her life, October 30th, the date of Andy’s accident. We had a memorial last week and it went well.

It’s difficult to front up to a funeral, VERY difficult to speak at one… thank you to those of you who came, and those who spoke.

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Some thoughts on conversations from the memorial.

The concept of closure: for me, this doesn’t exist. Everything I have experienced, is carried forward and changes over time. Andy, in me, continues to evolve.

A key part of growing up is learning how to deal with loss.

I’ll share my list of Angel Birthdays to illustrate the point: Stuart, Kristy, Kevin, Dan, Andy, Henry and Gary. As we get older, many people are going to pass. The advice to “grieve the small stuff” is well made.

The picture below, is Andy with “Little Ax.” My son lives on, he’s 10, but Little Ax ain’t coming back. I miss him.

Life gives us many opportunities to acknowledge loss, both small and large.

Better to grieve the small things (than seek to close them off).

Best Toddler Ever

Michael shared an idea to re-frame our triggers.

Andy died falling from the Second Flatiron. In Boulder, we can see the Flatirons from EVERYWHERE in town.

It goes further that that, if you know where to look you can see them from Eldora, from the tops of the local canyons, flying into Denver…

One endless trigger.

Becoming aware of our memory triggers, we can take the opportunity to reframe them.

So when I look at the Flatirons, I want to remember to say “yes” more often.

Andy and I were on opposite ends of the yes/no spectrum.

There are many days where I wake up keen to say “no” – to myself, to my family, to anyone… no, no, no!

My “no” is rooted in a fear of “yes” getting out of control.

A little more “yes” will improve my life. It’s a good way to remember AC and, perhaps, I’ll give him credit when I’m less of a hardass.

Reframe the trigger to serve the life I wish to lead, the person I wish to be.

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Andy would have wanted…

If you’d asked him, when he woke up on his final morning, if he was OK with dying in a few hours. then I am certain he would have said “not yet.” We had a look through his planner and he had lots of fun things planned for later in the week.

However, when I met him in 2004 (and many times subsequently), Andy told me he was OK with death. He went further saying he believed in a collective “duty to die”. Not to kill ourselves, by the way. Rather, Andy believed we had a duty to live life fully.

So if you’d told him he’d die in middle age, quickly, pain-free, exercising outdoors… he would have been OK with that.

Andy and I had different values when it came to risk and ruin. Two key reasons: (a) the future is invisible to our present selves; and (b) we are not autonomous beings.

He always gave me a fair hearing.

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By way of Bob, Chris shared a letter from Hawaii. Extending my favorite part to the general…

Vibe with nature, don’t seek to challenge her.

Rock, snow, ocean, mountain, exercise, work, training load, run mileage… vibe it, don’t challenge.

The vibe is what we seek.

Another way of saying, “look deeply into the need you are seeking to fill.”

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A final shout out to Monica’s Buddy Andrea (MBA).

MBA flew out, stayed with us and helped with continuous acts of kindness.

A lot of little things, from all of you, turned into a big assist for our family.

Thank you.

The Next Doubling

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I was 12 years old at the peak.

A good question to consider with major assets in a portfolio…

Would I buy at current prices?

Like most real estate in Colorado, Boulder capital values have been on a 7-year upswing. According to Zillow, the capital value of where we live is $2.5 million, up 36% since the start of 2020. The only way to describe how this value feels is “too high”.

One way to consider capital values is to express them in terms of cash flow and time => with real estate, the proxy is cost to rent.

With our current address, comparing rental costs with gross capital value…

  • $3,000 per month rental => 69 years equivalent
  • $4,500 per month rental => 46 years equivalent
  • $6,000 per month rental => 35 years equivalent

With the run-up in prices, homeowners have been rewarded for properties that are larger than their needs. Like-for-like rental, doesn’t look too crazy right now. However, we could easily fit ourselves into a location that’s 40% smaller than where we live at present (implying a gross yield of less than 2%).

On to the next example…

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In 2021, some friends exited the Boulder real estate market. Their net sales proceeds (after taxes and agent’s fees) equate to ~100x their first year rent in their new location.

Worth repeating: they are taking a century of rental-equivalent off the table.

Put another way: by selling into this market they can do the following (in current dollars):

  • Cover their future cost of living on a joint-life expected basis;
  • Put their kids through college;
  • Buy an apartment as a hedge against future rental rates; and
  • Treat future earned income as fully discretionary.

Compelling, especially if your house is the primary asset in your balance sheet.

They aren’t “set” by any means: inflation, illness, increased spending or investment losses might derail their plan. However, the asset sale greatly reduces their financial stress and buys them a tremendous amount of time.

Stress, time and the risk of ruin.

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Another example, vacation properties.

The house we rented in Vail (2019/2020) is valued at more than 100x the rental we paid. The condo we rented in 2018/2019 sold for 50x annual rental.

There’s never been a better time to rent assets you don’t need. 😉

If you own assets in secondary locations, or are considering buying, then the above calculation is a useful one to consider. The numbers above are using gross rental figures. From the landlord’s point of view, the net rental income would be tiny (relative to capital).

Also consider the benefits of being variable…

Rather than lock in a single location for the winter, I’ve decided to try an AirBnB season. I booked in 22 days of skiing, the dates tie to school holidays => Vail, Telluride and Jackson.

Adding a bit of airfare, gas and mileage… total cost will be $15,000 to use properties with an average value of ~$1 million. VTSAX dividend yield is 1.25%.

By not owning, it was cost-free to change strategy.

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Other questions I like to ask:

  • Assume things go well and this asset doubles in price (again), who’s going to buy?
  • What’s going to drive the next doubling in value?
  • Where’s my family exposure: (a) benefiting from the next doubling; or (b) harm from the risk of a halving?

Who’s going to buy? A smaller place in a great neighborhood is much easier to sell than the best place in that neighborhood. The top places in Boulder are now selling for around $5 million. Who’s going to buy when the market goes to $10 million? Might “ability to purchase” create headwinds for appreciation in the market?

Prime Colorado real estate benefits from buyers coming from “even more expensive” markets. Boulder remains a great place to land from one of our coastal Metros. City-based housing markets benefit from local economic growth.

Vacation-markets, at 50-100x gross rental income, are reliant on continued balance sheet appreciation for the Top 1% of society.

A comparison I follow in Colorado… Boulder rental property (house with land, no HOA) vs Vail vacation property (condo w/o land rights, HOA). In the last recession, I tracked this comparison in Arizona – unfortunately, I bought condos down there instead of houses.

What’s going to drive the next doubling? See the chart at the top of this post => there’s been a multigenerational tailwind due to declining interest rates. Every store I enter, and every manager I talk to, gives multiple examples of tight labor & inflationary pressures.

Negative real interest rates might keep the party going for a bit. With Social Security COLA adjustments over 5%, it seems nuts to buy into property that’s trading on 50-100x rental income.

Family exposure. For me this is kind of like the “who’s buying” question.

If you’re a double-income family with a diversified portfolio then sticking 10-15% of assets into a vacation market is a different choice than a single-income family with 90%+ of assets tied up in a mortgaged home. The context of the choice is worth considering.

One final point, despite living at 5,500 feet (and training year round up to 14,000), I don’t sleep well above 9,000 feet. For many, ability to sleep at altitude changes as we age.

Climate, altitude, neighbors, convenience, community, quality of local schools/governance… good reasons to rent locally before you buy.

Hope this helps.

Kid Rich

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Summer reading prize – read aloud challenge.
I had to offer his older sister a “bonus”…
If your boss offered to pay you, AND send you on a vacation, then would you do a 100-day training program that required a mere 12-minutes per day?
When she said “hell, ya”, I pointed out that she needed to get the reading challenge done before I would be paying for any out-of-state swim meets.
Dressed up and out of the box!
Pre-, and post-, flight COVID tests enabled us to enjoy a normal wedding in Cali.
So great.

What is the underlying goal of childhood financial education?

=> Self-generated, lifelong financial stability

I’ll run through to tools we use to equip the kids to pay their own way in life.

Allowance => simple formula: weekly deposit into an account with the Bank of Dad, deposit is $1 for each year of age, and the deposit balance earns 10% per annum.

Many families view the purpose of an allowance to teach a kid how to spend.

We don’t.

The purpose of an allowance is to create a positive emotional association with the power of compounding.

Our oldest has been rolling her allowance since Kindergarten. She now earns $7 per week from compounding and $13 from being 13 years old.

Compounding is an ever growing sum. When they enter high school, I’ll run through the math behind it. I have a spreadsheet by week.

In time, I will let them know I grew my net worth by 15% per annum for many years, mainly by saving half of what I earned. This habit bought a lot of time.

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To put off the discussion of “why am I saving?”, I have them pointed at “saving up for a car.” When we get closer, we will sit down and look at the impact of swapping their earnings (from doing nothing) with a set of bills for owning a car (insurance, maintenance, taxes).

Uber is going to look VERY attractive against 10+ years of compound interest. That lesson plan might be: keep depreciating assets variable and stay invested.

Earned money is their money – this has resulted in a house full of Lego

Earned Money Is Their Money

To effectively learn about spending, one needs to earn the money being spent.

This is because spending other people’s money feels different.

Sometimes really different…

Spending other people’s money, with a credit card where you don’t see the bill, feels better than free!

Don’t hook your kids on this form of pleasure. We tell ourselves all sorts of BS to self-justify this situation.

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Our greatest financial achievement in 2021 happened by accident. We got our oldest off the payroll. She started babysitting and stopped asking us for money, for anything!

This opened her up to the real world of: lending money to friends, spending paycheck-to-paycheck, buying poor quality goods on impulse…

…and because it was HER money, she learned very quickly from her errors, and her friends were not (indirectly) placed on our payroll.

Self-Earned Money + Scarcity + Freedom to Err = Learning

Also… “if you want to buy friends then you’ll have to do that with your own money. Your choice. I think you are a star.”

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Our other kids aren’t old enough to babysit, yet. They get assistant sitter gigs, and do yard work in the neighborhood. The work pays well in kid-terms. I supplement with odd jobs.

This is enough to make the whole family “kid rich” => rich enough to buy whatever they want, from their own money.

Quite often, what they wanted was LEGO and it was tempting for me to use my own money to “make them happy” thereby facilitating consumption.

One of our family values is we each pay our own way. Elders are to avoid facilitating consumption. With this in mind, I made a choice to reward my kids with time and I remember…

When you are spending other people’s money you can easily get trapped into dreaming of more, more, more.

This is because we are chasing something stuff can never buy. The journey of adulthood is about discovering our personal “what.”

Quietly, I watched nothing happen with the birthday present…

With the shift towards their own money, supplemented by Christmas, birthday and summer reading prizes… they noticed…

New stuff is fun, but only for about a week, then it sits on a shelf.

I let it sit on the shelf, for years, then one day…

I never play with my Legos, they are kind of a waste of money…

Jackpot!

So the current lesson: we buy luxury goods at retail and sell them at wholesale (if we are lucky!).

Thanks to a very kind cousin, we are in the process of converting Lego sets to cash. Lesson to come will be comparing “cost to buy” against “net realized value from sale”.

Breaking down the sets and preparing for sale

“If you want an iPhone then earn the money to buy it”

In 2020, our oldest sold 200 masks, at $5 a mask, to earn the cash to buy herself an iPhone. No social media on that phone and we financed the sewing machine and materials. She handled marketing and mask production. She shut down the “business” the day after she had enough for the phone!

To recap

  • Allowance creates a positive association with compounding
  • Earned money is their money
  • Listen to their errors, give time and positive attention to their lessons
  • Celebrate “getting off the payroll” => they also make their own lunches, another big win.

Let scarcity teach and create incentives to reward work.

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Basic Cleaning

A valuable lesson for them, weekly humility training for me…

We split the house into Five Zones:

  • Kitchen
  • Carpets
  • Cat Room (dirtiest room in house, done by our youngest)
  • Sinks, counters, baths and showers
  • Toilets and floors

Same zone each week, no excuses.

The Car Off the Lot

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Just finished another great read by Poundstone, Priceless.

For the families I work with, the information inside is probably worth an additional ten years of self-allocated time. Ten years, the parents could allocate to their kids, rather than building assets. Or even allocate to yourself.

If we slide into the investment world, the information is worth tens of millions. Just sit and listen to any executive who controls a budget over $250 million, or listen to the debates within your city council. Boulder city budget creeping up to $500 million for ~100K pop. Down the road, City of Denver has a ~$1.3 billion budget.

Unforced errors are easy to spot when watching others. More valuable is to teach yourself to notice how you are being pulled into spending more. Personally, my top unforced error is $275,000 and I’ve come across mistakes in excess of $1 million.

Our emotions can lead us astray. Be particularly wary of having sadness triggered… “I wish I could have that…”

Whenever I notice that feeling, I stop!

My first line of (emotional) defense is slowing down the process.

What’s the car off the lot? It’s the deal that gets you onto the lot.

I’ll compress three trips to the dealership and a month of research into a story…

When you arrive, the first thing you see is the anchor.

Or, in the case of fashion, it’s the purses/dresses in the display cases with discreet (but astronomical) prices displayed.

It’s the jacked up Denali Super Max Monster Truck, blacked out, with 48-inch tires, that’s driven onto a rock and visible from the street…

Locally, our Toyota dealership puts out a PRO and prices it $10,000 over MSRP. Thereby setting a $60,000 anchor in your mind. Each year, this car comes out with a unique color scheme, and a special type of roof rack, so connoisseurs can instantly ID the driver’s status.

While they’d be very happy to sell you the PRO, it’s not the lead vehicle. What they really want to sell you is one of the four (!) OFF ROAD parked right beside it. They have $10,000 worth of options and are priced at $49,999 (-ish). They are lifted, with gleaming knobby tires and they have swapped the decal so it is badged “PRO.”

With that $60,000 anchor in my mind, the sexed up OFF ROAD certainly felt like a deal. I could “save” $10,000 by buying it, it was right there…

But where was that basic OFF ROAD that I saw on the internet?

We went into the salesman’s office and pulled up the dealership inventory.

G: Sort the OFF ROAD trims by price for me, thanks.

Salesman: The system won’t let me do that.

G: OK, I’ll just have a look.

Salesman: Sure

G: What about that one?

S: It’s not the color you wanted.

G: That’s OK, let’s have a look at it.

S: It’s at a remote lot.

G: That’s OK, I’ll wait.

30 minutes later, it rolls up. Homeboy was not in a rush for me to see this vehicle!

Eventually, I’m out of there with an extra $20,000 in my pocket.

By the way, the dealership still did well. I was emotionally tired and didn’t haggle the last $$$s out of the car and my trade-in.

Three trips to the lot and a month of thinking it over. Slowing myself down is the best defense against emotional purchase errors. These techniques, and much more, included in Priceless.

In my financial life, I have a system to slow myself down => a disinterested person sits on my investment committee and oversees every proposed change in strategy.

The remote, disinterested mentor => valuable!

Three things to notice in all purchase domains…

  • What’s the high anchor?
  • What do they really want to sell?
  • Where is the “car off the lot” => their best deal?

These three things exist in every purchase offering: Anchor, Target Sale, Hidden Best Deal.

  • Multi-unit apartment complexes
  • Home appliances
  • Luxury retail
  • Jewelry
  • Hotel rooms
  • Ski passes
  • Groceries
  • Show homes…

See it for yourself, and always take the initiative to set the anchor.

…then teach your kids.

Yes, you can afford the high anchor. However, your family system will do far better if you invest the money you save, buy yourself time and improve your human capital.

Also remember, every beneficiary, and dependent, sets a low anchor on the value of unearned money.

Unfortunately, we can’t change the reality of being influenced by knowing about it! The only thing that works is building systems around our human nature.