He was talking about race performances. Time has shown Scott’s observation to apply more broadly, say, to families and parenting.
Related to my last post about the phases of early education, you are unlikely to regret the difficulties required to set your family on a better path.
Go further… regardless of the outcome for the generation that follows you… providing a wonderful childhood, to any kid, will be a source of longterm satisfaction.
I’ve been at the fatherhood game for more than a decade. Often I feel worn out. The “worn out” seems to be adaptive. Our oldest is now a teen and my fatigue provides motivation to continue the process of getting her ready to leave us.
So that’s the family bit… occasionally awful, often fatiguing, always satisfying in hindsight.
Physically, my early 50s are much different than my early 40s. The rate of decline isn’t clear to me. The downward trajectory, however, is clear!
Specific tactics I’ve been using, and considering:
Anaerobic & Tempo Load – my ability to “do work” remains at a high level. What’s missing is the capacity to recover quickly from those efforts.
I can see why people choose to supplement their recovery hormones. I’ve skipped that path. I’ve skipped it because the last thing I need in my life is an increase in aggression. I also like the challenge-of-figuring-things-out.
Strava – I ditched it at the start of this month. I felt the public posting was nudging me towards fatigue.
=> Limiting crowd size appears to help the quality of my decisions.
Oura Ring – I bought the Gen 3 ring and have had it on for six weeks. It’s been a help. I particularly like the ability to look at what’s happening across the night.
Other Changes: turned my morning alarm off, stopped counting days skiing, stopped counting ski vertical and ditched all notifications.
Nothing buzzes, rings or flashes in my life.
Oxygen Room – When I lived in Christchurch (NZ), I had an altitude room that I used for work/sleep. It was a low-oxygen room, created by running O2 concentrators, and pumping oxygen out of the room.
The company that sold me the system is now creating oxygen-rich rooms, to let people sleep at “sea level.” A friend installed one at her ski place and she loves it. When she caught COVID (breakthrough) with Influenza (same time), she headed “up” to be at “sea level” for recovery.
With the O2 room, I’m considering:
What’s the goal? Perhaps better recovery. Sea level sleep, when physically tired, is bliss.
Assuming better recovery, how’s that actually better?
How would I use the better recovery? History indicates I’m likely to add load until I am just-as-tired as before!
So maybe it’s better to save the $$$s and modify my load.
Time’s going to force load reductions on me, regardless of recovery protocols. Another reason to avoid hormone supplementation => I might as well figure it out now.
Do you notice what you’re not doing to yourself?
It is difficult to wrap my head around things “not done.”
My demographic doesn’t write much about all the alcohol, edibles, prescription drugs and hormone supplementation that’s going on. I’ve decided to skip all that.
When my kids ask why…
Reality is enough for me.
You will need to decide what you want to get done in life.
Preparation & Prudence
Our family feels like it’s moving into a new phase. The changes are impossible to ignore.
My challenges with “preparing” physically.
Watching my kids track into self-directed learning, and living.
The shortening window, of years, that lie ahead.
On every metric, my life (and the lives of those close to me) is on track.
A new question arose this year…
Whatwas the goal of all the preparation and prudence? Amazing wife, all-star kids, cash burn under control, balance sheet on target, body doing better than I ever expected… what now?
Back in the summer, I wrote a small “to do” list. One of the items was 20 blogs in 20 weeks. This one is #20.
Thanks for reading and for getting in touch from time to time.
This holiday season, I hope you get outside and give yourself a chance to enjoy the view. I’ve been trying to look around more.
Picture below is moon-set from the middle of December. I never wonder “what now” when I’m enjoying the outdoors.
I watch where people send their kids to school. It’s a revealed preference for their values. Amongst my pals, Boulder is one of the few locations were public schools are the default choice.
One of the challenges our district faces is declining kindergarten enrollment – we don’t have a good idea “why.” Some things I’ve noticed with the families that have gone private:
Private school is contagious, by neighborhood, by family and by peer group. It would be great to get those families back into the district. I’m not sure we’ve asked them what it might take.
As elementary school enrollments shrink, the impact of a single weak teacher increases. How we support weak teachers is not clear to me.
Having switched one of our kids to a full-enrollment, school… there is a quality of experience issue with the schools that aren’t full. The overall experience at a “full” school is better.
Thinking about the phases of our kids’ education…
New Parents: The #1 thing we got right, eventually… Listen to professional educators. My default position is seeking to understand why staff’s view makes sense. Take time in forming opinions.
Age 2 to 6 => choose your daycare/preschool/early education based on where the child will get the best socialization skills. This is particularly important if you have a high-energy kid. Early socialization trumps preschool “academics.” All three of my kids started Grade One at the bottom of the class, all three caught up in 18 months.
Parents: model the socialization techniques the kids are learning at preschool. Learn from the teachers so the child is in a consistent environment at school, and at home.
Remember during this phase… the most important money you spend is childcare that benefits your marriage. You are under more stress than you realize – make time for each other.
Age 6 to 8 => a daily focus on learn-to-read and learn-to-learn. Learn-to-learn is building on the early socialization work that happened before they arrived in Grade One.
Parents: 20-minutes a day (read-to, read-aloud) in this phase has the highest return in your kids’ education career.
10 minutes before school (read-together). 10 minutes before bed (read-to). HUGE.
The confidence boost from being able to read provides a positive association with learning. INVERT: smart kids (who can’t read) will wonder if they are stupid.
=>100 hours per year time investment. The highest return parenting time you will ever have.
PS => the read-together before school, should morph into read-to-self each morning. I used a summer reading prize (100 mornings = $100) to establish this habit.
Age 9 to 12 => Our theme here: don’t mess with the streak!
Siblings, routine and habit form a virtuous circle of positive reinforcement.
“Read to self” every morning, summer reading prizes, consistent bedtimes, 2-3 different after school activities, consistent weekly schedules. This phase is about locking in a routine and keeping it rolling.
Be the brand.
If you’re not then they’re going to call you on it. 🙂
My expectation on the kids is “perform at grade level.” This lets them take all the credit for above-average performances.
Earned Enrichment: there’s a joke that every parent thinks their two-year old is gifted. This is funny because it’s true.
In order to keep as many families in the public channel as possible… make it clear that all kids who want to accelerate their learning will be supported. Fairness of opportunity for all kids.
Related: make it clear that teachers will be supported. I’ve watched two weak teachers cause a (very polite) gradual exodus from a wonderful neighborhood school.
My son wants to take combined Grade 7/8 math next year. We have a simple policy, if you want to accelerate then you need an “A” in current year math. You need… A’s to Accelerate.
Seeing her older siblings ahead… our youngest wants to get ahead in math. At the start of each academic year, she gets a chance to test out. Once that test is done, we won’t intervene on the kid’s behalf. You gotta earn it, yourself. She’s been trying for two years and has a good shot next September!
Overall, I’m in no rush for the kids to accelerate their learning. Just like their sport, they have 10-20 years (!!!) of formal education ahead of them. The heavy lifting will come when I’m out of the picture and must be internally motivated. Our job is to set the schedule and not screw it up!
Same deal with sport. If school work falls apart then we will be dialing down the training load. You need to earn the right for extra training.
Fair doesn’t mean equal. My kids are always comparing who-gets-what. My focus is on supporting them, fairly, to get whatever outcome they can achieve on their own merits.
I was very unequal when they were young. In any given year, I over-allocated toward the kid who needed an early intervention of my time. I think school districts should do the same – prioritize early interventions across all demographics.
Finally, schedule time to focus on your stars. It is very easy to get wrapped up in problems.
1// One-on-one trips/special events in your best environment.
2// Acknowledge that successful parenting means getting out of their way — building their ability to live in the world — letting them go.
3// ABC => Always build confidence, or competence… depends on the situation!
INVERT: don’t crush their confidence when they are small.
The confidence point is a big one. Bad habitsdon’t take your family where you want to go.
That last point is a good one => take time to ask around…
Where do we want to go?
All too easy for strivers to keep striving, across generations.
Like all my stuff => this is not advice to your family. Speak with local experts before making tax, legal and portfolio changes in your life.
Iñaki asked, “what to do when the world seems crazy?”
I build my life so I don’t need to be right.
Related, I want to be able to unplug for 72 hours, without worry, whenever I feel like it.
This strategy is based on knowing that I’m prone to error and don’t want to spend my life connected to the matrix.
Further, even if you have 100% confidence in yourself, your kids/spouse are going to need something robust for when you’re gone.
Across 2019, I wanted to lean into equities but there wasn’t an event that gave me an opportunity. So I rolled along, rebalancing and living my life.
In March 2020, the pandemic created an opportunity. Personally, I leaned in (fairly hard) by increasing %age exposure to equities, at a time when rebalancing alone would have triggered buying.
In a fiduciary capacity, we only leaned a little. Two members of my investment committee, with wider views of the world, advised caution. Using the principle, most conservative view rules, we were conservative with allocation.
Both decisions made sense at the time and worked out.
Time matters. “Good enough” becomes more powerful the longer your time horizon.
Returns across generations are driven by a famous Munger-ism => “just try not to be stupid.”
The family’s position, 10 years past every generational transition, is impacted more by what you burned than what you earned.
At the end of 2021, given the whacky stuff I’m seeing around me, I don’t plan in leaning in at the next correction. Rebalancing will be good enough.
Recreational Capital and Associated Spending
A dominant focus on return/allocation in your financial portfolio, misses an important source of value creation => efficient use of “recreational” capital, and associated spending.
Recreational capital is any asset that’s held for non-financial reasons. This is a material slice of many balance sheets:
Boats, RVs, Cars
Second homes, vacation properties
Sizing up personal residences
Renovation projects, furniture, collectibles and art
Charters, vacation spending, travel spending
Any asset with a negative yield
You’ll see I included a line for the expenses associated with those assets. Some assets, when bought, lead to more spending.
By way of example, INVERT and consider…
When you sell all your assets in a remote location then… the spending associated with the location will plummet. Now that we spend our summers “at home” vs commuting to/from Canada, we cut spending by a big number.
Even if you don’t buy… for skiing, we stopped renting a condo in Vail. Our 2021 ski season cost will be less than what my last rental cost me. Skiing is a choice with a stack of associated spending, and negative-return investment opportunities.
It would be nice to think that these decisions were driven by being smart. That would be a mistake! The Canadian exit was driving by local tax policy and COVID forced a change in approach for skiing.
We did not realize the true cost of our “recreational” choices. We had to remove them, and watch for a couple years.
The choices above:
Create a larger working portfolio
Reduce annual spending
Increase the flexibility to change one’s mind
Don’t involve admin, maintenance or exit costs
In our financial portfolio, conservative nature means we “missed out” on much of the run up. However, because we adjusted our recreational capital, and associated spending, we greatly increased wealth over the last five years.
The wealth gain, from shrinking the recreational portfolio, is locked in. These gains are hidden from conventional metrics, that your advisor might show you.
Now we move along to KC’s questions
GB: total debt will remain modest relative to assets and cash flow
KC: How do you define “assets” and “cash flow” here? Completely paid off asset or total value of asset? All assets – or just the assets on the investment side (excluding primary home?) Cash flow from all sources after expenses? What do you define as a modest target?
I have a spreadsheet that shows me… gross asset value, deferred taxes, tax basis (as at last tax filing year) and deferred agent’s fees (for real estate). So I can quickly look at real estate from gross to net after-tax realizable value. I compare those figures to gross rental income, and net cash flow (from my tax return).
I’m conservative with gross asset value on real estate, a discount from Zillow and my real estate agent’s estimate on value.
I assume 6.3% cost to exit, from real estate gross value, then tax the realized value at 25% of the gain over basis.
I look at… total debt service, core cost of living, total cost of living => each of those numbers gets a little bigger, and I have less control over delaying payment/spending.
Then I look at the inflows by source…
real estate (net and gross — consider vacancy risk)
employment (by role and client — consider concentration)
passive (royalties, dividends, distributed gains)
I want to understand my concentration in expenses (what I can cut/control) as well as income (where the risks lie). I never want to be placed in a position of being a forced seller.
My total family debt stays under 10% of net assets. Assets calculated net of all taxes and agent’s fees.
The Role of Time
My thinking in my work, and family, is multigenerational… I look at assets, leverage, cash flow and spending at many levels…
What I actually own, owe, control, earn => me
Family & Corporate level => me, my family, my business
Multi-generational level => consolidated, over time
I think about expenses, earning power, saving power, asset utility (what benefits members) over time. I have a spreadsheet that projects the age of all living family members over time (2021, 2035, 2050). This helps me consider family asset strategy and consider when generational transitions are going to occur.
KEY for assets and cash flow => When generations stop working/saving, when kids start working/saving?
It’s not just “what you own.” It’s also when you own it, and when you sell it.
I see many people buying assets they will HAVE to sell in ten years time, mainly real estate. Now, if it’s your main home, then I get it. See below for the option value in the mortgage.
In this market, Boulder up 30% this year, it’s easy to convince yourself that you are silly not to supersize your balance sheet.
But if it’s a secondary market…
10% in/out cost for the real estate
Less than 1% cost to go variable (AirBnB, Hotels.Com)
Total flexibility with capital (you don’t deploy into a low-occupancy, negative yielding asset)
No admin hassle (I really dislike organizing maintenance and cleaning)
Why are you doing it?
If you want to dazzle peers, suppliers and key relationships… …then you might be better off with a high-end club membership.
Your mind may try to convince you the joining fee is a waste of money. Note that the club joining fee is usually < 5% of a condo cost, and club dues run <10% of the condo’s cost to own.
With leasing we compare to “do nothing” => most people with ready finance will “do something.” If you’re going to do something, regardless, then something smaller can be a better option.
Your mind doesn’t see the rest of your portfolio performing better, with less hassle, by not owning an asset that’s a drag on return.
And… my mind at least, doesn’t remember how much I hate cleaning and dealing with remote maintenance issues!
KC: Tax bill as a %age of net assets-Where do you think a healthy range should be?
Every year, I look at the tax bill relative to net assets on a consolidated basis. This lets you consider the impact of tax policy on your portfolio – smart savers free themselves from exposure to changes in tax policy. Taxes paid, as a percentage of net assets, should trend downwards over your working life.
I don’t think the taxes vs net assets number, itself, is important. What matters is trending down and asking yourself if you are worrying about the right things in your life. Lots of (wealthy) people fail to recognize how little impact the Feds have in their financial life. Others could use a nudge to save more, spend wisely.
GB: At that point, you’ll have built yourself an inflation-proof, tax-effective retirement annuity
KC: Can you help me understand the inflation-poof aspect of this strategy? Is it the income producing asset that is locked in at an low interest rate? How is RE more inflation-proof than other assets?
Real estate isn’t “more” but it can be “different”.
Local rents are influenced by local real economic growth. I like the prospects of Boulder, the Front Range and Colorado.
Local real estate values are influenced by macro (national interest rates, credit cycle) and local (replacement cost, demand) factors.
So a slice of local real estate can create an element of hedging between national, regional and local conditions. There are some other benefits…
Here in Boulder, Colorado, I believe our real estate values have a hidden option. There is a chance the best neighborhoods explode upwards towards the highest valued parts of: the Rockies (Vail/Aspen), California (Bay Area) or NYC.
Now, I don’t have the $$$s to own trophy properties, but I don’t need to. As I wrote in The Next Doubling, it’s good enough to be nearby. For the option to pay out, we don’t need to get to the highest prices per sf => we merely need to close the gap, a bit, over time. That sort of option doesn’t exist in an index fund.
Another hidden option => we own a two-unit rental. We always have the option to move into one of the units and “live for free” by renting out the other unit.
Option Value of Fixed Rate Debt
30-year fixed rate debt, with an option for the borrower to repay, is a valuable (oneway) option in an uncertain world. Unlike margin debt, the lender can’t call the loan on a whim.
Long rates have been declining for 40 years, so the value of this option is overlooked by many. In an inflationary environment, having a multiple of my core cost of living in low-cost fixed rate debt is a useful position.
A mortgage on a personal residence seems like a good deal to me……and if it turns out to be a bad deal then I exit via repayment or refinance.
Saving 2% p.a. and giving Goldman an option to close you out…
Quick note on margin debt, even at <1% p.a. cost, seems like a very bad idea.
Smart people borrowing money they don’t need, to make money they are unlikely to spend in their lifetimes. Everyone figuring they will be able to unwind their financial structure before anything bad happens to them.
This strategy never ends well and only makes sense when you are playing with other people’s money.
A general principle, some things only make sense when you ignore the rebound. Fasting, margin debt, intensity-bias for endurance sport… I have found one gets a better long-term result from building smarter habits.
Optimize over time. When I started paying attention to myself, I realized I needed a whole lot less spending, which implied less capital, which gave me much more time.
INVERT that last sentence => spending you don’t need, increases the capital you think you need, to spend more time doing what you want. I broke that cycle in 2000, got wrapped back up in it in 2005, got tossed back out during the 2008/2009 recession and, these days, cycle in/out depending on my moods!
Nearing 53, I laugh because “less” is being forced on my physical life, by time.
In my early 40s, “less” happened due to kids and a nasty recession.
In my early 30s, “less” felt liberating, and made time for a lot more self-directed time.
Having spent my life in the business of money, I know about conventional desire. My time in athletics exposed me to another aspect, Victory & Vanity.
Greed comes in many shapes and forms. As I age, one form I contend with is wanting to get back to the past – a past remembered as better, stronger, more vigorous… this longing doesn’t serve me well.
For example, a longing for vigor can cause me to do too much exercise, thereby assuring exhaustion (ie a lack of vigor)!
The Wanting book was a guided personal review => considering the source of, and the likely results of, my desires.
A Simple Case Study – the source of desires
A decade ago, shortly after visiting Aspen, I found myself wanting to buy a Range Rover. This desire appeared to “come out of nowhere”, but it didn’t really.
I’d been in Aspen for a training camp with three guys in my age group. Let’s call them the Three Amigos. I had visited their houses, been driven around in their cars (Range Rovers) and elevated my heart rate with some very competitive swim/bike/run.
The Three Amigos were people in whom I was able to see different aspects of myself. In many dimensions they were more than myself. With my heart rate up, this is a very powerful modeling situation – both consciously and unconsciously.
The Range Rover desire was the first thing I noticed. There was more.
Here’s the tip: I tend to notice my material desires before the deeper stuff.
When I notice that I’m wanting to buy the same socks as a buddy (Doc J you have a pair of very nice purple socks BTW)… pause and consider.
When I notice the mimetic transfer of a material desire (socks, car) then I pause and consider what else I might be sucking up from this person. Because I know it’s happening strongly in my unconscious.
Thinking about an earlier draft of this post. I realized that the influence of my friends runs far deeper… watch, skis, bike, entree selection, career nudging for my children… my desires are influenced, to a point of external unconscious control, by my mentors (nears and peers).
Choose (very) wisely!
Risk of Ruin in Close Peers
Here’s a tip about ruin => in a group of peers, the group will tend towards the risk-seeking level of its most risk-seeking member.
We drift upwards, until something goes wrong, then we blame the situation.
Smart systems avoid catastrophe – here’s a simple one, teams of three, most conservative opinion binds the group. I use this in the mountains, and on my investment committee.
Life is a game over time.
The power of desire works in reverse => consider people (and their specific choices) who repulse you.
The book asks the reader to consider, “Who are you not rooting for?”
It helps to be brutally honest. Owning my greed is easier than acknowledging secret envy!
It took a couple weeks (and 48 hours off my screens in Utah) to dig into my hidden desires. Part of the Wanting discussion centers around “thick” and “thin” desires.
Let’s start with a “thick” desire => do right by my kids. Where’s that going to lead us? A series of strong downstream families that endure beyond my life.
When I see someone crushing the family-side of their life, I’m happy for them => alignment with my thick values.
Compare to “thin” desires => the Range Rover, a fancy ski jacket, etc… Thin, material desires are relatively easy to spot.
Envy is less easy to spot. Disgust, however, is easy to feel => there’s the feeling again… let me consider it.
My kids are doing great in all domains – school, sport and social. Notwithstanding this reality, I often hear a voice in my head saying…
You could be so much more…
Funny though, the voice predates my child! It’s a voice that’s been following me around for many years.
But what does this voice want?
Fame, likes, the approval of strangers!
If you repulse me then you likely have these things, all of which I secretly want… 😮
Thin, hollow desire that, most importantly, can NEVER be satisfied.
When I started publishing, I had a desire to help 1,000 people. I wrote it down as part of The Artist’s Way, bought in July 2000. Having far exceeded my goal, you’d think the desire would wane.
My desire for recognition, when fed, only grows stronger!
I see hidden desire through my anti-desires, my envy of others. What am I thinking about when I feel disgust? How might I deal with those feelings of envy?
Don’t water the seeds of envy. Simple, not easy.
Let’s get into tactics I’ve been experimenting with…
#1 – get myself to play a different game by competing in a different environment. This started in 2000. To get myself to step outside my innate monetary greed, I had to leave my daily exposure to high finance. To think clearly, I need to power down my phone and lock it in my car for a couple days.
Reduce my drive for material consumption and constant external approval… Axing Facebook/Instagram was a huge win for me. Not easy. Like stopping drinking, what am I supposed to do with all this extra time?
Not racing => the removal of a constant incentive for “more” in my physical life. Signing up for a race is a step towards fatigue. Fatigue that works against my thick desires.
On the screen you are reading this post on… who is on my screen most often? who’s like me, but more? who’s triggering my disgust?
Write it down
Several times in my life, I’ve had a moment of clarity. A moment where I realized my thin desires were carrying me towards an outcome I didn’t want.
The moments are fleeting, so I write them down: the change and why I need to make it. Often, I try the change for 30-days and pay attention to how I feel.
The path forward is not always clear. I know people, who have a deep feeling “this isn’t it” and want to make a change. Other internal voices might be, “you gotta get out of here” or “this isn’t me.”
Write down what your hear.
Or maybe you wake up and realize your choices are destroying your health. In the early 1990s, I got kind of fat and didn’t like it. When I’m tempted to deviate from my system of healthy eating/exercise, I remind myself just how much I didn’t enjoy being chubby!
If you’re anything like me then your thin desires will persist and keep trying to lead you astray. The stronger they get, the more I need to slow down, reduce stress and consider where I want my choices to take me.
Strong downstream families enduring beyond my lifetime.