Two minutes after we got back to the car (parked in pic below), my son started asking “what’s next?”
It was a reminder:
The world will take as much as you are willing to give (and more than I am capable of sustaining).
Which is related to “you gotta make choices” (because I can’t do everything).
And, a reminder that the enjoyment of achieving rarely lasts for long.
Life is a relative game and meaning is about process.
Relentless positivity is a trait that defined my early 30s.
Somewhere between 2001 and 2021, it’s gone astray.
I’ve been contrasting my life then, and now, to generate ideas.
Ideas about how to shift a persistent dissatisfaction that’s been stalking me and impacting my family.
Money: inflation-adjusted, my cash burn is up 6x in the last 20 years.
Family net worth is up more than that. So technically, I’m more secure. I don’t feel that way.
What I do feel, when periodic dissatisfaction comes, is my life experience is not worth what I pay for it.
A friend summed it up well, “the money just goes.”
Put another way, for every $1 I spend on something useful, another $5 goes out the door.
Flip back 20 years and I was living on a 1/10th of my current cash burn. This points towards a couple things:
More spending is unlikely to be the answer, to anything.
Financial security has a significant state-of-mind component.
My current life feels overpriced, and satisfaction is inelastic to spending increases.
I can’t spend my way out of these feelings!
Time: I am 20 years older, with more requests on my time.
This is really interesting to me. As I age, my concerns for financial security could be coming from a sense of my own mortality. Hopefully, a theme of the next 20 years will be making peace with that reality.
An entertaining part of the my life 20 years ago was how much time I spent completely blown out from low heart rate exploring.
Exhaustion, absent external demands, feels quite serene (see pic above).
Exhaustion, with noise and relentless external demands, is awful. I gave up exhaustion, as a coping strategy, when I lived with preschoolers.
I may have swung the pendulum too far away from getting tired.
Get Outside: I’m guessing there’s a “cabin fever” effect on my positivity-to-dissatisfaction ratio.
The last 17 months is the most time I’ve spent indoors in the last two decades. I think cabin fever will doom work-from-home for many.
Turns out, there’s a lot of emotional utility from getting outside my house.
Do what solves the problem.
Our youngest is outstanding at this approach.
Be kind, don’t sweat the rules and do what solves the problem.
On the summit before most folks hit the parking lot.
With young kids, I would train before any family event. I’m a whole lot more tolerant (of anything) after 45-90 minutes of cardio.
Eventually, I decided to train each morning before my kids wake-up.
I set my life up so my family sees the best part of me.
With the kids older, and with varied appetites for adventure, we placed a camping trip before a family vacation.
It was two nights out in the Collegiate Peaks Wilderness. This included a monster hiking day, for my son and me.
Tire out the high-maintenance family members then…
…my wife and daughter rolled into town. The following day, we did a moderate hike.
A trip within a trip. Worked well.
The week away from home – my longest trip since the end of 2019 – reminded me:
Life can simplify when the kids grow up. With little ones, I remember the insane amount of gear we used to carry when we left the house => pack and plays, strollers, separate food, clothes, helpers… it was a major operation, and exhausting.
Ten years on, my son and I were able to do a week away with backpacks, a duffel bag, coolers and a carry-on. This seemed impossible five years ago.
This feeds into a reminder that life will change in ways I can’t anticipate.
Looking from the outside, My life has changed radically.
Internally, I’m following a similar path => teaching and exploring nature.
I got here by understanding my deeper motivations.
Two key components of my family strategy:
1/. A willingness to compromise and no races. Instead, a focus on being able to move outside with family. Personal events have changed to quick trips with a little adventure.
2/. Patiently, and relentlessly, up-skilling my family. I did a lot of “slow hiking with preschoolers” to get to the point where my 10 year old son could enjoy a 28-mile circuit bagging high peaks. Same deal with our 8 year old, she’s good for ~7 mile routes in the High Rockies.
I resist the urge to “up it” with my kids. They are a profoundly good influence on my aging body and personality.
Again and again, life has shown that, over 5 to 10 year time horizons, we can have a HUGE impact on our life experience.
Keep it simple, one positive step per day.
But I need to beware.
A hazard of enjoying myself, in any environment, is the temptation to make a capital commitment, with ongoing costs of ownership.
I must remember => owning an asset doesn’t improve my enjoyment, especially as I’m a person who dislikes admin.
My wife asked me to share ideas about our marriage.
I’m better in writing, so I figured I’d leave this for my kids, and you.
16 years – it went by in a flash.
My inability to feel duration, can make me a little sad. I have a hunch that soon I’ll be an old guy wondering what just happened!
Acknowledging the reality of the fleeting nature of time… it is useful at helping me stay focused.
No time to waste.
VP Pence took heat for his rules of marriage. To me, they were OBVIOUS and reflect how I act.
I met my wife at the pool. As a result, I don’t train with attractive, athletic females (other than her – she’s very attractive).
I don’t consume alcohol with females, or anybody else.
I don’t find myself 1-on-1 with females, especially other people’s spouses.
The above is a simple risk mitigation strategy. Applied across domains, over 50+ years, it works.
I keep myself away from situations where a poor decision results in ruin.
I pointed this out with regard to Andy’s accident and it applies everywhere. The decision is best made before you have to make a decision.
How do you stack up?
So many have conflicts over money.
Since the late-1990s, I’ve paid the living expenses of everyone (male/female) who’s lived with me. By the time, our youngest graduates high school the bill will be over $6 million.
My favorite wife-quote about family finances is when she said to me, “What do you know about money?”
I just smiled.
I know how to make it, when to stop reaching for it, and what’s more important than money.
My financial knowledge has enabled our family to live a good life AND I have been able to educate my kids.
Most parents want to see their kids grow up. I made a choice to go one step further. I’m educating our children in how I see the world. These lessons will endure into the next century.
Invert => how much of your family’s financial wealth from 1950 do you have right now?
My ancestors legacy is good ideas, memories of what didn’t work, a debt-free education and a life-changing introduction to my first boss in finance.
To finance our life, I need one good idea per decade. The rest of the time I avoid mistakes, and manage spending.
It takes a lot of effort to avoid mistakes. I write this blog to help my kids identify their inevitable mistakes.
Mistakes are effective teachers, I “manage” by:
letting things go wrong
letting other people be wrong
surfacing, considering and fixing my own mistakes
Across 50-100 year time horizons, wealth habits add up. A simple annuity calculation (laid out many times in previous blogs) will show that my choice to avoid financial conflict will end up “costing” my heirs millions.
The human capital I am building will more than cover this amount.
Ruin Not Experienced (divorce, substance abuse, spending, investment)
There is deep, multigenerational wisdom when we act with long time horizons. In my current life, I try to be the parent I’d like my grandkids to experience.
What are the choices that caused your family tree to lose capital, lose members and lose productivity?
Be as open as possible about errors, they tend to repeat.
Two years ago, my son decided to hold up his finger and yell, “BOOGER!”
Yes, there was a nasty one hanging there!
As I sorted his booger, I decided to fire every staff member in my life.
An unimpeachable moral authority stemming from out-working everyone around me
Relentless attention to detail (in myself) – no days off, no exceptions
A schedule that enables me to follow up on the above, especially when it’s inconvenient
Before talking to others… How do I measure up?
Confidence comes from knowing you can outwork your competition over long time horizons. My kids are very confident, with good reason.
Tough to beat.
Let’s talk about staff.
We got through the highest stress period of our marriage (babies and preschoolers) because I had the courage to make a poor financial decision. I spent money so we could maintain some sort of life between the two of us.
Our recent trip to Death Valley let me price opting out (of living in the real world).
160 student contact days ($50)
Leaves 205 non-student contact days ($200)
365 overnights ($50)
Multiply that out, gross it up for payroll taxes => $80,000 per annum and I can watch someone else deal with my kids boogers… 😉
I’m sure many professional people cut that number in half when calculating the exit cost from an unhappy marriage, or when feeling overwhelmed (as we all do) with a young family.
But is that winning? Before blowing up a marriage, look two generations out, consider your unborn grandkids.
I don’t serve anyone by having my family see me opt out.
Queen Elizabeth comes to mind. Still grinding!
The goal of life is not to opt out of the obligations of citizenship, or be worshipped for position. To build a successful organization, requires a long term commitment to service.
Even then, there’s going to be scandals, setbacks, challenges and very good reasons to quit.
Keep moving forward and be comfortable with what you control (your actions).
Goodness, in action, inoculates one from the options of others.
Finding => Be the person you want to marry => you’ll have a positive influence on everyone around you and, when things don’t work out, you’ll be well placed to keep moving towards better.
Retaining => Be clear about your minimums => cleaning, sex, financial contributions, social engagements => table everything you hear your friends complaining about.
Optimizing => Take care of yourself => knowing it is better being married to an athletic spouse… I need to be an athletic spouse.
Being Effective => Do not manage from the couch => If you don’t care enough to stand up then let it go.
Willful Blindness Is The Seed of Bitterness => Be clear about what you don’t want => very few people want to be left alone and, even the kindest partner, is likely to grow bitter when the “division of inconvenience” is out of whack.
Knowing actions matter, I watch => in myself, and everyone around me…
What is done first?
Ruthlessly honest inventory of time allocation. Do not fool myself by saying something is important, when I allocate little time to it.
What am I doing when I am willing to inconvenience myself? My core values live here.
Is there something small I can do, daily, to support the people who are essential to me? Have I asked?
I try to stay humble by remembering how each chapter of my family’s story will end.
Iterate towards better. Document, then share what works.
Often, when sharing my experiences verbally, the listener thinks I am:
talking about their life
giving them advice
suggesting they are wrong
Any one of these is enough for a conversation to go sideways.
Better to blog!
There are a couple areas of life I know well.
I know these areas well because I have been able to live the lessons of the largest mistakes that have been made around me. This is my superpower.
So, I guess, when sharing my opinion on sensitive topics, it would be best to preface my observations with…
You could do that, you would certainly be justified. In fact, my family tried that a few times. However, for us, that course of action ended in a multigenerational disaster.
My mom died last year, so she won’t mind me sharing a family anecdote to illustrate my point.
Many years ago, I visited mom in Vancouver (our hometown). On the visit, she said she wanted to introduce me to a friend. I agreed and we headed off…
…to the courthouse!
Her friend was a security guard at the courthouse.
I didn’t get served with a summons but the introduction was a little weird. The guard was polite and we exchanged small chat before heading on our way.
Over the 1990s, mom had whittled down her peer group to a security guard at the courthouse. Social isolation did not have a positive impact on her mental health.
Her mental health descent was a biggie.
I have a childhood memory of mom being the cover story on Vancouver Magazine. It was a time when she was busy, engaged, productive and socially connected. One of the most successful businesswomen in town. Beautiful, happy and a very good mother to me.
FWIW, I look at the Free Britney movement and think we should give that family space. Many elements of that story fit pieces of my family history.
In a war, disagreement or divorce… at some point, someone has to stop fighting, regardless of the facts.
A few years after her Cover Story, mom’s life started to fall apart. In the process, she got into a habit of not letting go, of anything.
Mom sued everyone possible, for as long as possible, and achieved nothing but negative consequences for all parties.
I inverted and applied this lesson, the lesson of watching what happens when we don’t stop fighting, as the guiding principle of my adult life.
My adult life truly started when I stopped engaging the toxic personalities in my life and… used money to avoid BS, the highest utility spending I know!
One example, I bought the contents of my home when I got divorced. I’d purchased everything in the first place, and paid off my spouse’s debts when we were married. So it seemed silly (to me) that I had to purchase everything again.
But I’d learned the lesson.
…and the check was small relative to the BS that would have resulted.
When you are thinking about using money for revenge… …better to use it for a clean exit, that moves you towards your long-term goals.
By the way, I could tell you all kinds of stories about “what was done to me” during my divorce.
My former spouse could do exactly the same.
We’d both be right.
Our stories would be true, and some would appear diametrically opposed.
Rather than arguing truth…
Sit back, pause and consider…
What’s best for the youngest members of the family?
What actions should I take with their interests in mind?
Ironically, in my divorce, I was the youngest person involved.
I took great care of my future self.
This isn’t always the case.
Kids bear all the pain from family conflict and receive none of the benefits.
Do you want to hear what was done to me? Actually, no. That wouldn’t be helping you, or the youngest members of your family.
What’s the outcome you want 10 years from now? Get to work on that.
If I’d had what they have, the only certainties in my life would have been a Range Rover and a cocaine habit
I like Scott’s blog because he’s brutally honest, and entertaining!
Each week, I am reminded => we generate results in the places where we invest our time.
The “they” in the quote is Scott’s kids. Every parent I know, wants their kids to be successful.
However, and it is a big HOWEVER… these discussion have an embedded conceit because, each generation, each individual, must decide on their own definition of success.
A definition of success is tricky for me.
I have watched, and blogged, as my thoughts on “winning” changed across each decade of my life.
Go a little further…
Am I successful?
What do my actions say about my values?
Can I write down my definition of success?
Am I willing to shift my external worries by redirecting worry towards improving myself?
Scott’s aside about Range Rovers & Cocaine – is really a discussion about the impact of abundance on family systems.
I spent Father’s Day talking to my kids about this topic. They asked:
Dad, has there ever been something you couldn’t afford? => Lots.
Dad, are you rich? => I’m rich in time, amigo.
We were driving in my 4Runner (not Range Rover, BTW) and it gave me an opening to explain the concept that some things are “not worth it”, even when you have the money (or debt capacity).
I used Toyota Trim level as an example. The “TRD Pro” trim costs about double what I paid for my 4Runner.
My 10 yo instantly understood that a few more bells & whistles would not be worth the same as two 4Runners.
Two cars, same money… better than one car.
Amigo, it’s the same thing with being rich. You need to trade a lot of time, to get all that money. When you trade that time, you don’t get to go hiking whenever you want with your kids.
…and even when you are with your kids, your mind is probably some place else.
It is impossible to convey, and quantify, the value of being present.
So when we worry about our kids — let’s be specific.
How do our actions, our friends and our environments define success?
As the most direct male role-model in my children’s life, I am going to…
Live below my means – because it makes sense for me, places a lower success-burden on those who follow me and I know pleasure is a false-god
Train every morning
Listen to you (all of you, BTW) and apply your best ideas – I’m going to find the best tips and live them
Change my behavior in the face of valid criticism – I can handle bad news!
Act in the best interests of the collective – Citizenship!
Nothing in there requires external validation.
I’m 100% in control of outcome.
Important to remember, especially in an Olympic year. 😉
To pass along those values, I need to BE those values, especially when it’s inconvenient.
…but “being” might not be enough to educate my children.
If outcome really matters to me then the kids need to understand who we are by watching me move through the world, when no one is watching us.
Call it a “values education” => the foundation of a family’s Human Capital.
Back to Scott and Wealth in Families… how might we use wealth to help someone without subsidizing consumption, or increasing their risk for addiction?
First, we should acknowledge that the capacity for success walks hand-in-hand with the capacity for self-destruction.
I touched on this last week. I have the capacity to “win big” via the singleminded pursuit of a goal.
My past tells me that I need to choose wisely.
It’s highly unlikely anyone is going to get it right all the time. So when the inevitable setbacks arrive, it’s useful to have a “values education” to fall back on. A form of winning that I control and doesn’t depend on the opinions of others.
That said… you got the money, what can we get done for the family?
Debt-free education, to the best of the kids’ ability, in a field where they can get paid.
I bought into that concept at birth. Our College Accounts can fund a surgeon, an MBA and an electrician. In-state.
So we’re working towards a proven set of values (first) and the family can help its members educate themselves (second).
Not done yet.
Back to time.
My latest initiative… read aloud 100 days, not in a row, daily duration in minutes is equal to your age… do that and you earn $100. For example, my 10 yo needs to read aloud for 10 minutes, for 100 days.
It’s not enough to live an example, to allocate money.
If outcome truly matters then look for ways to give time.
Attention, expressed as time being present together, is what my kids seek and value.
Same thing for a marriage.
We generate results in the areas where we allocate time.
KP and me, at the start of a wonderful partnership.
If you came to KP and asked him to turn you into a champion then he’d start by having you dive into a cold pool, predawn, three days a week. At the beginning, it didn’t matter to him what you did at the workout. The key was getting there, and diving in.
There was a lot behind Kev’s instruction: wake up early, face the predawn, make a habit of tolerating discomfort and rack up an early win.
It’s a form of superpower.
I’m ticking down the final workouts in an eight-module series. It’s the longest challenge I’ve ever completed, going to take 60 weeks.
Expert level stuff, due to the pandemic.
Normally, I aim for focus block of 105 days (15 weeks). Stay put and make sure the first thing I do every day is one positive step towards my target.
I was in my 30s before I ever truly applied myself. The results were life changing.
My strength training history runs 37 years into my past, to a rickety Universal Gym in high school.
To “win” at strength training… dive in, and stick with it.
Over 37 years, the specifics don’t matter as much as I tend to think.
I like strength training for a few reasons:
You can always find something to improve.
It doesn’t take much time, to capture most the gains.
Done properly, it’s useful.
To contrast different meanings of “properly”, I’ll share a story from a Kiwi friend of mine. He used to train “hard”.
Hard… as in, bring a chair into the shower so you didn’t have to stand after swim practice.
Hard… as in, needing to pause walking up two flights of stairs after a track session.
His more moderate friends asked “why” and “what’s the point” => well, he was trying to get good. In his case, “good” for triathlon.
Proper training, getting good, optimal time allocation.. it helps to know the larger goal sitting behind your daily routine.
Where are my daily actions likely to take me?
I’m aiming towards being highly functional at 60 yo. For my kids, the techniques are similar but the goals are different.
So let’s take some lessons from sport and apply them into the larger world.
These techniques work.
The most important thing to remember is Coach KP’s advice to DIVE IN!
Above, is a picture of the swim finish at Ultraman Hawaii. I’m 33 yo and leading out. Just before my 30th birthday, I’d started swim training. When I started, I wasn’t able to swim more than 100m of freestyle without stopping.
Ultraman is 10,000 meters, point-to-point, in Hawaii. Because the coast is curved, there are times when the athletes are more than a mile offshore.
I’ve gone from zero-to-decent in a wide range of activities.
Passing skills to my kids, and my readers, is the main way I impact the world.
Let’s start by addressing what holds us back from diving in…
It takes way less than 10,000 hours to get proficient at something.
3 swims a week, every week, for three years, was enough for me to get proficient – defined as 57-minutes for an Ironman Swim.
From proficient to outstanding => the diminishing returns kicked hard… about 1,000,000 meters for each minute reduction in Ironman swim time (down to 50-minutes for 2.4 miles).
If I told myself the path to swimming greatness required 10,000,000 meters then I might not have started.
Here’s the thing, I captured most the value in my first 1,000 days of swimming – 30 to 33 yo.
In weightlifting… 15 to 18 yo.
In calculus… 18 to 21 yo.
In finance… 21 to 24 yo.
Think about your own skill development. There is a 1,000 day ramp up, after that, it’s about depth.
At the start of the pandemic, our schools closed and we had to figure out home school. One of our most popular sessions was Art-with-Mom.
My son didn’t think he had any talent. He had fallen prey to the hazard of thinking his current ability reflected his potential.
Turns out the kid is great, but he had to start to find out.
You might think you’re stuck in your ways. I’m not so sure. The capacity to change does not have a sell-by-date. Radical change can happen from seemingly small choices, done daily.
The picture above… What’s happening there?
Consistency => since my kids have been able to stand, they have done at least one swim workout per week, every week.
One session a week will not get you to the top.
However, a decade of consistency, might get you to a position where you can get really, really good by doing 10-sessions a week for a few years.
Option Value for Excellence => an opportunity to take myself some place interesting (but I got to dive in).
Regardless of outcome => positive habits are useful, to crowd out bad habits and surround one’s self with go-getter peers.
Sport, languages, art, academics, learning to read, vector math…
How might one go about making dramatic progress?
Set your daily hurdle at the 1,000-day rate.
Let’s use teaching a kid to read for example. Learning to read is the highest return activity I have ever come across. Improving reading comprehension yields a durable competitive advantage.
The best way to teach a kid to read is… “reading aloud with a kid.”
Thing is that’s often inconvenient for the parents. Fortunately, it takes very little support to change the life of a young reader.
5 minutes, AM and PM, every_single_day, for as long as it takes.
We saw progress after 15 weeks, about 1,000 minutes of my time.
Roll forward 1,000 days and my kids start each day with 20-minutes of reading.
A year ago, we tacked-on Spanish with a 5 minute daily hurdle. The younger kids started with Spanish School Bus and our oldest with Duolingo.
This summer, we progressed to hour-long classes with an online tutor. The progression seemed natural to the kids. We’re Zooming into Guatemala for the classes.
Five minutes, to 20 minutes, to an hour.
The Power of Incentives is always under-estimated, not just in executive compensation!
I pay for achieving a streak.
The first 100 days of the minimum is worth a $100 gift.
Paying off a summer reading streak was how I bought my way into the 20-minutes every morning.
With a top-up from his grandparents, my son rolled a 300-day Spanish streak into the lego you see at the top of this section.
My daughter did a deal for a guitar by committing to 100 lessons.
Track your streaks, and don’t mess with them!
Positive Cascades Start With Action Before Dawn
I pay attention to what I do before 7am.
There seems to be a positive cascade that results when I can get something useful done before 7am.
If you have kids then getting them on this schedule also makes bedtimes easier => for years, bedtimes were the absolute toughest part of my emotional life.
If you have trouble falling asleep then don’t worry about it. Consistently wake up early and start getting stuff done. Your sleep will sort itself out, or not. Either way, you will be better off.
Back to 37 years of strength training…
Focus on completion, not results.
For my kids => focus on staying in the game, building good habits and playing well with others – it’s easy to peak a kid WAY too early in life.
I’m glad I saved my downhill slide for adulthood… 😉
For myself => Pay attention to what screws up tomorrow.
Increasing my hurdle to the point where I get hurt, burnt out or lose interest.
Creating a crisis so I skip the minimum.
Now that I’m able to look back 30+ years, there isn’t any session, day, week or year that stands out. What made a difference was consistent positive action.
If you miss, or start to dread, the minimum then you’ve set the bar too high.
Two things I learned from watching kids and parents:
Less is OK, quitting is not.
(Just like us…) kids don’t know what they want.
Back to that cold pool, in the dark, before sunrise… well, sometimes the pool is warm, you’ve had a nice breakfast and you still don’t want to dive in….
How do you deal with that?
With myself, I focus on the result. To get the result, I need to accept what’s required.
What’s required? Action before dawn, or a lower daily target.
With our kids, sometimes we need a little bit of negotiation… we agree to “less” so long as we hit the minimum => of weekly swimming, or daily reading, or whatever our current focus area. With the minimum set at the 1,000-day level, we can maintain a streak without undue strain.
The idea here is to stay in the game, today, while creating an option to become great, later.
By the way, the road to greatness can be different than we imagined (see below).
I often hear athletes say, “I need an event to get out the door.”
Here’s the thing about anything… …for me to do it right, I am tempted to take risks with my health, my relationships and my future.
I’ve found this lesson applies to high-performance everything.
Along with diminishing returns, came increased risks.
As a young man, my one dimensional periods were a mixed bag – athletics, by far, the least harmful of my single-minded earthly pursuits.
A online physics course reminded me of the ways we get ourselves in trouble. I tried to explain this to a buddy and he replied, “there’s simply too much to worry about.”
I’ll give the explanation another shot.
Better thinking is not building the capacity to worry constantly, about more things. Better thinking is about training ourselves to focus on making a limited number of excellent choices, given imperfect information.
When to worry?
Where to focus?
Limits to Knowledge
Snowflakes: even if a human mind could know everything there is to know about water molecules, it would not be possible to predict a snowflake’s structure.
Mobs: understanding individuals, in isolation, tells us very little about the actions of mobs, or markets, or cities, or nations.
Lots of other examples: DNA to elephants; Neurons to consciousness; the patterns of a sandbar; the shape of a cloud, politics, wars, life sciences.
Clouds are a current favorite of mine – a reminder to stay humble with any bet that requires me to be correct about outcome.
I’m currently debt-free. As a result, I’m able to make more mistakes, be less correct and less impacted by outside factors. The value of this position doesn’t show up in conventional analysis.
Properties that emerge, at scale, make prediction impossible. Joe Norman’s presentation at RWRI helped open my eyes to this aspect of our reality.
I don’t need to become a complexity expert to apply this knowledge. What is essential is understanding the nature of the system in which we find ourselves.
Are we in a complex system?
Are we in a system subject to extreme events?
To answer my friend’s question, “when to worry?”
Complex systems, subject to extreme events… exposures here are worth the time to carefully consider.
You don’t need to be the CEO of AIG to get bitten on the butt by complexity. If you’ll get fired for the mistakes of one of your direct reports then, given enough time, you’re fired.
Sudden unemployment is one way the nature of universe can come home to roost. Happened to me in 90-days at the end of the last boom.
Here’s another… if you woke up and discovered an undisclosed $20 billion dollar loss in an important counterparty then what would that mean to your life?
What about your family, your employer and your portfolio?
Concentration is a risk we can mitigate. It’s why I have unrelated jobs and several cash flow sources. Here again, conventional analysis fails to capture the value of this position.
In 2021, in a very benign financial environment, we’ve seen multi-billion dollar losses pop up in a week, or less. Rapidly emerging, massive losses are a feature of our system.
Things, that have been stable for a very long time, can disappear quickly.
Prediction: our minds love to predict, to assign causation and to tell stories about the world around us.
Grasping for a “why” is a waste of time.
When operating in complex environments, most importantly when surprises can bite me in the butt, I need to constantly remind myself NOT to make predictions.
For myself, I actually need to go further, I need to implement a policy of NEVER making predictions and NOTING surprises. There is useful information contained in every surprise.
Even further, I shun input from individuals (especially smooth talkers) who make predictions. A reason why I try to never watch videos — too persuasive.
I’ve found that even a little prediction, it leads me down a path of wasting thought.
What’s likely to happen – what happens to me if the opposite happens?
What’s the worst that can happen – can I mitigate?
Does the situation appear reasonable – given the above
There are games, investments, relationships and opinions… I don’t need to play, make, engage or have
There are a lot of business where “the burden of the worst” falls outside of the beneficiary class (government, general partners, VC, private equity, OPM, CEO-class, banking).
We can waste a lot of energy railing against the system, I’ve found it much more useful to make sure I understand…
My family cannot afford to take the same risks as my employers, my shareholders and my government.
This is a lesson I learned through, rather expensive, experience when I left Private Equity.
No Prediction => focus on getting rid of ruin => subject to not becoming a casualty myself… education of youth “buys” more than portfolio returns, or my personal savings rate.
Conventional analysis fails to capture the present value of teaching how to avoid future mistakes.
Risks => practices that make sense for large entities, given time, will wipe out my family
So my point was…
There is more to reality than we are capable of comprehending.
Stable situations can become fragile at scale.
There are certain domains where acting “irrationally conservative” can make rational sense.
We are going to be surprised over, and over, and over, again.
Philosophically, one could say reality is pointing towards a deeper form of intelligence.
From a more linear point of view… the next time you are on an airplane, write a list of your concentrations and counterparty risks. Blow them up, one-by-one, and carefully consider if you need to mitigate.