Kid Rich

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.

++

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.

++

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.”

++

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.

++

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



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.

Winter Season Planning

The trip to the Canyon marked the end of my summer season. On the bus ride back to our car, my wife asked “what’s next?” I’ll share the answers to that question and add some ideas that might be helpful.


One of my challenges with parenthood is being haunted by the thought… “I’m going to be old by the time I escape this grind.” In my 20s, that thought (and a divorce) helped me jettison myself from desk work.

Our youngest isn’t going to graduate high school until 2032, so there’s some truth in these feelings. However:

(1) my age isn’t necessary a problem, or a barrier, for a life with meaning;

(2) I had similar thoughts ~20 years ago and things turned out fine; and

(3) fear is a distraction from doing what solves the problem.

Anyhow, I wanted to acknowledge those thoughts as I’m certain many of us feel similarly, at times.


We’ll see how long he can continue to flash his age. He’s currently 5.11 at our local.

The Mental Benefit of Getting Better At Something

One of my coaching mentors, John Hellemans, has a wonderful presentation about triathlon. One of his lessons is “try something new, each year.” He backs this advice with a series of slides showing all the whacky equipment he tried out over the years. He must get a kick out of novelty.

Coming out of COVID (it seems we’ve been leaving the pandemic for all of 2021!), I was gym-strong. As a result, I’ve been able to get back, rather quickly, to a level of indoor climbing I’d last achieved in 1996.

Gains & novelty are fun.

What will you try this winter?

My areas for improvement: metabolic fitness via endurance cycling, skills & novelty via indoor climbing, eccentric leg strength via dryland ski training and agility via downhill skiing.


She’s always been a great runner, just didn’t like it! 🙂 Swimming helped her get used to how racing feels. PS: something I tell her, “by turning up at a race, regardless of outcome, you make everyone better.” She’s been shaking up the hierarchy at various squads around town. Be grateful for your competition, and remember that winning is fleeting.

Knowing What I Don’t Want

Do you know the conditions likely to to bring out your worst?

I sure do: tired, in traffic, the whole family in close proximity, after a day spent answering questions and listening to low-grade bickering between my kids.

Not going to spend time, and money, to put myself in that situation!

My personal planner, through to the end of March 2022, doesn’t have a single peak-period family drive (and the kids had to demonstrate a material improvement in behavior to get me to agree to fly with them).

The current situation tends to continue as long as we tolerate it.

Write out your “not to do” list.


New sheriff in town. Howdy partner!

The Value of Being Able to Change Course

The last year was another reminder how life surprises me.

In August 2020, our daughter started year round swim team. Team implies ~12 meets a year, 6 of those requiring travel. That’s a lot of time out of my “with my wife” allocation. It was a major adjustment for me, which we are still figuring out.

That wasn’t the surprising part, fatherhood can feel like a gradual drift down the priority list until the kids move out. Just the way it is, and why I make a priority of having fun with my wife.

I was surprised by the cost. Swimming is expensive for a “cheap” sport. Our cost is greatly increased by my desire for childcare => so I don’t lose my mind, being left home alone with the other kids.

++

Over the years we have considered properties in various vacation markets. I feel fortunate that I didn’t pull the trigger on anything. Because we didn’t lock ourselves into a secondary market, it was painless to cut the winter activity budget in half and cover the cost of swimming.

So no winter ski place rental, which eliminates Sunday drives home (in snow storms, tired, with all three kids).

Of Interest Here: I am being compensated by less of what I don’t like. Very tough to price the benefit of via negativa.

What would I pay to cut my worst days in half? No idea, but I do pause to notice the benefits of less.

The lesson isn’t my specific situation. The lesson is life changes every five years or so. Choices, and investments, that make sense today can be costly to unwind tomorrow => even when you get out at a profit.

We’ve owned a BoCo rental property since 2010 and I’m often tempted to swap it for a vacation place. By not buying in a secondary market:

  • I continued to hold a rental property in my home market.
  • I didn’t pay capital gains taxes.
  • The rental income more than covered my vacation rentals.
  • I benefited from 75% capital appreciation.
  • My net cost on the site is zero, a few years back I subdivided and sold part of the land.

In 2016, I didn’t know how I would be surprised, but I could see the ability to cover vacation expenses with rental income. Also, it was also easy to calculate the taxes and agents fees deferred by not selling => make the cost of change visible.

I have a persistent feeling that owning is better. In secondary markets, the facts tell me otherwise.

Looking forward to 2032, I know we will be empty nesters. What that means for our life is unknowable today.

Stay variable.


Take Advantage of Childhood Opportunities

There is a limited window of time where my kids will think I am brilliant. I care about the value of my family’s human capital so I remember…

It is much easier to indoctrinate a child in “risk management by example” than to achieve anything by heckling a teen.

As a coach, my job was to teach my team what I would advise, without needing to say it.

Being the brand was excellent preparation for parenthood. Kids have a keen nose for inconsistency!

Prepared is better than protected.


Repeating good habits from a young age will do more for my family than any amount of lecturing. (1) Do it right, every single time. (2) Be open to learning from everyone, even your siblings!

Grand Canyon 2021

If you are a tentative nighttime-descender then consider getting a set of Knuckle Lights. Worth 5-10 minutes per mile for my wife. They didn’t do much for my night vision, but she was happy!

Two days and ~50 miles in the Grand Canyon. Going to share pictures and ideas in case you’re thinking about something big in your future.


At the start, dropping down Bright Angel trail – it’s an extra 2.5 miles to Phantom Ranch but the drop is more gradual and the stairs are not as high as on South Kaibab. The view dropping in on South Kaibab is spectacular, however. We were in the dark so I opted to save our legs with a smoother entry to the canyon. TIP: If you want to maintain your night vision then green works better than red. Water available (in-season) on Bright Angel, none of South Kaibab until you hit the river.

~82F at 5am at Indian Gardens. With no real heat training, I was quite concerned about melting down. We dropped in ~3am on both days.

From Indian Gardens through to Manzanita Rest Area, you’re never far from water. Bring a filter and keep your clothes wet. Ultimate Direction’s ultralight tee was awesome – in the heat and low humidity it felt freezing each time I put it back on after dipping.

Good look at my lightweight setup – three piece carbon poles, running hydration vest with pockets up-front. Accented (!) with a small belt pack. This pic is at the bottom of Bright Angel.

Soft sand segments and beach weather!

10+ years ago I came through here with Jonas Colting on our way up Bright Angel. So many good memories with him.

TIP: on your way into the canyon, aim for as many flat foot plants as possible. In the sand, on the stairs, everywhere. This will reduce the stress on your feet and lower legs.

10 miles to the end of the bridge from Bright Angel Lodge at the top of the South Rim.

Ultimate Fastpack 20L, can hold 4x500ml soft bottles up front. Gear keeps getting better and better.

Knee sleeves are HUGE for keeping my 52 yo legs happy when descending. Big lifeguard hat works better in Colorado cool than Arizona heat. Still loved having it.

Back in the day… I ran into the Canyon with nothing but a belly full of sports nutrition. Loaded up on the Ranch’s lemonade and hit the water stations on my way up Bright Angel.

Water, food and souvenirs available at Phantom Ranch – check their website for details and opening hours.

Someone didn’t pick up their breakfast, so they gave it to me, gratis! I didn’t eat the sausage.

Day One was ~2,500 kcal by 7am and 3,000+ by 10am. I skew my calories, fat and protein => early and late.

~25 miles to the North Rim if you drop Bright Angel. But… my GPS works “funny” in cliffy sections, we had a couple miles (both days) that seemed too quick for the effort. I think it was the GPS bouncing around/up/down in steep terrain.

Box Canyon is a neat place. I wouldn’t want to be there on a hot afternoon. We were through by 9a.

More Box Canyon and a profile shot of my pack. Knee sleeves are transitioned to calf compression.

Ran into our buddy, Doug, below Cottonwood Campground. He did the out-and-back in a day. 30 miles in his legs at this point and he was looking strong. Bold!

A very dry place with lots of water around.

I’ve been using Katadyn BeFree collapsible water filter (1L bottle) all season. Weighs nothing and doubles as a spare bottle. Carrying some form of water purification system is essential – the park water can fail and/or get contaminated.

~4,500 vertical to go. Long days are about finding sustainable pace and sticking with it. Both days the uphill segments took longer than we expected. With a 3am roll, there was a lot of darkness/shade in our 10 hour north-bound crossing.

The view from the dining room of the North Rim Lodge, which is ~2 miles from the North Kaibab Trailhead.

They release their rooms/cabins in batches. I signed up in April for our September trip. I also booked dinner at the same time. They were sold out, and fully booked, on a Tuesday after Labor Day.

Day Two breakfast was carrot cake from the restaurant and Nitro Coffee I’d hauled across. Not having to worry about a third day, I ate lighter, but not light! 😉

On day two, five hours of hiking, and six hours total time, found us back at the river.

Phantom Ranch sells cold brew coffee, which was appreciated. Drank three refills before the ice was gone (one coffee and two water).

Just south of the bridge, we were rolled up by a mule train.

We were chatting with the cowboy and found out they take 4 hours, with 19 stops, to get from Phantom Ranch to the top of South Kaibab. We pushed on, curious to see if we’d be able to hold them off…

Mule train moving right in the foreground of this shot, bottom of the frame.

These views are why South Kaibab is so amazing.

I was hopeful that the top of this feature would see us within shouting distance of the top.

Not to be!

Tucked into the butte with 3 miles and 2,300 vertical to go. Feeling my lack of heat training and hiding under a ledge to dial down low-grade nausea while I drank. From this point on => heat, not fitness, dictated sustainable pace. I’d planned on dumping surplus water on myself to cool off but found we didn’t have any to spare.

Pants are the best $30 I’ve spent this year – team them up with a fabric belt, which can double as a field tourniquet. Rest of my first aid kit was an epipen, albuterol, scissors, moleskin and an assortment of fabric bandages. Lunch, both days, was ~500 kcal of Hammer Gel Vanilla served at 10am with a stack of water. No further calories until the rim, just sipping water. Eat so you can continue, without eating, when the going gets tough.

Never surge HR and remember by the time you need to drink, it’s too late.

I started my hydration early. I knew Day Two would have a demanding finish and I’d been peeing every 45 minutes since before dawn. Drank ~2L, while eating, at Phantom Ranch. We filled up every container we had for the hike up Kaibab.

The only thing you will find on South Kaibab is vault toilets, and the kindness of strangers.

I have a similar pic from April 2008.

Three kids and many adventures later… I was back.

Make time to share experiences with those you want to grow close to.

Love you babe!


Feeling fresh on the bus back to the village AND we put an hour into those mules!

A little bit of shared suffering is an effective way to strengthen the bonds of marriage.

Deeply thankful the trip was her idea.

Fortune’s Formula


Fortune’s Formula by Poundstone was recommended inside Safe Haven. The book touched on a number of questions/issues I’ve been pondering since attending Taleb’s seminar in October 2019.

Very helpful book!

What follows are a bunch of points I’m writing down so I can refer back later.


Insurance proceeds: Will I be able to access my money when I need it? Applies to everything, especially exotics.

All families are sellers, eventually.

This is an important point because crashes are most damaging when one is forced to sell into them. Ironic point is many (most?) of us choose to sell into them (or in fear of them).

Recently, I came across an article about CalPERS selling billions into a dip – even smart people make poor decisions, most often when they are custodians of other people’s money.

Most institutions have shorter memories than families. Keep reminding yourself of your mistakes – you probably paid a lot to learn your lessons.

Train yourself, and your kids, to be able to tolerate bad news. It saves time, money and emotion.


Counter-party Risk

Payout => who’s on the other side of my insurance trade and are they going to need a bailout to pay me? If my insurance company might need a bailout then am I really insured?

I’ve done my best deals when all buyers have disappeared. A delay in payout can have a huge opportunity cost to me.

Skill => reading financial history, I notice the people on the other side have… better analytical skill, superior computing power, faster capacity to execute, better (and inside) information, favorable leverage terms, assistance with “techniques” to defer/avoid/evade taxation.

These folks are on the other side of everything I do.


Ruin

Steer clear of most bets where there’s a chance you could lose all your money. Many useful examples in the book.

This doesn’t mean to avoid all loses inside a portfolio. Highly volatile bets can make sense when limited in size.

This does mean avoid creating a portfolio (or lifestyle!) with the potential for total loss.


Kelly Criterion

I do not have faith in my calculations of the probably of real-world outcomes. For me to use Kelly, I need to have a feel for the odds of various outcomes.

Using Kelly weighting (even fractional) runs the risk of fooling myself about the total amount of risk I am taking on. There’s probably a way to work backwards and see the implied odds within various prices – I do not have confidence in my capacity to compete with experts in the arbitrage pricing domain.

That said, the key point I took from the discussion, “never bet an amount that results in a chance, any chance, you’ll be removed from the game.” This calculation is simple to calculate and easy to execute.



Downturns & Drawdowns

With this in mind, there’s an important point about investing for long-term wealth. The likelihood of a major drawdown and the cyclical nature of exponential growth.

Put simply, most families, using a long-term wealth maximizing strategy, will spend a lot of time being “less wealthy than they used to be”. Page 228 of the 1st hardcover edition.

BIG POINT: many families trade a ton of return to avoid this reality // OR // over-bet in the short-term in an effort to avoid normal downward wealth fluctuations.

Worth emphasizing! Most people trade long-term return or increase their risk of ruin to avoid natural fluctuations in wealth (and fitness, for that matter).

Very few people have the emotional make up to roll with the punches when it comes to volatility.

One way to hedge yourself is to maintain the capacity to cut spending so you maintain your “net worth / cash burn” ratio. I write about this a lot because it can give you an emotional edge during a crisis.


Buyer Beware

OK, you say to yourself, I don’t understand how to tail risk hedge so I’m going to use an outside expert to do it for me.

Not so fast!

Focus on your day job. Be really excellent at what you know well. In your financial life, be extremely conservative.

Because…

In every field I’ve gotten to know well…

As a class, insiders consume the excess return for themselves.

…private equity, CEOs, elective-medicine, sports supplements, luxury goods, commercial banking…

Excess returns come from inside a field where you are world-class, not from tinkering on the other side of a trade with a finance whiz.

The Eternal Return of Childhood Nutrition


Many struggle to see how the Eternal Return impacts our relationship with risk (last week’s post).

It is easy, however, easier to see repetition with our food choices.

With my kids’ nutrition, I have three behaviors I model.



#1. Remove friction for good decisions.

Much of our learning happens by repeating what’s presented.

The path of least resistance is a useful tool when used with purpose.

COVID Fridge!

Dad always knocked the icing off. Such a fun guy… 😉

#2. Do not make binges fun.

I know ALL about this!

As an ultra endurance athlete, I had a lot of fun with binge training. For my brief period of being really, really fast… removing the binges was a key part of my coach’s strategy for me. Fatigue is a geometric process!

Most societies, and families, have a tradition of feasting. In an environment of abundance, training myself to overeat does not work. Most especially, when coupled with positive emotional feedback.

In the language of finance… my meal choices are not independent from each other => habit energy runs strong in my wise/unwise selections.

With the kids… never give positive emotional feedback, and in-the-moment attention, to overeating.

Later… I get a chance to listen to them… then add… “try to learn from what you just told me”.

To help our family members with “appetite”, we always start with nutrient dense foods.



I am binary in many areas of my life – not having to decide gives me energy to apply elsewhere.

With food, binary isn’t an option => we gotta eat every day and the better our choices, the better our outcome.

So…

The final area where we offer guidance, and make an effort ourselves, is with portion control of energy dense choices (bread, noodles, sugars, starches, desserts).

We’re OK with the kids eating anything – we’re gluten friendly, could care less if they eat meat, take good care of our vegan pals, have a choice of dairy/non-dairy milks… in Boulder, we can handle any kid.

There is no choice to make on household dogma.

You simply need to be willing to eat real food.

Fill up on the good stuff, first.

Then have some of whatever else you’d like.



  • Remove friction
  • Don’t celebrate binges
  • Good stuff first

No dogma.

Generational Transitions

There’s a straightforward way through the headwall – just take it one step at a time

Last week, Mark Spitznagel’s book came out (Safe Haven). Don’t expect any specific strategies for constructing Safe Haven insurance. Do expect to (re)learn useful concepts:

  • a reminder of the central role of time in our lives – the capacity to sustain action, cognizant of time, is extremely rare
  • a reminder that we think in terms of arithmetic averages but experience geometric averages (COVID, portfolio compounding, fitness, nutrition, body composition)
  • a reminder that downward moves (in %age terms) have the same impact, regardless of their position in the time series – the counter to this => absolute dollar losses are best taken later in the time series (down $100,000 wipes me out at 25 y.o. – not so at 60) // by the way, creating negative net worth early (via education loans) is a very nasty geometric headwind.
  • a reminder to consider the cost of your insurance strategy, including the decision not to insure. Health, accidents, portfolios, relationships, nutrition => “insurance” comes in many forms.

Also some great parables/examples to help explain mathematical concepts that I’d previously failed to grasp, most importantly, the negative waterfall of financial ruin in a geometric environment.

Related to geometric returns, some useful illustrations of how/when diversification fails, despite its enduring appeal.

Finally, using Eternal Return when assessing risk. With any important choices assume you’ll be stuck repeating that choice over-and-over. I’m not sure I would have been capable of applying this advice as a young man. At 52, my life continues to benefit from this mindset (health, accidents, portfolios, relationships, nutrition…).

++

Today, I want you to think about the past, present and future.

Specifically, I want you to look backwards 10-15 years, as well as forwards 10-15 years. This will give you a 20-30 year time span in which to consider family strategy.

We call 20-30 years a generation. For family leaders, it’s the shortest period we should be considering. Let me illustrate:

  • 2004 – met my wife
  • 2008 – birth of first child
  • 2032 – youngest child graduates high school
  • 2037 – youngest child self-sufficient financially

For our family finances, a generation will be closer to 40 years than 20.

Act with 25+ year time horizons => the Eternal Return is a useful mindset for multigenerational family systems.

++

Family Earning Capacity Over Time

The biggest change of the last 15 years, for us, has been the quasi-retirement of the two largest earners in our family system. Looking forward 15 years, the biggest change will be the addition of new earners into our family system.

The shift in earning capacity every 30 years, or so.

If you are the prime earner, today, then here is a question for you. Does your family system have the assets, earning power and desire to continue to run the overheads you have built over the last five years?

Current choices can create a “geometric” headwind for the next generation.

++

Family Risk Management Over Time

The demographic that seems to worry the most about financial risk is the Top 2%. Makes sense, they own most of the assets and, therefore, have the most to lose.

The easiest way to manage family financial risk is to create a cash flow statement with many different inflows, while having the capacity to painlessly chop outflows. I’ve been working on this for 20+ years, covering fixed overhead categories with a mix of inflows.

The option to shrink cash spending is valuable. Specifically, looking at your cash flow statement and seeing how much of it you could chop, at will.

For example, there are excellent reasons to borrow right now (inflation hedge, low nominal rates, negative real rates). However, the costs and negative-optionality of debt are hidden and difficult to price – particularly in a near-zero rate environment.

  • What is the correct way to price the ability for a lender, or my fixed overheads, to force me out at the bottom?
  • How do I price the capacity to invest during the next credit crisis?
  • What’s it worth to not have a boss?
  • How much is a lack of financial stress worth?

In my memory, all the remains from the 2008/2009 crisis is a note I wrote to myself to NEVER DO THAT AGAIN. Ten years along, there is no “pain scar” from the stress I endured.

With our next generation a decade out from starting to earn, we’re debt free, and happy to be there. It’s worth more than I can prove mathematically. I do not have the capacity to think in terms of negative optionality. I can’t price ruin.

I’ll finish with another note I wrote to myself:

Moderation is easier when the prime directive is simply staying in the game.

This applies to my appetite for risk, further wealth, spending choices and personal fitness => interestingly, my greed focuses on various forms of external winning, while my quality of experience is internal.

Fixing The Problem


It’s possible to spend one’s entire life getting stuff done and making no true progress.

What do I mean by this?

I took a week off at the start of August and looked deeply at my life. Here’s what I noticed.

Problems: when folks are seeking to help us, they often remind us to count our blessings with a stock phrase such as…

Many people would love to have your problems.

This is both true, and false. True because I have an excellent set of problems. False because my problems are more accurately described as my “to do” list. They are simply things that need to get done.

…and that’s where a habit of grinding away, can get us nowhere.

Before we can fix something, we need to identify just what we need to address.



I spent the start of August alone, wandering around the mountains. It was a unique opportunity to get outside my life.

When was the last time you unplugged and got outside of the box?

By the way, I’m writing this from my box – my home, my home office, staring at screens. Too much of that in COVID!



The first thing I noticed was my point above, what I call my “problems” is merely a to-do list. They aren’t problems in a structure sense – time will wipe them out.

The key issue of the last 12-months is a periodic, penetrating sadness. Ticking off items on my to-do list doesn’t have much of an impact on it. My cost of living – no impact on it. Portfolio returns – no impact.

This insight was useful for me. It spurred two follow on questions:

  • What am I doing when I’m not-sad?
  • Are there triggers that set me along a downward spiral?

There’s a paradox in my life as a father. Doing the actions required to be a great parent, wipe me out. Not a big deal – I don’t mind fatigue all that much.

However, listening to my kids bicker brings on nausea. It’s my kryptonite.

Combine the two, bickering at the end of a long day, day-after-day, week-after-week, for the last 10+ years.

Across the summer, it was getting to me. I decided to opt out of anything that had all three kids involved.

Digging deeper, I realized no one can make me drive a car, take a trip, sign a lease, deal with rush hour… anything really. Parenting can leave me feeling trapped, but it’s a trap of my own creation.

I have a central role in tolerating the triggers of my sadness.



Back to the “to do” list.

It all-too-easy for couples to get bogged down arguing about their “problems”. They never get anywhere because they aren’t addressing the issue at its deepest level.

My family asked me what I wanted.

Two things:

Spend more time _alone_ with my wife => I make this clear each time the opportunity arises. Sometimes this is as simple as being able to finish our sentences to each other (without being interrupted by an addition to my to-do list, which the kids could do themselves!).

Help with the low-value tasks in my house => stepping outside my life in August made me realize how much time I spend on other people’s BS. In this regard, my sadness did me a huge favor when it nudged me to jettison Facebook (August 2020). Dealing with other people’s crap feels never-ending. In fact, it started to end the moment I decided I was done tolerating it.

In the meantime, I decided to stop:

  • Stop => helping anyone who is rude to me.
  • Stop => supporting anyone who wants to be a passenger.

All the while, modeling the the actions I want to see around me.

Which brings me to the #1 directive I gave myself, which I learned from our youngest daughter.

Be Polite.

Not just because it works.

Because the opposite of polite => rudeness, disharmony, noise, bickering, petty squabbles is a HUGE sadness trigger for me.

Winning an argument won’t solve my problem because engaging in argument is a trigger.



The opposite of sadness => call it not-sad.

It isn’t happiness.

For me, it’s enthusiasm.

My retreat enabled me to reconnect with my enthusiasm:

  • Up before my alarm
  • Laughter
  • Serenity

Luxury is watching the sunrise.

I’ll take some more of that.

Relentless Positivity

Sunrise from Mt Princeton, Collegiate Peaks

I took my kids on a trip.

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.

A neat parking place – just over my son’s right shoulder.

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!


Summit push-ups

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.


Some members of my family are better at chillin’ out than me

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.


Post-workout recovery

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.


Saw this yesterday on the summit of Mt Bierstadt – a peaceful moment

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.


Natural beauty and moderate HR climbing => works every time

On the summit before most folks hit the parking lot.

Pay attention to better.

Facts and Feelings


I have a version of this post in my drafts, yesterday’s blog gave me a better example.


If you get my stuff via email then you may have noticed a type-o yesterday. I wrote I hadn’t been away from my house for a week since 2000.

I corrected the error on my site, after repeating it on Twitter.


Here’s the error…

In my head, “a couple years ago” is linked to the year 2000.

I have no idea why this linkage exists but it “feels like the truth”.

My wife has something similar. Often, she feels like she’s just finished high school.

We anchor on the salient, not the truth.


Anyhow, my point isn’t about the fleeting nature of time.

What’s more useful is catching myself when irrational opinions, and clearly false views, feel right.

I marvel at my capacity for self-deception!

It is unlikely I can eliminate my “false feelings” but I can build systems, and habits, so I don’t screw up my life by acting on them.


Write important stuff down is something I’ve been doing since 1990. The value of a “note to file” was drilled into me when I started working in Private Equity.

gMail archive, and searching What’s App, to uncover what was agreed… defuse many situations before they can spiral, and let me see the facts before getting emotionally engaged in arguing about truth.

Better to have my documentation-habit deemed strange than have to deal with unforced errors.


Know your path to ruin => this one is a bit more subtle.

When I’ve made large, unnecessary errors, I have followed a two step path…

  • I am absolutely certain
  • I am fed up and ready to do something extreme about it

Certainty, fed up, drastic measures being required… politicians love to tap into that pattern.

I have learned not to make ANY decisions when I’m feeling certain.

Stop all decisions, chill out and spend time on something else.

If I can’t trust my feelings to get the year right, then I’m really cautious when they’re telling me I should take rapid, drastic action.