Category Archives: Uncategorized

Helping Kids Hear

Posted on by

Vail MountainI was back at preschool community night last week and we were chatting about the issues that face parents. A biggie…

How can I make my kids listen to me?

I can’t.

What I can do is create the conditions where my kids might hear me, and use behavioral psychology to increase compliance.

Key things that I’ve noticed:

Space to comply – when the kids are running around being kids, it can take a LONG time for me to understand what my wife is saying. In fact, it can take so long that she might get frustrated with me, even when I hear her. I’m guessing that a three-year old has a similar comprehension lag.

Solution – ALWAYS count to three in my head to give the kid time to hear, and time to comply

Don’t Scare My Children Witless – Am I creating an environment where my kids are able to understand me? Not always.

Never Repeat – the moms at the preschool meeting HATE repeating themselves. My solution is to observe how many times I repeat myself.

Why?

Because our kids don’t need to listen if we’re always repeating!

By the way, it’s difficult to ask the kids not to repeatedly ask me for stuff if I’m always doing the same to them. Be the change.

Talk To My Eyes – when my house is full, I spend most my time with sensory overload. I get so fried I can’t think, write or function. Once I’m fried, everyone needs to talk directly to my eyes. It takes a little extra effort but then they don’t have to repeat. 🙂

Finally, is it worth listening to what I have to say? Are my expectations reasonable? What’s my ratio of positive-to-negative interactions?

When I turn the issue on it’s head, I’ve found myself lacking in many relationships – not just with my kids.

ax

Money, Marriage, Kids, Family

Posted on by

Back in July, I caught myself fantasizing about my life in the year 2030, when my youngest graduates from high school.

Longing for a better life in the future is a sure sign that I need to make changes in the present!

My dream, of 2030, was an example of the main excuses that I give myself:

  1. Money – If only I had more…
  2. Marriage – I can’t do that, I’ll damage my…
  3. Kids – The trap of giving to the point of self-neglect and external resentment…

To the list above, I’ll add “Family” – I hear others say that they can’t do XYZ because of family considerations.

While it helps our own happiness to serve another, resentment happens when we feel bound to serve.

I know from my own experience that a resentful grandson, son, father or husband isn’t much help at all. I’m awful to live with when filled with resentment.

My antidote with relationships is straightforward.

  1. Empower each other to say “no”
  2. Always be part of the solution – much better than seeking to be THE solution!
  3. Respect other people and let them solve their own situations
  4. Consider every interaction a gift, rather than an obligation – point #1 is essential for this mindset

Now, with money, the antidote is more complicated. My best advice: start by ditching people, situations and things that makes you feel envy.

Envy distracts me from my true needs.

Recently, I spent six years working myself out of financial squeeze and wanted to share the process. When I’m not sure what to do, I start with a clean sheet of paper.

Blank Sheet Living…

Based on where I am today, where would I like to be in five years and what’s it going to take to get there?

Six years ago, I decided that it was important to reduce my family’s net cost of living. I looked at moving to where I could earn more money (Silicon Valley) and where I could live far more cheaply (Boulder County).

In the end, the US Federal Reserve drove mortgage rates to the point where I moved across town, downsized 50% and achieved my goal.

It took a surprisingly large amount of effort to take the path of least resistance!

So now I’m “there” – I achieved my plan and have the ability to reset my life again.

Additionally, I have a wonderful spouse that empowers me to do ANYTHING.

There is deep wisdom in empowering another to choose to love, and serve, us.

I’ve lost all my excuses.

It can be terrifying to lose my excuses!

+++

Goal: Strategy, Tactics

Serenity: Time Alone, Weekly overnights to the high country to explore in solitude

Connection: More Monsy, Share experiences with my spouse and strengthen my marriage, which is my best asset

Long-term Health: Use My Drive For Fitness, Exercise twice a day, watch the booze and carbs

+++

Serenity, Connection and Long-term Health => What’s Your List?

Ten Lessons From The Great Recession

Posted on by

pawneeFor my family, September 2014 marked the the end of the Great Recession, which (for us) had started in October 2008. Navigating the recession took a year longer than my worst case assumption of five years.

I wanted to share my lessons as I can feel the temptation to ignore them returning!

#1 – You can’t know your partners – I’ve lived with friends for up to six months at a time and had no idea about their personal situation – my favorite quote here is one about knowing your marriage… “if you’re lucky then you might know 50% of your marriage, YOUR half.”

#2 – Burn rate kills – Between October 2008 and March 2009, I lost 100% of my net income. Without significant changes, I knew the loss of income would screw up our family finances. I would have really freaked if I knew that interest rates were going to zero! Staying variable enabled us to cut 90% of business expenses and 50% of household expenses – these were gone by April 2009. The lesson here is to be very careful of building up long-term financial commitments.

#3 – Real Estate, even prime, is only liquid in a bull market – there is an urban myth that real estate is a low volatility asset class. Until 2009, there were many national markets that had NEVER gone down! I will not be able to time the market – I should always be willing to sell early – future purchases should only be made for assets that the family is willing to hold for more than 25 years.

#4 – For my core capital, my benchmark return is zero – there is a portion of my family balance sheet that would be very painful to lose. Don’t risk capital for tiny yield – examples here are constantly pedaled by brokers (foreign currency deposits, derivative-linked investments, highly-leveraged investment schemes, alternative assets, growth stocks).

#5 – I’m a better man when I’m constrained – This applies in all areas of my life. At the peak of the boom there was tremendous ego and waste in my life. I’m very fortunate that life gave me a kick in the butt and I had to make choices. I don’t have the emotional maturity to be unconstrained in action, maybe someday!

#6 – Create plans B, C and D – ring fence different aspects of your life, and finances – NEVER guarantee another person’s obligations (see #1 above). In 2014, my life has a series of fallback plans to deal with potential setbacks – I spent the recession taking steps to protect myself, my wife, my kids, and my family.

#7 – Investment properties should avoid furnished rentals, anything with a material housing association payment, and anything with a cost to hold (vacant) that’s greater than long term interest rates – I made good money by investing in real estate through the bottom but would have done better by focusing on properties with a lower cost to hold.

#8 – low-cost passive index investing gives me what I need. The best gamblers I know take a profit-share on other people’s money and use non-recourse leverage.

#9 – stop trying to win – I misallocate energy, money and time when I forget that a simple life is a good life. Reaching for external success and excessive financial wealth leads to poor decisions and choices. I make my best choices when I measure wealth in terms of health, controlling my schedule and sharing time with people I love.

#10 – don’t capitalize luxury expenditure – particularly, second homes and depreciable assets – stay variable!

My errors and misjudgments persist across cultures and generations!

Choose Wisely

 

Moving Into An Equity Position – Lump Sum

Posted on by

We sold our house in September, the market is at an all-time high, interest rates remain near an all-time low…

What-to-do?

My existing portfolio mix is 60/40 equity/debt. I’m happy with that position so will ring fence those assets and continue to rebalance quarterly.

With the new money…

  • 40% Intermediate Bond Fund
  • 30% Short-term US Government Bond Fund
  • 30% Equity (20 US / 10 Int’l)

I came at the equity number because I could live with the impact of a 20-50% equity market decline (6-15% of total portfolio) if a big drop happened the day after I invested. Considering greater exposure to a drop was too painful.

To move my allocation from 30% equity to 60% equity:

  • Take 130 weeks to do the move
  • Move equal amounts each week by exchanging short-term bond fund for the two equity funds that I use (VTSAX/VTIAX) – set up an automatic exchange on Vanguard
  • Track the individual purchases (automatically via Vanguard) to create options for tax efficiency – if you track your cost based on specific purchase IDs then you can specify the exact shares that you want to sell/exchange at a later date
  • Review quarterly
    • 20% drop in the market will trigger a 10% increase in equity weighting
    • 30% drop in the market will trigger another 10% increase in equity weighting
    • 40% drop in the market will have me shift to my goal weighting of 60% equity

My strategy (30% equity to start) is more usual for an investor older than me. It is particular to my own situation and not advice for you.

For expert advice, check out All About Asset Allocation by Richard Ferri.

Here’s my original article, about buying equities, from March 2014.

Budgets For Beginners

Posted on by

flyingA reader asked for simple tips for starting out with financial management.

+++

#1 – track everything you spend in a month

You may be surprised at the comfort that “knowing” gives you. The anxiety of “not knowing” is usually huge.

#2 – make a list of everything you owe, the minimum payments, and the rate of interest on each account

#3 – after you pay your monthly essentials, surplus cash goes to eliminate your credit card accounts (highest rate to lowest rate). Pay them off and close the accounts. Make a minimum extra repayment of $100 per week on the account with the highest rate.

#4 – saving (or debt repayment) is best done weekly, and automatically – for Americans, an IRA is a good option to consider. If you’re unsure what to do then have each adult in your house stick $100 per week into a target date retirement fund with a low-cost provider, like Vanguard.

+++

The habit of weekly savings is powerful.

I helped a friend repay $10,000 in two years by using 100 weekly checks – her net worth when we started was negative $10,000. All she had was her clothes, her computer and a debt she owed. If she’d continued the savings habit then she’d have a portfolio of $75,000 now.

$100 per week from 18 to 62 years old will grow to $720,304 (5% compounding).

+++

Financially secure parents/grandparents – consider matching earned retirement savings, this will help you to avoid supplementing consumption.

$100 per week from 12 to 30 years old will grow to $150,000 (5% compounding).

+++

How much should you save?

If you want more info on saving for retirement then Bernstein’s ebook is a good one – it’s $0.99 on Amazon right now and a quick read.

Wrong For 25 Years

Posted on by

I try to protect myself, and my family, from the fact that we’re collectively clueless on the future. I also know that my memory rarely extends back more than three years. So, from time to time, I force myself to consider history, and what happens if we revert to the mean.

What does a chart of short term rates tell me about my unconscious influences?

Federal Funds Rate

The chart tells me that, at some level, I’m acting as if interests rates are going to stay at zero forever. In my case, this means that I’m prone to taking more portfolio risk than I would back in, say, 1981 (when cash was king).

How would a return to normal, as well as, a continued period of abnormal impact my family?

What would I do differently if I knew that rates were likely to move upwards over time?

What’s appropriate for a younger investor?

At 45 years old, a higher rate environment would see me take less financial risk. For most of my financial life, I was happy to have money sitting in a savings account. In this extended period of zero interest rates, it’s been painful to have a savings account and I’ve moved out of cash.

Despite telling myself that I’m conservative, my cash holdings are the lowest percentage of my portfolio in my adult life.

What’s normal?

The short-term rate chart (above) covers most of my life, let’s borrow a chart from Ritholtz’s blog and see what normal looks like across many generations. The chart below looks at long-term rates, which are less volatile than short-term rates.

Long Term Rates

It’s worth pulling that chart up on a big screen so you can ponder. The chart is over 200 years of interest rates. Thinking in generational terms:

  • Grandparents’ generation – 30 years down, 30 years up, 30 years down
  • Parents’ generation – 35 years up, 30 years down
  • My generation – 15 years up, 30 years down
  • My kids’ generation – ?

Looking at the chart, I note that there are periods (say, 1935-1955) where rates can stay low for a long time.

  • Long-term fixed rate debt seems like a good idea
  • Cash won’t always have a zero yield
  • Equity and real estate returns could be low for an extended period of time if long rates start trending upwards

How can I reduce portfolio risk in a way that protects my family if rates stay low for longer than we expect?

  • Pay off variable-rate debt and leave banking facilities in place
  • Lock in fixed rates and longer maturities
  • Open low-cost lines of credit
  • When considering a move to cash (or a lower family net debt position), rank portfolio holdings in terms of yield and exposure to future capital gains.

The lowest return assets in many personal portfolios are condos, large main residences, vacant vacation homes, surplus land and luxury items. Right now, the “cost” of holding these low-return assets appears to be far lower than historical norms.

Would I hold these items if cash could earn a low risk 2.5% per annum? 5.0% per annum? 7.5% per annum?

If you’re highly leveraged with short-term or floating rate debt then it’s worth considering if your life would change if rates moved up.

Over the last two years I’ve downsized my main residence, sold non-core low return assets and max’ed my long-term fixed rate borrowings.

In 25 years of investing, it’s been a paradox that the best time to sell is when I’m most tempted to hold on.

The Billion Dollar Dinner

Posted on by

2014-09-20 17.17.34Early in my finance career, I was invited to a very nice dinner. The occasion was to celebrate the firm passing the $1,000,000,000 mark for assets under management. In the early 90s, a billion dollars was a lot of money…

Roll forward 25 years and a billion dollars has become a salary for the best hedge fund managers. What an amazing industry.

In my article on fees, I introduced the concept of a “two and twenty” fund. The partnership received 2% of the assets under management (annually) and 20% of the gains. I didn’t run the numbers at the time, but the partners were celebrating ~$400,000,000 of fees and potential profit sharing. Huge sums of money created by the smartest room of people with whom I’ve ever shared dinner.

I can’t remember much about the dinner but I probably drank too much. I had some bad habits in my early 20s and the partners warned me to dial down the boozing! I wouldn’t discover the medicating effect of exercise until five years later.

Fortunately, I had good habits that balanced the bad.

Always make the needs of your boss your #1 priority. The only exception to this rule is if your boss’s boss makes a request!

When I started in London, they carved off a piece of hallway to create a cubicle for me. My chair was the only desk that could be seen from the Managing Partner’s office. When my boss had a task for me, he’d lean forward and yell,

Byrn, Heel!

Yes, I was treated like a dog.

And I loved it.

I’d stop whatever I was doing and scamper into his office for instructions.

The other habit that served me well was saving 50% of everything I earned between 12 and 30 years old.

My parent’s divorce left me with a deep fear of running out of money. As a result of my fanatical savings, I had capital to invest later in my career. In fact, I invested so much in the partnership that the regional heads changed the rules to restrict the investment of junior partners! Envy is part of the finance game and it worked out well for everyone.

With the size of the numbers bouncing around, you’d be forgiven for thinking that I’d retired a wealthy man. I made good money but decided to leave most of it on the table to try my luck at triathlon. It was a decision which, rightly, seemed totally bizarre to my family. I left the firm with a net worth of 20 years living expenses.

Always compare financial wealth to spending and remember life’s about time, not money. I didn’t become a wealthy man until I cut my spending, moved to a low cost location and began to pay attention to what gave me satisfaction.

Far more valuable than money, perhaps the moral of today’s story:

  • Save as much as you can, and work your tail off, early – the freedom later is worth it
  • Everyone needs to learn basic financial accounting and the time value of money – in a world dominated by greed and envy, financial literacy is invaluable. I use these skills every day.
  • Getting paid a lot didn’t satisfy me. I had no idea what motivated me until my life was reset via divorce, unemployment and massive financial loss. I could have made a ton of money sticking with the status quo and that would have been a mistake. Finance could have cost me my health and turned me into a dick.

The best advice I received on my career was from a man, now gone, that was at the dinner that night (link is to my blog about my mentor).

Learn, make money, remember to leave.

When most everyone was telling me that I’d make partner if I stayed in London. An honest man took me out to breakfast and shared advice about living a good life. A good person in an amazing industry. He wasn’t the only one and I miss the team from my early career.

To my friends in Private Equity, thanks so much for the good times and memories we shared.

What If I Had A Fund of Fun

Posted on by

I think best when walking in nature so I climbed South Boulder Peak and asked myself “what if.” I came up with the following list:

  • Race the Tour of the Dragon in Bhutan
  • Nepal – Hike the Annapurna Circuit
  • Tibet – Pilgrimage to Mount Kailash
  • Hole in the Rock – Lake Powell
  • Sail the Atlantic (Canaries to Caribbean)
  • Cruise to Alaska
  • Cruise Micronesia

Knowing that my desiring mind isn’t the most reliable adviser for personal happiness, I stepped outside of the specifics to consider the deeper urges. I noticed…

  • Remote mountain biking and hiking
  • Mountains, forest and water
  • Exploring

Maybe I should tap out everything that’s an easy drive from home, before spending a fortune in airfare and crossing dozens of time zones? Maybe I ended up in Boulder for a reason… 🙂

It’s a lesson that I’ve shared with many aspiring athletes. Until you can win every race within a 90 minute drive from home, you should only travel to access great training.

Here in the Rockies, there’s a lot of good stuff that’s within 90 minutes and getting there doesn’t stress my family, or my budget.

What drives your list?

Hare-Brained Schemes

Posted on by


I’ve found that if you create something trivial to be anxious about, it cancels out serious things that you might be anxious about.

– Malcolm Gladwell, WSJ

The patriarch of a family that I advise gave me a call to ask my advice on an investment with a very low probability of success…

“Am I crazy to do this?

Should I simply toss it in the trash?”

We think alike and his questions were a reflection of my own thinking… no way you’re going to make this work, it’s likely a waste of money, yada yada yada…

My advice?

Go for it. Absolutely.

++

Here’s why…

The deal was in an area that’s far outside his core competency. Having the opportunity to learn, to make mistakes, to create is a lot of fun. When I’m having fun, I do all aspects of my life better (husband, father, consultant).

The deal has a limited financial and time downside. The risk of time is often overlooked – time spent worrying, time spent seeking to fix a low performer, time not spent working on a strength. My pal is very good at his strengths and has a young family. Spending additional time learning new skills is “worth” the small downsides.

As Gladwell notes, when we’re working on a modest hare-brained scheme, we are far less likely to dream up something that risks a material chunk of our net worth, have an affair, quit our job, or pursue any of the other areas of Human Misjudgment.

++

Related to the above, if you have trouble being financially sensible, or get a thrill from risk, then a smart way to manage yourself is to allocate a small portion of your net cash flow towards casino-type investing, or actual trips to the casino!

You’ll find that your brain doesn’t require a large stake to excite itself with anticipation and you can stay open to the creative side of your personality.

Call it your “Fund of Fun” and use if for Vacations, Luxuries and Hare-Brained Schemes.

Allocate a portion of your cash flow (and time) towards these schemes.

Keep the rest of your life sensible and run it on autopilot.

++

Personal note – I always know that I’m holding onto my “rules” too tightly when my wife starts telling me to “be more fun.”

Truth be told, I’m terrified of breaking the rules because there’s nothing I like better (in the moment) than a massive binge!

I need a “fun budget” more than anyone.

Binging is a clear sign of holding on too tightly.

++

Finally, pay attention to how “the things that you think will make you happy” make you feel. I’ve noticed a HUGE difference between what I think I need and what makes me content.

  • I’m fond of adversity in hindsight
  • More food, more alcohol, more sleep, more money, more fatigue – MORE is not my answer
  • It doesn’t take much of a hangover to negate the small marginal gain from extreme living.
  • We are naturally loss averse – the trick is to frame choices to take advantage of this tendency
  • I’m prone to forget the joy of serenity, stillness and simplicity

Anyhow, that’s my list. I sincerely hope that you take the time to write your own.

Don’t wait to start living.

Micro Courage

Posted on by

axel_lionHow do I cultivate deep strength and resiliency?

We might describe resiliency as…

  • The capacity to continue despite life’s setbacks
  • The ability to become stronger due to stress (anti-fragility)
  • The strength to handle anything

They sound great, grand and completely unattainable!

I’m going to guide you through how I break it down into something that I can action in my daily living.

Start by flipping it on it’s head, what are the characteristics of the not-resilient? Think of the biggest head case you know…

  • Angry
  • Anxious
  • Depressed

When I think about anger and anxiety, they strike me as cultural expressions of fear. At some level, we see angry men and anxious women as normal. I feel both emotions all the time and they make me less effective.

What to do?

Over the last two years, I’ve been experimenting with micro-courage.

I started by printing up 50 life lessons and highlighting the ones that I wanted to focus on (11, 12, 18, 26, 27, 28, 37, 42, 49). If you come by my office, you’ll see they are taped near my printer…

lifelessonsReflecting on the lessons, I paid particular attention to three:

  • Let your children see you cry
  • Forgive everyone everything
  • Yield

I’d encourage you to find your own (triggers).

The game is to focus your actions on situations at the edge of what you can handle.

Here’s an example:

  • There are lots of homeless folks on the Boulder Creek Bike Path. Some of these folks are violent, others are mentally ill, still others are addicts. As a group, they scare the crap out of me.
  • While I have pals that work with the homeless, I don’t have any clue how to “fix” this problem and often wish the problem would go away (so I don’t have to deal with my inability to deal with it!).
  • Anyhow, there’s one guy that sits by the creek in the 28th St underpass and says good morning to everyone that runs, rides and walks past him. He’s a drinker and can get a little sloppy towards the end of the day.
  • I can’t fix the city’s homeless challenges but I can offer the guy a bit of human connection as I ride by. I look at him, smile and take a breath in. On the face of it, I’m smiling at him but, in reality, I’m staying open to the fear within myself. That’s micro-courage.

The story repeats itself in every part of my life that I want to close off.

I try to “stay open” as many times a day as I can.

The problem can be homelessness, litter, aggression, poor driving, manners, food quality… keep it small, remember to breathe in through your nose with a tiny smile.

Staying open to a small fear, a slight inconvenience, a little bit of sadness… I call it micro-courage.

The habit has been transformative in situations that I used to find overwhelming.

This is what I meant when I wrote that strength comes from staying open to little fears.

Courage is a powerful antidote to fear, anxiety and anger.

Be brave.