Cash Holdings in Context

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2019-06-09 07.03.52The Algebra of Happiness is a great read. Professor Galloway has a hit on his hands.

In the book (page 83), Professor G says “I’m 80% in cash.”

I am used to hearing about wealthy guys’ portfolio allocations, I didn’t give it much thought.

However, his statement caught my wife’s attention (Big Time) and I spent a while explaining why I’d give the Professor an “incomplete” on this short section (of an excellent book).

Here’s what I said…

Start by laying out your sources of income:

  • Social security
  • Day job
  • Consulting gigs
  • University professorships
  • Unearned portfolio income
  • Rental property income
  • Tech fund consulting
  • Royalties from bestsellers
  • Spouse’s income

The segments, and the total, are useful to review.

These are figures you should know, roughly, off the top of your head.

Now, consider the information against your core cost of living.

I guess Professor G’s core cost of living is well covered by his sources of income. I’d further guess that his balance sheet has his family’s living expenses covered for the next hundred years. He is unlikely to be hurt by any investment strategy he selects.

The spread of your income sources will show concentration and diversification. Concentration can ruin life as you know it. You are likely to have skin in this game.

Addressing concentration can save you from ruin. Tweaking asset allocation, less so.

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Next, consider the areas of your life that hold option value:

  • Youth
  • Education
  • Ownership (bi-coastal real estate, start-ups, portfolio investments)
  • Wealthy relatives
  • Carried interest in tech firm general partnerships
  • Fame
  • Bestsellers
  • The ability to spend less
  • Equity stakes people toss you for being an entertaining non-executive director
  • World-class skills in well paying, niche specialties

When successful people talk about holding a lot of cash, they rarely mention the MASSIVE option value in the rest of their lives.

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What is cash?

As I write this I have six weeks’ living expenses in cash.

Seems really low!

  1. What if I add my US government bond portfolio?
  2. What if I net my unearned income sources from my core cost of living?
  3. What if I take a part-time job in one of my niche specialities?
  4. What if I downsize my house by moving?

In that case, my six weeks of cash should see me through to my 75th birthday.

Incidentally, I did all of the above 2009-2012 after my professional life was crushed.

Thankfully, I had a large cash holding at the time! šŸ˜‰

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What should you hold in cash?

When allocating capital, most people want to receive aĀ forecast of the unknowable.

Avoid pundits, forecasters and the predictions of others. They are worse than useless.

Each time I make an important decision, I write a file note to myself. Sometimes I publish these notes! Do this for 30 years and you’ll have a written record of your strengths and blindspots.

I use my limited attentionĀ to consider the implications of being wrong.

Overweight in cash and I am right:

  • Rich already => no implication, if you’re not satisfied with what you have today then you will not be satisfied with more tomorrow
  • Rest of us => Need to decide when to invest
  • Rest of us => Need to decide what to invest

The track record of “rest of us” is clear. We do an awful job at market timing and dynamic asset allocation.

Overweight in cash and I am wrong:

  • Rich already => no implication, my unborn grandchildren inherit less unearned capital
  • Rest of us => my widowed wife runs out of money in her 80s
  • Rest of us => I become a financial burden on my adult children

Some games you don’t want to play.

 

18 Months to Make a Habit

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2019-06-05 05.33.55Dalio’s book (Principles) shares that habits sustained for ~18 months are likely to become permanent.

Aiming for 18 months (~550 days) was a change because my typical time horizon is a 30-day test.

30 days is not enough time for the impact of a change to percolate through your life and impact your peers, family and spouse. Changes are still happening from an adjustment I made in December of 2017.

My main thing was “wake up in the 4s.” I got the “wake up early” from Jocko’s book (Discipline Equals Freedom).

It appealed to me because it fits into lessons I’ve learned:

  • Try faster before going slower – Daniels
  • Prove you can do it by diving into a cold pool – Purcell
  • If it’s important then do it first – Covey
  • 4:55 is more than ten minutes different from 5:05 – Willink

I can make my life experience a lot better by making my daily life a little more difficult.

“How am I going to wake up in the 4s for the next 18 months?” is good problem to have.

The problem (up early) points me towards solutions in other parts of my life:

  • Exercise early (what else is there to do at 5am when the kids aren’t up for another 90 minutes)
  • Drink less alcohol (being binary, I simply stopped)
  • Fall asleep (if not tonight then most certainly tomorrow)
  • Start every day with a win

What does winning look like on the home front?

By 8am:

  • I’ve done a workout (win for myself)
  • My kids have eaten, read and brushed their teeth (win for my family)
  • I’ve done an hour of visible housework (win for my marriage)

There’s a TON of noise associated with the above.

Does it really matter? Is this the best use of my skills? Dude, you’re only squatting 95 pounds! My “career” is taking out the compost every morning?!? Shouldn’t I be sub-contracting the busy work?Ā  Blah, blah, blah. Why so angry, bro?

Apply those thoughts to what happens after 8am.

Memories of a credit crunch

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2019-05-28 06.43.39I’ve been offline for a bit.

Spending time with my family in Mexico.

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I’m fond of reminding myself that the cost of the status quo is hidden.

I like to take breaks from my “status quo” and pay attention to what I have been missing.

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Since last July, I’ve been pulling the plug on the internet for 5-7 days at a time and writing notes in a memo pad.

Via my breaks, I am able to see the cost of constant connectivity…

….reduced creativity, clarity and cognitive ability!

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Itā€™s tempting to think great opportunities will never come again.

Itā€™s also human nature to forget anything that is further back than about three years.

So Iā€™d like to share memories of what happened coming out of the 2008/2009 credit crisis.

Ancient history in the collective memory!

2019-05-28 13.59.14

In 2010-2012ā€¦

  • I bought two buildable lots, one with an older house, for under $300 per sq ft.
  • I then bought a two-unit downtown site for $375 per (very, very old) square foot. This seemed like a stretch. I didn’t expect the deal to show much progress for a long time.
  • I was able to buy Tucson condos at $49 per sq ft. Shouldnā€™t have furnished these! Sold them early as I was running tight on cash (due to living in a big house with no yield).
  • My last decision was NOT to buy a 5,000 sq ft house in Gunbarrel (City of Boulder) because I was concerned about the ā€œhassleā€ of cleaning it up. This deal could have been had at $99 per sq ft! What was I thinking! Instead I put everything I had into a well-constructed home at $244 per sq. ft.

Cost to build (excluding land) is now around $400 per sq ft.

The figures above includedĀ land and building.

In hindsight, for three years, Mr. Market was giving land away in the City of Boulder.

Are you ready for the next tightening of the credit cycle?

Your Future Self Will Thank You

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2019-05-03 19.25.51-1As a young man, 50 was well beyond the furthest I could imagine. I find myself living in a future I never imagined and it’s pretty good.

This (enjoyable) future is humbling because, on reflection, I had a tremendous amount of bad ideas along the way!

Fortunately, I failed to execute on my worst ideas.

Watching my kids navigate the world, I see bad ideas appear to be universal – at least in our household.

Two things I’m teaching them to help reduce the impact of their impulses:

First idea, not, best idea // it’s just my first idea. It might not be my best idea. I don’t need to act on, or believe in, everything I think.

Change slowly // I’ll use a recent example. I’ve been thinking about moving across town. As I think more and more about moving, I can get myself worked up about the move. The “move” is purely my creation.

Each time I notice the above, in one area of my life, I see how I create stress from forcing myself to execute my (first) ideas quickly (and these ideas might not be good ones!).

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You are much more likely to predict your reaction to future events than the events themselves.

Here’s your crystal ball… Research from your older mentors, friends and family:

What do people like me value when they are older? There is a rich history of people, like each of us, that have walked the path we follow. While my life is completely different than ten years ago, my values are similar.

Invert the question and watch… What do people like me lack when they are older? The easiest way to understand what the psyche lacks, is to listen quietly to what people say.

  • Control (over schedule, over self, over others)
  • Sex, Connection, Intimacy, Release
  • Stability (financial, emotional)
  • Health & Vitality (strength, energy, capacity to execute)

So perhaps you spend 30 years chipping away at:

  • Spend less than I earn
  • Make myself marriage material
  • Get to know my kids

And you arrive at a wonderful middle middle-age, pat yourself on the back and wonder what’s next?

Where to make an effort?

  • Friends
  • Strength
  • Health

Choose wisely.

Get Up & Follow Through

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2019-04-15 14.05.46When I get myself worked up about some trivial thing, I pause and remind myself that my kids get it right about as often as I do.

Like me, they can struggle a bit when we are all together, or tired.

Here’s a filter I use to make better decisions when I’m in my role as “Dad.”

If I want to offer correction…

  1. Get Up
  2. Follow through

No talking from the other room. No shouting from downstairs…

  • Calmly get in front of the kid
  • Let them talk it out
  • Ask them “what am I going to say now?”
  • Follow through, regardless of the inconveniences

Every. Single. Time.

Avoid the trap of constant negative feedback, that both of you are ignoring!

Being Fifty

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2019-03-23 14.56.18I expected a lot more physical decline!

The decision to phase out athletic competition was one of my best.

So much chronic fatigue is gone and replaced with healthier pursuits (strength training, human relationships, being-a-better-man projects).

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2019-03-17 08.11.54If I could give you one thing to achieve for your 40s then it would be to write down, how you get in your own way.

That’s one of the best things about getting older. The repeated mistakes make it obvious what’s going on.

Three post-it notes are enough for me:

  1. Don’t act on anger.
  2. Are you sure?
  3. What do you want to have happen? What do you think will happen?

All three are stuck to my computer monitor.

That’s my “what not to do” list.

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2019-03-13 16.07.22What about my “to do more often” list?

My 40s happened to coincide with the Great Recession, preschoolers, the death of my last two grandparents, a massive corporate insolvency and periodic unemployment.

Some years were better than others.

It took a decade to arrive back where I started:

  • A feeling of control over my schedule
  • Daily exercise: ideally, in nature
  • Teaching: kids, instead of clients
  • Seeking Mastery: skiing, instead of triathlon
  • Learning: how to think, act and be better

The core structure of my days, my values and what I enjoy to do… all are unchanged from my 20s.

What remains undone?

Parenting 2019

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2019-03-15 08.09.40Ten years in, fatherhood still feels new to me.

At my current rate, I am going to settle into my role by the time they start to leave!

Recently, I took advice from a father, that’s been at it for close to twenty years.

On the subject of family governance, he is the most believable person I know. So,Ā I was listening carefully when he shared ideas about what he wished he knew.

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No judged sports

No phones, alone, in the bedroom

Read: iGen by Twenge and Coddling of the American Mind

Optimize your family’s life for the family, do not create a series of “micro lives” for the individuals => schools, activities, geography, holiday time => make it work together.

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I know a lot of readers have kids even younger than mine (6, 7 and 10).

Somewhere between six and twelve, your family rules are going to get set — one way or another.

There’s a lot of pain involved (for everyone) if you wait until high school to change direction.

Choose wisely and be the brand.

Managing Towards 1,000-Day Outcomes

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2019-02-23 09.55.59I can get a lot done, while achieving nothing meaningful, by solving problems all day.

Am I managing towards desired outcomes, or focusing on my problems?

2019-02-23 14.54.54

My favorite thing is doing stuff in nature and I want to have a successful marriage.

So, I try to be open to the experience of sharing things in nature, with my wife.

One catch…

  • 1,000 days ago, my wife couldn’t ski
  • 500 days ago, she was better but we were not sharing the vibe (more like enduring it)
  • So, we both did what it takes so that we could share skiing together, and enjoy it

1,000 days of focus was enough for the two of us to capture the bulk of the benefit (but it did take 1,000 days!).

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The big picture points:

#1 – We managed to strengthen our marriage by doing something neither of us was good at three years ago.

#2 – If your younger self was achievement-oriented then working towards mastery in middle age is extremely satisfying.

This is a game we can play, together, for the rest of our lives.

2019-02-24 09.18.11

1,000 days ago, this guy was Level Zero at the ski school. We kept signing him up for lessons and he didn’t get one tick on his skill list!

He showed NO signs of aptitude, for a year, but he enjoyed the process.

Now he’s skiing the entire mountain and loving it. His price was a whole lot less than mine. It took him ~100 days on snow and a million vertical feet.

If you don’t the work then you’ll never know if you could have achieved the result.

Be wary of letting “problems” get in the way of gradually moving towards desired outcomes.

40s Post Mortem

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2019-02-05 07.30.58There were a lot of good habits in my first firm. One was holding a meeting to review all our dud deals. We tried to get value from our mistakes. Often, it would take many, many repetitions of the same mistake for the lesson to sink in.

So, if I could give you one thing to achieve by the time you are 50… it would be to write down how you get in your own way.

  1. a willingness to rely on competence, rather than kindness
  2. an enjoyment of getting too tired to care
  3. a tendency to not react, or completely over react

Do you know your list?

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Invert your errors and consider… what makes your life better?

  1. Get up really, really early
  2. Daily Exercise – low standard deviation, no zeros, frequency not load
  3. Roll a simple, visible, written schedule

Better, not easy!

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The best decision I made in the last ten years was to stop competing when my oldest turned two.

Take (some of) the energy you spend on competing and focus on being a better person at home.

Why only some?

  1. Because physical energy declines over time
  2. Because older, under-scheduled people think better
  3. Because being “busy” is a trigger for ALL the ways I get in my own way!

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Also because I recommend you don’t give too much to your baby.

I have a hunch that many of the downstream issues in families start with a young parent not defining personal boundaries and getting completely tapped out.

=> infidelity, addiction, anger, abandonment… all forms of release

The best thing you can do for your entire family system is set clear boundaries and remember that it is OK to say no.

Childcare benefits the marriage.

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Before I had real babies in my house, my “baby” was school, work or athletics.

Giving one’s self completely is a great way to live when you are young and single. Once you’re married with kids, there are a lot of unintended consequences of being single-minded.

Leaders keep their houses in order.

What I Learned This Year

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2018-11-23 11.00.48

You’re probably going to feel different about that later.

I say that to myself, a lot.

And I never regret following what flows from it.

Namely…

  • Not acting on anger.
  • Resisting the urge to “say what I really think”

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2018-11-19 16.44.04I recharge in solitude, ideally in nature.

I seek to fool myself that the solution (to everything!) lies in withdrawing from society.

I counter this faulty thinking by saying to myself… “I know you feel that way right now but you’re likely to need help, at some point, over the next 20 years.”

If you’ve ever been in a bad relationship then you might have a similar thought pattern…

…thinking that the problem lies in all relationships, not simply the bad ones.

I don’t have a mantra to help you get past your pain but I can say that my marriage is a great source of strength, stability and happiness for me.

“Better” is out there and it’s worth looking around.

Put yourself in a position to meet someone who shares your values.

Try to make yourself into the person you want to meet.

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2018-10-31 08.09.49My BIG change for 2018 was waking up earlier, way earlier.

I’m up two hours before the rest of my household.

At first I used the time to surf instagram and drink coffee on the couch.

Eventually, I started going to the gym.

“Gym Days” are better.

Not easy.

Better.

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2018-11-07 16.18.42-1

Life is better when I’m stronger,

Even at 49.9 years old, I’m able to be stronger than just about all my peers.

Being stronger is available to you.

Four days per week, 30 minutes per day.

Results in… better!

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Get up early, lift weights, be pleasant to those around you and when you are thinking otherwise remember…

…you’re probably going to feel different about that later.