Tag Archives: decision making

What To Do

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2016-06-26 12.45.44We can be trapped into thinking that one person can’t make a difference…

…that there’s no point in bothering

…that we will be punished for good deeds

A bias towards inaction enables the enemies of a civil society to screw things up for personal gain.

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This is what I got done in June:

  • Sent in my naturalization papers
  • Wrote an elected official
    • Introduced myself and my kids
    • Told him where in his constituency I lived
    • Pointed out an issue where he had done a particularly good job
    • Told him my #1 issue for his consideration
    • Thanked him for his service to us
  • Continued my home-based practice of de-escalation — when my family watches me improve myself then our entire community is better off
  • I selected a political group and a politician that “don’t get it”
    • I picked an area from each where they “do get it”
    • I shared my areas of agreement with my wife
  • Consumed less violence – whatever your favorite source… MMA, NFL, CNN, hate speech, movies, video games – choose less – I pay particular attention to visual violence as well as violence I can feel in my body – the NFL scores uncomfortably high in terms of pleasurable, tribal violence
  • Generated less anger – I can hold emotions, rather than feeding them – my mantra is don’t act on anger – the “holding” is done while breathing calmly because speaking when angry merely feeds it

Each of the above was inconvenient but, collectively, improved my life.

I need to remind myself of the overall improvement because it takes sustained effort to create the life I want to live.

Indeed, it takes sustained effort to create the mind in which I want to live!

Do we care enough to change?

One small step, daily.

 

Wisdom

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2016-06-20 09.38.59Last month, Dr. John wrote an excellent blog about medical wisdom. I’d urge everyone to read it. I took that post one step further and read Ending Medical Reversal, which was recommended in the article. If you want to make better life decisions then you need to make time to read and consider the book. At a minimum, ensure that the book is read by a leader within your family, firm or practice.

Aside from the specific examples, which are fascinating, I hope you take the following away from the book.

2016-06-18 08.42.46-2HUMILITY – medicine is a global field where we have tens of thousands of our brightest humans spending trillions of dollars. The book makes are strong case that 30 to 40% of that expenditure provides no net benefit to humanity.

The authors lay out numerous examples where billions are blown for no net benefit. It is a wonderful reminder of our shared capacity for irrationality and misjudgment.

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2016-06-18 08.44.11PARACHUTES – one of my favorite parts of the book is when they explain that there aren’t a whole lot of parachutes left in medicine.

What does this mean?

If all of humanity has to jump out of an airplane then nearly all of us are all going to do dramatically better if we’re giving a parachute.

A parachute is an intervention with big positive outcomes for a large slice of the population.

What are parachutes that you can apply in your life?

They probably include items like: exercise, germ theory, antibiotics, vaccines, not smoking and seat belts. In a capitalistic society, there’s a clear role for government to play in keeping society focused on the big ticket items.

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2016-06-18 08.33.54EXPECTATIONS – let’s say you do your part and follow the “parachutes,” what’s a reasonable expectation from modern medicine?

Keeping in mind that 30-40% of modern interventions are bunk, I was left with an expectation that most procedures will usually make most people a little better.

That’s it.

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If we have the courage to consider:

  • widespread error
  • limited number of high-value options
  • realistic expectations

then we might find that there are new resources to focus on parachutes in other areas of our society. The cost of the status quo is often hidden from view.

There are plenty of good ideas: universal basic health services, early-childhood programs, pre-K, drug treatment, parent coaching and financial literacy training (see Kristof at the NYT). Other authors prefer infrastructure projects.

Whatever your preference, it’s clear that uninformed choices can waste valuable resources.

 

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A final note about change.

Even clearly harmful treatments can take a decade to exit the system (plenty of examples in the book). Strangely, I took this as a message of hope.

You might not be able to reform the healthcare system but you can certainly make better decisions within your own life.

Keep at it.

Ultimately, the truth wins.

Breaking Down Family Risks

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2016-06-09 17.39.38In May, I wrote about a misplaced sense of entitlement being our family’s greatest source of loss.

There are two components implicit in the article’s discussion of loss.

#1 – permanent loss of capital

#2 – loss of purchasing power over time

A wise advisor will keep these two factors front and center when discussing the risks associated with your assets, income and spending.

Unfortunately, wise counsel runs counter to human nature which likes to discuss…

Prediction of the future – we love stories about how our decisions will do better than other people’s decisions.

Fear of price volatility – nearly all price movements represent noise that can be ignored.

Two phrases for you to repeat daily….

No one can predict the future.

Volatility is not loss.

2016-06-09 21.25.10Instead of scaring yourself witless with the news, do something useful.

Turn your electronics off (ideally, for a week) and consider…

#1 – Where is the family exposed to permanent loss of capital?

#2 – Does our life situation protect us from the loss of purchasing power over time?

Consider further…

#3 – Where are our uninsured catastrophic risks – health, life, fire, earthquake, flood, asset concentration, counter party, addiction, fraud, abuse…

#4 – What is our ratio of net assets to core cost of living – how many years, months or weeks do we have?

#5 – What is the ratio of net assets to actual annual spending – most families have significant discretionary spending that can be cut in crisis. If necessary, do we have the ability to change and extend the years, months and weeks of cushion?

#6 – What percentage of our cost of living is covered by passive income (rental income, dividend income, interest income)? How does this income change over time?

a – rental income // an indexed source of income based on local economic growth, there’s also a potential capital gain associated with the land value, However, there is the potential for vacant periods as well as the need for occasional large investments with the building

b – dividend income // in a low-cost index fund, this source will be indexed based on national/international economic growth. There’s no potential for capital calls and you will have the ability to sell in small increments

c – interest income // this is fixed source of income, where the best you can do is get your money back at the end of the loan period.

If you put a number beside each of a/b/c and lay out your other sources of income (employment, pension, social security, partnership) then you will see how you are funding your annual spending.

Most families will have concentration in income, as well as assets. Concentration is a source of risk.

Are we acting on the right things?

Change slowly.

 

 

Money and Attention

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storyGiven the firehose of media attention pointing at the US Presidential election, it’s easy to get tired, fed-up, angry, worried… you name it with regard to the state of politics.

It is worth remembering that the players have a vested, mutual, interest in getting us scared, and angry enough, to give them money and attention.

Rather than bringing fear and hate into the world, consider the following…

Take a characteristics of your least favorite politician and remove it from yourself.

  • You might have a concern about a lack of tolerance.
  • You might have a concern about a lack of integrity.
  • You might have a concern about a focus on personal wealth.
  • You might have a concern about fairness.
  • You might not like the way the person looks.

Whatever the trigger, we are going to be reminded of it, a lot, over the next five months.

Become aware of the trigger…

…and work to subdue the trait from within yourself.

What’s the value of an extra day off, forever

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2016-04-07 10.36.45What would you pay to have one day off, every year, for the rest of your life?

Once you have enough to cover your basics, you are paying an implicit price (in future time) for every dollar you spend.

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A case study to illustrate…

Let’s say you are considering a $10,000 trip of a lifetime…

My preferred way to view spending is relative to my net worth. My give-a-hoot threshold is set at 0.1% of family net worth. It helps me not sweat the small stuff.

Applying that heuristic to a $10,000 choice, you need a net worth of $10 million (!) not to be thinking carefully about the trip.

So let’s think very carefully!

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Realistic financial freedom comes from chipping away – day by day – at the requirement to work full time to fund your core cost of living

The value of a future benefit is undervalued by nearly everyone. A short-term focus makes sense from an evolutionary perspective but greatly limits the options in the second half of your life.

Let me reframe $10,000 of spending for a family earning $120,000 per annum.

Core cost of living = $120,000

Capitalization Rate = 4%

= Capital required to retire completely

= $3,000,000

Divide that by 300 working days per annum, and you get $10,000 of capital per working day.

So the vacation could be priced as one day working, forever.

When you look at a new SUV, you could see an additional week working, forever.

Jewelry, RVs, hobbies, private education… All can be viewed in terms of time.

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Keeping it simple…

…every ten grand you invest in a balanced, low-cost portfolio, buys you an extra day off for the rest of your life.

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…and while it can be tougher for a young person to accumulate capital, the time payoff is FAR greater.

$1 million of family capital can buy you four-day weekends, for the rest of your life.

After you’ve bought it, don’t wait too long to spend your time.

Building Bridges

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2016-02-12 18.28.49A few years back, I identified my relationship with my daughter as an area that had the potential to greatly improve my life. At the time, I was devoting excessive energy to her via worry and stress. She was always in my mind, even when I was away from her.

How can we reduce the impact of our not-helpful obsessions within our minds?

I use two techniques:

  • Be kind and generous to as many people as possible – lots of tiny actions
  • Express the same habit, directly, to the person with whom I want to improve my relationship

Now, it’s important to bear in mind that it only takes one person to torpedo a relationship. So I might not be successful.

That’s OK – “success” isn’t my goal.

If the goal isn’t “success” then what is it?

Take a minute and consider what your words to your children indicate about your definition of success.

When I’m stressed, my words might indicate a desire for compliance, quiet and solitude. Is that what my family really needs?

Those same desires can be satisfied via personal, internal serenity within whatever relationship I have with people.

What’s this have to do with the “one-on-one” trip?

Taking the toughest member of the family on a road trip was a way to “step up” within my household. I’ve been taking my oldest on the road since she could walk.

ax_zenMy young children have a simple agenda with me…”do stuff with Dad.”

It’s simple, but not easy.

It’s not easy because “dad” has a preference for strong coffee and exercising uphill. I also like to be left alone to read, write and think.

To do fatherhood “right.” I have to make the commitment to be with my child, on the child’s terms.

A habit of service spills over into other aspects of my life, for example my marriage.

  • Just me and the child
  • Focus on doing things the kid likes
  • Never more than three nights away
  • If the kid is awake then my agenda is put to one side

Truth be told, the trips started as a way to get my Alpha Child out of the house. The fact that I ended up with better relationships with everyone was an unexpected bonus from seven years of sticking with it.

ax_mexico

Buffett and Munger For Familes – My Wife’s Cats

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Two Cool CatsWhat can a family learn from one of the most successful investment partnerships of my lifetime?

Last month, I read Tren Griffin’s book on Munger and re-read Warren Buffett’s Owner’s Manual for Berkshire Hathaway.

I read them NOT to figure out how to make money. I read them for ideas to make myself more useful to my family and make less mistakes in my decision making.

A successful partnership is characterized by:

  • Shared responsibility and shared benefits
  • Trust and open communication
  • Confidentiality, only when necessary, rather than secrecy

The role of the managing partners:

  • Allocate capital
  • Structure incentives
  • Seek to embody shared values
  • Communicate via stories
  • Resist the urge to seek an edge

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Financial Strategy, for capital allocation

This is important. Even financially-sophisticated families get caught up in the noise that constantly surrounds us.

Keep It Simple

  1. Focus on sustainable cash flow divided by capital employed
  2. A fundamental reference point is the 30-year rate on US government securities
  3. Treat deferred tax as a valuable, unsecured, non-recourse loan from the government

My recent article on the Boulder real estate market used the above.

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Understand the value of deferred taxation

If you sold everything you owned (right now) then how much tax would you have to pay?

Many would be proud of a low number. I know that it would make me feel safe.

Buffett and Munger would argue that you want this number as high as possible.

In my family’s case, we would have to pay 6% of family assets, on a portfolio with an average investment age of less than five years.

Historically, we’ve earned ~15% per annum on family capital. I don’t expect that to continue, so let’s assume the family earns 7.5% going forward.

What’s the value of NOT selling and letting the 6% deferred tax asset continue to compound?

7.5% of 6.0% is an extra 0.45% per annum.

Let’s make that number real.

Express it in dollars and compare to your family budget.

  • In our family, it’s equivalent to our federal income tax bill
  • In a friend’s family, it’s equivalent to what they pay for professional advice
  • In another family, it is more than they save each year

If your advisers churn your assets then they are costing you much more than their fees.

View percentages in dollar equivalents.

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Berkshire has bought sub-par business in the past. However, so long as the businesses have decent management, good labor relations and generate a little cash… they stick with them.

It’s like my wife’s cats.

  • When she goes out of town, they pee on our bedding and furniture.
  • Most weeks, they barf a few times around the house.
  • However, the kids love them and are aware of their faults.

By sticking with the cats, despite their faults, I demonstrate loyalty to the entire family.

That said, I’ve made the point…

We’re not replacing the cats.

 

 

 

 

Teaching Up The Tree

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cottonwoodLast spring, a friend asked for my advice.

He felt his elders were making mistakes and wanted to get through to them.

I drew a blank on his question and have been considering it for some time!

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2015-10-05 16.05.12I saw two components…

  1. a desire to help others
  2. an opinion that someone else is wrong

For the first component, I asked myself, “What is the most powerful form of teaching that I can bring to my family?”

If I’m looking to maximize my impact then nothing beats sharing stories about how I repeated one of my family’s most common mistakes.

So… I pay attention to what needs fixing in the elders, notice when it needs fixing in myself and share a funny story about my error with my kids.

My kids love hearing about my mistakes.

Adults hearing about their own mistakes?

Less so.

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IMG_4860The second component of my friend’s desire to teach…

I asked myself, “Am I sure?”

  1. Am I sure that my way is correct?
  2. Are there circumstances that would make my way incorrect?

My buddy and I were discussing long-term financial security. At the time, we were 100% certain that “our way” was the right way. I agreed that his elders were mismanaging their affairs.

As fate would have it, a few months later I heard a story about a pensioner.

An elderly woman had most of her life savings sitting in a local credit union (earning 0.1% per annum). Instead of telling her that she had to change, her family initiated a discussion to understand why that decision made sense to their mother.

It turns out the lady had thought through her rationale in detail. Her strategy recognized a personal lack of knowledge, a lack of trust in financial advisors, fear of loss and zero personal upside from positive investment returns.

Sometimes it is my lack of understanding that needs to change.

 

Food, Sex and Money

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IMG_1573This week, I am holding down the fort (with a lot of help) and my wife’s away on a retreat.

She’s spending time with a bunch of smart ladies, most of whom are slightly older than herself. It’s an environment similar to the camping trip that I wrote about.

Before she headed off, I made the following observation…

If you listen closely then you’ll hear most minds focusing on food, sex and money.

Taken together, they are an influence strategy that you’ll see reflected in most scandals.

This coming week, you have a unique opportunity to tap into the life experience of older women, who understand the life heading your way.

Why don’t you ask them what to expect, what they learned and how best to cope with the inevitable changes of the next 15 years.

Love you, babe.

cheers

Deciding Who’s To Blame

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sharing

Today’s picture is my seven-year old sharing her birthday candles with her siblings.

Watching unconditional sharing in my oldest child showed me that I am not seeing things as they are.

My daughter has far more kindness than I perceive.

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bigbearListen to people discuss their difficulties and you’ll hear about the shortcomings of others.

How I can counter my tendency to fool myself within my key relationships?

Acknowledge stress – illness, injury, financial hardship, noise, lack of sleep – when I am under duress, I’m much more likely to “blame” people, rather than owning situations.

A house filled with little people is a stressful situation, certainly if you’re not used to it. Be watchful that you don’t form a negative view of others, simply because you’re under duress.

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2015-10-10 10.48.53Slow down – stress, combined with rushing, is my optimal state for making mistakes!

I can cut my error rate in half with well-placed pauses and noticing when I am holding my breath.

How often do you hold your breath? In what circumstances?

As I coach, I would teach cyclists to corner better by breathing-through-the-turns.

Like a nervous athlete descending a mountain road, we might not realize when we are holding our breath.

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happyChange externals – When I am falling out with people, consider if “people” are the problem.

If I want to make things work with an individual then focus on frequent small actions to reduce their stress.

With every person I see (especially my internal life), what is the scorecard of negative vs positive interactions?

A simple way to improve my interactions with others is to improve my own attitude.

What kinds of emotional fingerprints do I leave?

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Go deep – remember that it’s rarely about what it’s about.

External circumstances and basic needs drive most of our behaviors. What’s the unmet need that’s driving this behavior?

When you get the hang of manipulating others with the above… 😉

…then you can tweak your key relationships

…and, perhaps, yourself