Tag Archives: decision making

The Fountain of Youth

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2015-02-10 16.55.59When I was a student at McGill University, I took a course about insurance. Our teacher worked in the life insurance industry. He had us fill out a lifestyle risk assessment.

I was surprised that my risk was off-the-charts.

Of course it was.

It’s adaptive for young men to be clueless.

As I tell my wife…

Men under 30 lack the capacity to access risk 

Some of us grow out of it.

Some don’t.

To make it easy for the guys, the teacher gave us three things:

  1. Don’t speed
  2. Wear a seat belt
  3. Don’t smoke

All three became life-long habits.

What’s that have to do with aging?

My professor was recommending that we eliminate choices that kill students early. He was speaking to lifespan (don’t smoke), and what kills teenage men (speed and seat belts). He knew that telling us to drink less would have been futile.

I have been reading about healthspan (links to Washington Post article).

Healthspan means optimizing my choices for independent living and being able to share experiences with the people I love.

If you’re smoking and/or speeding without a seatbelt, then focus on those first.

How do we extend, and protect, our healthspan?

Treat being mortal like heart disease

Via diet, stress and exercise

My recipe

  1. Identify and jettison stress
  2. Move my body in nature
  3. Eat real food
  4. Sleep enough that I often wake up before my alarm

Keep it simple.

The Beer and Rice Noodle Cleanse

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valentineOne of the most poignant memories of my childhood is being a “fat kid” and wishing that I could have a second chance with my body. I’m certain childhood pain drove a lot of my ambitions as an adult.

Across my life, I’ve been given second, third, fourth, fifth… chances at health and fitness.

It’s only been the last eleven years that I’ve managed to hold a stable weight.

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Towards the end of January, I noticed that I had edged over my “winter ceiling weight.” I have a range that I move between (165-170 pounds).

Because my weight can move 4 pounds in an hour, I watch trends over time. For example, I need to be over 170 pounds for a couple weeks before I’ll take that weight as real.

Typically, when a little heavy, I will schedule a week-long cycling trip and sort myself out by adding a ton of exercise. However, that’s not possible this year so I needed to come up with something different.

I start by looking at the low-hanging fruit…

The week before I decided to take action, I had eight beers and four dinners of Pad Thai noodles. So I latched onto that and came up with the cleanse.

The fact that I was choosing a lot of beer and noodles told me something about all of my choices!

Keep everything the same, ditch two things that are holding me back.

The game is..

  • Little changes, early, before I need them
  • Microchanges are more of an inconvenience, than painful

The result => I’m highly likely to make the changes stick

Then sit back and see what happens.

This leads me to the next stage and I’m reminded that…

Good things happen slowly => I thought I’d be off this thing in less than a week but, absent excessive exercise, my body changes slowly.

Look at the why => week three of living without the “comfort” of beer and Pad Thai showed me that they really weren’t comforting at all. I feel the same. Maybe a little better!

These two “facts of life” are obvious from the outside but I’m prone to fooling myself and need reminders.

This cleanse is relatively easy. The tougher changes are the one’s that touch on our spiritual, emotional and intellectual nutrition!

How Leverage Kills

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Ax_snow2In 2008, I was invited to give a strategic overview to a board meeting. One observation that I worked into my presentation was, “the assets aren’t generating any net cash flow before interest expenses.”

One of the directors asked me to clarify, “Do you mean after interest expenses?”

“No, there isn’t any cash generation before interest.”

The CEO talked about timing issues with the refurbishment of existing properties and the conversation moved onwards.

A little over a year later, the entire group was insolvent. The CEO filed for personal bankruptcy and left the country.

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How is the above relevant today?

Once again, debt is readily available to finance assets with low, no or negative yields.

This is a good mantra to repeat out loud.

I will never borrow money to buy an asset with a cash yield lower than my cost of borrowing

Why?

You will never, ever, ever, ever… have the same discipline with borrowed money as you do with a cash investment.

  • Land speculation
  • Gold & silver
  • Residential buy-to-rent
  • Vacation homes
  • Fancy cars, boats and RVs

By forcing ourselves to pay cash, we buy far less of these assets.

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Why do we like to borrow?

  • We can consume more, earlier
  • We can buy more, quicker
  • We can increase the rate of equity appreciation

When greed and ego are involved… pay cash!

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For whom does leverage work best?

  • Managers that receive a share of gains but have no responsibility for losses
  • Brokers that receive commissions when you borrow or buy
  • The owners of firms that are valued based on assets under management

Look for the above when advisers tell you to borrow more.

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Many asset classes have had three, or more, years of gains. Our brains are hardwired to assume the last 1,000 days are going to continue indefinitely.

When low yields combine with momentum and easy finance… things can get ugly suddenly.

We’re all going to live through bear markets. They will happen.

Bear markets crush people with debt service greater than operating cash flow.

My friend, the CEO, had personal debt service of $50,000 per week, then his bank went bust, then his employer went bust, then he went bust.

Some risks aren’t worth taking.

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This article was triggered by hearing an Australian lawyer rave about a (negative cash flow) buy-to-rent deal. I thought it was going to be decades before I saw that asset class overheat again. Same story, different hemisphere!

The Do-Something Investment

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Ax_snow1I saw that Clinton’s son-in-law took some big losses at his hedge fund by making bets on Greece. People are speculating that the Clinton family lost a lot of money in the deal.

While the scale might be different, I see this error in every family that I get to know.

We err by making an investment to help someone “do something.”

Some examples from my own investment history:

  • I’m self-employed and have often been tempted to buy myself an office so I can have a place to do something
  • I’ve offered to back friends in start-ups so they can have the funds to create a business and do something
  • I backed myself in a low-return business, where I didn’t understand the market, so I could have something to do
  • I guaranteed the debt of a friend’s business so he could borrow additional money for his start-up
  • I purchased a property so a friend could have a job acting as my property manager

To limit the damage, I have two questions that I ask.

First: What is the purpose of my family balance sheet?

  • Maintain independence and dignity of elders
  • Educate the kids
  • Share experiences with each other
  • Produce a growing stream of cash flow to fund my future living expenses
  • Support a feeling of security and freedom of occupation

You might have a different list. I’d encourage you to write your list down because the checklist might help prevent expensive errors.

Second: How well have I done with predicting my life on a ten-year prospective basis?

While my life has been rewarding, it’s path has been unpredictable on a ten-year rolling basis.

The unpredictability of life means there is value in maintaining a straight-forward balance sheet that isn’t concentrated in any individual, geography or company.

Put plainly, I’m nearly certain to continue to get the future wrong – especially when I try to predict my family’s needs, desires, location…

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Let’s say an investment can get past those two questions.

It is time to keep it real.

#1 – Are we backing the best members of our team?

The best people don’t need the help of connected parties.

Because…

There is plenty of money available for good people with good ideas.

Therefore, by definition, most family investments are focused on the weakest members of the team.

Don’t do it.

#2 – Can we afford to lose our maximum exposure immediately?

Concentration kills.

If you can’t afford to lose your full exposure, immediately, then don’t do it.

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If you’re struggling to say “no” then

  1. say “yes” to spending time to help raise funding from a third party
  2. lease instead of buy
  3. focus on enjoying each other’s company, rather than investing together
  4. make an introduction to an expert in the industry to facilitate a working apprenticeship
  5. pay for expert instruction

These options have had a great rate of return in my life.

The Body You Want

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When my wife was a teenager, she really wanted curves.

coach_monsyThings worked out.

My teenage desires were different, but common. I wanted to be jacked.

gordo_crunchThat worked out too.

By the time we both got exactly what we wanted, we wanted something else.

We wanted to be whippet skinny so we could run fast.

We wanted to look like tall, but ripped, 14-year-olds!

G_WhipThat worked out, again.

I spent twenty-five years only to get right back where I started.

I noticed that there is an enduring feeling of my body being slightly unsatisfactory.

Once I noticed this pattern with my body, I saw it elsewhere.

Personal safety, other people’s driving, my house, my finances, my life situation… In many situations, there is a slight feeling of unsatisfactory.

I’m always striving to attain satisfaction that’s is just-out-of-reach.

As a young man, I might have seen striving as a good thing. My drive for improvement, my competitive urges, a desire for self-improvement… we have lots of names for the feeling.

Some cultures call it misery.

See what it feels like for you.

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When I work with others, we use a simple technique.

  • Write down what will make you satisfied.
  • Write down what will make you less afraid.
  • Write down what will make you feel secure.

Out of your list, choose one thing and work towards it.

Work slowly, pay attention, write things down.

Give yourself at least 1,000 days.

Ten years might be better.

You might get there quicker.

With my body, I didn’t start to notice my pattern until I’d been at it for twenty-five years!

With finances, I was lucky, I saw my pattern after a decade, took a leave of absence and enjoyed my first retirement.

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The fact that the lesson took a long time was helpful.

Good things happen slowly.

It’s tempting to short cut the process via cosmetic surgery, performance enhancing drugs, or cutting corners (fraud, tax evasion, deception).

Short-cuts rarely work because we fail to notice the slightly unsatisfactory feeling is following us everywhere,

My victories didn’t work, either. My successes left me wanting more and the feeling followed me around.

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So I tried enjoying myself…

Pleasure can temporarily mask the unsatisfactory feeling and many use drugs, alcohol, fatigue and other techniques.

The trouble is… the associated hangovers are increasingly unsatisfactory as I age.

What to do?

If you can see the unsatisfactory nature of things then you might ask “who’s not satisfied?”

Once I could see the “unsatisfied person” it was easier for me to decide he wasn’t going to run the show.

At least, some of the time.

😉

Where To Focus

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2015-01-23 12.03.51-1My piece on What Can Go Right prompted Mark to comment that “Worry isn’t Work.” Lots in those few words — the link is an HBR article on the subject.

Mark’s comment reminded me of two aspects of a meaningful life.

#1 – sharing experiences that require an effort to overcome ourselves

#2 – enduring positive change happens via nudges at the edge of our control

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In 1993, I nudged myself out the door for a walk. My walk was the first of many micro-choices that brought me to my current life.

As a result of decades of better choices, I was able to manage through the adverse events that hit my family => addiction, divorce, fraud, obesity, excessive spending, insolvency, infidelity, death.

Your family’s list may be similar, or different, to mine. Each family has its own set of risks that repeat through time.

Note, that we didn’t avoid the risks, we managed through them.

As Mark was pointing out, we waste valuable energy on remote risks => terrorism, air travel safety, ebola, child abductions, common core. This energy is better spend on useful “work.”

Where to focus?

Focus on small nudges away from the real risks facing your family. My nudges:

  • Choose: AM/PM exercise, shared experiences with people that love me
  • Moderate: booze, sugar, calories, spending
  • Avoid: leverage, drugs, binges, investment concentration

These ten nudges (all of which I control) will give the family the resilience to manage through the setbacks that will continue to arrive:

  • Addiction/Alcoholism
  • Excessive Spending
  • Leverage & Financial Recourse
  • Fraud
  • Abuse
  • Health
  • Mental Illness

It is a surprising challenge to maintain a focus on the little things!

It is much easier to give into the habit of fear and worry.

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SIDENOTE

Each year I like to try one, or two, new things.

I had a mindfulness streak going in 2013 and let that slide. Matthieu Ricard’s Jan 2015 TED talk on altruism discussed the benefits of mindfulness practices for preschoolers.

The results (for the preschoolers) kicked in after four weeks of 3×20 minutes per week.

February has 28 days so it’s a good opportunity to give it a shot.

With all the time I saved from better email management, I have the ability to try new nudges.

Today, am I spending time on the right things?

2015-01-22 08.52.26-1

What I Know But Cannot Prove

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sxm_beachI came across a finance blog asking about the limits of statistical proof in the world of investing.

It reminded me of an old surgeon who shared, “Half of what I learned in med school turned out to be wrong.”

So I ask you…

What do YOU know but can’t prove?

You may talk about your faith.

But for me, the lesson runs deeper.

What is the ONE thing of which I can be certain but can’t prove?

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I start by asking myself, what did my grandparents believe that we now know is false?

I came up with smoking and trans fats. You’ll probably get a more exciting list!

Anyhow, the lesson isn’t to switch margarine brands…

The lesson is to be skeptical with my own beliefs.

I can be certain that some of what I now know will turn out to be incorrect for my grandchildren.

However, I can’t prove which of my current facts are incorrect.

I can only be certain that some of my knowledge is wrong.

So I should be careful when I find wise people on both sides of an issue.

I might be best served by acting as if they were both right.

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This article influenced by Russell: Sceptical Essays (first edition 1928!).

The Lindy Effect is a good way to sort knowledge. The longer an idea lives, the greater its life expectancy.

Navigating the Jockstrap Dilemma

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khumbu_yakA buddy has a magic jockstrap that he likes to wear ALL the time.

He claims it helps his performance and recovery.

Normally, his jockstrap would not be an issue for me. However, I’m one of his advisers and he asked me what I thought.

What to do?

We often find ourselves faced with a friend, client or family member that has beliefs we find ridiculous.

Here is what I do.

Pause

I know my first response with jockstraps is likely to offend my friend or, at least, create cognitive dissonance. So it’s better to wait and consider things carefully.

Give me a bit of time, I’ll need to do a bit of research on that… 

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Context

Is the jockstrap on the critical path? Is it the difference between success and failure?

Magical clothing, and other superstitions, are rarely the difference between success and failure.

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Action

What is the jockstrap’s impact on behavior?

My pal is motivated, thinks he’s performing better and not focused on something that might screw up his performance.

There can be adverse consequences from the effective treatment of superstitions!

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Can I Prove The Opposite?

I happen to think that jockstraps don’t impact performance.

Can I prove my point of view? Am I sure?

The placebo effect is real, and proven.

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One Thing

What’s the one thing, if addressed, will have a material positive impact on performance?

Focus on the “one thing” together.

Don’t spend time tweaking items that have no impact.

Use influence sparingly, then strongly.

The greatest influence on the world is via my own behavior.

My buddy can easily see that I don’t wear a jockstrap.

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Most importantly, after I didn’t call him out, I went for a walk and asked myself…

What’s MY jockstrap!!!

😉

Seeking Truth, Enduring Pain

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SXMMy favorite quote on pain comes from a champion athlete, Dave Scott.

Dave was giving a talk the day before an Ironman triathlon and was asked, “How do you deal with the pain of racing?”

His reply…

First of all, it’s not pain, it’s managed discomfort

Along the same vein, I heard Dave’s rival (Mark Allen) share the advice that…

To achieve a result, you need to be willing to accept whatever is required to get to the result

Many people confuse pain, with the process.

Others, incorrectly, believe that they can achieve a meaningful life without having to endure discomfort.

Plan => Do Work => Recover & Evaluate

Plan => Do Work => Recover & Evaluate

Plan => Do Work => Recover & Evaluate

The discomfort comes within the process. Specifically, with identifying, and addressing, our shortcomings and beliefs that prevent success.

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What’s the opposite of “seeking truth, enduring pain?”

Lies and pleasure?

I don’t think so.

Think about a situation where someone “can’t handle the truth.”

What do you receive from them when you probe the truth?

Fear and anger

These are “negative” emotions but useful to point the way towards truth.

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The ability to see the world clearly requires a commitment towards radical honesty within our own lives.

If I can’t see the truth within myself, I’ll constantly be fooling myself with others.

So…

When I feel fear and anger, I know that I am on to something.

I might be close to an area that’s holding back clear thinking.

Seek the truth beyond the triggers.

Book Recommendation along these lines is Ray Dalio’s Principles – available as a free PDF.

What I Learned Last Year

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biscottiTwo themes have dominated my goals for the last couple of years: my relationship with my eldest daughter and my finances.

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Kids – my daughter worked herself out, no input from me. I didn’t change her nature, I accepted it, and we enjoyed the inevitable progression from preschooler to school-age girl.

For my pals with kids – avoid abandonment and retaliation – everything else is details.

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Optimism is the only worldview borne out by the facts.

At the end of 2008, I wrote-off 65% of my family balance sheet, was unemployed, owned a loss-making business and was facing civil liability relating to large-scale fraud.

You may have forgotten but everything we were reading was doom and gloom. In reality, that was one of the most useful periods of my life because I was forced to face the gross inefficiency of my spending choices.

The changes that result from earlier setbacks lead to an appreciation of a more simple life and I’ve continued to strip away non-core activities.

My wife is stumped when asked, “What does Gordo do?”

I enjoy my life and serve my family

Act in the spirit of service to the people that love you.

Act as if things will work out.

Keep simplifying.

Free yourself to spend time on what matters.

For the pessimist in your head that likes to point out that we’re all dead in the long run… be wary of overstating your importance in the world.

My death will be a setback for a few people but it won’t change the positive trajectory of history. I will play my role then hand off to the younger generation.

There will be tears and that’s OK.

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Human Capital & Family Finances

What can each of us bring to our families, and communities?

Strong relationships built on mutual respect and strengthened via self-improvement.

Six years ago, I was left with a home and cash assets. With interest rates moving towards 200-year lows, I realized that I had to be invested. I made an error by going all-in with real estate. Why an error?

  • I was geographically concentrated – the bulk of the portfolio was within two miles of each other.
  • I invested too much – I failed to understand the short-term cash needs of my young family, which arrived in 2008/2011/2012.
  • Each asset represented many years of living expenses – lumpy assets are inefficient when you’re moving towards retirement.
  • Real estate takes a long time to sell. With a traditional portfolio, a gradual sell down is easier to achieve.

My purchases had a margin of safety and I was able to trade my way out of the situation – 4 out of 8 addresses have been sold. Start to finish, it will take 8-10 years for me to change my asset allocation. Our family financial structure gave me time to make the change, we earned income, and we had exposure to asset appreciation.

Time worked things out – we did well but so did all others that were invested from 2009 to 2014.

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The final lesson – I am greedy in irrational ways. I can soothe my ego by noting that my flaws are widely shared.

I am susceptible to the Endowment Effect. I overvalue what I have – my wife had to force me to sell our old house, I wanted to hold out.

I overvalue future desires. I’m constantly fooling myself that MORE will make a difference.

My antidote:

  • Write down my desires (steam shower, truck, boat, kitchen appliances, vacations, clothes, car, office, ski chalet) then wait and let desire pass
  • Make the wealth cost of “more” both painful and visible
  • Note the choices that create my best days (train AM/PM, help someone, learn, write, teach, spend time with my wife, under scheduled)
  • Spend money to create true luxuries (childcare, time to think, time to learn)
  • Schedule my happiness essentials (time in nature, time with my wife, quiet time to think)

Keep it simple:

  1. Notice the good in life
  2. Write good things down
  3. Do more good things