What’s Your Filter

Our youngest told me our cat needs a Halloween costume. I laughed while realizing that my home-school internet monitoring system might need improvement.

Most of us will be “adulting” for 50+ years.

Half a century is more than enough time for choice to impact outcome.

Here’s how I stack the deck.


Understanding three things greatly simplifies decision making:

  • Payoff function
  • Worst-case scenario
  • Who bears the worst-case scenario

In most cases, knowing the above eliminates the need to make any prediction (of an unknowable future).

In investing, you can bet big when someone else bears your downside (non-recourse leverage, other people’s money). At home, you will want to be more careful.

You are going to be tempted to spend most of your time predicting an unknowable future.

Don’t.

Instead, figure out the payoff function, what’s the worst that can happen and who bears that downside.


Previous writing touched on the payoff functions for fame, financial wealth, strength training and personal freedom.

Tim’s blog did a great job of laying out on his worst-case scenario – shot in his own home as well as a brain dump of everything that can go wrong, and right, with fame. It was an enjoyable read but life is too complex to perform cost-benefit analysis for every choice.

Sounds good, doesn’t scale.

One of my favorite shortcuts is to teach myself the areas of my life where I have a lousy track record, and defer to my expert advisor(s). I look for advisors with domain-specific experience and a temperament different from my own then… …I do what they recommend.

There’s deep wisdom in stepping outside ourselves => What Would Jesus Do, or Buffett, or your coach, or whomever you think knows better than you.


Each time I choose, I open the opportunity to make a mistake. To reduce unforced errors, there are filters I use to eliminate the need to make a choice and to make the correct choice obvious.

First level filter => repeat my choice for a decade, where’s this likely to take me?

What’s the worst that can happen? Live long enough and you’ll see it happen.

Specifically, I want to stay well away from:

  • Prison
  • Permanent Disability
  • Bankruptcy
  • Divorce
  • Violence
  • Self Harm

The first three are obvious, but that doesn’t stop many, many people from surfing close to the edge, or getting an emotional rush from having charismatic risk-seeking friends.

Sometimes I need to phase out a relationship, sometimes I need to adjust my own behaviors.

With marriage, specifically, it’s impossible to “see” just how challenging your life will become if you have kids. You’re going to be really, really stressed out for a decade. Every single one of my prior bad habits tried to make a re-appearance in my life!

There’s no easy way around it but you can significantly reduce your chance of disaster if you pay attention to how your potential mate approaches risk.

Personally, I like to drive with people. You can learn a lot about someone by chatting, and watching, while they drive in traffic.

It is difficult to let charismatic sociopaths out of our lives. These people are a lot of fun to hang around with, especially when we aren’t the target of their ire. It gets easier with a few bad experiences.

When you need to make a change, resist the urge to justify your choices.

Learn to ghost with grace.


What if we are the person that needs to change?

Owning my choices and considering where they might take me.

Mountaineering, peer choice, alcohol use, cigars, bike racing… as my life changed from “just myself” to “my young family” the following became clear to me…

The people who were bearing the downside had no choice in whether to take the risk.

To make myself feel better, I took out a long-term care policy. The insurance reduced the financial burden if I was disabled but didn’t address the mismatch between who was taking the risk and who was bearing the downside.

In my 40s, severe permanent disability could have been worse than death. In 2013, with three young kids and an impaired balance sheet, I was in a very different place than I hope to be when our youngest graduates high school (in 2030, or so).

Perhaps I’ll add back risky stuff in my 60s… right now, I doubt I’ll have the energy.

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Divorce, violence and self-harm => the bottom half of the list.

  • Nobody gets married hoping for a divorce.
  • Nobody starts a drive hoping to get their car shot up in a road rage incident.
  • Nobody repeats a pattern of justified rage hoping to create a crisis.

But these things happen, and their seeds are small choices, repeated.

I try to be alert to habits that can lead me astray.

Anger remains a challenge for me.

I pay attention to situations and habits that reduce my faults.

I focus on better.


My definition of winning has changed over time. However you define it, success is more likely with a plan, a couple well chosen peers and a habit of referring to a clear filter.

Making a habit of the first-level filter, tosses all kinds of stuff into the forget-about-it pile.

Reminder about the 1st Filter => repeat for a decade, where am I likely to be?

The first filter very quickly gets rid of (most of my) bad ideas.

Then what.

Here’s how I set priorities and shape my “to do” pile.

When I was an elite athlete, every decision I made was passed through a filter of, “Will this help me win in August?” At that time, the filter worked very, very well.


August 2007, with my real 1st Place Trophy. Before kids, we took ~1,000 days for ourselves. Highly recommended!

In 2005, I married and quickly realized my filter (of winning) would, if applied over many years, make a second divorce more likely. Deeply seared from my divorce, I really, really, really didn’t want another divorce.

I wanted a different result so I needed a different approach.

I needed to change my filter to…

“How will this impact my marriage?”

Your situation is likely different, but your need to know, and direct, your filter is the same.

Baby, or COVID, arrives… “How will this impact my family?”

Allocating time week-after-week… “What’s my real priority?”

Trivial irritations, the opinions of strangers… “Who gets my emotional energy?”

Every single person we meet has a filter => victory, vanity, external wealth, fame, likes, validation, please the person in front of me, attention, minimize conflict, how do I feel right now, what is the last piece of advice I heard… lots of people, lots of different filters.

Make a choice.

Iterate towards better.

All That Remains

We finished our volcano science unit with a trip to a volcano! This was the first field expedition of Home School.

Someday my kids will move out. This is a summary of what I hope they take with them.

Here’s what’s most important to remember:

  • We’ve already won
  • It’s ok to say no
  • We can handle the truth
  • We can do difficult things

Lunch on top – my wife catered the kids and I made a huge error by self-catering!

There’s a great book out there called Winning The Loser’s Game – a “loser’s game” is one where you win by not beating yourself. The book has an investment angle but, in many ways, a successful family is created with a similar approach of avoiding error.

Errors such as… financial ruin, substance abuse, fractured relationships and emotional upheaval.

Many unforced errors occur, and repeat, because their causes are deeply programmed into our consciousness, and family culture.

To avoid errors, we need to think slower and whittle away at the habits that hold us back.

So how do we slow down our thinking?

We take away feelings of obligation, feelings which can lead to blame and lack of personal ownership => All family is optional

We don’t let pressure build up… Everyone can speak, about whatever they’d like to discuss, and we commit to a “no secrets” policy.

Secrets, taboos, not being able to speak => these habits make it easier for evil doers to do bad things.

Ask child abuse survivors to describe their family culture and you will find a consistent pattern, of repression and secrecy, that enabled their abusers.



I got the next tip from a four-generational family, where the patriarch was deeply successful (work, family, financial, community). The family has multi-generational quarterly meetings and has successfully managed two transitions between generations.

Close but not too close – via staying in your own space – via sorting your own food – with a respect for differences.


Take the above and invert them…

…a feeling of obligation, never being able to say what’s on my mind, staying in close quarters, eating different food…

then… add alcohol, relentless toddler noise, politics or any emotional trigger..

and… BOOM!

Not winning!


Carrying weight is a privilege. On the way down, I grabbed his pack and he busted out a quick hill repeat. Blood was tasted, apparently. He gave himself an introduction to “race cough.” The kid has a passion for hills!

What does winning look like?

We enjoy sharing experiences with each other, usually in nature.

It is about shared experience and, frankly, it need not be all that fun. My son and I find meaning enduring difficulties together.

Each generation, each household, each adult needs to affirm its own set of values and define winning on its own terms.

If there isn’t a consensus then we remember… it’s OK to say “no” and all family is optional.

Also… we don’t need to agree to be buddies and I’ll respect your right to not have an opinion.


Some multigenerational thoughts…

Seek to connect not correct. Do not put a spotlight on people, just ask an easy, “how are you doing.‚ÄĚ

Down, and up, the generational chain remember our goal is shared experience, not optimization.

Joys, and disappointments, with founders/followers/descendants are best used to motivate positive personal change in myself.

The most powerful form of teaching is living an open life where people see us modeling the best we have to offer.

Pay attention to those who bring out your best.



What about money and finances?

The fundamental point is everyone pays their own way and we do not create incentives to consume more. By the way, COVID gives you a useful opportunity to make changes in your family spending choices.

Any capital that become multigenerational is managed in a custodial capacity.

What does that mean?

It means you take care of things you didn’t create so others can enjoy them.

When financial decisions need to be made, we remember we are less likely to make errors if we keep it…

  • Simple
  • Low cost to hold
  • Focused on long term capital gain
  • Tax effective
  • If it won’t make a difference then wait

I use the above as a checklist because it slows my decision making.

For me, the three most important factors to remember are: cost to hold, leverage/borrowings and wait if it doesn’t matter. Together they nudge me to avoid the most common errors of investing => fees, tinkering, borrowing leading to ruin, cost to hold resulting in cash crisis….


After I’ve taught the above, I will hand it off and focus on modeling grace through what remains of my life.

Take what’s useful and make it your own.

What I Talk About When I Talk About Building Wealth

SuperGirl

When people ask me about asset allocation, I guide them towards family wealth.


Over your life, you will see things blow up.

  • Jobs will be lost
  • Divorces will happen
  • Guarantees will be called
  • Companies will fail
  • Investments will go to zero

Certain habits make us more prone to blowing up:

Debt – fixed obligations can ruin you in bad times.

Lack of emotional control – this runs deeper than, say, anger management.

People who make a habit of rationalizing a lack of control in one domain (elite sport, closing a sale, acting in a client’s best interest) rarely have the capacity to control themselves across domains. If you might get caught, then you’re fragile.

Substance Abuse – it’s more than the cost of sorting yourself out – it is the lost opportunity of a life well lived and the impact on the rest of your family, especially your kids.

Spending vs Cash Flow – personal spending, burn rate and fixed costs => the more spending you have relative to cash flow, the more fragile your finances.

The above is a long way of asking, “What aspects of your life might blow up?

Which is a polite way of saying, “I’m not sure asset allocation is the most pressing issue in your life.

If you work in an ethically-challenged field, have a lot of borrowings, have a high burn rate or are surrounded by peers with issues…

…then tweaking portfolio construction is a lower priority item than immediately removing what might ruin your life.

I’ve done it. You can do it. It’s better on the other side.


How large is your current portfolio when compared to your lifetime portfolio? – AKA you might have more wealth available in your career than your portfolio.

Investing is different at 25, 40 and 55 years old.

The nature of “different” depends on your personal circumstances.

#1 => Consider your Core Capital. The single best thing I did out of college was save four years of personal living expenses, $100,000 in the mid-1990s. It sat in a bank account, while I worked my ass off at my career.

Having that money enabled me to choose better and choosing better became a habit.


Very, very, very (!) few people can be professional investors РAKA can I get rich by beating the market?

Take an honest look at the people that you know in finance. How many of them “got rich” from their own money? Remember these are the experts.

In finance, most people get rich due to the rules of their game and collecting pools of other people’s money (your money, by the way).

With your portfolio, keep it safe, simple and low-cost. A target-date fund makes a nice core holding.

Having my Core Capital enabled me to take more risks in my career path, and life experience => not with my Core Capital.


Once-in-a-lifetime opportunities happen once a decade – AKA great deals happen when credit markets are shut

Here are the assets I own and why I own them:

  1. Index funds => long-term, diversified, not linked to my home real estate market
  2. US Treasuries/Core Capital => 5 to 10 years family expenses
  3. Boulder real estate => A relative value play against California, a cost-effective way to raise a family and a fantastic outdoor life. Think very carefully before locking yourself into any location. As a young man, my lack of ties enabled me to jump at great opportunities.
  4. Cash¬†=> my early retirement was funded by three deals I did coming out of the last credit crisis. Once you have your Core Capital (say, five years living expenses) then building up a pool for “great opportunities” is a consideration.

Starting out? Read this PDF.

Be wary of home bias => you can see it in my portfolio => even more risky is having your balance sheet, retirement and job reliant on the success of your employer.


Switching Costs – AKA think carefully before you sell good assets

I have assets in my portfolio that I would not buy at today’s prices. Financial theory tells me I should sell these assets.

  • I have zero confidence in my ability to predict the future.
  • If I sell assets then I pay taxes and commissions.
  • After selling, I have to figure out where to put the capital.
  • I doubt any “new” plan will be better than my current plan, which is simple and low-cost.

Release yourself from constant optimization => good enough is good enough.

Put your efforts into being a better version of yourself.

 

Baby Essentials

10411151_10152583824527622_2265981354170992571_nA friend just had a new addition. Here’s a summary of what I learned.

Become a Jedi-Master of the baby swaddle – this book will teach you how¬†– there’s nothing more important than being able to settle your baby.

Put a full-size mattress in every room where the baby sleeps – we spent two years hunched up on a circular chair and could have saved ourselves a lot of hassle by spending $100 on a twin mattress.

More than vacations, clothes, a bigger house, visits to family… what your marriage needs (for the next three to ten years) is sleep and time. Time for yourself, for friends and for each other.

Say “no” to just about everything. Now you understand why your friends disappeared when they had kids!

You will get a chance to add stuff back later. For now, just get more sleep and some light exercise.

You are likely to hold a grudge against any child, or adult, to whom you overextend yourself. It is a paradox that you serve your family best by holding some of yourself back.

Forgive each other when you inevitably fall short. It’s a stressful time.

What I Learned This Year

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”

+++

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.

+++

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.

+++

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!

+++

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.

Strategies for Good Times

Here are three areas where I fool myself.

Consider Ruin – I’ve done a good job of addressing the risks identified three years ago.¬†So good that, when I asked myself the question, “What can wipe me out?” I quickly answered, “You’re set amigo.” That’s a top-of-the-market sentiment if I ever heard one.

Having mitigated the hazards of leverage, unemployment, litigation, fraud, risk-seeking peers and insolvency… my main risks are health and accidental death.

Do you know your own?

Stay Variable – I was listening to out-of-state visitors rave about the beauty of the Rocky Mountains.

They’re right.

Where they go wrong is assuming that buying a condo will enable them to lock in the emotions of beautiful spring day.

I’m just like them.

We’re all just like them.

Good times give us access to additional finance/capital. We often use this money to capitalize luxuries and time.

Stay variable, stay invested and resist the urge to lock in family overheads.

Rebalance Time – the best deals I’ve done have been where I traded money-for-time.

It takes vigilance to carve time to become world-class at things that interest me. Mastery makes me happy.

Social media, marriage, long-term friendships, work/non-work, self/family – I don’t advocate being in balance – I do advocate making an honest assessment and asking myself if I’m OK with where my time allocation will take my life.

Geographic Reappraisal – Real Estate October 2017

This business insider article about an SF Bay Area house that sold $1 million over asking caught my eye.

Here in Boulder, we’re up 100% over the last seven years. Most of the increase has happened in the last 2.5 years.

Notwithstanding our big local increase, the “coasts” and luxury vacation markets look expensive from here.

The coasts look even more expensive when I factor in…

Schooling РCan I use the local schools? If not then my cost of living jumps by $25,000 per kid, per annum, after tax see the linked article Рpublic, in-state education will save my family $1 million per kid.

Tax Base vs Legacy Liabilities – How heavily taxed is the location? How large are the legacy liabilities (health care and pension) from former city, county and state employees? The large cities of the oldest parts of the US look awful in this regard.

Other costs of living – Cali always surprises me when I run the numbers. I suspect it’s similar in places like New York and Seattle. Costs are 50% more expensive for the rest of my budget.

I am not recommending that you sell. I’ve made a decision to hold through the next recession.

However,¬†the relative trade into “states with great lifestyles” strikes me as attractive — North Carolina, Montana, Idaho and Colorado.

If you are considering taking-the-leap…

Live where you don’t need to leave — can I create a long-term, year-round,¬†local life here?

When I worked in international finance the “top guys” had homes in three or four countries. That kind of overhead has two negative impacts on your life: (1) your ethics are easier to purchase; and (2) you’ll need (at least) an extra decade of full-time office work.

Kill your commute — can I live within an easy walk, or a short ride, of where I spend my time?

When I was thinking about moving to Cali, I plotted my life in Google Maps. I did the same thing for my prospective life in Palo Alto. That gave me two geographic “triangles” and I calculated real estate and family costs inside the triangles.

Finally, surround yourself with people that live a life you’d like to follow. I do best with an active, outdoor life in a location with abundant sunshine.

This last point is important — know what you want — know where you do best.

What Makes Real Estate Assets Cheap – Tame Your FOMO

Because we are hard-wired to be poor investors, your family’s best bet is dollar-cost averaging in low-cost index funds. Consistent investing,¬†over your working life, it’s as close to a sure thing as you can get.

Despite, and because of, the above truth, many people are going to dive into the real estate market.

When the masses get into trouble, you can do very well by applying this post.

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Wait for…

FINANCIAL DURESS —¬†Once a decade, debt markets rapidly contract and everyone has a freak out.

DIVORCE — Corporate, professional or personal — vendors¬†will hurt themselves to damage¬†former partners

MOMENTUM — Collectively, our long-term memory is about three years long. The Great recession ran from¬†December 2007 to¬†June 2009. It took three years years for us¬†to “forget” the asset price run up of 2005-2007.

If you don’t have two-out-of-three then wait. Discounts are coming!

Do work…

INFORMATION — I assume the vendor knows far¬†more than me, and probably you

How can we improve our knowledge?

Wait & study — while waiting¬†for the next¬†crisis… live in the location where you’re thinking about buying. The cost of the rental will pay for itself through better information.

Fundamental Value —¬†do this with every large investment (or purchase)…

A./ What is the net cash flow the asset can generate after current taxes, all operating costs and the investment required to keep it producing cash?

B./ What is the total capital required to purchase? Include every_single_dollar.

C./ How does the implied yield (A/B) compare to the yield on 30-year US Treasuries (currently ~3%)?

Example…¬†across 2014 and 2015, I was unsure if I should sell, or hold. The common wisdom was long-term rates were going to rise and prices would stagnate. Tempting to switch asset classes…

I calculated my cash yield was roughly equal to the, then, 30-year rate.

I considered…

1./ My sites were exposed to the upside from Boulder County economic growth

2./ My alternative investments had lower yields than my existing investments

3./ I would crystalize significant deferred tax liabilities

4./ My existing position was good enough to meet my goals

I decided to sell a negative-yielding asset and hold the cash generators.

NOBODY predicted what happened next, long rates fell by a third, and local real estate values rose by 50%.

FWIW, long rates are back up but fear of missing out (FOMO) is driving the market upwards.

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When is our margin of safety highest?

  1. Let prices, and transaction volume, fall for two years
  2. Look for a distressed seller
  3. Look for a deal where the cost to own is less than the cost to rent
  4. Confirm your taxed, net cash yield is greater than the 30-year treasury rate

Your FOMO will tell you that the above will NEVER happen.

WRONG!

Since I graduated university (1990), very favorable conditions have happened FIVE different times where I was living.

It takes a long time to build capital and two great deals (in 50 years) will let you meet your goals.

Tame your FOMO and choose wisely!

The Road Ahead

Four recent reads.

A neat concept from Pasricha is to view a week as three bins of time.

  • 168 hours in a week.
  • Splitting into thirds, we get three bins of 56 hours.
  • Most folks drop two bins (112 hours) into sleep, work and commute.
  • Leaving 56 hours for everything else, which happens to be the subject of his¬†book.

The author encourages us to have a look at our allocation. Here’s mine…

  • Sleep and unscheduled personal time – 65 hours
  • Kids — meals, bedtime, homework, housework, dad time¬†and school drops – 40 hours
  • Exercise, strength training, time in nature – 21 hours
  • Admin, taxes, legal, finances, writing – 15 hours
  • Travel, Driving – 15 hours
  • Open, Reading – 12 hours

When I bring energetic action, time and expert instruction to an area of my life… I get results.

If it’s not happening then it’s not a priority.

Better to tell the truth — especially to myself!

Younger Next Year was written for Baby Boomers but I found it entertaining and useful.

Around 2030, I’m going to have a 40-hour slice of time land in my lap. Leaving my desk job in 2000, I have been through much of the author’s story. What I haven’t dealt with is aging and decay!

This winter, I learned to ski well.¬†Learning to ski¬†was humbling — I found myself lacking in absolute power, power endurance and quickness. Add that experience to the gradual¬†deterioration of my vision.¬†Aging and decay!

Through an explanation of Harry’s Rules, the book¬†reminded me of other potential gaps¬†in my life — connection, commitment, passion.

“Kids” have taken a big slice of time in my forties. Because we’re likely to have another 15,000 hours to come, I’ve been working on up-skilling everyone.

Some day the “kid” slice will be gone. My marriage will remain.

The two books by Gray (as well as The Soul of the Marionette) were fabulous and challenged the narrative my local community tells itself.

When I’m doing, connected and engaged…

…I don’t overthink any¬†passing emotional state.

It’s worth making an effort to fill-the-gaps.

It wasn’t enough

When I follow my own advice, life is better.

At the back of my mind, especially with kids, I have a desire for life to be “easy.”

My desire makes me chuckle¬†because my “easy days” are often¬†boring.

Based on eight years of parenting… easy is not going to happen so¬†focusing on “better” is a smarter¬†option.

From time to time my appetites come up with ideas to make my life _even_ better.

  • These ideas might be small — five beers, two burgers, large fries and couple desserts
  • They might be large — a vacation property with a cost of ownership that doubles my core cost of living
  • Many fall in between — clothes, vacations, sports equipment, alcoholic beverages, risk-seeking¬†friends

These desires pop up as an emotion associated with pleasure, excitement or release.

Certain choices, situations and people are associated with bad outcomes.

Despite an association with pleasure, excitement or release… many of my desires are highly-likely to lead me to bad outcomes.

To tame my appetites, I pause and consider the last time I gave into that specific appetite…

I ask myself…

Was it enough?

It was never enough. Not even close!

I remember always wanting more, even while I was getting what I wanted.

My desires are frequent, but my specific desires are fleeting.

They come and they go.

If it wasn’t enough then maybe I should find a better way to live….

…and that’s the system that I’ve been sharing.

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What’s your system?

Is it working?