Kids and Spouses

Christmas in Mexico

I’m going to write this in the context it arises in my life. I have a hunch it applies more broadly. A variation pops up at least once-a-week in casual conversation.

Ten years ago, a wise preschool teacher shared a quote with me. I liked the quote so much, it’s been on my fridge ever since.


If you are triggered about things, or money, then look around for the unmet (childhood) emotional need.

I have used the quote to guide my life for the last ten years.

  • Give time, not money.
  • Share experiences, not spending.

There’s another aspect of the quote… If you run into an adult who’s childhood emotional needs were unmet… assets, and spending, will not fill their void.

The void cannot be filled from the outside. This is an area where we need to heal ourselves.

Go further… to the heart of addictions…

Quite often, the attempt to “be a good provider” for these folks, makes their emotional problems worse. Further, they are going to feel crazy because they will be miserable while surrounding by conventional “success.”

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Let’s step back from the underlying emotional issues and discuss how parents, and spouses, can guide family spending and investing.

First, we need to sort ourselves.

My spending sets a floor above which everyone will operate. This might sound backwards but it’s my observed reality. My choices anchor “down” everyone around me.

INVERT: constraining myself is less likely to trigger resentment.

I’m the most powerful (spending) role model in my children’s life. I do them a lifelong favor by setting a consumption standard they can easily attain.

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Second, be brutally honest with yourself… Am I meeting the emotional needs of those around me?

When you are already a good emotional provider, it is very difficult for someone to trigger your need to be a good “financial” provider.

Rather than a high-stakes bargaining session… discussions about money end up closer to a 7th-grade math problem. An example… the ski-place…

  • 20-25 days spread across five resorts
  • Total cost of hotels/airfares ~$15,000
  • Shows the folly of seeking to “save” money in a single location by locking up capital

Clothes => let’s start by wearing everything in our existing wardrobes first

Cars, Furniture, Art => is there a more effective way to scratch this itch?

Recreational assets, out-of-town commitments, 2nd homes => …are you sure you want to give me an incentive to be away from you and the kids?

On and on and on… think past the purchase to overall incentives, habit creation and the impact of repeating the action for the next 5-10 years.

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Third, the “what are you going to do with the money” argument.

Related to, “but we can afford it…”

Ability to pay is probably the toughest one to control. It’s hard not to spend money in your checking account.

SIDE NOTE: this is a good argument to move cash out of places where it’s easy to spend. This was a (somewhat bizarre) benefit from a choice to STOP earning so much money when I was a young man. Financial success was making it harder to be who I wanted to be.

Here again, pause and consider,

  • What game do my actions show I am playing?
  • What is the game I want to be playing?
  • What game would move us towards “better” five years from now?

If you have kids then these questions usually point towards up-skilling independence via parental investment of TIME, and modeling behavior.

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Fourth, after you’ve done 1-2-3. Sit down and talk it over with the key people in your life.

If you are unable to convince them then have the humility to consider the possibility (albeit remote) you may be wrong!

In family systems, I’ve found it’s better to wait for a consensus to arrive than pulling rank.

Bonus: slower decisions are usually better decisions.

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Finally, related to the what will you do with the money discussion…

If you are focused on sharing time with the one’s you love then, hopefully, you will favor “experiences with them” over “making more money for them.”

Trustees, entrepreneurs, managers, exemplars, fiduciaries, parents, students, citizens…

We care for what we’ve been gifted by circumstances and pass it on.

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As a package, incorporating this process into your life results in a better allocation of time AND capital.

The expectation “we each take care of ourselves” is a good one. Even better when the parents model the behaviors required, and pass along the skills required to pull it off.


Let’s pull it together…

  • Sort myself first
  • When triggered, pause and look for the unmet emotional need
  • Smart leaders set the anchor with intention => I anchor those around me via my effort, personal standards, emotional control and personal spending.
  • Within family systems, remember my role is to meet emotional needs while teaching/modeling how to be self-sufficient financially.
  • Have the humility to see: (a) when helping-isn’t-helping; and (b) my own capacity for error.

Boom Time Real Estate

Some quality kid-art, right there!

We are living through boom times in our local real estate market. Houses are selling quickly, at the equivalent of 50-100x annual rent.

Everything, other than debt pricing, looks expensive to me. So… I’m looking to move, borrow and increase the assets in my portfolio that generate cash flow.

A simple way to view this… (a) split the equity in your existing house in two parts; (b) borrow 30-year fixed and buy a new place with one part of the equity; and (c) place the other part into a rental property.

The explanation follows, with a 25-year overview at the end.


In 2010, I purchased two rental properties as a hedge. Specifically, I wanted to hedge against the risk of my family being priced out of our home market. I thought I was protecting my kids. Turns out I was protecting myself.

The idea was to get paid (via rental income) to hold: 3 units, 10 bedrooms and 20,000 sf of Boulder land. The locations were excellent, the properties dated.


The 2010 purchases worked out well, not just because they performed. The purchases put significant cash pressure on me. The pressure improved my spending choices and motivated me to sort a business which was hemorrhaging cash. In a sense, having tight cash was a form of forced savings.

In 2013, we downsized, borrowed and moved across town. By staying in the same type of neighborhood, and borrowing modestly, our equity appreciation in the smaller house ended up the same as what we would have earned in the larger, unleveraged house.

My ego likes headline numbers and struggles to accept this reality. Something about real estate => the gross, headline numbers are more emotionally salient than the net cash flow reality.


Once again, I’d like to free up time, and reduce admin, by moving. The price I’m going to pay is time/hassle from the move, bringing some deferred taxes forward and agent’s fees.

With the run up in asset values (2015-2021), my family has a much larger allocation to “dead assets.” Dead assets are assets that cost money to hold => for many readers, this is the house they live in. Given recent capital appreciation, the cash cost to hold has been ignored by many.

Downsizing, and locking in 30-year fixed debt for a portion of the new purchase, enables me to keep the amount of “dead assets” modest within the family portfolio.

My ego is tempted to size up, and add a ski place. The better financial move is to improve the quality of our rental portfolio, while reducing my housework and driving.

30-year fixed debt on the family home is one of the best deals going. Given the borrower’s option to repay, it’s a one-way option that could be worth big $$$ in the future.


A word to the leveraged.

Now, like 2005-2007, is a great time to be heavily indebted. You will take comfort in your ability to unwind any financial difficulties.

You are correct.

However, if you truly “need” to unwind financial positions then we are likely in a market like 2009, unpleasant.

So be cautious with opting-in to risks that don’t add to your long-term strategy. Most particularly, any arrangement where an outside party has the power to force a sale. While I am seeking to borrow, total debt will remain modest relative to assets and cash flow.


Breaking it down, building wealth across decades.

  • Resist the urge to up-size your life, particularly by adding negative yielding assets.
  • Rather, seek to build up 2-4 rental units. Pay attention to location, lot size and bedrooms.
  • Unless you want to get into the hotel management business, rent unfurnished to long term tenants. Inverting I have learned… furnished, short-term rentals bleed expenses, emotion and time.
  • For your long-term rentals, use a local property manager – their cost as a %age of capital value will be tiny compared to the value they add, and the hassle you avoid. This frees time to make money in a field where you have an edge => whatever you were doing when you built up the $$$ to purchase rental properties. Side Note on taxes: tax bill as a %age of net assets is a number you should track.
  • Use your personal home for shelter, as an entry in the best public schools in your state, as a cheap source of fixed rate debt and a tax-favored investment. If this asset appreciates to the point where you have “too much” invested in non-yielding real estate then downsize, get a new mortgage and repeat the cycle.
  • Aside from the roof and HVAC… spend no material capital on any of your properties. Instead, spend time with the people you love (and buy more assets that generate cash flow).

If you start the above when you get married then you’ll have 1-3 moves by the time you are empty nesters. At that point, you’ll have built yourself an inflation-proof, tax-effective retirement annuity. You can constrain your spending and pass it to your grown kids OR run down the assets as you see fit.

That’s the financial overlay. You also have the ability to use trust structures within this strategy. I’ll get to those in a future post. Put simply, when I say “you” it’s possible to put a trust in “your” place. That can protect your assets from the unexpected which, over a 25 year time horizon, is nearly certain to happen.

Ideally, you graduated debt-free from college and made a habit of maximizing your retirement contributions in the first 10 years of your career. Don’t be in a rush to get into real estate, I’d been working/saving for a decade before I had the capital, and geographic stability, for a purchase to make sense. While a favorite form of security for lenders, real estate is chunky, a pain to manage and expensive to sell.

More and Less

My kids love it when I dress up

I view my negative emotions as feedback and, when they persist, I change my approach.

My summer had some unpleasant moments. Moments which spurred the resolve to reach for better.


The first thing I noticed…

If I am going to do something mean then it’s going to happen at home, after spending the day alone.

I can’t remember a single unforced error happening after a day outside. The errors I do remember start with a slow boil starting at my desk!

So…

I have stickers facing me while I type away on my screens…



Whatever I truly need… it’s not to be found in a chair, looking at screens.



Another lesson I’ve learned, this time about marriage.

Schedule time to enjoy each other.

I don’t know if we’d gotten “too busy”, or complacent.

Either way, when I’m getting jealous of swim meets then it’s a sign we need to increase our us-time.

  • Tuesday – train together (outside), then lunch
  • Thursday – starting after Christmas break, ski together
  • Saturday – date night (and our oldest can handle the sitting)

Three opportunities for “together” each week.

Have fun together and avoid forming a habit of preparing a list of grievances for each encounter, yes I have done this.

The Thursday means we need to help. When I first raised the idea, it was…

I want you to get childcare so I can take an entire day off. Every. Single. Week.

My wife had no idea what, or why, this was important.

Nothing happened, for months.

When I explained the downstream idea (ski together each week), help was found within 12 hours.

Good ideas do better with effective communication.

These ideas were put together with an understanding of enduring drivers of satisfaction in my life…

  • Exploring, together
  • Being outside, together

The three “weeklies” put me in my best environment, so my wife isn’t interacting with me in my worst environment (the house after a day alone).

We had a bit of an issue with restaurant selection so we rotate choice, by week, with a no-veto policy.


Kid #2 completed their reading challenge!

John Hellemans notes there are three plans in any athlete-coach relationship. I goes something like this…

  • The plan the coach believes the athlete is given
  • The plan the athlete actually does
  • The plan the coach believes the athlete did

It’s a reminder to be cautious with assumptions, and pay attention to clues that point to reality being different than expected.

A version of this extends to all things in life…

  • What you think you need
  • What you actually do
  • What you think you did

Consider money…

  • What I think I need to spend to make myself happy [A]
  • What the family is actually spending [B]
  • What I think my family wants me to spend [C]

The punchline here is TIME.

When you are enjoying each other, your family will enjoy inexpensive hobbies.

INVERT => no amount of spending can overcome a lack of meaningful connection

What’s been bothering me, quite a bit as it turns out, was the ratio of B to A. The $5 of family spending that follows each $1 I find useful in my own life.

I dug deeper.

What I’ve arrived at is equity. Equity of contributions and benefits. We’re working on it. A simple change, that is difficult to implement…

I will not burden myself with the task of removing the consequences of another’s choices.

Basically, if someone calls an audible, repeats a bad habit, makes a poor choice… then I’ll limit myself to polite emotional support, while calmly showing the connection between their choice and the consequence.

Then I’ll move on.

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Getting What I Want

With the money I think my family wants me to spend… I just smile at myself.

First, because my wants are driven by my peers, my values and the advertising industry => my family is the solution, not the issue.

A bit of effort with my media filter dials down my greed, and dials up useful traits. A simple change… unsubscribe reduces useless spending.

Second, my “wants” are transitory. They come and go, just like moods. I don’t need to take them seriously, they change all the time.

A better question:

What’s it going to take to raise my kids, the way I want, and set myself up for the next stage of my life?

The price is a cost of doing business.

The actions are where to focus.

The Next Doubling

I was 12 years old at the peak.

A good question to consider with major assets in a portfolio…

Would I buy at current prices?

Like most real estate in Colorado, Boulder capital values have been on a 7-year upswing. According to Zillow, the capital value of where we live is $2.5 million, up 36% since the start of 2020. The only way to describe how this value feels is “too high”.

One way to consider capital values is to express them in terms of cash flow and time => with real estate, the proxy is cost to rent.

With our current address, comparing rental costs with gross capital value…

  • $3,000 per month rental => 69 years equivalent
  • $4,500 per month rental => 46 years equivalent
  • $6,000 per month rental => 35 years equivalent

With the run-up in prices, homeowners have been rewarded for properties that are larger than their needs. Like-for-like rental, doesn’t look too crazy right now. However, we could easily fit ourselves into a location that’s 40% smaller than where we live at present (implying a gross yield of less than 2%).

On to the next example…

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In 2021, some friends exited the Boulder real estate market. Their net sales proceeds (after taxes and agent’s fees) equate to ~100x their first year rent in their new location.

Worth repeating: they are taking a century of rental-equivalent off the table.

Put another way: by selling into this market they can do the following (in current dollars):

  • Cover their future cost of living on a joint-life expected basis;
  • Put their kids through college;
  • Buy an apartment as a hedge against future rental rates; and
  • Treat future earned income as fully discretionary.

Compelling, especially if your house is the primary asset in your balance sheet.

They aren’t “set” by any means: inflation, illness, increased spending or investment losses might derail their plan. However, the asset sale greatly reduces their financial stress and buys them a tremendous amount of time.

Stress, time and the risk of ruin.

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Another example, vacation properties.

The house we rented in Vail (2019/2020) is valued at more than 100x the rental we paid. The condo we rented in 2018/2019 sold for 50x annual rental.

There’s never been a better time to rent assets you don’t need. 😉

If you own assets in secondary locations, or are considering buying, then the above calculation is a useful one to consider. The numbers above are using gross rental figures. From the landlord’s point of view, the net rental income would be tiny (relative to capital).

Also consider the benefits of being variable…

Rather than lock in a single location for the winter, I’ve decided to try an AirBnB season. I booked in 22 days of skiing, the dates tie to school holidays => Vail, Telluride and Jackson.

Adding a bit of airfare, gas and mileage… total cost will be $15,000 to use properties with an average value of ~$1 million. VTSAX dividend yield is 1.25%.

By not owning, it was cost-free to change strategy.

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Other questions I like to ask:

  • Assume things go well and this asset doubles in price (again), who’s going to buy?
  • What’s going to drive the next doubling in value?
  • Where’s my family exposure: (a) benefiting from the next doubling; or (b) harm from the risk of a halving?

Who’s going to buy? A smaller place in a great neighborhood is much easier to sell than the best place in that neighborhood. The top places in Boulder are now selling for around $5 million. Who’s going to buy when the market goes to $10 million? Might “ability to purchase” create headwinds for appreciation in the market?

Prime Colorado real estate benefits from buyers coming from “even more expensive” markets. Boulder remains a great place to land from one of our coastal Metros. City-based housing markets benefit from local economic growth.

Vacation-markets, at 50-100x gross rental income, are reliant on continued balance sheet appreciation for the Top 1% of society.

A comparison I follow in Colorado… Boulder rental property (house with land, no HOA) vs Vail vacation property (condo w/o land rights, HOA). In the last recession, I tracked this comparison in Arizona – unfortunately, I bought condos down there instead of houses.

What’s going to drive the next doubling? See the chart at the top of this post => there’s been a multigenerational tailwind due to declining interest rates. Every store I enter, and every manager I talk to, gives multiple examples of tight labor & inflationary pressures.

Negative real interest rates might keep the party going for a bit. With Social Security COLA adjustments over 5%, it seems nuts to buy into property that’s trading on 50-100x rental income.

Family exposure. For me this is kind of like the “who’s buying” question.

If you’re a double-income family with a diversified portfolio then sticking 10-15% of assets into a vacation market is a different choice than a single-income family with 90%+ of assets tied up in a mortgaged home. The context of the choice is worth considering.

One final point, despite living at 5,500 feet (and training year round up to 14,000), I don’t sleep well above 9,000 feet. For many, ability to sleep at altitude changes as we age.

Climate, altitude, neighbors, convenience, community, quality of local schools/governance… good reasons to rent locally before you buy.

Hope this helps.

Kid Rich

Summer reading prize – read aloud challenge.
I had to offer his older sister a “bonus”…
If your boss offered to pay you, AND send you on a vacation, then would you do a 100-day training program that required a mere 12-minutes per day?
When she said “hell, ya”, I pointed out that she needed to get the reading challenge done before I would be paying for any out-of-state swim meets.

Dressed up and out of the box!
Pre-, and post-, flight COVID tests enabled us to enjoy a normal wedding in Cali.
So great.

What is the underlying goal of childhood financial education?

=> Self-generated, lifelong financial stability

I’ll run through to tools we use to equip the kids to pay their own way in life.


Allowance => simple formula: weekly deposit into an account with the Bank of Dad, deposit is $1 for each year of age, and the deposit balance earns 10% per annum.

Many families view the purpose of an allowance to teach a kid how to spend.

We don’t.

The purpose of an allowance is to create a positive emotional association with the power of compounding.

Our oldest has been rolling her allowance since Kindergarten. She now earns $7 per week from compounding and $13 from being 13 years old.

Compounding is an ever growing sum. When they enter high school, I’ll run through the math behind it. I have a spreadsheet by week.

In time, I will let them know I grew my net worth by 15% per annum for many years, mainly by saving half of what I earned. This habit bought a lot of time.

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To put off the discussion of “why am I saving?”, I have them pointed at “saving up for a car.” When we get closer, we will sit down and look at the impact of swapping their earnings (from doing nothing) with a set of bills for owning a car (insurance, maintenance, taxes).

Uber is going to look VERY attractive against 10+ years of compound interest. That lesson plan might be: keep depreciating assets variable and stay invested.


Earned money is their money – this has resulted in a house full of Lego

Earned Money Is Their Money

To effectively learn about spending, one needs to earn the money being spent.

This is because spending other people’s money feels different.

Sometimes really different…

Spending other people’s money, with a credit card where you don’t see the bill, feels better than free!

Don’t hook your kids on this form of pleasure. We tell ourselves all sorts of BS to self-justify this situation.

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Our greatest financial achievement in 2021 happened by accident. We got our oldest off the payroll. She started babysitting and stopped asking us for money, for anything!

This opened her up to the real world of: lending money to friends, spending paycheck-to-paycheck, buying poor quality goods on impulse…

…and because it was HER money, she learned very quickly from her errors, and her friends were not (indirectly) placed on our payroll.

Self-Earned Money + Scarcity + Freedom to Err = Learning

Also… “if you want to buy friends then you’ll have to do that with your own money. Your choice. I think you are a star.”

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Our other kids aren’t old enough to babysit, yet. They get assistant sitter gigs, and do yard work in the neighborhood. The work pays well in kid-terms. I supplement with odd jobs.

This is enough to make the whole family “kid rich” => rich enough to buy whatever they want, from their own money.

Quite often, what they wanted was LEGO and it was tempting for me to use my own money to “make them happy” thereby facilitating consumption.

One of our family values is we each pay our own way. Elders are to avoid facilitating consumption. With this in mind, I made a choice to reward my kids with time and I remember…

When you are spending other people’s money you can easily get trapped into dreaming of more, more, more.

This is because we are chasing something stuff can never buy. The journey of adulthood is about discovering our personal “what.”


Quietly, I watched nothing happen with the birthday present…

With the shift towards their own money, supplemented by Christmas, birthday and summer reading prizes… they noticed…

New stuff is fun, but only for about a week, then it sits on a shelf.

I let it sit on the shelf, for years, then one day…

I never play with my Legos, they are kind of a waste of money…

Jackpot!

So the current lesson: we buy luxury goods at retail and sell them at wholesale (if we are lucky!).

Thanks to a very kind cousin, we are in the process of converting Lego sets to cash. Lesson to come will be comparing “cost to buy” against “net realized value from sale”.


Breaking down the sets and preparing for sale

“If you want an iPhone then earn the money to buy it”

In 2020, our oldest sold 200 masks, at $5 a mask, to earn the cash to buy herself an iPhone. No social media on that phone and we financed the sewing machine and materials. She handled marketing and mask production. She shut down the “business” the day after she had enough for the phone!


To recap

  • Allowance creates a positive association with compounding
  • Earned money is their money
  • Listen to their errors, give time and positive attention to their lessons
  • Celebrate “getting off the payroll” => they also make their own lunches, another big win.

Let scarcity teach and create incentives to reward work.

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Basic Cleaning

A valuable lesson for them, weekly humility training for me…

We split the house into Five Zones:

  • Kitchen
  • Carpets
  • Cat Room (dirtiest room in house, done by our youngest)
  • Sinks, counters, baths and showers
  • Toilets and floors

Same zone each week, no excuses.

Fortune’s Formula


Fortune’s Formula by Poundstone was recommended inside Safe Haven. The book touched on a number of questions/issues I’ve been pondering since attending Taleb’s seminar in October 2019.

Very helpful book!

What follows are a bunch of points I’m writing down so I can refer back later.


Insurance proceeds: Will I be able to access my money when I need it? Applies to everything, especially exotics.

All families are sellers, eventually.

This is an important point because crashes are most damaging when one is forced to sell into them. Ironic point is many (most?) of us choose to sell into them (or in fear of them).

Recently, I came across an article about CalPERS selling billions into a dip – even smart people make poor decisions, most often when they are custodians of other people’s money.

Most institutions have shorter memories than families. Keep reminding yourself of your mistakes – you probably paid a lot to learn your lessons.

Train yourself, and your kids, to be able to tolerate bad news. It saves time, money and emotion.


Counter-party Risk

Payout => who’s on the other side of my insurance trade and are they going to need a bailout to pay me? If my insurance company might need a bailout then am I really insured?

I’ve done my best deals when all buyers have disappeared. A delay in payout can have a huge opportunity cost to me.

Skill => reading financial history, I notice the people on the other side have… better analytical skill, superior computing power, faster capacity to execute, better (and inside) information, favorable leverage terms, assistance with “techniques” to defer/avoid/evade taxation.

These folks are on the other side of everything I do.


Ruin

Steer clear of most bets where there’s a chance you could lose all your money. Many useful examples in the book.

This doesn’t mean to avoid all loses inside a portfolio. Highly volatile bets can make sense when limited in size.

This does mean avoid creating a portfolio (or lifestyle!) with the potential for total loss.


Kelly Criterion

I do not have faith in my calculations of the probably of real-world outcomes. For me to use Kelly, I need to have a feel for the odds of various outcomes.

Using Kelly weighting (even fractional) runs the risk of fooling myself about the total amount of risk I am taking on. There’s probably a way to work backwards and see the implied odds within various prices – I do not have confidence in my capacity to compete with experts in the arbitrage pricing domain.

That said, the key point I took from the discussion, “never bet an amount that results in a chance, any chance, you’ll be removed from the game.” This calculation is simple to calculate and easy to execute.



Downturns & Drawdowns

With this in mind, there’s an important point about investing for long-term wealth. The likelihood of a major drawdown and the cyclical nature of exponential growth.

Put simply, most families, using a long-term wealth maximizing strategy, will spend a lot of time being “less wealthy than they used to be”. Page 228 of the 1st hardcover edition.

BIG POINT: many families trade a ton of return to avoid this reality // OR // over-bet in the short-term in an effort to avoid normal downward wealth fluctuations.

Worth emphasizing! Most people trade long-term return or increase their risk of ruin to avoid natural fluctuations in wealth (and fitness, for that matter).

Very few people have the emotional make up to roll with the punches when it comes to volatility.

One way to hedge yourself is to maintain the capacity to cut spending so you maintain your “net worth / cash burn” ratio. I write about this a lot because it can give you an emotional edge during a crisis.


Buyer Beware

OK, you say to yourself, I don’t understand how to tail risk hedge so I’m going to use an outside expert to do it for me.

Not so fast!

Focus on your day job. Be really excellent at what you know well. In your financial life, be extremely conservative.

Because…

In every field I’ve gotten to know well…

As a class, insiders consume the excess return for themselves.

…private equity, CEOs, elective-medicine, sports supplements, luxury goods, commercial banking…

Excess returns come from inside a field where you are world-class, not from tinkering on the other side of a trade with a finance whiz.

Crypto

The capacity to see beauty

I was going to take a break from posting but this topic gives me an opening to share something useful with you.

So here goes.


Sunrises

First, I know next to nothing about crypto.

Fortunately, my life has been set up to take into account that I am clueless about many things!

I think we can start by agreeing that crypto is volatile.

So I’d suggest you start by thinking deeply about how you, your significant other, your family and your coworkers tolerate volatility.

I don’t need to think deeply. My family abhors volatility. They get nervous about stuff we don’t own.

Personally, I tolerate volatility but tend to sell early. By way of example, I am absolutely certain that I would have sold Amazon 20+ years ago. Grateful I didn’t short it.

So, regardless of the fundamentals, I’m not a good fit for the asset.


About those fundamentals, I can’t see them.

I could learn about crypto but, while learning about an asset class that isn’t a good fit, I am not working on something else.

Let’s repeat that… while thinking about one thing, I am not thinking about another thing.

The opportunity cost of mis-directed thought.


Say I get there – I’m comfortable with the asset class, and I’ve gotten myself and my investment committee past the volatility issue.

Will it make a difference?

Buying, not buying, selling, not selling. Being right will not make a difference in my life.

The opportunity cost of incorrect focus. Big one.


Shades of green

If asset classes don’t make a difference then what does?

I was thinking about this on my run this morning. So let’s start with that… dropping fat, maintaining a stable weight, daily movement in nature, improved strength… big difference!

Since shifting my primary focus away from money, my body has had the opportunity to do a lot of cool stuff.

Trying to get more, of what I don’t need, can prevent me from getting something useful.


A flower

Leaving => I wrote about considering if an asset is a good fit for an owner. What about life?

Leaving makes a difference.. every single time I realize I have different values than my peers, I exit => patiently, quietly, doing a good job on the way out.

I need to watch this tendency. Making a habit of leaving is not going to take me where I’d like to go. Stay where I belong.


Building => Don’t look for easy money, build something.

I helped a friend build a business. Unfortunately, he lied to me and stole money from the investors. Interestingly, when the dust settled, that didn’t make a huge difference. If someone isn’t trustworthy then it’s better to know, as soon as possible. In the end, I learned a lot and walked away with 25-years living expenses.

Learning, while building capital => made a difference, up to a point of rapidly diminishing returns.


A reminder of my first kiss with my wife

As you age, I recommend you transition your focus from money to relationships. Because…

Family => marrying well, raising my children to be exceptionally kind and athletic… makes a huge difference, much more than spending the last ten years building wealth would have done.

Having the courage to change, so my kids’ values are a better fit with my own.


My smiling, lovable savages. You have my eyes…

We tend to over-value what we see.

We see crypto rocketing and we think it must be a good idea. It might be. Like I said, I know nothing about it.

But what we don’t see is often more important.

Thinking about that on my run… the decision “to not” has helped in ways I will never see.

Errors not made.

Not smoking, not using scheduled drugs, not taking sleeping pills, not giving into anger, not quitting…

1/. Will this make a difference?

2/. Will “not this” make a difference?

A useful filter on where to focus, and what to avoid.

Ski Math

The tiny dot in the middle of the frame is my son hiking up from a yard sale, in a gale, at the top of Pali Chair. FIVE minutes later he said, “Dad, I’m glad you’re as good a skier as me.” I’d kept my skis during the traverse! They have such short memories.

Our family ski experience is like my Pandemic Predictions => I got a lot wrong.

When I was shelling out for childcare/preschool, skiing struck me as a very expensive way to do a lot of driving, without much cardio.

Not interested.

A friend, with four kids (and a jet), made the observation… “you gotta be able to do something as a family.” Given his role, as the smartest guy I know, we decided to give it a try.


My wife didn’t believe me when I said, in advance, “We’re making a million dollar decision here.”

Frankly, I took it easy on her. The math is daunting…

But wait, there’s more.

Add-in the inflationary effect of surrounding yourself with the largest spenders in our society.

And… have a look around the parking area, with the smell of legal weed wafting across the empty beer cans… Is this an environment where I’d like to leave my teenaged kid unsupervised?

Still… “you gotta be able to do something as a family”.



$175,000 worth of opportunity cost later, I can ski any run, with any member of my family. This makes me happy during a time of year I used to dread.

Total immersion (5 million vertical feet, in three seasons) let me achieve my goal quickly… Something outside, at a high level, with any member of my family.

Unexpectedly worth it… but only after I figured out our family’s cash burn.


I cope with the “demographic” by focusing my energy on seeking to ski like an instructor, with the fitness of a ski patroller. These goals provide structure for my athletic year.

Like much of my outdoor life, my participation is conditional and always one major crash away from ending.

Stay variable.

Vacation Property 2021


One of the topics from our recent Couples Retreat was vacation property. I needed some time to show-my-work for why I’ve decided to stay variable.

The question, in the context of both buying and not-buying, was…

Will it make a difference?


The question gives me an opening to share some things I’ve learned from 25 years of real estate investing.

1/. I have yet to regret not-buying a vacation property. When vacation markets appreciate, so do investment markets.

2/. The ones-that-got-away have three main attributes: well located, easy to find tenants and decent cash yield. Vacation properties usually only have one attribute… well located.


I’ll share insights about capital allocation:

=> No one in the company is likely to care more about capital allocation than the boss – the CEO sets a cap on how much people will care about capital, and everything else for that matter.

Extend into your marriage, and family….

=> No one will care more about spending and capital allocation than the individual responsible for earning the income/capital in the first place.

Similar to work ethic… the actions of leadership set a ceiling on what to expect. No amount of legal documentation, and pontificating, can overcome this reality.

Don’t waste energy fretting about the way things are.

Be grateful when you’ve been able to create a team that, largely, follows your lead.


Now the math!

I’ve updated my #s for the two markets I follow most closely.

  • A vacation market with an effective yield of -3% (cost to own). I avoid fooling myself that I’ll be able to short-term rental myself to breakeven.
  • An investment market that is generating net cash flow of 2% per annum.

To “get my money back” in the vacation market, the value of the asset needs to grow by 2.5% per annum.

Money back does not mean purchasing power back. The “same” dollars in 15 years time will buy less due to inflation – just look backwards to 2005 in your home real estate market and see what your current place was worth.


We have no idea about what the future holds and 2.5% market growth is probably looking tiny when compared to what you’ve seen over the last year (+30% in my zip code).

You could be right.

I do, however, know markets that are just getting back to their 2008 peaks. In a negative cash flow scenario, that’s a painfully long time to hold.


My goal isn’t to predict an unknowable future. My goal is to answer the question “will it make a difference?”

In the get-your-money-back scenario (2.5% market growth):

  • Take time to calculate your true cost to hold.
  • Make sure you’re OK with permanently increasing your burn-rate, especially if there’s debt service.
  • Know your alternative use of funds => the investment property returns $1.75 for each $1 invested & Vanguard’s VTSAX is currently yielding 1.4%.
  • The vacation property requires an extra $0.45 for each $1 invested. This is before you decide to renovate and burn $$$s on rugs, curtains and furniture!

For that vacation property, here’s what I do…

  • Take the purchase cost
  • Make sure I’m OK with annually spending 5% of purchase cost, forever
  • Consider if I am OK with writing-off the equivalent of 50% for customization, the cost of ownership and agent’s fees

Then remember:

  1. My personal utilization of past destinations has been 15-45 days per annum.
  2. The future risk to my family is we are priced out of our home market (not that my spouse and kids might have to unpack/pack up from a rental).
  3. I tend to change my mind.

Feelings!

One of the challenges with new deals is my feelings are dominated by the expectation of the asset making things better.

I also enjoy the feelings associated with being able to provide for my spouse and kids.

Making things better & doing right for my family => it’s difficult to feel the benefit of doing nothing.

Once I have a good-enough position, the only person who can screw it up is me.

Property 2021

My favorite real estate can’t be bought – Collegiate Peaks Wilderness Area

Our local property market has popped 30% since the start of the pandemic.

I did not see that coming.

Here’s a key insight => my lack of foresight had no impact on my family => our success does not rely on directional bets.

We establish a good enough portfolio then focus on: (a) keeping our cost of living in line with our cash flow, (b) shared experiences and (c) staying the course.


A recent John Mauldin note reminded me of two components of real estate.

Shelter – a place to sleep, ideally in a great public school district (links to my post on supporting public education)

Investment – the potential for reliable cash flow and long term capital gain

To those I would add:

Signaling – an example from my own life. Before my wife was “my wife,” I bought a townhouse in Boulder. It showed her, I was committed to Boulder. It showed her family, I had the funds to take care of their sister/daughter.

Asthetics – worth between “a lot” and “nothing” depending on my stage of life. As I age, increasingly appreciated. I was 50 before I could relate to the concept of a $1,000,000 view.

Community – In my early 30s, I found myself in Christchurch, NZ. The community was an excellent fit for the life I wanted to live (sharing outdoor activities with friends, elite triathlon). The South Island of New Zealand has always felt “right” to me. On the other side of the equator, was Boulder, Colorado. There I found love and decided to establish my family.

I didn’t need to own real estate for love, community or family. some qualities work best when inverted.

Location inverted => The principle here might be don’t invest anywhere your spouse won’t live.

Asthetics inverted => Absent financial duress, locations you can buy cheap tend to stay cheap.

You can extend to secondary markets.

My family loves Vail.

Rather than buying a 40 yo condo for close to a decade’s worth of core living expenses… we allocated 2% of the capital and joined a world-class ski club.

My annual family ski budget, including club and rental housing, is about the same as what the old condo would cost to own. The principle => don’t capitalize luxury expenditure.

I made this decision because I’m not confident about my life 10 years from now – when I’ll be an empty nester.

In making a decision to “not buy” I have maintained: (a) a cheap option to change my mind in the future, (b) I’m still debt free, and (c) my capital is available to be used elsewhere.

About elsewhere… I am very confident that my children are going to be grateful that I kept the family invested in the Boulder real estate market. Hedge the risk your family will be priced out of the place your kids grew up.

Of course, this assumes you are living in a place you don’t want to leave. It’s not just your spouse you should pay attention to…


The above components can work against each other.

For example, signaling vs return on investment. I’ll give an example…


Trophy house was 55 bags of leaves. Current house 5 bags. Little things have a big emotional impact on me. I love low hassle ownership.

After we married, I bought a very large house, not far off the size of a small school. The bills, and constant yard work, took the fun out of ownership. Being a big shot turned out differently than I expected.

This experience nudged me into a principle, apply the minimum capital to achieve the goal and pay attention to the cost of ownership (money, emotion, time).

And that’s really the point I wanted to make.

In a hot market

  • Consider the need you are seeking to fill
  • Pay attention to the cost in time, emotion and ownership
  • Remember that capital is precious and leverage can trap you in situations where a renter can easily exit
  • If your time horizon is less than a decade then rent

All of this is easier to see when you’ve been through a few recessions. At the start of 2009, I promised myself to never opt-in to avoidable financial stress.

The tough part is building the capital and credit capacity to be able to buy.

Whatever you were seeking to achieve, you achieved it BEFORE you purchased.

Hope this helps.