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.

++

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.

++

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.”

++

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.

++

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.

The Car Off the Lot



Just finished another great read by Poundstone, Priceless.

For the families I work with, the information inside is probably worth an additional ten years of self-allocated time. Ten years, the parents could allocate to their kids, rather than building assets. Or even allocate to yourself.

If we slide into the investment world, the information is worth tens of millions. Just sit and listen to any executive who controls a budget over $250 million, or listen to the debates within your city council. Boulder city budget creeping up to $500 million for ~100K pop. Down the road, City of Denver has a ~$1.3 billion budget.

Unforced errors are easy to spot when watching others. More valuable is to teach yourself to notice how you are being pulled into spending more. Personally, my top unforced error is $275,000 and I’ve come across mistakes in excess of $1 million.

Our emotions can lead us astray. Be particularly wary of having sadness triggered… “I wish I could have that…”

Whenever I notice that feeling, I stop!

My first line of (emotional) defense is slowing down the process.


What’s the car off the lot? It’s the deal that gets you onto the lot.

I’ll compress three trips to the dealership and a month of research into a story…

When you arrive, the first thing you see is the anchor.

Or, in the case of fashion, it’s the purses/dresses in the display cases with discreet (but astronomical) prices displayed.

It’s the jacked up Denali Super Max Monster Truck, blacked out, with 48-inch tires, that’s driven onto a rock and visible from the street…

Locally, our Toyota dealership puts out a PRO and prices it $10,000 over MSRP. Thereby setting a $60,000 anchor in your mind. Each year, this car comes out with a unique color scheme, and a special type of roof rack, so connoisseurs can instantly ID the driver’s status.

While they’d be very happy to sell you the PRO, it’s not the lead vehicle. What they really want to sell you is one of the four (!) OFF ROAD parked right beside it. They have $10,000 worth of options and are priced at $49,999 (-ish). They are lifted, with gleaming knobby tires and they have swapped the decal so it is badged “PRO.”

With that $60,000 anchor in my mind, the sexed up OFF ROAD certainly felt like a deal. I could “save” $10,000 by buying it, it was right there…

But where was that basic OFF ROAD that I saw on the internet?

We went into the salesman’s office and pulled up the dealership inventory.

G: Sort the OFF ROAD trims by price for me, thanks.

Salesman: The system won’t let me do that.

G: OK, I’ll just have a look.

Salesman: Sure

G: What about that one?

S: It’s not the color you wanted.

G: That’s OK, let’s have a look at it.

S: It’s at a remote lot.

G: That’s OK, I’ll wait.

30 minutes later, it rolls up. Homeboy was not in a rush for me to see this vehicle!

Eventually, I’m out of there with an extra $20,000 in my pocket.

By the way, the dealership still did well. I was emotionally tired and didn’t haggle the last $$$s out of the car and my trade-in.

Three trips to the lot and a month of thinking it over. Slowing myself down is the best defense against emotional purchase errors. These techniques, and much more, included in Priceless.

In my financial life, I have a system to slow myself down => a disinterested person sits on my investment committee and oversees every proposed change in strategy.

The remote, disinterested mentor => valuable!


Three things to notice in all purchase domains…

  • What’s the high anchor?
  • What do they really want to sell?
  • Where is the “car off the lot” => their best deal?

These three things exist in every purchase offering: Anchor, Target Sale, Hidden Best Deal.

  • Multi-unit apartment complexes
  • Home appliances
  • Luxury retail
  • Jewelry
  • Hotel rooms
  • Ski passes
  • Groceries
  • Show homes…

See it for yourself, and always take the initiative to set the anchor.

…then teach your kids.

Yes, you can afford the high anchor. However, your family system will do far better if you invest the money you save, buy yourself time and improve your human capital.

Also remember, every beneficiary, and dependent, sets a low anchor on the value of unearned money.

Unfortunately, we can’t change the reality of being influenced by knowing about it! The only thing that works is building systems around our human nature.

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.

Generational Transitions

There’s a straightforward way through the headwall – just take it one step at a time

Last week, Mark Spitznagel’s book came out (Safe Haven). Don’t expect any specific strategies for constructing Safe Haven insurance. Do expect to (re)learn useful concepts:

  • a reminder of the central role of time in our lives – the capacity to sustain action, cognizant of time, is extremely rare
  • a reminder that we think in terms of arithmetic averages but experience geometric averages (COVID, portfolio compounding, fitness, nutrition, body composition)
  • a reminder that downward moves (in %age terms) have the same impact, regardless of their position in the time series – the counter to this => absolute dollar losses are best taken later in the time series (down $100,000 wipes me out at 25 y.o. – not so at 60) // by the way, creating negative net worth early (via education loans) is a very nasty geometric headwind.
  • a reminder to consider the cost of your insurance strategy, including the decision not to insure. Health, accidents, portfolios, relationships, nutrition => “insurance” comes in many forms.

Also some great parables/examples to help explain mathematical concepts that I’d previously failed to grasp, most importantly, the negative waterfall of financial ruin in a geometric environment.

Related to geometric returns, some useful illustrations of how/when diversification fails, despite its enduring appeal.

Finally, using Eternal Return when assessing risk. With any important choices assume you’ll be stuck repeating that choice over-and-over. I’m not sure I would have been capable of applying this advice as a young man. At 52, my life continues to benefit from this mindset (health, accidents, portfolios, relationships, nutrition…).

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Today, I want you to think about the past, present and future.

Specifically, I want you to look backwards 10-15 years, as well as forwards 10-15 years. This will give you a 20-30 year time span in which to consider family strategy.

We call 20-30 years a generation. For family leaders, it’s the shortest period we should be considering. Let me illustrate:

  • 2004 – met my wife
  • 2008 – birth of first child
  • 2032 – youngest child graduates high school
  • 2037 – youngest child self-sufficient financially

For our family finances, a generation will be closer to 40 years than 20.

Act with 25+ year time horizons => the Eternal Return is a useful mindset for multigenerational family systems.

++

Family Earning Capacity Over Time

The biggest change of the last 15 years, for us, has been the quasi-retirement of the two largest earners in our family system. Looking forward 15 years, the biggest change will be the addition of new earners into our family system.

The shift in earning capacity every 30 years, or so.

If you are the prime earner, today, then here is a question for you. Does your family system have the assets, earning power and desire to continue to run the overheads you have built over the last five years?

Current choices can create a “geometric” headwind for the next generation.

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Family Risk Management Over Time

The demographic that seems to worry the most about financial risk is the Top 2%. Makes sense, they own most of the assets and, therefore, have the most to lose.

The easiest way to manage family financial risk is to create a cash flow statement with many different inflows, while having the capacity to painlessly chop outflows. I’ve been working on this for 20+ years, covering fixed overhead categories with a mix of inflows.

The option to shrink cash spending is valuable. Specifically, looking at your cash flow statement and seeing how much of it you could chop, at will.

For example, there are excellent reasons to borrow right now (inflation hedge, low nominal rates, negative real rates). However, the costs and negative-optionality of debt are hidden and difficult to price – particularly in a near-zero rate environment.

  • What is the correct way to price the ability for a lender, or my fixed overheads, to force me out at the bottom?
  • How do I price the capacity to invest during the next credit crisis?
  • What’s it worth to not have a boss?
  • How much is a lack of financial stress worth?

In my memory, all the remains from the 2008/2009 crisis is a note I wrote to myself to NEVER DO THAT AGAIN. Ten years along, there is no “pain scar” from the stress I endured.

With our next generation a decade out from starting to earn, we’re debt free, and happy to be there. It’s worth more than I can prove mathematically. I do not have the capacity to think in terms of negative optionality. I can’t price ruin.

I’ll finish with another note I wrote to myself:

Moderation is easier when the prime directive is simply staying in the game.

This applies to my appetite for risk, further wealth, spending choices and personal fitness => interestingly, my greed focuses on various forms of external winning, while my quality of experience is internal.

Limits of Knowledge


A online physics course reminded me of the ways we get ourselves in trouble. I tried to explain this to a buddy and he replied, “there’s simply too much to worry about.”

I’ll give the explanation another shot.

Better thinking is not building the capacity to worry constantly, about more things. Better thinking is about training ourselves to focus on making a limited number of excellent choices, given imperfect information.

  • When to worry?
  • Where to focus?


Limits to Knowledge

Snowflakes: even if a human mind could know everything there is to know about water molecules, it would not be possible to predict a snowflake’s structure.

Mobs: understanding individuals, in isolation, tells us very little about the actions of mobs, or markets, or cities, or nations.

Lots of other examples: DNA to elephants; Neurons to consciousness; the patterns of a sandbar; the shape of a cloud, politics, wars, life sciences.

Clouds are a current favorite of mine – a reminder to stay humble with any bet that requires me to be correct about outcome.

I’m currently debt-free. As a result, I’m able to make more mistakes, be less correct and less impacted by outside factors. The value of this position doesn’t show up in conventional analysis.



Properties that emerge, at scale, make prediction impossible. Joe Norman’s presentation at RWRI helped open my eyes to this aspect of our reality.

I don’t need to become a complexity expert to apply this knowledge. What is essential is understanding the nature of the system in which we find ourselves.

  • Are we in a complex system?
  • Are we in a system subject to extreme events?

To answer my friend’s question, “when to worry?”

Complex systems, subject to extreme events… exposures here are worth the time to carefully consider.

You don’t need to be the CEO of AIG to get bitten on the butt by complexity. If you’ll get fired for the mistakes of one of your direct reports then, given enough time, you’re fired.

Sudden unemployment is one way the nature of universe can come home to roost. Happened to me in 90-days at the end of the last boom.

Here’s another… if you woke up and discovered an undisclosed $20 billion dollar loss in an important counterparty then what would that mean to your life?

What about your family, your employer and your portfolio?

Concentration is a risk we can mitigate. It’s why I have unrelated jobs and several cash flow sources. Here again, conventional analysis fails to capture the value of this position.

In 2021, in a very benign financial environment, we’ve seen multi-billion dollar losses pop up in a week, or less. Rapidly emerging, massive losses are a feature of our system.

Things, that have been stable for a very long time, can disappear quickly.


Prediction: our minds love to predict, to assign causation and to tell stories about the world around us.

Grasping for a “why” is a waste of time.

When operating in complex environments, most importantly when surprises can bite me in the butt, I need to constantly remind myself NOT to make predictions.

For myself, I actually need to go further, I need to implement a policy of NEVER making predictions and NOTING surprises. There is useful information contained in every surprise.

Even further, I shun input from individuals (especially smooth talkers) who make predictions. A reason why I try to never watch videos — too persuasive.

I’ve found that even a little prediction, it leads me down a path of wasting thought.

  • What’s likely to happen – what happens to me if the opposite happens?
  • What’s the worst that can happen – can I mitigate?
  • Does the situation appear reasonable – given the above
  • There are games, investments, relationships and opinions… I don’t need to play, make, engage or have

There are a lot of business where “the burden of the worst” falls outside of the beneficiary class (government, general partners, VC, private equity, OPM, CEO-class, banking).

We can waste a lot of energy railing against the system, I’ve found it much more useful to make sure I understand…

My family cannot afford to take the same risks as my employers, my shareholders and my government.

This is a lesson I learned through, rather expensive, experience when I left Private Equity.



Families…

No Prediction => focus on getting rid of ruin => subject to not becoming a casualty myself… education of youth “buys” more than portfolio returns, or my personal savings rate.

Conventional analysis fails to capture the present value of teaching how to avoid future mistakes.

Risks => practices that make sense for large entities, given time, will wipe out my family


So my point was…

There is more to reality than we are capable of comprehending.

Stable situations can become fragile at scale.

There are certain domains where acting “irrationally conservative” can make rational sense.

We are going to be surprised over, and over, and over, again.


Philosophically, one could say reality is pointing towards a deeper form of intelligence.

From a more linear point of view… the next time you are on an airplane, write a list of your concentrations and counterparty risks. Blow them up, one-by-one, and carefully consider if you need to mitigate.

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.

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.

Freedom 2021


A big motivator in the finance world is the dream of earning “f-u money”.

The universal motivation for this goal is expressed in the Johnny Paycheck song, Take This Job and Shove It.

Trouble is, once you have a goal to tell people to Eff Off, you will never run out of targets for your ire.

You’ve created a habit that can’t be solved by money – and being consistently abrasive will drive good people from your life.


My friend, who changed my view on the UltraRich, demonstrated an alternative approach.

People think the benefit of wealth is f-u money. The benefit isn’t the ability to be rude with impunity. The benefit of financial independence is the opportunity to say no-thank-you to the ever-present drama around us

The goal, to opt out of BS, doesn’t require much money at all.

However, the first $125,000 I saved nudged me in a better direction, eventually, out of finance.

What my younger self found attractive (in wealth accumulation) was a pathway towards serenity. I feel very fortunate that I gave my younger self a chance to look around.

Serenity was found in nature, in connection and in exercise.

Do I want peace or drama?

Own Use Control Acquire Build

For some, the building (of assets) is the best part of the process.

Last Thursday, I mentioned that my son and I were talking about real estate assets.

My son, like most folks, has a bias towards ownership. This runs deep – the only relationship he sees with assets is own vs want.

Now, as any yachtsman will tell you, when it comes to assets… the person getting the greatest benefit isn’t always the person paying the bills.

Two questions that are fundamental to how you organize your affairs:

  • Who gets the benefit of the asset(s)?
  • Who gets the benefit of your time?

Back to Thursday’s strawberries, a proxy for cash flow

From Thursday’s example…

  • The direct benefit of the renal property goes to the tenant.
  • The cash flow goes towards my cost of living.
  • Not having to earn that cash flow, gives me time to spend educating my kids.

The person, or entity, that owns the rental property doesn’t matter as much as you’d think.

What matters is who uses, who controls and who gets the benefit of… the asset.

The mismatch, between ownership and benefit, is a key source of friction within family systems. To mitigate, each generation should have an opportunity to create and affirm their own values.

Short version: we each agree to pay our own way.

The mismatch is also why our political class does a poor job of picking winners, setting preferences and allocating resources.

Incentives matter.


So, are you a balance sheet builder? Are you someone who enjoys using assets? Do you seek power through the ability to control budgets? Does giving to others bring you happiness? Do you love the thrill of the deal, or is it more about the novelty of a new purchase?

As a young person, these questions can be difficult to answer. Even when you think you’ve answered them… you might think differently later.

Here’s something I’ve noticed about myself. The more I notice others, the more I need to step back, relax and recharge. When I’m getting enough time to recharge then the noise of the world flows by.

Remember time and you will make fewer mistakes.

Let It Ride


My son has a side-gig shoveling snow.

Side-gig money is his to spend in any way he wants (and he wants a jumbo Baby Yoda).

His surplus money goes into a bag. “Money in the bag” is real to him.

Other forms, less so.

My son’s outlook is very common and, if not addressed, will cost him a lot of wealth (directly) and time (indirectly).


Last Tuesday, he had a cunning plan to help me “get rich” – the scheme was a simple one. Sell everything I own and realize all the gains.

I left the fact that I don’t truly own anything for another lesson.

Instead, I started by pointing out that there are a lot of rich folks in town who don’t have time to ski with their kids.

Time, son. I want you to remember time.


I want you to remember time.

His scheme gave me the opportunity to teach him three things about money:

1/. We’re not going to sell the rental property…

Income, from rent, is a useful type of money – I used the example that the property he wanted to sell covers the cost of his food.

Cash flow buys strawberries.


Cash flow buys food

2/. Selling costs money

When you sell you need to pay taxes on the gain.

Taxation was taught to him from a young age. Whenever I eat something off his plate, “I’m taxing you.”

If you don’t sell then you can pay taxes later. Pay later is better.

He was on-board so far.

  • Cash flow is food
  • Pay later is better

3/. What are we going to do with the money if we sell?

When you sell, you need to figure out what to do with the money.

The rental property is a great asset and I have no ideas for something better.

I lost him here. I think he wanted to see a _really_ big bag of money.

Opportunity cost and alternative use of funds… fairly advanced for a kid, or anyone for that matter.


How might you get this bag of money to work for you?

  • Cash Flow
  • Deferred Taxes
  • Opportunity Cost
  • Alternative Investments

Good enough is good enough.

Once you get that bag of money working for you…

Let it ride.