This will be short, our power failed about 8 hours ago and repair may be far off.

Who knew modems need power and UPS devices are finite.

On the plus side I picked up and have read part of book. “Talent Is Overrated,” A paper book. How quaint is that?

I expect at some point conversations with strangers may become satisfying.

It is one thing to know such a power failure could occur, but watching your phone, tablet, and laptop starve is something else entirely.

The only similar experience prior is 40 years old and involved what to do with my hands after giving up cigarettes.

When does a habit become central to our lives? Is that all an addiction is? Likely. I suspect it is time to assess whether the productivity gain of electronic devices is worth the loss of more human transactions.

I know it takes 3 or 4 days to past the worst of cigarette withdrawal. I expect the power to reappear before then.

I wonder if I will revert to my old ways. I’d like to think this cue will be taken to heart.

I’ll let you know in a week or so.


I build strategic, fact-based estate and income plans. The plans identify alternate ways to achieve spending and estate distribution goals. In the past, I have been a planner with a large insurance, employee benefits, and investment agency, a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business. I have appeared on more than 100 television shows on financial planning. I have presented to organizations as varied as the Canadian Bar Association, The Ontario Institute of Chartered Accountants, The Ontario Ministry of Agriculture and Food, and Banks – from CIBC to the Business Development Bank.

Be in touch at 705-927-4770 or by email at don.shaughnessy@gmail.com.

Questions Are The Precursor Of Knowledge


The world is filled with data. It is meaningless until you know it is true when it can become information and then you can investigate to make it into knowledge.

A tweet from Dr Aaron Kheriaty @akheriaty provides an example. The image is from a CDC report. The link is shown but does not link as it is part of the picture.

Image

This is data although it is possible it is true. CDC is not so reliable as it once was for purveying truth, but for now, let’s accept it.

What does it mean?

Meaning is the beginning of knowledge. Assigning meaning to information is a necessary skill and one often overlooked in the rush to judge.

Questions lead to meaning. So, let’s think of a few.:

Begin with an assessment of the information provided. Is the comparison to excess deaths at age 85 meaningful? Probably not very. The coronavirus seems relatively harmless in the absence of other problems with one’s health. The under 25 group was nearly immune in the early months and the deaths that appeared were generally connected with significant preexisting conditions. That there is a 4% excess death rate may not have any significant meaning as there are very few deaths in the group’s baseline. If normal is 1,000 per million, a 4% excess is 40 deaths in a million. It is very hard to attribute a cause to that.

The older groups may have some meaningful information included.

What are the sizes of the population of each age group? What is the expected death rate within each? That will help us to understand the relationships we need when looking further. At first glance, a 55% excess death rate seems formidable but as we saw with children if the numbers are small, the percentage doesn’t help with an answer. Never pay much attention to average increase when the baseline number is low. If something happens twice in a million and increases to three in a million, the change is +50%. Notice there is now way to get an increase lower than that.

Percentage change usually show us where to look first though.

Could I get a series of these particular graphics so I could assess the change over time?

  • Is the over 85 excess falling or rising? If falling, by August 2021, the beginning of the data set, the most vulnerable may have already died. That leads to a question of causation. Was it the virus or the heart condition? Did the person’s system become overloaded? The straw that broke the camel’s back.
  • Are the 25 to 44-year-old group results much higher than for early periods? If so when did the excess begin to appear? How fast did it grow?
  • For the 45 to 85 group what does the time sequence look like? Is there information on co-morbidities in each group?

Are there non-Covid causes of death that have changed dramatically? Suicide, overdoses, etc. As you refine data you find subgroups that have not changed, as well as several that have. Overall averaged results around causation mislead and are usually intended to mislead.

Are the results in the United States similar to the results in other countries? Especially the non-virus parts.

Where next?

I have no ability to get the data and only limited ability to analyze it. Data scientists would eventually come up with correlations, maybe leading to causes between several variables connected to but not the virus itself.

It is not smart to look for answers to what you think are the causes, but it is human nature. The best data scientists let the information lead them to an answer, not make their mind up and then look for proof of their thesis. We non-experts usually follow the weaker course.

Always pay attention to two factors.

  1. Correlation is not evidence of causation although it is a good place to start looking for causation.
  2. Cognitive bias is real. It is very hard to look for things when you think you know the answer.

What we find?

First of all, let’s choose to ignore two potential causes.

  1. The vaccine kills people and the time comparison may be correlated with the excess death problem.
  2. The lockdowns killed people and we may be able to see a time correlation.

Why ignore those for now? Because they will appear more vividly if they are causes and we have found little else. Their clarity will enhance as other things are discarded or assessed as contributing but of little effect.

Things to examine include contributing factors to death. We know that for people over 85, at least half have four or more co-morbidities. We should examine which they are. If heart disease or diabetes always are in the grouping we might like to keep track of that. Maybe those with a poor diet are always affected worse. Immobility is related? How about Vitamin D deficiency? Maybe some potentially contributing factors are caused by others. Do you suppose immobility increases the chances of low Vitamin D levels?

In the 25-44 age group There are likely fewer co-morbidities so there may be an easier analysis. Does anyone know the effect of inadequate sleep, stress from the changing work environment, and the change in the conflict level with both children and spouse?

The three groups between 45 and 85 are confusing. A more refined assessment might provide help. I think the averaging effects are the source of the confusion but more information would help.

Where the thought experiment leads me

Comparing the ends might offer the most help 25 to 45 and over 85 are vulnerable to different degrees but likely have some useful comparisons. Under 25 likely has too few clear indicators.

What we might discover. Emphasis on might.

  1. Healthy people can fight off the infection. Unhealthy people not so much. The degree of unhealthy matters most.
  2. Does the virus cause death or is it a catalyst that emphasizes other defects?
  3. The Great Barrington Declaration was more right than admitted early on. Universal lockdowns were not very valuable and caused other harm. Isolating the most vulnerable would have been adequate.
  4. Policy decisions were made poorly. If the virus was highly contagious as offered, then most people were going to get it eventually. Prevention was thus an improbable success vector. Why were treatment protocols not more fully explored? My preference is that in an emergency the first step is to stop the bleeding. There is no limit on what you can try so long as you believe the chosen action won’t do more harm. In the beginning, whether it will work or not is not a valid question. Wide experimentation and reporting results would find workable methods in a few weeks, at most a few months. If you know everyone will get it, doesn’t treatment become the priority?
  5. Vaccines seem not to have been the panacea promised. They might have been harmful to some people. It would be nice to know the important variables. As with every other medication known, there will be people where the use of the medication is contraindicated. The untested magic bullet approach should not be repeated or continued.
  6. Healthy people are harder to kill. Know what healthy means and get there. Keep in mind that health is a spectrum. Healthy is a power function. You get a large share of the benefit with relatively smaller inputs than you might expect. It is not necessary to run the Boston Marathon in under 2 hours and 20 minutes to be healthy. Health is an area that conforms to Edmund Burke’s assessment of action. “Nobody made a greater mistake than he who did nothing because he could only do a little.” I have seen an opinion that claims burning an extra 3500 calories a week is enough to stay in reasonable shape. It could be anything. Gardening an hour a day would hit 60% of that goal. Trying to reach Olympic athlete status will more likely lead to injury than good health.
  7. Learn about diet. Learn about vitamins and minerals.
  8. Understand the idea of risk assessment.
  9. Prepare. The world is not risk-free.

The bits to take away

Be healthier. It cannot hurt you and it has benefits beyond disease prevention.

There are too many people who are invested in the Covid response. Expect little transparency, and that will be reluctantly provided.

Question everything and avoid cognitive bias as best you can.


I build strategic, fact-based estate and income plans. The plans identify alternate ways to achieve spending and estate distribution goals. In the past, I have been a planner with a large insurance, employee benefits, and investment agency, a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business. I have appeared on more than 100 television shows on financial planning. I have presented to organizations as varied as the Canadian Bar Association, The Ontario Institute of Chartered Accountants, The Ontario Ministry of Agriculture and Food, and Banks – from CIBC to the Business Development Bank.

Be in touch at 705-927-4770 or by email at don.shaughnessy@gmail.com.

Where The Why In Financial Planning Comes From


Saving and investing are natural, but only to a point. Here in the real world, people require motivation to carry out an extended plan. One like retirement income planning could easily cover 50 years, from now to the second death of a couple.

How do you stay motivated to complete it?

The apparent answer, discipline, is not correct. Discipline is hard work and works only for short periods. No one can use discipline alone as motivation over 50 years.

The answer comes from a chess grandmaster, José Raúl Capablanca. He was the World Champion from 1921 to 1927

“To succeed, you must study the endgame before everything else.” 

Study the endgame

“Why” is the motivation for doing a complex and often challenging task like financial planning.

In chess, the endgame is the part of the game that people can actually think through with fewer errors. When there are only a few pieces on the board, the vast number of options apparent in the middle game disappear. You can see how the goal works out.

Retirement is not the same for everyone, but there is a remarkable similarity. Like in chess, the variables to consider in retirement are fewer than those in midlife. Once you know what is likely and what resources and methods will work to sustain your chosen lifestyle, you anticipate and plan for it.

The opening is highly structured.

The pieces are confined, and the options are minimal. There are just a few strategic ideas, and the concept of time is important. There is a time-limiting clock, and wasting time here is costly later. Efficiency matters. You will have an advantage if you can reach a sound middle game position in one or two fewer moves. In chess, the first eight or ten moves are pretty much by formula. The openings have been studied for centuries, and the idea is to avoid ones known to be flawed.

All mistakes here must be remedied later. That takes resources and time, just like in life.

Take simple, known actions. Avoid mistakes. Prepare for the complexity to come. Common sense.

The middle game is the hardest. 

If you have a sound beginning, you can develop in creative ways in the midgame. That development has two parts. Creating opportunities and defending your opponent’s activity. The biggest mistake is to assume your opponent, or in financial planning, the world will behave in a way to optimize what you do. Neither does. Chess opponents present situations you had not considered, and the world does not remain unchanged in life.

Constant vigilance and thought to find a better approach given the circumstances is required. That’s difficult and many drift.

Having a sense of purpose and knowing what you seek in an end game plan is motivating. It simplifies life because it also creates many chances to say No!. You know why not and that keeps you on a track that works. When you understand how the end game will work and how it benefits you, you look for opportunities to reach one of the board positions that work for you. That’s the “Why.”

Knowing what you want and being able to identify techniques and tools that match your flow improve your play in the middle game.

Knowing why you must work at it and how you will succeed by doing so becomes easier.

The bits to take away

If you don’t know where you are going, and in some detail, there will appear to be more paths than there really are.

Confusion or absence of purpose is deadly in extended plans.

The opening is about establishing good habits like avoiding debt and saving.

The middle game is about developing new skills so you can adapt to change. The end game is where you have an unassailable position designed to suit your life goals.

Financial planning over extended periods turns out to just be organized common sense.

Don’t make it more complicated than it needs to be. Complexity is never motivating.

 


I build strategic, fact-based estate and income plans. The plans identify alternate ways to achieve spending and estate distribution goals. In the past, I have been a planner with a large insurance, employee benefits, and investment agency, a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business. I have appeared on more than 100 television shows on financial planning. I have presented to organizations as varied as the Canadian Bar Association, The Ontario Institute of Chartered Accountants, The Ontario Ministry of Agriculture and Food, and Banks – from CIBC to the Business Development Bank.

Be in touch at 705-927-4770 or by email at don.shaughnessy@gmail.com.

Obvious Is Not Always True


Investing looks to the future. Looking to the past, even the very recent past, can be misleading.

I first noticed this a few months ago when I listened to people tell me the wonder of large pharma companies and how they could become another Apple. At the time, I was not impressed, maybe because I was fed up with the vaccine propaganda that seemed to be everywhere.

One thing I have learned, albeit slowly, is that sometimes I am wrong.

To that end, I decided to take a look at the pharma idea again.

The discovery

I started with the pharmaceutical industry and the idea of competitive advantage, cost leadership, and the cost to grow. I fairly early on discovered Eroom’s Law. It was more than a little disturbing on two fronts. Its effect on investment and its restriction on the development of worthwhile pharmaceuticals.

Eroom’s law arises from observation and perhaps is not rigid. It points out that the cost to deliver a new drug has doubled every nine years since 1950. That’s seven doubles to now. Seven doubles are 128 times. Amazing what 8% a year yields over a long time. Maybe having more time to invest matters more than the yield, but I digress.

I did not look a lot further. Businesses with diminishing marginal utility of capital are automatically unattractive. Free cash flow is where the value lies, and if the cost of sustaining the business rises that quickly, free cash flow will be restricted.

A comparison

There is a similar law named after Gordon Moore in the semiconductor industry. He observed that since 1965 the number of transistors on a semiconductor device has doubled every two years. Some say 30 months. The cost per transistor has fallen to near zero in the process. In this industry, product value per dollar is improving. I like that better.

You might notice that Eroom is Moore spelled backwards, which is the general idea of the comparison. Pharma is governed by a rule opposite Moore’s Law. Should I invest in Intel? Maybe, but you would need more information to answer.

The conclusion.

While I might prefer Big Pharma to be working on whatever I might need 20 years from now, I think they will need to do it without capital investment from me. At the current cost of time and money to develop a new wonder drug (12 to 15 years and $2.5 billion to get a drug from the lab to the pharmacy shelf,) they will not be able to develop all the molecules that have potential. Not quite what one would want for a superstar investment choice. Capital bound is a blemish.

To add to the complexity of this comparison is the need for exotic materials in the semiconductor industry. For example, did you know Neon is a crucial material for making a chip? I didn’t either. Did you know Russia and Ukraine together supply 70% of the world’s Neon? Oops. I think there will be a supply problem and it isn’t like the chip makers are free of problems to start. Be cautious.

Moore’s law may slow down some, but I don’t see Pharma catching up. Maybe if they find a side-effect-free drug to help people cope with anxiety! But then there is the 12-year lag.

The bits to take away

It does not take a lot of digging to get a general sense of a stock’s viability.

Sometimes it is not what you first think.


I build strategic, fact-based estate and income plans. The plans identify alternate ways to achieve spending and estate distribution goals. In the past, I have been a planner with a large insurance, employee benefits, and investment agency, a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business. I have appeared on more than 100 television shows on financial planning. I have presented to organizations as varied as the Canadian Bar Association, The Ontario Institute of Chartered Accountants, The Ontario Ministry of Agriculture and Food, and Banks – from CIBC to the Business Development Bank.

Be in touch at 705-927-4770 or by email at don.shaughnessy@gmail.com.

Investing Works Without Huge Wins


How many impressive skills do you need to be a good investor? According to many of the most successful, you don’t need great skills. Average or better will work in many cases.

Three things you need are:

Objectivity. The ability to follow reality as it presents itself. Avoid what you don’t understand.

Patience. The ability to wait. Most people who find a situation they believe in expect the outside world to conform to that immediately. Peter Lynch has pointed out that some of his best investments doubled in 90 days after lying dormant for more than three years.

Adaptability. Things do not remain the same for very long. TV financial commentator Louis Rukeyser makes this point, “Not only is this time different, but every time is different – the most successful investors can adjust to this unorthodox reality” Louis Rukeyser.

Other advantages

Other skills would be nice, and you should cultivate those as you have the opportunity.

  1. Ability to understand financial statements.
  2. Time and skill to dig deeper into potential investments. Market analysis, management stability and skill, regular and growing dividends, and reputation within the financial community.
  3. Ability to value a corporation as a business.
  4. A clear understanding of how the stock market values securities.

Eventually, people begin to look for cash flow. Earnings are opinion, cash flow is more solid.

The bit to take away.

Investing to get acceptable results is more about making fewer poor decisions than making big scores. You can do that with common sense.


I build strategic, fact-based estate and income plans. The plans identify alternate ways to achieve spending and estate distribution goals. In the past, I have been a planner with a large insurance, employee benefits, and investment agency, a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business. I have appeared on more than 100 television shows on financial planning. I have presented to organizations as varied as the Canadian Bar Association, The Ontario Institute of Chartered Accountants, The Ontario Ministry of Agriculture and Food, and Banks – from CIBC to the Business Development Bank.

Be in touch at 705-927-4770 or by email at don.shaughnessy@gmail.com.

The Order You Solve Problems Matters


I have been looking at some thoughts from Peter Thiel recently. There is valuable material in this one.

“Ted Kaczynski was a child prodigy who enrolled at Harvard at 16. He went on to get a Ph.D. in math and become a professor at UC Berkeley. But you’ve only ever heard of him because of the 17-year terror campaign he waged with pipe bombs against professors, technologists, and businesspeople. In late 1995, the authorities didn’t know who or where the Unabomber was. The biggest clue was a 35,000-word manifesto that Kaczynski had written and anonymously mailed to the press. The FBI asked some prominent newspapers to publish it, hoping for a break in the case. It worked: Kaczynski’s brother recognized his writing style and turned him in.

You might expect that writing style to have shown obvious signs of insanity, but the manifesto is eerily cogent. Kaczynski claimed that in order to be happy, every individual needs to have goals whose attainment requires effort, and needs to succeed in attaining at least some of his goals.

He divided human goals into three groups:

1. Goals that can be satisfied with minimal effort;

2. Goals that can be satisfied with serious effort; and

3. Goals that cannot be satisfied, no matter how much effort one makes.

This is the classic trichotomy of the easy, the hard, and the impossible. Kaczynski argued that modern people are depressed because all the world’s hard problems have already been solved. What’s left to do is either easy or impossible, and pursuing those tasks is deeply unsatisfying. What you can do, even a child can do; what you can’t do, even Einstein couldn’t have done. So Kaczynski’s idea was to destroy existing institutions, get rid of all technology, and let people start over and work on hard problems anew.

Kaczynski’s methods were crazy, but his loss of faith in the technological frontier is all around us. Consider the trivial but revealing hallmarks of urban hipsterdom: faux-vintage photography, the handlebar mustache, and vinyl record players all hark back to an earlier time when people were still optimistic about the future. If everything worth doing has already been done, you may as well feign an allergy to achievement and become a barista.”

Ted Kaczynski’s idea of a hard problem is relative. Your problems are undoubtedly different from the large social and scientific puzzles he worked with every day. Nonetheless, you will find that sorting into impossible, hard, and easy is something you can do within your own context and resource set. And to your advantage

You should do it. You do it with the same strategy you use to write a challenging, time-limited exam. Clear the easy questions. Sort the rest from least hard to impossible and start on the least hard with the most marks available. Eventually, the time will be exhausted, and all that will be left are the hard problems with little payback and the impossible. No great loss to leave those undone.

The bits to take away.

Organize around cost-benefit relationships. If you begin with the very difficult, you may not achieve the answer you need, while the low-hanging fruit will have been overlooked.

Never fail to notice that easily solved problems provide you with resources of money or skill to solve more challenging problems.

Life has an order to it that helps you if you use it. “In the field of observation, chance favours the prepared mind” Louis Pasteur” preparing your mind for more is a big part of success in life.

Ordering problems is the “When” element in planning.


I build strategic, fact-based estate and income plans. The plans identify alternate ways to achieve spending and estate distribution goals. In the past, I have been a planner with a large insurance, employee benefits, and investment agency, a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business. I have appeared on more than 100 television shows on financial planning. I have presented to organizations as varied as the Canadian Bar Association, The Ontario Institute of Chartered Accountants, The Ontario Ministry of Agriculture and Food, and Banks – from CIBC to the Business Development Bank.

Be in touch at 705-927-4770 or by email at don.shaughnessy@gmail.com.

What Is ECOLACY?


Ecolacy is a word coined by environmental scientist Garrett Hardin. It has to do with being fluent in ecology. It’s meant to be like literACY and numerACY. The ability to understand the factors involved, identification of problems and opportunities that arise within the knowledge, and the skill to make sound judgements about what you observe.

I estimate my ecolacy to be 20% or so of what it should be. The problem, as Hardin described it, is this. People are aware of ecology, yet they are not wise about what to do next.

“If we are to correct the consequences of the world’s actions, we must understand the machinery that accounts for these consequences.”

That is a formidable obstacle. The machinery of the environment is a complex system, and as we saw yesterday, it is not an easy thing to make cause-and-effect associations. Worse yet, there is a political side to it, and the people involved there are happy to provide simple answers with a single driving element.

H.L. Mencken understood at a deeper level.

“Explanations exist; they have existed for all time; there is always a well-known solution to every human problem — neat, plausible, and wrong.”

The natural environment is not the only field where outcomes matter and the neat. Plausible, and wrong solutions are promoted.

Think about your financial goals.

These exist in a particular environment or context. What is the nature of the world you, particularly, live within? You should spend some time thinking about that. Over your lifetime, all of your financial plans will be altered by changes in that context.

Your mission is to understand two things:

  1. Your personal context, what you want out of life, when, and the resources you have to achieve the result.
  2. The nature of the financial world around you.

In the natural environment, we tend not to make the connection between ourselves and the world around us. In financial matters, we tend to think about our personal context. Or the external context. But have trouble thinking about both at once.

Wisdom is where we can connect the two because we understand both.

Start with you.

Have you ever made a written list of your ideal life and the factors you have or will have to produce the result? The simple idea is to have a vision and then answer the “W” questions. They will clarify the vision and make it something you can implement.

Who are you? Ambitious or lazy? Introvert or extrovert? Talented or not? Part of a network or not? Conventional or rebellious?

Who else is involved? Do they support the plan emotionally and/or financially?

Where will I be? Does the where match my ideal life. Big city or small town? Low tax place, or somewhere where friends and family live?

What do I want? There are likely several aspects. Retirement, successful children, a margin for error, leisure, and dozens more.

When do I want it? The “whats” will appear at different times. For example, children’s education tends to come before retirement. Each when will have different factors and should be addressed separately.

Why do I want this particular set of outcomes? Are they self-chosen or expected of you? Are you committed? Why is motivating and you must have a clear vision.

Why Not If you know why you automatically know a lot about why not. The things you won’t do because they don’t fit. Why not is a time-saver.

Finally, what resources do you have now or will have in the future? Each of us has several resources. They include time, skill, energy, attitude, and eventually, money. Money tends to be an outcome of others, so it is a mistake to focus on it early in life. Better to learn how to manage your time, build skills, gain experience, create a network, and acquire the ability to balance the pieces.

Balance is the goal

The mission is to balance your non-monetary resources over your lifetime to the monetary needs that appear when skill, time, experience, and attitude are no longer sold for money. When you stop working, your money must work for you. Doing it successfully means you must learn how to earn more, keep more, and transfer money to the future. That’s where the connection to the financial world comes in.

It is unsafe to go there before you know your own situation.

“If you don’t know who you are, the market is an expensive place to find out”  by “Adam Smith” pseudonym for George Goodman, author of The Money Game.

The financial context has straightforward methods, and most are simple in concept.

Save some money you earn today so it can generate spending money later in life.

Understand non-financial risk. You could lose your job, become sick or die, or your life partner could die, become disabled, or leave. Children could disappoint, or you might just give up. Giving up is not so uncommon. Some people have trouble with the grinding cost of living. Some of the risks are insurable, and you should consider insurance in your risk management plan.

Understand debt. Both debt and investments are time machines. Debt draws your money from the future back into the present, so you can use it. The price of the transfer is the interest you pay. The interest you pay is a drag on future earnings and reduces flexibility in the future. Worse yet, the price might be adjustable. Generally, if it adjusts not in your favour, it will do so while other negative things are happening to you. Debt is risky unless it produces income or reduces expenses by enough to pay its own way.

Understand investment. This time machine moves money forward, and it involves an investment return to reward you for waiting to consume. Your problem is determining how to invest, so the balance between the risk of loss and yield is appropriate for your unique situation. In the end, you will discover at least 40 factors that come into play when you understand that your yield is someone else’s cost. They intend to minimize their cost, and you want to maximize your yield.

Think about how someone would pay more to have you commit your money longer, accept the risk of loss, or have an adverse tax position. Sometimes people would like their investment to be fashionable. The other side pays you with less money and more fashion. Some tax shelter investments, like movies, rely on that. If you are willing to live with illegal, you should expect to earn much more.

Understand investment risk. There are two kinds,

  1. Permanent loss. You did not get the yield and/or you didn’t get your capital back, and
  2. The value of the investment in the future is unknowable with precision. Variability.

When people talk about investment risk, they are usually talking about variability. This risk doesn’t imply capital loss because it depends on a point in time. If you want to convert your investment to money on that day, you might get less back, but variability means little to you if you don’t care about getting it back then. Think of this kind of risk as noise, like static on an AM radio station. You cannot learn much from the static, pay attention to the signal and see where it leads your thinking.

Most permanent loss of capital is easily seen in the beginning. If the possible win is big enough, people will sometimes risk their money. Most private equity deals include the possibility of total loss. If you make many investments carefully, you should be able to average out okay. Think venture capital. They invest in about 1 in 200 opportunities they see and expect to lose on half of those. They expect to break even or make a little on about 45% more, But the rest — !!! How many times could you lose on other investments if you were an early investor in Facebook, Google, or Amazon? It’s not about how many times you win or lose; it’s about how much you win or lose. The game is to lose a little when you lose and win big when you win.

Invest with your purposes in mind. Pay attention to what variables you can invest. Money is just one. Time is important. Tax factors matter. Liquidity if things change. Risk.

It’s like eating at a buffet. Make your investment spay you for all the things you can contribute to the deal over and above money.

The bits to take away.

Know your personal ecology

Know the environment you operate within.

Wisdom is finding where you can combine them to get what you want. At least cost and most predictably.

Whatever you begin with will be different before long. The world around you changes.

When you can see your purpose, the details work for you.


I build strategic, fact-based estate and income plans. The plans identify alternate ways to achieve spending and estate distribution goals. In the past, I have been a planner with a large insurance, employee benefits, and investment agency, a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business. I have appeared on more than 100 television shows on financial planning. I have presented to organizations as varied as the Canadian Bar Association, The Ontario Institute of Chartered Accountants, The Ontario Ministry of Agriculture and Food, and Banks – from CIBC to the Business Development Bank.

Be in touch at 705-927-4770 or by email at don.shaughnessy@gmail.com.

No One KNOWS Where The Stock Market Will Go Next. No One!


So, you think some people can predict the stock market. That is fantasyland. Maybe it is predictable in the long term but only based on conditions remaining as they are. The stock market, the economy, and the weather are complex systems that do not behave as we think. Perhaps intuition is a more helpful term. I’m not sure thinking is actually involved.

Stock markets are not short-term “deterministic.” What has happened influences the short run, but it does not define it. Results rhyme. There is a signal but also variability. I have seen it presented a taking a dog for a walk. You follow a known path while the dog wanders all about it. Your path has some predicting value; the dog’s short-term path does not.

Cartesian versus complex systems

A cartesian system is one that uses an X and Y axis to create a plane where a known function can generate particular locations for a family of points. If you can describe the rule, you know where every point will appear.

Complex systems are ones where there are “attractors” but no clearly defined rules that apply always and everywhere. They have variables that interact with each other, but not in a precisely rule-bound way.

What we take to be a sharp-edged factor may be a bit variable, and the variance affects how the result plays out. For example, your money manager makes decisions about what stocks to own. Today his child is seriously ill. Will he make precisely the same decisions as he would have made a month ago?

Ed Lorenz

Ed Lorenz was a meteorologist and professor at MIT. He is one of the founders of what we know as Chaos Theory. What he learned about predicting weather applies in principle to any complex system. He found that predictability had limits.

“Two states differing by imperceptible amounts may eventually evolve into two considerably different states. If there is any error whatever in observing the present state—and in any real system such errors seem inevitable—an acceptable prediction of an instantaneous state in the distant future may well be impossible.

Because of the inevitable inaccuracy and incompleteness of weather observations, precise very-long-range forecasting would seem to be nonexistent.”   Edward Lorenz

Tiny differences in observations of the present can end in enormous differences in outcome. Lorenz discovered this when he created a prediction model that seemed viable. He built a second version that started in the middle of the first one and found the model created an immensely different end.

He found that although the models were identical in how they created the result, the variables used in the original model had been evolved by the program, while the ones in the second version were inputted. The second model used 3-decimal accuracy, while the original had created 6-decimal accuracy by then. The result was an utterly different outcome. The 4th decimal is the 10,000th place, and the 6th is the one-millionth place. Tiny variations in the input have a massive effect.

We don’t know what is happening in the present with that degree of accuracy, so future results are beyond our ability to predict.

Models are for insight, not a conclusion.

As Lorenz found, tiny input variations make for vast differences in outcome. The stock market is complete because there are so many people involved, and each of us is a complex system in our own right.

British statistician George Box makes a valuable observation.

“Remember that all models are wrong; the practical question is how wrong do they have to be to not be useful.”

My answer to that question is they are helpful as long as they provide insight into the problem. Providing solutions is not one of the things models can do. Models help you understand how the variables interact with each other.

The limits of predicting are clear.

They are, nonetheless, unwelcome. We love predictability. Benoit Mandelbrot was a mathematician who studied chaotic effects. His summary is worth noticing,

“…clearly, the global economy is an unfathomably complicated machine. To all the complexity of the physical world of weather, crops, ores, and factories, you add the psychological complexity of men acting on their fleeting expectations of what may or may not happen-sheer phantasms. Companies and stock prices, trade flows and currency rates, crop yields and commodity futures-all are inter-related to one degree or another, in ways we have barely begun to understand.”

We cannot predict because we do not know the beginning conditions with sufficient precision. I suppose the processes themselves are not known in much detail either, but that’s even harder to assess.

Get over it.

What we can do, is understand the general direction and adjust as new interactions appear. Recall the walking a young dog idea. Your path in the short run is nearly predictable, but the dog’s path is not. How much of your portfolio would you want to invest in knowing where exactly he would be 5-seconds from now?

But in the longer run, you both end up at home. His wandering had no meaning.

If you own stock in sound businesses, the best advice for your trading activity seems to be Morgan Housel’s admonition, “Shut up and wait.” Waiting is the hardest thing. Patience.

The bits to take away

Own stock in sound businesses.

The market variability is just noise. There is little information in the noise.

Unfortunately, market price variability has been called risk. Risk is unnerving. Pay less attention to variability unless you need the money in the short term. In that case, you should not be in the market at all.


I build strategic, fact-based estate and income plans. The plans identify alternate ways to achieve spending and estate distribution goals. In the past, I have been a planner with a large insurance, employee benefits, and investment agency, a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business. I have appeared on more than 100 television shows on financial planning. I have presented to organizations as varied as the Canadian Bar Association, The Ontario Institute of Chartered Accountants, The Ontario Ministry of Agriculture and Food, and Banks – from CIBC to the Business Development Bank.

Be in touch at 705-927-4770 or by email at don.shaughnessy@gmail.com.

Tom Brady and Net Present Value


Tom Brady is an all-time great quarterback. Maybe the best ever. His career earnings over 23 years are about $330,000,000. He will likely retire at the end of next season and take on a new career. An in-game commentator for Fox football broadcasts.

Instead of being pounded by athletic 275-pound defensive linemen, he will be able to wear a sports jacket and use his knowledge to entertain us. For this, he will be paid $37,500,000 per year for ten years. More money in less time.

What is that contract worth as a lump sum now?

What is Net Present Value?

Net present value is the single sum equal to the value of a series of future cash flows. We know money in your hand today is worth more than money to be received in the future. You could have invested, and the money a year from now would be more by whatever you estimate you could invest in.

For 10 payments, you would need to calculate how much each one is worth today by taking the cash flow you know for each year and “discounting” it by what you could earn. A tedious bit of work with a pencil. Trivial with a spreadsheet.

We must make some assumptions.

The important ones are how much tax will be excised before he can use the money, how much does he pay for lawyers and agents, his discount rate for return on investment, and when does the money appear?

We know he lives in Florida, and they don’t have a state income tax, so he will pay the top federal rate of 37%.

Let’s further guess his helper fees are 5% of income or about 3% after tax deductions.

He will keep 60%, or about $22,500,000 a year.

I will assume they pay him once a year in advance because that’s easier than breaking it down into monthly chunks. Monthly would create 12 times more calculations, and if you are using a pencil, that matters. Spreadsheets don’t care.

What is left is the discount rate. The least yield Tom would accept for investments. Let’s assume 5% after taxes.

Using those factors, we calculate, well excel does,  the single lump sum today equivalent to that contract is $173,739,035.91.

If he needed just 3%, it’s worth about $192,000,000. When the discount rate is lower, those payments in the future are worth more. If he wants 10%, the contract is worth about $138,000,000. A high discount rate makes distant payments worth much less. At 10% a payment 9 years and one day away, the first day of the tenth year of the contract is worth not $22,500,000 but $9,542,196. The amount he could invest today at 10% and have $22,500,000 9 years later.

Some things we can guess at

Part of financial management is the answer to the where question. Florida has no state income tax. California would charge him 13.3%. That’s $5,000,000 a year. We won’t see Tom move to California. There are several states where the state tax exceeds 10% on income at that level. New York, New Jersey, Hawaii, and DC are among them.

Many high-income people move from the high tax states to Florida, Texas, Tennessee, Wyoming, Nevada, Alaska, Washington taxes capital gains only, and South Dakota. I wonder what the high tax, high spend states will do about that?

The contract’s present value bumps Tom’s net worth to over $420 million. About the equal of his wife’s net worth. I doubt there will be a Go-Fund-Me campaign for them.

I wonder how U-Haul manages to have any trucks in California. I’ll bet there is a surplus in Texas and the other low-rate states.

The bits to take away

A dollar in hand is worth more than a dollar to be received later. How much more is just arithmetic. Sometimes you can negotiate a better deal when your discount rate is different than the one the person you negotiate with is using for their side of the calculation.

Taxes matter. Where you are resident is an economic thing anymore. Athletes particularly are likely to live in low-tax states because their careers are short. When they, or you, needlessly give up taxes, it is never recovered.

How much is your career worth when you think about net present value? It is almost certainly your most valuable asset. Nurture it.

Learn to notice what the numbers mean instead of what they are.


I build strategic, fact-based estate and income plans. The plans identify alternate ways to achieve spending and estate distribution goals. In the past, I have been a planner with a large insurance, employee benefits, and investment agency, a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business. I have appeared on more than 100 television shows on financial planning. I have presented to organizations as varied as the Canadian Bar Association, The Ontario Institute of Chartered Accountants, The Ontario Ministry of Agriculture and Food, and Banks – from CIBC to the Business Development Bank.

Be in touch at 705-927-4770 or by email at don.shaughnessy@gmail.com.

Where To Run When The Financial World Hiccups


There is a thought in investing that claims in times of chaos all investment types are correlated. As we can just now, bonds are falling the stock market is falling real estate prices, crypto is falling, and I suppose many other things are feeling poorly.

I am not a fan of losing money, even on paper, but it is unavoidable here in the real world. The important question is what should you do about it?

What should you do?

Try to understand what’s happening

One of my neighbours years ago was a high-powered stockbroker,  His advice I think is wise. “Sell until you sleep.” It applies to both the highs and the lows. People sleep too little when things have run up beyond their expectations and they have the same problem when the market falls.

Selling everything is not likely your best move.

We are emotionally driven creatures and that accounts for most of the volatility in the market. Fear is stronger than Greed so an old adage proves out, “markets grow slowly and fall fast.” That leads to an approach to your concern. Markets that fall fast tend to

  1. Overshoot reality
  2. Recover more quickly than ones that fall slowly.

Rather than looking to a day-to-day result, look more forward. This is the time to go back to basics. A stock is a share of a business. The value of the business is not always reflected by the stock market. The stock market is made up of people buying and selling for their own reasons. Emotion plays a part.

Is Microsoft at $260 per share any different than it was at $343 six months ago? Probably not much different. Their sales may not grow as quickly as people hoped but that’s not all bad. Businesses need time to stop and think, too. Growth is tricky. There are other things to care about than sales growth.

Compared to last November Apple is almost unchanged. Facebook at $189 is down from $341. Netflix, formerly $660 per share has become $166 per share in that same period. Pay less attention to indices and look for quality businesses. When you think business instead of stock, you see different things.

When you sell until you sleep and have thought through the business idea, you will have a clear idea of how to redeploy your capital

Advice you will hear

“It’s normal, just wait for the recovery and all will be well. You can expect a correct at least once every four years.” That is not bad advice but if you want to understand and prosper treat this as a time to learn and think and act on solid facts. It’s a good habit.

If you don’t need the money now, there is no problem reorganizing. Ideally to a more well-constructed portfolio. Selling until you sleep is a smart first step and it provides capital to seize opportunities. Remember the race horse breeder’s maxim. “Keep the best and sell the rest.”

For those who do need money, it’s unlikely you will need it all, so take what you need and carry on. If you have sound businesses in your portfolio, you’ll be fine in a year or two.

Words to the wise

If you thought leverage was your friend, you might be having second thoughts. Leverage is not your friend except in exceptional circumstances. Most people do not see that and use some sort of formula. Remember that stock market genius is almost always a rising market.

Think about this. “Leverage: – If you’re smart you don’t need it and if you’re dumb you shouldn’t be using it.” – Warren Buffett

For the future, being fully invested is risky. You can diversify some of your emotional risks by having a significant cash holding in your portfolio. It provides opportunities when a sharp drop appears. Your sound businesses will be affected a little but you’ll have money to take advantage of the opportunities that are sure to appear.

Consider Warren Buffett’s “Hamburger” advice.

“I’m going to buy hamburgers for the rest of my life. When hamburgers go down in price, we sing the ‘Hallelujah Chorus’ in the Buffett household.  When hamburgers go up, we weep. For most people, it’s the same way with everything in life they will be buying.

– except stocks

When stocks go down and you can get more for your money, people don’t like them anymore.”

Is he wrong? I don’t think so. People think that way because they don’t understand the ideas of market price and fundamental value.

The only time the market value of a stock matters is when it is time to buy or sell.  lifestyle.

The Bits To Take Away

Stocks and money are not the same things. When you buy a stock you give up money and can only get it back by receiving dividends or selling. If you think of stocks as money, the prices the market delivers each day won’t make as much sense as they should.

Markets fluctuate because people and their baggage drive the stock price. The business value is something else again. You should know how both are formed and trade on the difference that appears.

Know yourself. Most people are their own worst enemy.


I build strategic, fact-based estate and income plans. The plans identify alternate ways to achieve spending and estate distribution goals. In the past, I have been a planner with a large insurance, employee benefits, and investment agency, a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business. I have appeared on more than 100 television shows on financial planning. I have presented to organizations as varied as the Canadian Bar Association, The Ontario Institute of Chartered Accountants, The Ontario Ministry of Agriculture and Food, and Banks – from CIBC to the Business Development Bank.

Be in touch at 705-927-4770 or by email at don.shaughnessy@gmail.com.

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