On Poverty

 Poverty comes in two versions. 

One is easier to fix than the other. There are systemic methods to deal with money shortages. The other is harder.

Fixing a money shortage

Money deficits happen two ways. Fixing it could take a while.

Income falls below the spending standard. If you know the nut, the money that is required to live each month, then income after taxes must be greater. If you lose your job or business turns down, there can be problems.  The question is for how long.

It could be like the flu. Short pain, return to normal. If it is longer then some assets must be disposed of or new debt incurred. New debt means next month will be harder still. If assets are disposed of some will reduce income or some will have new costs to make up for their loss.

Put money aside by spending less. That builds a reserve and even with an income loss, it works. You are safer if the nut is smaller. and you save. Investments can earn compound interest and that is a huge advantage to avoiding money poverty

The best money poverty fix though is more income.  From, more skills, better opportunities, better attitude, harder work and more rational expectations.

The other poverty. 

Poverty appears to be a constant.  People who have enough money, often don’t have enough time. Time poverty is a concern in Western societies.

The problem with time is each of us has a day of the same length. Time is the only capital we are given. You must earn money. We cannot earn more time nor can we store it for future use. It is a gift.

We can, however, avoid time poverty with several techniques:

1. Do not commit to things in the future that we would find inconvenient to deliver today. The distant elephant problem. Be very cautious in taking on tasks because someone else wants you to do so.
2. Do not waste the time you have available. This about priority setting and discipline. Some people think they cans pend the same dollar twice. Many people think they can use a given hour more than once. Everything is a trade off. An hour spent working cannot be spent with children.
   

   Abigail Van Buren, “If you want your children to turn out well, spend twice as much time with them, and half as much money”

3. Trade money for time. Do-it-yourself is a time trap. Buy your way out of the situation and use the time for something you are good at or enjoy more.
4. Value efficiency. Learn and practice better ways to solve problems. Take a speed reading course. Learn about comparative advantage and delegate some of the things you are good at to spend more time on what you are best at.
5. Be more physically fit. Use your time better. When you are fatigued, the first thing to go are your higher brain skills. The army marches just 50 minutes in the hour. Higher brain skills are important to soldiers in combat. You are not tougher.

An interesting distinction.

People must learn that acquiring capital is what wealthy is about. It is not just money although money helps. Time capital matters too.

Being rich is having money; being wealthy is having time.   Margaret Bonnano

As with everything in life and financial planning in particular, balance matters.

Don Shaughnessy arranges life insurance for people who understand the value of a life insured estate. He can be reached at The Protectors Group, a large insurance, employee benefits, and investment agency in Peterborough, Ontario. 

In previous careers, he has been 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.

Please be in touch if I can help you. don@moneyfyi.com  866-285-7772

Investment Fashion

What kind of shoe appeals to you?

Sometimes an elegant brogue, sometimes a cross trainer, sometimes a deck shoe, sometimes rubber boots, sometimes a warm slipper. Once in a while you need an orange stiletto.

Investments are the same.

1. The warm slipper is the one that always feels good.  A nice dividend, some growth, solid management and a good balance sheet. No one ever feels good about throwing out a good pair of slippers. No one ever thinks of the purchase as exciting.
2. The brogue is for strength and security. Never out of place. More like a bond than a stock. Everyone needs these for situations when the environment is unknown able. Not the most exciting, but never out of place.
3. Cross trainers are versatile. You might own a stock like this for diversification. Maybe like the shoe, something made in Asia. Cross trainers fit a specialized purpose, but they wear out.  You will replace them with a new version.
4. Deck shoes are for fun. Maybe some shares in the Green Bay Packers. Could be Disney or maybe something you buy because your children would like to know that their family has shares in Google or Apple or Facebook. Everybody should own some stock that lets them talk to their children about investing. Even if it earns little it is worth it.
5. Rubber boots are for cleaning up the mess. Could be yours, could be someone else’s. Not every investment turns out as we hope. We must clean up the portfolio eventually. Throw away the ones we would not buy at the price people want. There are other people doing the same thing. It is worth looking at their trash. You can find value in other people’s discards.
6. Then there is the orange stiletto. Flashy. Making a statement. Far more expensive than their value as footwear warrants. Most private equity deals go here. Limited partnerships in movies and TV shows. IPOs. Precious metals, bitcoins and undeveloped land. The stiletto may bring huge rewards or they may become unfashionable or hurt your feet.  Not your everyday footwear, but they have a place.  A small place.

Invest for a purpose.

Every investment in your portfolio should be there for a purpose. Growth, value, income, diversification, security, collateral, fashion, or just because.  They change over time and a little cleaning and polishing is in order.

As you may suspect, I have been tidying shoes. Not a problem for many pairs. But the slippers are untouchable.

Don Shaughnessy arranges life insurance for people who understand the value of a life insured estate. He can be reached at The Protectors Group, a large insurance, employee benefits, and investment agency in Peterborough, Ontario. 

In previous careers, he has been 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.

Please be in touch if I can help you. don@moneyfyi.com  866-285-7772

Deal Making Should Start Early

Deals are more than art.

Everyone makes deals each day. Learning a little about it will serve you well. The art part matters, but there is preparation and technique, too.

There is science to deal making too.

The science part includes:

1. The willingness to deal. That means knowing that the other party expects to get as much value as they give up.
2. Know they know that. Otherwise a waste of time. Don’t assume.  Just because you know you will give up value doesn’t mean anything about the other. Learn. Ask questions.
3. Know the values. Know what you will give up and know what the other can give up.
4. Know who has the last say. If the other has limits or needs approval, you are not really negotiating. More exploring than anything else.
5. Know your own deal breakers and try to understand theirs.
6. Try to discover how they came to hold the position they have.
7. Last, and most important, be certain you do not want the same thing. Both negotiating to defeat the other is a loser.

Learn the science

Negotiating skills can and should be taught in high school or earlier. That’s good in many ways. People who understand negotiating tend to hold more objective beliefs.

Most young children know how to negotiate and they lose the skill. The first aspect lost is the ability to never hear no as an end. Five-year-olds hear it as a request for another option.

Every deal maker knows that a no is not forever and an objection is a question not a statement.

Be willing to step away and assess what you have learned. Impatience hurts. Sometimes both sides need to understand and consolidate their position.

Be sensitive and kind

The other guy is doing their best too, and they won’t give you anything. It is like baseball. The pitcher and the batter are in conflict. Sometimes the batter strikes out and sometimes he hits a home run.

Pitchers and batters look like competitors but both have the game to keep things in perspective.

Try to keep your perspective.

Not many deal’s are the most important thing in life.

Don Shaughnessy arranges life insurance for people who understand the value of a life insured estate. He can be reached at The Protectors Group, a large insurance, employee benefits, and investment agency in Peterborough, Ontario. 

In previous careers, he has been 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.

Please be in touch if I can help you. don@moneyfyi.com  866-285-7772

Oh Good! Now I Can Buy A Steak.

A parental view of society

Having been a parent to young children, I am familiar with the idea of “In Your Best Interest.” I always found it strangely compelling. I probably should not have.  After all, mistakes are the finest teachers and protecting people from making small mistakes is a mistake.

Governments are taking over the parental approach in nearly every part of our lives.

The efficiency of government problem

If you were a government would you be thoughtful, decisive, and efficient, or would you be completely inept? I know you would be choose to be not inept and you think that would set you away from the current governments and their activities.

Maybe it wouldn’t. Maybe governments are incredibly capable and that is our problem with them.

As Mel Brooks has noted, “It’s good to be the king”

You would have to notice that being a government is a pretty good gig. Few would like to give it up. So what happens when they solve a problem? They must find something new to do, find a way to make an existing, mostly solved, problem look deeper, more nuanced or, ideally, pervasive but too subtle to measure.

Failing the expansion of an old problem or the discovery of a new one, you are unemployed.

When governments solve problems, the price of government still goes up.

You will recall “parkinson’s Law. C. Northcott Parkinson established a law of bureaucracy. “Whether the mission expands or contracts, the administrative overhead grows at a steady pace.” Over 5% annually in his now nearly 70-year-old study. Double every 14 or 15 years if you know the rule of 72.

In government bureaucracies, nothing is ever solved completely.  There is always another tweak to find and implement.

I have a client who received a 5 page letter plus appendices from the government explaining how they had inadvertently underpaid her government pension survivor benefit.  Her husband died 41 years prior.

They explained in detail how they calculated the adjustment, how it would affect her future income, how it would be taxed, how it would be that she would receive two T-slips this year, and how she could appeal should she disagree. There was a cheque enclosed for the 41-year deficiency. It was for less than $38.00.

“Oh good! Now I can buy a steak”

Common sense says this, despite being perfectly fair, was a stupid letter.

In your best interest is a false argument.

Like being perfectly fair, best interest is a key to requiring useless work.

That problems are becoming “more subtle” (like bias on any front, or security, or environment) is easy to see. So are new initiatives. That speaks to the idea that governments have solved many of the big problems. So now we see all sorts of regulation aimed at perfecting society by attempting to eliminate trivia.

Can’t happen.

There is no answer that is determined by a bureaucrat that fits everyone equally well. You could argue that in trying to make it fit everyone, it fits no one.

The cost to society is three-fold.

1. The cost of government goes up.
2. The cost to comply with the myriad rule increases and is passed to the consumers
3. The people get dumber because they think they are safe and thus, never gain experience that is gained from their own mistakes.

Of the three, only the last is truly unaffordable.

People who think the government has their best interests at heart and will protect them, are living in a fantasy. Governments protect themselves first and generate “in your best interest” projects to do so.

Our system has violated a key rule of life:

“Never assign a problem to someone who will be harmed if they solve it.”

Some people are willing to do what’s right but only up to a point. After that, it’s a process of rationalization and sales.

Learn to be more self-sufficient and recognize that governments have already solved almost the entirety of every problem that matters.  Hand!

Don Shaughnessy arranges life insurance for people who understand the value of a life insured estate. He can be reached at The Protectors Group, a large insurance, employee benefits, and investment agency in Peterborough, Ontario. 

In previous careers, he has been 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.

Please be in touch if I can help you. don@moneyfyi.com  866-285-7772

What Does Average Mean?

Arithmetic averages

Arithmetic averages are the sum of the samples divided by their number. This works fine for things that are of the same type and roughly the same size. The average income for people in Michael Jordan’s high school graduation class might not mean much. The average size of tomatoes grown on a given plot of ground has some meaning, while the average size of all fruit grown in California probably does not. Understand the range of the data.

Arithmetic average is never appropriate for measuring rate of change.

Suppose I drive a long distance and want to average 60 miles per hour. I have an old car and on steep hills it can only travel at 30 mph. I come to a hill that is exactly one mile to the top and exactly one mile back to the bottom. I want to average 60 mph and can only average 30 mph on the way up, so how fast must I travel on the way down to average 60?

I know you would like to say 90 mph, but that would be wrong. You cannot average rate of change that way. Even at the speed of light on the way down, you cannot average 60 mph. You would be close, though.

The problem is that to average 60 mph for 2 miles you must cover the distance in 2 minutes. At 30 mph it takes 2 minutes to cover one mile, so at the top of the hill there is no time left to get to the bottom.

Geometric averages

These are used to measure the rate of change over time. They won’t work for the old car problem either because it is a trick question. They do work for measuring things like growth in the value of a portfolio.

They are more difficult to calculate and if you try to do it the arithmetic way you will get poor answers. People are not intuitive at this.

Suppose I average 10% return each year for 10 year. At the end I will have 2.6 times my money. I earned 1.6 times my capital.  The average is not 160/10 to get an answer of 16%. Sometimes advertising will show simple interest.

People’s intuition about growth is usually wrong and especially so over long periods.

Simple test.

Would you prefer to have 10 times your money in 10 years or 20 times your money in 20 years?

A surprising number say 20 times in 20 years.

The result for 10 years is 25.9% return, and for 20 times in 20 years just 18.5%.  I suppose the way to think is make 10 times in 10 years and then double it in the next 10.  Personally I would be happy enough with 18.5% but that is not part of the question.

If you looked at a fund or portfolio with a twenty year return of 18.5% and a 10 year return of 25.9%, what should you think?

I would think the manager had two ten year periods, one made 25.9% and the other made about 7.2%. I wonder what the next 10 will look like? If I make 7.2% for 10 years and 25.9% for next 10, I average 18.5%. The meaning is different when you break it apart. Neither average is particularly helpful. 

Be a little careful.

Be especially careful with very long returns

If someone turns $100,000 into $1 billion in 50 years, is that 10,000 times their money a ridiculously high rate of return? .

Yes.  It is about 20% per year. Somehow 20% seems not so high. It is. The important thing to notice is that after 40 years there was only about $150 million. 

Start earlier. The last double adds more income than the total of all the earlier ones. Know how long it takes to double.

Use the rule of 72.

72 divided by the time to double is approximately the rate of return.

To turn $125,000 into $1,000,000 means 8 times the money. 8 is three doubles. If I need three doubles in 15 years then each is 5 years and I will need a rate of return of 72/5 = 14%+. Might not make it. I will need more time or capital if I earn 8%. Nine years to double. Start with $250,000 and wait 18 years would work. 

When planning, consider all the factors.

Capital, time, rate of return and taxes. You may be able to influence one of them more than the other three. Start there and use that to you advantage.

Don Shaughnessy arranges life insurance for people who understand the value of a life insured estate. He can be reached at The Protectors Group, a large insurance, employee benefits, and investment agency in Peterborough, Ontario. 

In previous careers, he has been 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.

Please be in touch if I can help you. don@moneyfyi.com  866-285-7772

Amateur Or Professional?

We will be moving our office in the next few months and I am trying to co-ordinate some of the logistics. It is time consuming and fussy.  The operative rule is two moves equals a fire in terms of disruption. Must be a big fire.

To help solve my time problem, I present an excellent insight to a common problem. People who don’t understand that their personal limitations hold them back.

This article is copied from Farnham Street Blog. You can find it here. www.farnamstreetblog.com and you should. It publishes weekly and is well worth the trouble to read. This article can be found here.

The hyperlinks below lead to other articles. on similar subjects.

The Difference Between Amateurs and Professionals

Why is it that some people seem to be hugely successful and do so much, while the vast majority of us struggle to tread water?  The answer is complicated and likely multifaceted.

One aspect is mindset—specifically, the difference between amateurs and professionals. Most of us are just amateurs.

What’s the difference? Actually, there are many differences:

1. Amateurs stop when they achieve something. Professionals understand that the initial achievement is just the beginning.
2. Amateurs have a goal. Professionals have a process.
3. Amateurs think they are good at everything. Professionals understand their circles of competence.
4. Amateurs see feedback and coaching as someone criticizing them as a person. Professionals know they have weak spots and seek out thoughtful criticism.
5. Amateurs value isolated performance. Think about the receiver who catches the ball once on a difficult throw. Professionals value consistency. Can I catch the ball in the same situation 9 times out of 10?
6. Amateurs give up at the first sign of trouble and assume they’re failures. Professionals see failure as part of the path to growth and mastery.
7. Amateurs don’t have any idea what improves the odds of achieving good outcomes. Professionals do.
8. Amateurs show up to practice to have fun. Professionals realize that what happens in practice happens in games.
9. Amateurs focus on identifying their weaknesses and improving them. Professionals focus on their strengths and on finding people who are strong where they are weak.
10. Amateurs think knowledge is power. Professionals pass on wisdom and advice.
11. Amateurs focus on being right. Professionals focus on getting the best outcome.
12. Amateurs focus on first-level thinking. Professionals focus on second-level thinking.
13. Amateurs think good outcomes are the result of their brilliance. Professionals understand when outcomes are the result of luck.
14. Amateurs focus on the short term. Professionals focus on the long term.
15. Amateurs focus on tearing other people down. Professionals focus on making everyone better.
16. Amateurs make decisions in committees so there is no one person responsible if things go wrong. Professionals make decisions as individuals and accept responsibility.
17. Amateurs blame others. Professionals accept responsibility.
18. Amateurs show up inconsistently. Professionals show up every day.

There are a host of other differences, but they can effectively be boiled down to two things: fear and reality.

Amateurs believe that the world should work the way they want it to. Professionals realize that they have to work with the world as they find it. Amateurs are scared — scared to be vulnerable and honest with themselves. Professionals feel like they are capable of handling almost anything.

Luck aside, which approach do you think is going to yield better results?

Food for Thought:

• In what circumstances do you find yourself behaving like an amateur instead of as a professional?

• What’s holding you back? Are you hanging around people who are amateurs when you should be hanging around professionals?

Most people are better once they realize there are alternate behaviours.  If you ever want to have a useful discussions with your young people, your employees and even yourself, the thoughts found here will make a fine template.

Don Shaughnessy arranges life insurance for people who understand the value of a life insured estate. He can be reached at The Protectors Group, a large insurance, employee benefits, and investment agency in Peterborough, Ontario. 

In previous careers, he has been 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.

Please be in touch if I can help you. don@moneyfyi.com  866-285-7772

Political Thinking Is Not In Your Best Interest

What does it mean to be liberal or conservative?

There was a time when I would have said I know the difference and I can see it in action throughout society. Today I am not so sure.

I think the idea of liberal is a good one. Look after oneself and each other. Adequate but not excessive government. High standards of morality. Opportunity for all. Not quite that anymore. 

Conservative to me means look after oneself, be a little reluctant to change, have a government that supports one group, usually wealthy, over others. Everyone, including governments, lives within their means. Opportunity for all, but if not part of the elite, it’s tough. Not quite that either.

It seems things have changed.

I cannot claim to understand what is liberal today.  The idea of looking after each other is still there, but it is no longer a personal duty.  The government is now the agent and that requires vast resources because governments are costly and largely unaccountable. Morality has been replaced by law. Another government function.

Conservatives are still busy looking after themselves but have a face to the others. The government supports them but not overtly. The government relies on them for campaign money so are unlikely to do much annoying. Most would prefer lower taxes and governments who lived within their means.

The common factor

Do you suppose being the government came to be an advantage?

Bigger government is common to both sides. Authoritarian even. I cannot see how that benefits society. On this point both modern liberals and modern conservatives agree. The expression of what the larger government should spend on is absent, but the structure of reward friends and punish enemies is larger than ever.

Big government is non-responsive to individuals and even to large groups of them. The European central government experiment has the unique skill of pleasing no one except itself and still it grows.

An alternative

When I was at university I took a course in what came to eventually be known as systems engineering. At the time, it was interesting but not fascinating.  I wish now I had found it more exciting. The ideas are universal.

The principle idea.

Look more than one decision layer deep. Study finds things that contradict our common government actions.

“If you never build public housing, you will never need it. If you do, you will always need it.”

The reasoning is based on the experience in Brooklyn in the late 50s and early 60s. Textile mills moved south for cheaper labour and lower costs. Thousands were thrown out of work. The government decided to turn empty factories into subsidized housing and to pay unemployment benefits. The effect was that labour rates did not fall despite the surplus, rents did not go down despite the surplus space, and taxes went up.

Think on the margin

There was some business on the margin, in Brooklyn that was getting along before the change. Once the changes started, their costs went up and they were no longer viable. More unemployed and empty space. More government action.

And then another and another until there were none.

Governments accelerate negative, cost-driven effects.

Not because they are malicious or uncaring, but because they can in the interest of protecting workers and others. They are big enough and financially powerful enough to do nearly anything.

It is all about asking questions whenever someone has a “good idea.” What then? and what after that? A program with no net economic justification must fail, or pick winners and losers. Not very liberal and not very conservative either.

Let us not forget that governments have no money of their own. It is all our money, no matter how obscure the connection.

It is time for another approach.

Common sense. On three fronts.

First, people are responsible for their own well being and should not rely on others. A safety net should be present because not everyone has equal resources and some suffer unlucky outcomes. It should be primarily aimed at returning the people to productive life.

Second, the money. You cannot spend indefinitely, and neither can the government. Theirs is often a cry of need that is well outside the need category and more an I want. Listen to your young ones. “I need designer jeans.” “I need Gelato.” I need an iPad.”

We are little different. “I need an exotic vacation.” “I need a new car.” “I need the government to fix that.”

Government “I needs” are just more complex, more costly and harder to stop.

Third, a way of thinking. Complaining is useless. It is the refuge of the powerless. Learn to take responsibility. Accept accountability. Learn patience.

Some further thoughts

I came on this article,  and am reminded how our thoughts get twisted by what we have available to see and hear. I have been an admirer of John Sowell and Walter Williams for at least 25 years. It is worth looking at their thoughts.

Applied common sense.

Perhaps the media does not tell us what to think, but it definitely tells us what to think about and that is just as insidious.

Pay more attention to what is missing.

Don Shaughnessy arranges life insurance for people who understand the value of a life insured estate. He can be reached at The Protectors Group, a large insurance, employee benefits, and investment agency in Peterborough, Ontario. 

In previous careers, he has been 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.

Please be in touch if I can help you. don@moneyfyi.com  866-285-7772