moneyFYI
Financial Freedom Is Merely Organized Common Sense
Why People Think The Past Tells About The Future
Lindy’s Deli was found at the corner of Broadway and 49th Street, New York, from 1921 to 1969. Forty-eight years is a very long time for a restaurant to exist. Its own survival was not something people thought about, but it was the meeting place for many well-known comedians, and they devised an idea that came to be known as Lindy’s Law.
Lindy’s Law postulates that a thing can be expected to continue for as long as it has existed. So if a comedian has been successful for three years, they will likely continue successfully for three more. While it was designed for comedians, it applies to everything. It is fundamental to branding.
While it appears to work if you remove the duration of success aspect, it is actually a thinking flaw. It is called “Survival Bias” and clearly states that being a high-performing fund manager with a 10-year track record speaks little of guaranteed future value. There are essential things to notice.
- Only managers with a ten-year record are included. Any that moved away from the profession, died, or were fired, are not included.
- Regardless of their record, no one is included if their results are less than ten years long.
- Fund performance is about context. Some managers are better when the economy is weak, others when it grows quickly, and others still when it isn’t doing much of anything. There are nearly no managers who are near the top all the time because the market itself differs. None of us have skills that are always the best fit.
Why choose ten years? Maybe 11 years, 4 months, and 17 days would be the right metric. If it is and the 10-year leader has only 11 years of experience, they won’t appear in the new list. What does that mean?
The point is that things that didn’t happen or results ignored by choosing a particular framework are sometimes more critical. That something did not occur or appear in some list says nothing about if it can happen in future. Maybe our observation is the outlier, and we get inferior results if we assume it must occur again. We overvalue things that we can see and measure compared to something that might or should have happened., but don’t appear in the list with the world.
Do not rely solely on what you can observe. Remember Sherlock Holmes and the dog who didn’t bark. When assessing events, try to see the things that have not happened. Sometimes they are the key. They might explain why things happened as they did and why the future may be different. That’s what anticipation is about.
Most life and investing rely on a cloud of possibilities, each occurring with some probability. There are few zero probabilities in life.
Physicist the late Murray Gell-Mann observed that in quantum interactions, “Everything not forbidden is compulsory.” Life is like that too. It must eventually happen if some natural law does not explicitly prohibit it.
If you ignore things that might happen but have not happened yet, you are taking risks you might prefer to avoid. I’m planning to live forever. So far, so good.
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People Mistrust The Government And Its Accomplices
I read an article that made valid points and pointed to the need for voters to be more capable. Political leadership is too important to be left to propaganda and the ranting of “fans” rather than incisive thoughts about the problems and opportunities within the country.
I build strategic, fact-based estate and income plans. The plans identify alternate and effective ways to achieve spending and estate distribution goals.
Be in touch at 705-927-4770 or by email at don.shaughnessy@gmail.com.
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Does Anticipating Events Guarantee Success?
If you cannot anticipate the future, at least a little, success is unlikely. When you know the future with certainty, you have a better chance but no guarantee. That seems counter-intuitive. If I could know the future five minutes from now, I would do very well betting at the race track or at the craps table. But would life work out well?
Making a successful life involves three steps.
- Anticipate the future
- Plan
- Execute your plan.
Anticipating the future involves objectively examining the world around you. Where are the opportunities, the risks, and the things you cannot do even if the opportunity is there? Essentially, what is possible, and how do you take advantage or defend yourself?
When you anticipate, how sure are you? In this context, 50% is a very high probability. Look for counterfactuals. Never decide you know the future. You don’t. Certainty is harmful.
Planning connects your expectations to your resources. Think about money, time, energy, experience, relationships and networks. Think allocation and priorities.
Take action.
Act, but given that your anticipation is not certain, prepare to adjust as part of your planning.
Consider Noah and the Ark.
Noah was given certainty as anticipation. His plans were also provided. He built the ark. Had he not built the ark and organized the animals, the anticipation and planning would have been worthless.
Nothing happens until you act. Execution is explained fully by Nike, “Just Do It.”
I build strategic, fact-based estate and income plans. The plans identify alternate and effective ways to achieve spending and estate distribution goals.
Be in touch at 705-927-4770 or by email at don.shaughnessy@gmail.com.Cheap is expensive
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Suppose Stocks Could Not Be Sold For Ten Years
Warren Buffett has said that after he makes an investment, he doesn’t care if the stock market closes for ten years. How can you use that same thought to improve your investing?
The answer has two aspects
1) If you could not sell your investment, nor could you buy more, how would you analyze the purchase differently?
- Would your commitment be bigger or smaller?
- Would you require dividends?
- Would you pay more attention to competitors, finance, management, marketplace, and trends?
2) Would you make a clear distinction between owning stock and owning a tiny part of a business?
If you think business first, you can judge important business variables.
- Immunity to competition – what Buffett calls “the moat.”
- Pricing power. Can pass costs through effortlessly.
- Cost leadership in the industry
- Capital leadership. Can invest in opportunities without debt.
- Limits to entry. What Buffett calls “a natural franchise.” You could not quickly create a delivery system like Avon.
- Management commitment. Are they significant stockholders?
- Customer commitment. Are they connected? Apple. Taylor Swift. Coca-Cola.
Try it!
If you had to commit for ten years, would you buy Costco, Walmart, or Target?
How about Tesla, BMW, Toyota, or Ford?
You get the idea. You don’t need Jim Cramer or anyone like him to make those analyses. Current events mean almost nothing.
It does require effort and discipline though. But since there are no transactions for 10 years, the cost per transaction is tiny compared to what most people do.
I build strategic, fact-based estate and income plans. The plans identify alternate and effective ways to achieve spending and estate distribution goals.
Be in touch at 705-927-4770 or by email at don.shaughnessy@gmail.com.Cheap is expensive
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Another Way Cheap Is Expensive
A few days ago, i talked about how something too cheap is costly. It doesn’t do what it was supposed to do in the end.
A Jared Dillian email makes a similar point but in a way that many overlook. He is an author of highly-rated books and senior editor at Maudlin Economics. Most of what he produces scores high on the common sense meter. He understands that a successful life is more than money. To achieve the end desired, balance is important.
You can find him here The Tenth Man
The offering today
You Miss Out on Life by Being Cheap
I’ll tell you a quick story.
I am friends with a local guy in town. He’s a smart guy, financially knowledgeable, and spent his whole career in finance.
I run into this guy socially, and he knows what I do. He’s always coming up to me and pumping me for information about the markets.
So, I asked him, “Why don’t you subscribe to my newsletter? I’ll even give you a friends and family discount. I’ll let you subscribe for 300 bucks.” Nope. He’s too cheap.
I said, “Well, why don’t you come to my conference? I’ll give you a discount on the conference. You live locally; it’s easy. Why don’t you just come down and watch all the speakers? You’ll get a lot out of it.” Nope. He won’t spend money on anything.
Now, this isn’t about me being upset that somebody isn’t giving me business. Really, all I can think about is everything this guy is missing out on because he’s cheap.
Spend Money on Experiences
The truth is that you miss out on a lot of life by being cheap.
I’m not saying you should book a $2,000-per-night hotel room instead of one for $300 a night. You can go on vacation and do it frugally, and you can have a good time without breaking the bank.
When people start to save money and start getting tight, the first thing they cheap-out on is vacations, which is kind of weird. For me, vacations are necessary. You need to take a break, get a change of scenery, travel out of the country, and see different stuff. It gives you perspective.
There’s this whole thing about how millennials will spend money on experiences instead of things. I tend to agree with that. I think you should spend money on experiences. For example, I took a trip to Greece about two years ago now. The trip cost 10,000 bucks, which is a lot of money.
But it was the best vacation I took in my entire life. It was absolutely worth it. Spending money to try new things and go to new places is priceless. But people often won’t do it.
More often than not, they get stuck on the number in their bank account.
Yes, Savings Are Still Important
By the way, I’m not like denigrating savings. Savings are terrific. If you have a goal or you’re saving for something (like a house or an education) save and make sacrifices. Those are good things to save for.
But if there’s nothing that you’re saving for and you already have money, not spending it on experiences and knowledge is just unthinkable. What is that money doing? Just sitting in your bank account?
Here’s another example…
I ended up spending a little more than $50,000 on grad school, which is a good chunk of money. First, this has been one of the best experiences of my life. It’s been worth it, no question.
And second, I got two books out of it, and I’m going to make more on the books than I spent on my education. I’m actually going to turn a profit. I would not have written these books if I didn’t go to grad school. It’s been the best thing for me. So, imagine if three years ago I said, “Nope, $50,000 is too expensive. I’m not doing it.”
I would’ve missed out on an important part of my life. And this kind of thing happens to people all the time.
The Only Thing I’ve Regretted Buying
The only thing I have ever regretted spending money on was a Can-Am motorcycle. It wasn’t very practical, and it was dangerous. I used to get freaked out driving on the road. Really, I shouldn’t have bought it. It cost $19,000, and I sold it for $3,000. So, I lost $16,000 on it.
That was a stupid thing to spend money on, but it’s the only thing in my entire life that I have regretted buying. Most of the time, I regret not spending money on stuff.
This may sound like I’m a free spender. It may sound like I’m a high roller blowing cash all over the place. I’m really not. I save with the best of them. I don’t buy stuff I don’t need, and I make sacrifices. For example, I am making a bunch of sacrifices to get my house built.
Side note, one thing I’ve found is that people usually have a large allocation to real estate because they own their own home, a lot of the money goes toward debt service, and the only money they have is tied up in their house.
Lots of people are overexposed to real estate. They need more exposure to stocks, bonds, gold, etc. You know, you want money in your house, but you also need money in stocks and bonds and everything else for diversification purposes.
Edward
When I was about five years old, I had a puppet cat—it was black and made by Steiff. And this little cat was my best friend. I named him Edward. He was my best friend of all time. I carried him everywhere and took him wherever I went.
One day, I lost him. I was living in New York City on Governors Island. I went with my dad to check out stereo equipment, and I took Edward with me and must have put him down somewhere and left him.
My dad called the stereo place, but they didn’t have him. I was destroyed by this. Like, 45 years later, I still feel terrible about this.
So, I decided to see if I could get another one on eBay. Sure enough, there was Edward. It was a Steiff black puppet cat, just like the one I used to have. For $100, I got him. And now I have him on a little stand on my shelf, and it’s the best thing in the world.
A hundred bucks—totally frivolous. But it was like regaining a part of my childhood. It was totally worth the money.
To make the decision wisely, you must understand your current position and your objectives. Many people overlook the complete life experience when doing so.
I build strategic, fact-based estate and income plans. The plans identify alternate and effective ways to achieve spending and estate distribution goals.
Be in touch at 705-927-4770 or by email at don.shaughnessy@gmail.com.Cheap is expensive
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Facts Are Over-Rated.
Derek Sivers is an insightful man. I first came in contact after reading his 2011 book, “Anything You Want.” It is still selling well and worth your trouble to pick it up and read it.
More recently, he wrote, “Hell Yeah or No,” which does two things. It demonstrates how enthusiasm advances every project and why successful people say “No” to almost everything. Enthusiasm is a limited resource.
On Friday past, I found another of his thoughts in an email. “If more knowledge was the answer, we’d all be billionaires with six-pack abs.” That points out the need for skills other than knowing things. Facts won’t carry you far. Poersistence, creativity, and people organizing skills will do better.
I was reminded of a meet and greet at the home of a Toronto fund company founder. Our children were both starting at Trinity College in Port Hope. He was successful, and yet he professed to know little. According to him, the only diploma he had on the wall in his office was from the Betty Crocker Cooking School, where he had excelled at something that mattered to him at the time. You don’t need know-How if you Know-who.
In his words, “It’s far easier to hire a Ph.D. mathematician than get the degree yourself.”
By itself, knowledge will not make you successful. It won’t hurt, but other more subtle skills matter more. How to network. How to find what people want to buy. How to lead other people. How to select a vision and create a system to achieve it. Softer people skills will carry you far. How to decide. How to lose your ego and remedy mistakes quickly. Energy, enthusiasm, and persistence matter.
You’d think they’d teach some of this in school. Knowing how the First World War came to be is more important than the dates of the battles. The dates are easier to teach than the underlying conflict that triggered it. What decisions mattered? Which were wrong and why? What alternatives were available? Who let their ego get in the way?
Learn to think past the facts and find meaning. Learn to lead.
I build strategic, fact-based estate and income plans. The plans identify alternate and effective ways to achieve spending and estate distribution goals.
Be in touch at 705-927-4770 or by email at don.shaughnessy@gmail.com.Cheap is expensive
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Cheap is Expensive
Vitaliy Katsenelson is a value fund manager, and his recent letter about his trip to Omaha to listen to Warren Buffet included an aside that I am certain both Buffett and Munger would accept as true. A low price does not automatically provide more value. I added the emphasis.
“Tom Gayner, the CEO of Markel, and I were speaking at a YPO event. Tom said, (I’m paraphrasing) “Buying low-quality companies at low prices is like hiring bad employees cheaply. You’d rather pay a bit more and hire a great employee.” I’ve been noodling about it over the last few days and I agree with this sentiment, both as a CEO and an investor.
What I’ve learned over the years is that great employees and companies (run by great people) tend to surprise you with upside. I’ve painfully learned that bad employees and companies tend to surprise you with downside (they have negative optionality embedded in them). Additionally, it’s so much easier to go through tough times with great companies and employees. I don’t want to be flippant about the price you pay; at certain prices, even great companies become bad investments, but the point still stands.
Avoiding cheap, low-quality, companies and hiring mediocre employees is half the battle.
The cheap is expensive thought has been around for centuries, yet many people ignore it.
“There is hardly anything in the world that some man cannot make a little worse and sell a little cheaper, and the people who consider price only are this man’s lawful prey.” John Ruskin.
Ruskin offers another thought on how to connect value and price.
“A thing is worth what it can do for you, not what you choose to pay for it.”
As you assess the price, ask yourself, “Can I afford anything this cheap?”
I build strategic, fact-based estate and income plans. The plans identify alternate and effective ways to achieve spending and estate distribution goals.
Be in touch at 705-927-4770 or by email at don.shaughnessy@gmail.com.Cheap is expensive
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Some Thoughts On Working From Home
Working from home seems to be an essential question in labour negotiations. The Canadian Federal Civil Service went through a strike, and while the matter was not settled completely, more latitude to act on specific situations evolved. The particular conditions are not yet clear, but the problem will remain.
Will working from home become acceptable? Likely yes. Will it become common? Likely no. It’s unreasonable to expect that full-time remote work will be much more than a peculiarity in some locations, with some people, and with some kinds of work.
This article appeared on Wednesday, and I found it well worth the read. It is well-written and thoughtful. It presents 10 matters worthy of consideration.
10 Surprising Facts That Complicate Everything When It Comes To Working From Home
- Most people can’t do it. …
- Remote workers largely live in big cities. …
- Scheduling is rarely in workers’ control. …
- More productivity isn’t all managers want. …
- Good for hires, not so much for promotions. …
- Your boss manages your future.
- More eyes on you, not less
- New legal fights around worker rights
- Because the lowest price is the law
- If you can work from anywhere, so can your competition
The critical variable is found in the last bullet. If you can work from Barrie, so can someone in Bangladesh. As remote work becomes ever more doable, time and location won’t matter. The world will become more connected, and it won’t be long before some forms of management can be carried out remotely too.
Problems are only problems until there is a universal solution. This one is, so far, too nuanced to permit that. It is one of those situations where common sense should prevail. It will evolve its own best results. The article will provide some background information to make a good decision.
I build strategic, fact-based estate and income plans. The plans identify alternate and effective ways to achieve spending and estate distribution goals.
Be in touch at 705-927-4770 or by email at don.shaughnessy@gmail.com.
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How To Avoid An Estate Problem
There is a legal word that is sometimes written by seldom spoken. “Fungible.” It means a good that can be replaced with another identical to it. Mutually interchangeable. Gasoline from Shell is not so different from gasoline at Ultrmar.
In estate planning, we find money is the critical fungible thing. Every $50 bill is exactly as valuable as any other one. That’s the key. If there are enough fungible assets, there are usually few estate problems. Liquidity for taxes and costs, a way to pay off loans, and a way to pay charities or non-family heirs.
Non-fungible assets are where the problems live. You have to sell something to get money to make things easy. Selling assets costs in many ways, not the least of which is “Estate Sale,” which means a bargain is to be had. Borrowing is another costly choice, because it ties up the estate, often for years.
Think through who should have specific family heirlooms and monuments. Invite discussion on those. Be very careful with assets, some not very valuable, that one heir has an attachment to. The monuments like the family cottage or business tend to be easy to think about and hard to deal with. You won’t get it right without some discussion with the family. Warren Buffett had a thought at last week’s Berkshire annual meeting. “If your kids are reading your will for the first time after you have died, this is a mistake that you won’t be able to correct.”
To make it easier, deal with the non-fungible problems first and seriously. Invite input.
The fungible problem is just about quantity. Pay the bills, and balance the shares. If you are short, second-to-die life insurance is an elegant, instant solution.
Don’t think of your estate as just a number and a division question like arithmetic in Grade 3. People have many emotions, and estate division often brings out the worst in them. You can minimize the problems before you die, but not after.
I build strategic, fact-based estate and income plans. The plans identify alternate and effective ways to achieve spending and estate distribution goals.
Be in touch at 705-927-4770 or by email at don.shaughnessy@gmail.com.
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Ray Dalio Talks About Cycles and Where We Are Today
Over the past 6 months or so, I have been paying some attention to Ray Dalio. He is the retired founder of Bridgewater Associates, the world’s largest hedge fund. He is a student of investing in the context of the times and has spent time and money exploring how investment strategy and tactics are a product of their surrounding society.
This is the most recent presentation I have found. How to Prepare For The Changing World Order, a presentation by Chris Williamson.
It is an hour long, and you will review parts of it several times. It gives you an overview of many things in life, from money and portfolios to drawing value from free things – nature, family, friends, and community. Beyond a point, wealth won’t add to your happiness. Avoid obsession. Around the 20-minute mark, there is a discussion about balancing a portfolio based on what is happening in the world and what is likely to happen.
He draws on 500 years of history about cycles and nearly five decades of personal experience.
His message from his experience is you don’t always get it right, but, “Pain plus Reflection = Progress”
I build strategic, fact-based estate and income plans. The plans identify alternate and effective ways to achieve spending and estate distribution goals.
Be in touch at 705-927-4770 or by email at don.shaughnessy@gmail.com.
moneyFYI 