Ronald Wayne, an original founder of Apple sold his 10% stake for less than $2,500. He did so for a good reason. At that time Apple was a partnership and a high risk undertaking. Of he and the two Steves, he was the only one with assets attachable by creditors. As you might imagine the Steves were not easily led, so when he saw the chance to get away from a bankruptcy inducing catastrophe, he sold. Smart, given the circumstances.
Samuel Andrews sold his shares in Standard Oil for $1 million and had he held them until 1928 they would have been worth $900 million. His sale was not so smart as Ron Wayne’s. He let ego, pride, conceit, and stubbornness get in his way. You can read an excellent piece by Shane Parrish of Farnam Street here. If anyone ever asks you the price of pride and ego, you can tell them it is $900 million in 1928 dollars.
A prominent Detroit banker told Henry Ford’s Lawyer not to invest $5,000 in Ford Motor Company. He passed on that advice and made tens of millions. Oprah Winfrey was not pretty enough to be a talk show host. A Decca record executive passed on the Beatles because guitar music was on the way out.
Mistakes happen. People who make none, try little. You might want to avoid some of them
You cannot see the future, so you could make a Ron Wayne mistake. Everyone has a process that they use to achieve success. Ron’s involved not taking risks with the possibility of a huge downside. Not crazy. Many people have that piece in their process. Risk avoidance is not completely foolish, but you must have a standard.
Patience. Life is complicated there are few situations where the answers are yes or no. A maybe is a good place to start and gradually evolve it into a yes or a no. Any sales professional will tell you a quick yes is the best and a quick no is second best. Sometimes they don’t happen and you must continually reassess a situation. Ever new data point moves towards one of yes or no. The idea is to quit before sucking up your resources if it looks to be heading south.
Persistence is good. Similar to patience. Trust your process until it proves wrong. Overdone it can be very costly. Quit quick and move on is not a losing strategy for most things that seem to be going wrong. Only hindsight will clarify and sometimes it would have worked.
Discipline. If you value outcomes more than the process you use to achieve them you will have a difficult life. Build a process and temper it with experience. Do not allow bad results to change you much. You can do everything right and still get bad answers once in a while. Pay attention to what happens and review the process for possible variation.
Humility. You never know what is possible.
Learn from others. You can’t live long enough to make all the mistakes. Be aware of what others are doing and how it works for them Always be aware that their context may be quite different from yours so drawing the wrong inference is quite easy. Avoid being judgemental. You never have a complete list of their resources and options.
“You better believe there will be times in your life
When you’ll be feeling like a stumbling fool (oh)
So take it from me you’ll learn more from you accidents
Than anything you could ever learn at school”
You must notice the accidents and errors though. Pay attention and value them. Avoid the Samuel Andrews defects.
When we were young and in school, attention to detail was a state of being. There was no detail too trivial to avoid a mark reduction. Columbus arrived in 1429 was as egregious as the Americas were discovered by people from Lithuania.
None of what we learned included real world facts and none of them showed us how to think. What were we learning? Mostly behaviour.
The behaviors we learned:
Many schools still have these as high priorities.
When one sees the implementation and tactics, one can usually derive a strategy. In this case the strategy promoted by public education is to train future factory workers. All five are necessary for factory workers while other skills are needed in other vocations. What was crucial in the late 1800s, is now invalid. There does seem to still be significant emphasis on the five characteristics.
Add critical thinking. Add the ability to ask why and know what to do about the answer. (Curiousity
Add earned respect for one’s abilities, and less attention to the teacher is right. Obedience to authority is being used against us today. Many teachers rely on their position to inculcate unsupportable ideas. Earned skill should be rewarded.
Emphasize the ability to get along with and respect others. Everyone has a story and knows something you do not. Listen and learn.
Communication and numeracy is growing more important by the hour. Teach people to read faster and more critically of both style and thought. Writing will teach you to read better. You cannot read poorly written material easily or quickly. Learn to avoid bad writing. Numeracy is nearly lost, at least in terms of meaning. Every time a politician tells you the 20-year cost of a project, they are exploiting your numerical inadequacy.
I am okay with punctuality and attendance, assuming there is any reason to be in class at all. Objectively many classes are completely worthless. Better use of technology would change the classroom paradigm.
I am especially okay with attention to detail. Minor errors in coding, and communication can have serious outcomes. For example, an apocryphal story from 2004.
A Minneapolis couple decided to go to Florida to thaw out during a particularly icy winter. They planned to stay at the same hotel where they spent their honeymoon 20 years earlier. Because of hectic schedules, it was difficult to coordinate their travel schedules. So, the husband left Minneapolis and flew to Florida on Thursday, with the wife flying down the following day. The husband checked into the hotel. There was a computer in his room, so he decided to send an e-mail to his wife. However, he accidentally left out one letter in her e-mail address, and without realizing his error, sent the e-mail.
Meanwhile, somewhere in Houston, a widow just returned home from her husband’s funeral. He was a minister who was called home to glory following a heart attack. The widow decided to check her e-mail since she was expecting messages from relatives and friends. After reading the first message, she screamed and fainted. The widow’s son rushed into the room, found his mother on the floor, and saw the computer screen which read:
To: My Loving Wife
Subject: I’ve Arrived
Date: November 18, 2004
I know you’re surprised to hear from me. They have computers here now and you are allowed to send e-mails to your loved ones. I’ve just arrived and have been checked in. I see that everything has been prepared for your arrival tomorrow. Looking forward to seeing you then! Hope your journey is as uneventful as mine was.
Sure is freaking hot down here.
I can’t improve on that as an example of the importance of attention to detail. If you would like a real world example read this story about sham trusts.
Is that bad?
The paper, done by by academics from the University of Chicago, Carnegie Mellon University, the investment data firm Inalytics, and the Massachusetts Institute of Technology, demonstrates that managers cost themselves about 100 basis points per year by addressing selling positions in ways that are not rigorous. You can read the whole thing here if you are inclined.
The answer to the, “Is it bad?” question is found in the reasons they sell at all. Most commonly they sell to get funds to deal with their current well researched buy opportunity. The resulting sell is not well researched. Most likely it is the position they have become bored owning.
You should not sell because you want money for some opportunity. The real question is how many positions in the portfolio should not be there at all. If a manager culls those from time to time, the cash will be in reasonable supply. What is at odds with success is not the sell decision but the keep decision.
The process of investing is Buy then Keep or Sell. The choices steps should be considered at regular intervals. Sadly, buying is kind of fun and the others are just maintenance. Being very good at buying is too little.
Building is always emotionally preferable to maintenance, so we have a bias toward the sell mistakes.
Buying and keeping are the same decision. The decision to keep is, “Do I prefer this security to the cash I could get for it?” Identical to the cash versus security question on the buy side. Only the order of possessing cash is different.
If a manager reviews the portfolio and treats it as a collection of ownership questions, the idea of selling successfully gets easier. The paper points out that professional managers excel at buying, but it ends there.
So why not apply the buying skill to the keep decision. That inevitably leads to more skillful selling.
Suppose once every six months, or maybe a year, continuously is too onerous, the manager looks at stocks in the portfolio and asks a question. “Given what I knew about this stock when I bought it, and given what I have learned since, if I did not own it, would I buy it at this price?” If yes, buy more or keep it. If no, sell. The buy more is further conditioned by other available opportunities and their value.
The sell decision may have tax advantages or disadvantages and they should be considered, too.
Keeping a security without further buy/sell considerations is a do nothing choice and do nothing always has a price. In this case it looks like it costs about 100 basis points of annual yield.
Avoiding the problem requires that every keep decision be justified on the basis of the buy parameters.
Not a trivial task, but the payback is easier to get to than most other things a manager can do that add 100 basis points to yield.
If nothing else it will make the portfolio hold fewer positions. A restaurant with a large menu is hard to manage, portfolios are like that too.
Suppose you are flying across the country. The plane descends to 4,000 feet. The cockpit door opens and the pilots walk down the aisle wearing parachutes. They open an exit door and jump.
Say Goodbye to the pilots. From a linked-in idea by Georg Dirnberger.
If you are the pilot of your business, much the same discussion arises. What would the employees, lenders, customers, and suppliers do if you suddenly left. Then there is your family. It isn’t like there is an easy replacement to be found for the pilot. Seeing the problem in the abstract is useful.
Businesses are easier to deal with than are airplanes, because there are things the owner can do now to protect the passengers.
Eventually you must leave.
Having enough money lets you be neat.
Life insurance and disability insurance are consequential requirements. It is false economy for you to save premium money. Properly designed an insurance plan will protect against a problem that happens suddenly or happens much later in life and becomes part of the estate plan.
Not every dollar earned must be reinvested in the business. Some should be taken away and invested in dissimilar assets. Diversification applies to far more than just your investment portfolio.
Pay attention to taxation. There are many accessible dollars that can support the succession plan. The government will let you have them, but you must ask by appropriate structuring of the business.
Develop the habit of thinking about things in a long time continuum and acting in the present to deal with what you see.
True, if you are a government. After all, what would they be for if not to make rules. The view that governments know things and can accomplish what we cannot pervades their thinking. Apparently, they have never tested the assertion.
This short article was interesting, but a little depressing. “California kicks of 2019 with 1,016 new laws.”
Lawmaking is unnatural beyond a point. Moses downloaded ten rules from the cloud to his tablet and those sufficed for a long time. No doubt there were tax laws and some others then, but 1,016 new ones in a year? – I doubt it.
Perhaps times are more complex, or perhaps the bossy types find rule making fun. One of the California laws make plastic drinking straws illegal to provide unless the customer specifically asks for them. Politically correct speech has so many nuances even becoming a mime is risky.
There may be a level of trivia that was once inviolable, but is now in play.
Can socially acceptable and moral behaviour be achieved by a sufficient set of rules?
If so, make all the rules you can think of to create the sufficiency. If not, displaying and teaching socially acceptable behaviour and moral standards might be a better approach. Of course, there would need to be draft guidelines for socially acceptable and moral. I think you would find it hard to achieve universal agreement on those. Then what?
In nature, their are biases toward certain outcomes. Charged particles repel or attract depending on their respective charges. Sodium and chlorine reliably form table salt. Winds move counterclockwise in a low pressure zone, but only in the northern hemisphere. The Coriolis effect alters that in the south. Atoms are stable, or decay with a known half-life.
The same would be true with simple guidelines instead of laws. Except! It takes a long time and if you are a politician a long time is not your friend. Laws are quick and you seem to be doing something. It appears to not matter whether the law has the likelihood of improving the human condition. Then there must be more rules to attend to derails not considered in the rule. An entire bureaucracy to blight humanity.
Reduce the size and reach of government. More laws merely shrink the assets available or change the pockets within which the assets reside.
Neither seems especially valuable. It has always been so.
In 2016, the UK company Savills, estimated the wealth of the world to be US$ 217 trillion. A formidable amount. What does that imply about change over time. That is roughly $30,000 per person. Another way to look at is two and half times world GDP. Hard things to think about, but that does not affect the point I want you to notice.
If the growth rate in world wealth was 1.5% annually from the time Caesar crossed the Rubicon in 49 BC to now, per person wealth then must have been $9.36 using today’s value of the dollar. Given a population of about 200,000,000, the wealth of the world would have been less than $2 billion. In today’s money.
Carl Icahn estimates Lyft is worth more than that.
I think the value of the world’s assets then were far higher, so the rate of growth must be somewhat lower.
If we assume the average person owned 1/10 of what they do now, $3,000, then the growth rate is about 1.2% For $30,000 then about 1.1%. Long exponential growth does not give you intuitive answers. Never forget that.
Because much of the wealth produced is wasted. Who is in charge of that on a cosmic scale? Governments. Think war. Think boondoggles of all kinds. Think suppressed productivity by wasteful regulation. In fairness, people can themselves waste resources, but not at the scale governments can.
If growth had been at 2% starting from $30,000 per person, today’s wealth per person would be about $2.5 trillion. I don’t know about you, but mine is less.
If a government promised something as low as 2% growth for the long term, they would tossed from office. Strangely we don’t seem to notice that they never deliver anything closefor the people. Maybe we should notice and ask them about it.
And you thought financial advisor fees were too high.
In the early ’63s a columnist with Sports Illustrated asked golf legend, Ben Hogan, what he thought of Jack Nicklaus’s game. His reply was straight to the point and likely true for more than him. “Mr. Nicklaus plays a game with which I am unfamiliar.”
Amateurs and professionals both make mistakes. Professionals make mistakes when they end up in positions where there are few or very difficult to achieve good options. Amateurs make them all the time. Amateurs are prone to “unforced errors.” Those are the ones that appear because of inattention, emotion, or inadequate knowledge.
“In expert tennis, 80% of the points are won, while in amateur tennis, 80% are lost. The same is true for wrestling, chess, and investing: Beginners should focus on avoiding mistakes, experts on making great moves.”
If one to four is the unforced to forced error rate and it is four time higher for amateurs, amateurs must take note. Experts know things amateurs do not. The pros do these two things differently than amateurs.
Think it through in the investment and planning spheres.
Suppose your team is in a hockey tournament and wins their first game 20-0. Does that improve your chances of winning the whole thing?
Not likely. It more probably reduces your chances. Bad habits are anxious to appear and hubris is your enemy.
Suppose your first trade was to buy Bitcoin at $10 and sell it at $10,000. How long do you suppose it would be until the profit was consumed by more trading? Probably not long.
I recall a currency trader talking discussing a newspaper story about a high school teacher in Windsor who had turned $500 into $129,000+ trading the Canadian/US dollar. His reaction. “If he does it for six months more, he won’t have the $129,000 or the $500.”
We learn very little when we are right.
There are always variables that have not been considered, or there are variables that have not been adequately considered. Saturday will be a sunny day, unless it isn’t.
Life matters more than a ruined golf game. Discover more variables.
Expose yourself to many situations and learn from each. The failures will teach you more because they expose the holes in your thinking. The successes teach too, but most people use them as confirmation of their brilliance.
As you gain skill and experience, you learn there is no certainty of outcome. The best you can do is have a process that tends to work.
A good process is directionally accurate, even if it does not produce ideal results at every application. Skilled people learn to trust their processes and find pleasure in surprises. The surprises help them to learn and improve.
The ones who focus on results and not on the method of achieving them. People who are swayed by the pundits and current events, risk more than they think.
“If you eat, invest, and think according to what the ‘news’ advocates, you’ll end up nutritionally, financially, and morally bankrupt” Naval Ravikant
In most things success comes from not failing catastrophically. Avoid unforced errors. Build your process.
The most valuable attribute changes as you age. When you are very young, growth is a key value. When you are very old, predictability is the key. Predictability is boring, but welcome. In between it changes.
It has to do with context
Young people are often risk tolerant and optimistic. They tend to not be conservative in their planning. (It is possible that millennials are breaking this mold.) The key seems to be the lack of loss experience and the ability to repair any damage over the long run. The future is bright. Their context is get a job, find a place to live, network, and look to solving the student loan problem. A quick win in the stock market would help. The downside is seldom considered. More debt.
Anxiety is not about money but relationships.
A psychologist once told me, as a group, people in their late 30s are the most conservative. They have to be. They need the system to be co-operative. Young family, job advancement possibilities, lots of debt. There is not enough time.
It is an anxious time. Many things can go wrong and the risk/reward of many get rich quick schemes is wrong.
Anxiety is most frequently about money. As opposed to very young adults, anxiety is usually disruptive. There can be a sense of hopelessness as the pressure of the day-to-day seems never ending. It is not a coincidence that 15 to 20-year marriages are at risk.
The defense is to lengthen the time scale. If you can see the current situation as part of a continuum, it is less threatening. Context is never a single point.
With the children growing older, the debt under control, and career established, many of the old anxieties resolve and are replaced by ones around health, aging, money for retirement, and the review of unfulfilled goals. Being more specific, this anxiety is much different. Action plans can deal with some of the factors. Again context in time matters.
This anxiety is still high stress and few of us deal with stress effectively in the beginning. Stress is physically harmful and makes the situation worse.
A realistic review of the current situation will assuage some of the issues. This is not the time to be introverted. Professionals have seen hundreds of people in the same place. Better to learn from other people’s experience.
Eventually career is harvested for money and time. If things are working out here, stress can be lower than other times.
If the money has worked out and the time is not heavy, retirement can be quite exciting. The opportunity to do things that time did not permit before is there. Maybe work with a non-profit, write a movie script, build a garden, travel, or learn to speak Chinese. Who knows?
It is the time to do the things that interest you and to watch the world go by. Critical all the while, of course.
Anxiety is around health, possibly death, fear for the children who seem to be in for a tougher time, and fear for the world in general.
For many stress is quite present and quite harmful.
The defence is in your mind. If you expect the world to be orderly and predictable, you have not learned enough from your journey in time. The world is far from orderly and you make it predictable only by exercising options over how you live and what you live with. Diversity is about more than investment classes.
Certainty is not a cure for anxiety because certainty is impossible. No matter how long you live, you will not see everything.
Recognizing and expecting uncertainty is the key. Build you life around minimal demands with optional extras. When you control your demand context, the vagaries of the world harm you not at all. At least less. Living on the edge, like some of the very young, creates the ability to fail catastrophically.
When you live on the edge, a single flaw can harm you.
You may recall 22 March 1978 in Puerto Rico when 73-year-old daredevil Karl Wallenda fell to his death performing a familiar high wire stunt. More than 50 years experience did not help. A guy wire was poorly attached. When you perform on the edge there are few if any minor accidents.
The contextual environment is never completely known. Leave a little margin for error by controlling your own lifestyle demands.
If you can’t or won’t implement, there is little point to the rest of the exercise.
There is a concept amongst military folk that says, dilettantes study strategy, amateurs study tactics, and professionals study logistics. It is a wise place to begin thinking. No matter the skill and experience of strategic and tactical planners, nothing happens before implementation.
In war, the key is the end of the supply chain. The boots, bullets, and bacon that keep the soldiers willing and able. It has been most clearly expressed by Admiral Hyman G. Rickover.
“Bitter experience in war has taught the maxim that the art of war is the art of the logistically feasible.”
“Logistically feasible.” It is no different in financial planning.
“Logistics comprises the means and arrangements which work out the plans of strategy and tactics. ” Antoine-Henri Jomini.
Strategy decides the what, who, where, when, why, and with what. Tactics is about how to apply the resources. But, nothing whatever happens until implementation.
When organizing your financial plan, bear in mind the logistically feasible. You cannot do everything at once and you cannot use a given resource twice. Many people overlook those simple facts.
The combination of logistical feasibility, coupled with available tactics, and overall strategy, will require priorities and choices. Many of us are not good at those requirements. The defence to those shortcomings is to recognize the needs, the time element, and the resource scarcity. Once each is defined, the order and method of implementing becomes more clear and the choice of available tactics becomes more certain.
Plans must be executed to provide the good intended or to provide the education necessary to make a better plan. Never begin a complicated plan unless you intend to implement it. Better to take the simplest plan you will implement and do it first. You can come to complicated later.
The first layer controls time and its vagaries. For a young person it looks like this:
The higher order layers like investing for income or for growth, control of debt, multi-person security plans, and aesthetics will all come, but do first things first. You will learn in the first layer and your subsequent efforts will be easier.
Once you address what the plan means to you, financial planning and the good things that can come from doing it are no more than organized common sense.
Emphasis on organized.
“It’s not a real plan if nothing changes. Planning is about discomfort and disruption.” – Dan Rockwell
If you don’t intend to change don’t waste your time. If you think you can plan and not change you are delusional. You plan so you may change productively. Not all planning is about discomfort and disruption, but those are common early side effects. All change is disruptive for a while, but the idea with planning is to avoid forced disruptions later, when something happens that disrupts and cannot be repaired. Not temporary like the initial pain of planning and executing.
Planning is a wonderful tool, but there comes a time when the plans become the focus instead of the planning and the life that results from that. If the plan becomes the focus there is a tendency to make life fit the plan. Always disruptive sooner or later. Perfect plans don’t exist. Perfect planners don’t exist either.
The best planners are curious and reactive to new information that affects them.
The worst planners are the ones who defend the plan.
“Perfection of planning is a symptom of decay” – C. Northcote Parkinson
Plans must be organized by pre-planning. The search for overall objectives and the general limits attaching to them.
The second layer is to be very specific about your goals.
“Successful goal-setters will tell you that one secret to achieving your objective is making it as specific as possible. Establish financial resolutions with a laser focus. Be consistent over the long haul to be on road to long-term prosperity.” – Kim Foss
Focus has advantages:
It motivates you and it helps identify things that are unexpected. The unexpected is where the learning and improvement lies. Stay focussed, very general plans can accommodate nearly any event. Like a conspiracy theory.
You must adopt a record – review – revise approach and you must check regularly. You are not to be looking for error, but rather for things you have not yet considered. Surprises if you prefer. The unexpected is where the improvement will be.
“The thing that doesn’t fit is the thing that’s the most interesting” – Richard Feynman
Under the conditions of change, imperfect planning, focus, and adaptation, Plans evolve to meet the planner’s needs and fit their particular context, desires and abilities.
Work out your own plan and seek help with methods.
You got to know
When to hold ’em
Know when to fold ’em
Know when to walk away
Know when to run
You never count your money
When you’re sittin’ at the table
There’ll be time enough for countin’
When the dealin’s done
It is not the act, it is the timing of the act.
James Clear (@JamesClear) tweeted at 5:41 PM on Thu, Jan 10, 2019:
Getting exceptional outcomes in life is often about knowing when to turn it on and when to turn it off. The point is exceptional because we all know it and ignore it.
It’s not the act, but the timing of the act.
Both time and timing are basic to the methods.
Either may have value, but the way to reduce your chances of failure is to rely on time and leave timing to others. Timing requires great skill. John Maynard Keynes, while wearing his investor hat, said,
“Investment success is anticipating the anticipations of the others.”
That is much more difficult than buying shares in strong businesses and waiting.
Your choice of method will depend on how much time you want to spend investing, and how much time you want to spend anticipating the anticipations of others.
Be sure you know how to judge the timing question and how it relates to the time question.
The court jester role is widely misunderstood. The conventional wisdom is the court jester is the fool, the entertainer, and the butt of jokes. The reality is somewhat different.
In the middle ages the court jester had a different role although the fool, entertainer, and butt of jokes remained present. The role was to be the voice of honesty, reason, and common sense. The jester had license to say anything to the king or the other nobles in the court.
When you think about it, who else could tell the King of France in 1550 that he was making a grave mistake. Certainly not the courtiers, for they would have ended up exiled, imprisoned, or executed. The lowly jester could say something along the lines of, “Bad idea your majesty. You might want to think about that some more.” No fear of repercussions because that was his role. To provide the outside view.
Wikipedia points out this role as found in literature.
“In literature, the jester is symbolic of common sense and of honesty, notably in King Lear, where the court jester is a character used for insight and advice on the part of the monarch, taking advantage of his license to mock and speak freely to dispense frank observations and highlight the folly of his monarch.”
The king’s court required such a person because it was notoriously ingrown and the light of outside thinking seldom made its way in. Much like the social media echo chambers we find today. No person, no group, and no business can look only to its own information, metrics, and culture, and understand their context in the larger world. We all need feedback.
In a busy world, getting common sense, honest, and divergent thinking is challenging. Few of us have a court jester. There are ways to get such feedback. It requires just a little insight and effort. Losing hubris would help too.
Richard Feynman has said, “The thing that doesn’t fit is the thing that’s the most interesting.” Why? Because it contains information we have not previously considered. That information might be sufficient to completely destroy what we think we know.
So the way to success is to pay attention to the things we don’t agree with and give them weight in our decisions. If we think the price of gold should be rising and it is instead falling, the idea we hear is “That should not be happening,” but yet it is. We should we try to identify the reason for the outlier. It is possibly an important missing piece of our model of reality. We never know enough to be certain we are right.
These articles are limited by my skill as a communicator. Some people find them too long, others find not enough depth. Still others would like more on one aspect or another. More life insurance, more investing, more planning, more actionable less theory. I try to write so it is easy to read, but sometimes things get left out because I think they are obvious. The production values are quite low. Would an audio-video presentation be better? Maybe just a list of links to things I have been reading.
Play the role of the court jester. I want honest, common sense observations. If this exercise of mine is to be worthwhile it needs to change. Help out with some ideas.
Thanks in advance