Arguments In Favour of Benefits With No Cost Is Childish


I sometimes read George Monbiot because most of what he talks about are things I don’t easily agree with. It helps me to be more aware and sometimes change my own ideas, or at least moderate them. It also helps me to find reasons I desagree. Reasons are good discipline.

Aside from that he is a competent writer and that is always pleasant.

An article about growth.

Or better the impossibility of it. The Impossibility of Growth.

The analogy in the beginning is nonsense. He claims that if each Egyptian had a cubic meter of possession in 3030 BC, by 30 BC with growth at 4.5% the goods he possessed would occupy. 2.5 billion billion solar systems. While arithmetically possible I suppose, it is nonethe less nonsense. It does show however the power of continuous compound growth over long periods.

The reasons its nonsense

  1. No Egyptian lives 3000 years. No civilization even.
  2. Growth does not imply that everything produced will last forever. Things wear out, become obsolete, are lost, or destroyed. Given a lifetime as a reasonable timeline, growth tends to occur for a while, followed by replacemetn, downsizing and eventually extinction. How many of you have more than tiny memorabelia of your great grandparents? if anything.
  3. Much of growth is replacement, so no real increasse in space needed. Possibly replacement with smaller and better goods.
  4. Some growth is not tangible. How much do all IBM patents weigh? How much space do they consume?
  5. Some growth which seems necessary today will be less necessary in the future.

Nonetheless

Certainly we can agree that destroying the environment for convenience or money so wrongheaded. Arguments that it is wrong should always be accompanied by reasons. Loss is not necessarily a reason. What is the problem with losing something. If not understood or because it looks pretty or because there are no others like it are often front and center, but do they matter? I personally think they do, but not at any cost.

Seeing benefits withouyt cost is not helpful.

Everything has two sides at least

Writers like George Monbiot are caring and smart but they lack the other side of the argument or the training to analyze it. Single factors make no compelling argument to anyone who has experience in the real world. For every benefit there is a cost. The opposite, for every cost there is a benefit, is not true. So we must weight both.

Often for every cost incurred, there is a negative benefit. People govern their behavious based on incentives and disincentives. To many disincentives and people move away or start trying to work the system to their favour.

Many fraudulent arguments rely the examination of benenfits alone. Here are the benefits, how can you argue? Or sometimes, here are the costs, how can we afford it? Neither is a valid tool for a decision.

Solutions rely on considering both. I might like a private jet, but the cost is beyonf my means. There are similar limits in society as a whole. Cliamte change arguments are very weak on the economic side. A 10% reduction in GDP by 2100 is not even a thing. No one would spend money today to avoid that. Its net present value is negligible. Less than three cents per dollar gained using 4.5% discount rate, and the cost to get it is enormous and uncertain to work.

Making choices

One of the easy things to observe is there are available choices. Like lets test it small before we build big. Like lets scale up rather than try to impose a final solution on day one. Like let’s minimize the impact of whatever is happening. These approaches keep resources available to deal with sysmptoms as they areise and provide the money for better solutions in future.

Most arguments of the must do something kind assume nothing will be different in the future.That’s never true. People are very good at solving slow evolving problems. People who ring the alarm early help to make the action apply sooner and an evolved solution follows.

The people who solve the problem are never the people who noticed it.

The best approach for people who are one sided.

Keep up the noise, but while you have the right of free speech, you do not have the right to be taken seriously forever. Do not rely on old conditions when circumstances have clearly changed. Technolgy is changing how energy is used and produced. Maybe just let the system approach play out.

Do not rely solely on cost to deny action. Spending is often necessary to get a good result. No spending is likely as bad as too much.

Examine the writer approach and see if that demands event-like solutions. Those seldom work. Systemic change does. Events are one and done. Systems evolve and the solution they produce will be unlike anything the original proponents offered. Thomas Edison never imagined LED lightbulbs. We cannot imagine what will be available 100 years from now either. But we can grow into them.

Trust progress

Growth is a catchall for progress but it is really not representative. Much progress uses fewer not more resources. Have you looked at old pictures of  computers. My laptop is many orders of magnitude smaller, more capable, and cheaper than what existed 60 years ago.

Never assume the context of the problem will remain as it is today and the methods of dealing with it will be unchanged. Better a cheaper solution a little later.

When reading writers like George Monbiot, and you should, it is never enough to say, “He’s wrong.” You must discuss reasons. That gives you insight into the problem. Disimissal of the opinion adds nothing to your ability to solve problems.


I help people understand and manage risk and other financial issues. To help them achieve and exceed their goals, I use tax efficiencies and design advantages. The result: more security, more efficient income, larger and more liquid estates.

Please be in touch if I can help you. don@moneyfyi.com 705-927-4770

When Cognitive Dissonance Strikes, Do What?


Cognitive Dissonance is “the state of having inconsistent thoughts, beliefs, or attitudes, especially as relating to behavioral decisions and attitude change.” The idea was developed by social psychologist Leon Festinger in the 1950s. The pain of holding conflicting thoughts, observations, and beliefs is real and difficult to deal with in a short time.

An example of European cognitive dissonance

Green, anti-nuclear, diminishing internal oil and natural gas resources. Europe is the largest importer of petroleum of any area on Earth. And they get it from the Middle East, Africa, and Russia. They need petroleum because thier green things don’t produce enough energy. A lot of Europe is cold in winter so heat is a good thing, however produced. It’s hot in summer so energy providing air conditioning is good, however produced. Industry and commerce use electricity, however produced.

Sensitive to environmental factors is good only when you are warm, or cool, and employed.

Environmental sensitivity is a luxury good. You won’t find much of it in the developing world.

The choices

As populations grow and the need for energy increases, for Europe,there are choices of where to get it.

  1. Permit fracking and similar techniques. Conflicted with attitudes and beliefs
  2. Bring it from the Middle East. There is no pipeline so the Strait of Hormuz and the Persian Gulf must remain free to shipping. They cannot guarantee that unless the American navy makes it so. Any lengthy shut-down would be serious.
  3. Bring it from Russia. If you become dependent on Russia you could expect to pay for that. Not just the price of oil and gas, but politically too.
  4. From Africa. Maybe but the supply is not infinite and internal use is growing.

So what to do?

To defeat cognitive dissonance there must be a change.

  1. Change the nature of the European energy supply so petroleum and gas is no longer needed. Windmills and solar might do it, but not soon enough to avoid a crisis.
  2. Change the nature of the European economy so energy is no longer important. Sort of like the mantra in the early ’80s was in Alberta viz a viz the Ottawa centric energy policy. “Let them freeze in the dark.” Freezing in the dark is a choice but not a wise one.
  3. Rethink the attitudes and beliefs and bring them into congruence with the reality.

What is likely

Rethinking is the only one that might work. Maybe not giving up on green, but changing the timing some. Give other forms of energy a chance to catch up to the need. Maybe reduce the need through technology advances.

Does that it might work make it likely? Hardly.

Changing convictions is difficult. Leon Festinger pointed that out in the 1957 book, “When Prophecy Fails ” It has not gotten easier since. If anything it is harder now. There is more information to support the pre-existing belief and too little emphasis on the need to challenge such beliefs. Or even notice contradictory information.

Eventually objective reality will force an adjustment even if the cognitive dissonance remains. Painful as they may be, it will be interesting to see the compromises. Your life is not different. Try to keep attitude and belief close to what is possible.

Reality is a bitch.


I help people understand and manage risk and other financial issues. To help them achieve and exceed their goals, I use tax efficiencies and design advantages. The result: more security, more efficient income, larger and more liquid estates.

Please be in touch if I can help you. don@moneyfyi.com 705-927-4770

The Old Growth Versus Security Question


A question of direction.

Consider the idea of lists. The list could be of those who sought trouble and found it. There could similarly be a list of situations where a person tends to end up in trouble.

I think we should decide neither list is one we want to be found on.

Trouble situations

Strangely, people who participate in trouble seeking situations usually know the trouble will arise before they act. Drinking and driving. Leaping a tall building. Skipping class. Smoking, doing drugs, eating junk food, no exercise.

In the more adult genre we find denying a medical condition might be serious, gambling, careless sex, poor choice of life partner, shallow research on investments or business, believing politicians and most media. The list is near endless.

We all fall in the trap in some way because we believe things without any foundation. We could believe the odds are low enough that no harm will come. Oblivious is a bad thing.

A wise person once told me that the odds of being struck by lightning are about one in six million, but on the golf course, if you know that statistic, the odds are closer to one in six.

We misinterpret information to suit what we want.

People who are always on the trouble list

Most of these people fail to learn from their experience. The especially don’t learn from other people’s experience. Their failing is the one of the unexamined life. The failing of not having a plan to attachcurrent action to. A failure of observation around their context.

Many are thrill seekers or people who want a quick result instead of creating a system that generates results.

Periodic review of what you are doing that doesn’t work and deciding to do something else might be worth exploring.

The question underlying

In the long run, is avoiding trouble more productive than seeking the big win?

Total avoidance of risk is usually wrong. Rather avoid unmanageable situations or ones with potentially catastrophic consequences.

We should each decide where we fit on the risk spectrum and err on the side of caution. Losing wastes both time and money


I help people understand and manage risk and other financial issues. To help them achieve and exceed their goals, I use tax efficiencies and design advantages. The result: more security, more efficient income, larger and more liquid estates.

Please be in touch if I can help you. don@moneyfyi.com 705-927-4770

We Can Reward Ourselves In Many Ways


People change their behaviour, or continue the parts of it that reward them, based on incentives. Like being happy or safe or growing.

It is interesting to see what things provide a reward.

To get an idea, I searched google for the phrase “is its own reward” and expected to get some sense of what we can others think.

These are some of what I found

Virtue is its own reward. – Cicero

The journey is its own reward – Homer

Achievement is its own reward. – David Lynch

A simple life is its own reward – George Santayana

Love is its own reward – Several people claim this one

Courage is its own reward – Plautus

The heart at peace is its own reward – Guy Finley

Integrity is its own reward – Laura Schlessinger

Excellence is its own reward – Rush Limbaugh

Peace is its own reward – Mahatma Gandhi

Where to from there?

Some are beyond our individual control. Peace for instance, but many others just require that we notice them. Courage, hard work, and appreciating the journey are just taking time to notice.

Achievement, personal excellence, and virtue, and integrity are motivating if you notice them. Not for others; just for you.

A simple life is one I had not thought of before. It needs more input. A simple life could be anything. Bill Gates may have a simple life. A hermit in a cave may have a simple life. I think it is about balancing wants and needs against the ability to satisfy them. In this context complicated and simple are not opposites.

The heart at peace is its own reward is an overview position. Peace of mind is the target. If you aim to minimize the things that disturb you and notice more fully the things that please you, you will eventually reach a place you can easily live with.

An approach

Set your own standards and work towards them.

Singer/musician Al Jarreau has a handle on that:

“The work must be its own reward. I got that early on. And I’m blessed by meeting my own standards of excellence.”

Work at what you love.

And something you can do right now.

“A kind and passionate act is its own reward” – William John Bennett

Overview

Organize your life to achieve peace of mind. Learn to control the limits like finance, health, attitude, and energy. Appreciate life as it passes. There is much joy in simple things.

As the Desiderata says:

“And whether or not it is clear to you, no doubt the universe is unfolding as it should. Therefore be at peace with God, whatever you conceive Him to be. And whatever your labors and aspirations, in the noisy confusion of life, keep peace in your soul. With all its sham, drudgery and broken dreams, it is still a beautiful world. Be cheerful. Strive to be happy.”

Life should bring joy and it will if you notice it as it happens. Find the joy producing incentives in your own life and do more of that.


I help people understand and manage risk and other financial issues. To help them achieve and exceed their goals, I use tax efficiencies and design advantages. The result: more security, more efficient income, larger and more liquid estates.

Please be in touch if I can help you. don@moneyfyi.com 705-927-4770

Unresolved Fear Is Your Enemy


Is taking too many precautions more costly than accepting some risks? In some areas it would seem it is so. One such area is nuclear power.

If you ever need an example of irrational fear, Three mile Island is not a bad choice.

As you may recall, the Three Mile Island nuclear plant suffered an accident in March 1979. The accident involved the release of one milli-rem of radiation. A chest x-ray would give you a bigger dose. The background radiation in the immediate area of the plant was about 120 milli-rem annually. Not high by most standards.

Irrational fear has a price.

It prevents activities that lead to understanding problems. Not just the ones that could lead to catastrophic problems, all problems.

What is the cost of releasing CO2 into the atmosphere compared to the potential cost of a nuclear accident. If you accept the global warming dogma, the CO2 cost is enormous, rising and uncontrollable. By the same scoring, the cost to humans of nuclear accidents in North America is zero. People relate to one or the other primarily on their belief about relevant risk and cost. If you think climate change is certain and nuclear is dangerous, you get one answer. If you think nuclear is safe enough and climate change is maybe, you get another. Studying problems onjectively leads to better solutions.

Reality says nuclear is the only available technology that can reduce CO2 in the short run.

It is safe

The department of energy followed 30,000 people from the Three Mile Island neighbourhood for more than 20 years. No effects. Modern technology is better.

So for zero costs to humans from a nuclear accident, we have lost the ability to create new and better nuclear power stations. How many have been approved since 1977? None! Exactly zero.

Ah, but what about Chernobyl? Exactly. Chernobyl was not without effects on humans. In fairness though, a grade 12 science class could design a safer reactor than the one at Chernobyl and the shop class could likely build it better. You cannot sanely compare 1950s technology to modern technology and technique in any field.

Fukushima then. Fukushima was better designed and executed. That’s true and the results are not yet clear about the radiation effects on local humans. So far there are few. On the side of the cost to being cautious, we must notice shutting down the nuclear reactors in Japan significantly raised the price of energy. High energy costs have a price other than money. Since the shutdown, more than 1200 Japanese persons have frozen to death. It could be a price of energy thing or maybe that number is normal. I’m betting it is higher than what normal used to be. There are similar effects in Europe.

People fear things they don’t understand

That’s reasonable in principle, but fear is successfully treated with knowledge. Before deciding nuclear reactors today would be like anything you have ever seen, think again. No car designed in the 60s and built before 1977, would pass any safety standard today. I doubt a TV would pass. Remember the imploding screens.

It is the same with people who own bank term deposits instead of market related securities. It is possibile to see the risk in the market. It is also possible to put it into context with a little study. The people with term deposits only risk retirement income and if money is very short, likely health and certainly some pleasure.

Keep in mind

Fear is a poor counsellor.

It shows the cost of something that has happened and says little about the future. To assume the old context will remain as it was is foolish.

There is a cost to do something and there is a cost to do nothing. The cost to do nothing is usually hidden and people ignore it to their harm

People can do better and enjoy the results.


I help people understand and manage risk and other financial issues. To help them achieve and exceed their goals, I use tax efficiencies and design advantages. The result: more security, more efficient income, larger and more liquid estates.

Please be in touch if I can help you. don@moneyfyi.com 705-927-4770

Should You Invest In Growth Or Value Stocks


Joachim Klement published a useful piece today. What drives valuation? An interesting question and one too few of us ever address. Warren Buffet has said investors need two well taught courses. One on stock valuation and one on how the market prices stocks.

As you can appreciate, the money is to be found when you are right on stock valuation and the market is wrong on pricing it.

Value or Growth

Value or growth has tpically been a smart place for people to invest. If I could buy dollars for pennies, then I would do well as a value investor. If I could buy businesses with products whose sales are sure to grow over the long term, I would do better with growth.

Joachim points out that over the last 15 years you would be the big winner with growth. He draws on several scholarly papers to support the observation. It is interesting to notice that his philosophical bent is toward value. He appreciates how things may be different and thus the underperformance.

It appears to be that the market method for valuation has changed some.

As you would expect. Right?

Why would I expect that?

If ultimately the value of a stock is its ability to produce cash income for the owner, then stock valuation says the stock should sell for the present value of that stream of future cash flow. That calculation is immensely affected by the rate one uses to discount that cash flow. In times of high interest rates and high inflation, the discount rate must be quite large, even if we assume the cash flow amount keeps pace with inflation. It seldom does.

For example

Suppose a stock produces $1.00 per year in cash to its owner. Assume the corporation earns $2.50 and pays 40% of it to owners. That cash flow increases at 2% annually. Suppose further the owner demands 7% as the discount factor. Assume further still the holding period is forever. That keeps us from worrying about the value of the stock when we sell. The discount makes its present value close to zero.

In that calculation, the net present value of the cash flow is $19.44.

But what if inflation is 5% and the discount rate is 10%. Now the value is $19.85 so no real difference. That’s what happens when more of the same is expected. A value investor could be quite interested in this stock at $14.00, but not at $20.00.

But, if the corporate earnings grow very quickly, the present value grows very quickly too. The distribution rate remains at 40% of earnings, remember. If earnings can grow at 4% instead of 2% then the stock valuation using the same 7% discount rate, (inflation has not changed) becomes $27.06. You get really interesting numbers at 10% growth. $106.47

Doubling the growth rate of earnings from 2% to 4% results in a vlauation increase of 40% compared to $19.44

The trick of course will be to find the Facebooks of the world instead of the Proctor & Gambles of the world.

That is no easy task. There are far more that fail than succeeed.

Only potentially good stocks can fail big. One of the rules of life is you cannot lose much money with a bad idea because you cannot get much to lose. Only good ideas can cost big.

Another Look

Larry Swedroe’s paper referred to in the “What Drives Valuation” article is helpful, too. The Simple Explantion of Value’s Underperformance.

His argument is that this has happened before and there is no forever change. It is about the migration from one approach to another.

Maybe true.

I think people want the most money back for the least trouble and risk on their part. They should learn what to look for. We saw earlier that changing the expected earnings,  pre-dividend, in a business has a large effect. What if we can discover how that works?

One factor I have noticed changing over the decades is the amount of fixed capital it takes to produce a dollar of sales. Businesses like Microsoft or Facebook or Google can scale up without a proportional amount of capital spending. Outsourcing production helps too. Ones like GM, any manufacturer, and any retail operation cannot.

If the cost of capital as a percentage of sales is lower as the business grows, then earnings and distributable cash flow grow more quickly and you get the growth value. That happens whether interest rates stay low or rise. It is likely even a more pronounced advantage for growth if they rise.

Overall

Look for companies with cash flow growing faster than inflation and small internal needs for it.

Use your crystal ball to decide if its sustainable and if it isn’t, be the first to bail out. Growth tends to be more volatile.


I help people understand and manage risk and other financial issues. To help them achieve and exceed their goals, I use tax efficiencies and design advantages. The result: more security, more efficient income, larger and more liquid estates.

Please be in touch if I can help you. don@moneyfyi.com 705-927-4770

A Reason To Own Life Insurance


As always, the simplest approach is best. That’s especially true when it comes to thinking.

Thinking about the need for life insurance

Suppose there is a loss if someone dies. It could be the loss of income that matters. If a working person is no longer available there is a need for capital working. It could be the taxes and other costs triggered by the event. Those will be paid with cash which the estate may or may not have. Could be both.

The question is where will the cash come from?

Avoiding the life insurance option leaves the problem and saves the premiums. It is merely a choice of who pays the cost. The now living person or the survivors.

Is avoiding the premium smart?

It is if you stay alive. Not so much if you don’t. Remember that someone is always “insurance poor.” It could be you or it could be those left behind. Your real question involves that choice.

Warren Buffett has some advice.

“If we can’t tolerate a possible consequence, remote though it may be, we steer clear of planting its seeds.”

If you think it is important to steer clear of the survivors are insurance poor problem, you shouldn’t plant the seed. Arrange some life insurance. How much is just an arithmetic question. What kind follows from your time and resource context.

Find a competent advisor and work it out.

It is the perceptive thing to do.


I help people understand and manage risk and other financial issues. To help them achieve and exceed their goals, I use tax efficiencies and design advantages. The result: more security, more efficient income, larger and more liquid estates.

Please be in touch if I can help you. don@moneyfyi.com 705-927-4770

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