Book Report
The premise: Being a good steward of your resources has little to do with intelligence or talent, but it has to do with how you behave.
Ronald Read (Investor, Philanthropist, Gas Station Attendent, Janitor).
He had no college education and was not from a poor family, yet he amassed $8,000,000 through saving and investing in blue chip stocks. It was not an overnight thing, a strategy fueled by discipline. Meanwhile Robert Fuscone, with his MBA and incredible success was greedy and would lose multi-millions in the process. It wasn’t about what you know, it was about what you did.
No One’s Crazy
Case and point. JFK didn’t learn about the great depression till he read about it at Harvard. People are shaped by different experiences. Someone who grew up in poverty is going to think about money and behave differently than the person who was raised without having to worry about their next meal. The risk you are willing to bear matches your personal experience. U.S vs Germany in WWII experienced same time, yet completely different outcomes. Understanding the low income lottery ticket buyer is helpful. Empathize instead of immediately criticizing how foolish it is.
“Spreadsheets and books cannot model the feeling of coming home, looking at your wife and kids, wondering if you have made a mistake that will impact their lives”
Luck & Risk
If Bill Gates were not at Lakeside High School there would be no Microsoft. Kent, who would complete the trio died in a mountaineering accedent before graduating high school. Luck and risk are two sides of the same coin. The world is very complex and we are subject to forces outside of individual effort.
The majority of Benjamin Graham’s investing success was in owning huge amounts of GEICO stock, breaking his rule of diversificaiton that he preached as the best strategy. Look to patterns instead of the individual. The trick when dealing with failure is to organize your investments so they don’t completely destroy you soo you can keep playing.
Be careful who you praise and admire.
Be careful who you look down upon and wish to avoid becoming.
Not all success is due to skill and effort, especially with extremes.
Not all poverty is becuase of laziness. Greed
The Lord is my Shepherd, I shall not want. [Psalm 23] The power in having enough is staggering and can change your whole life. There is no reason to risk what you have and need for what you don’t need.
Things to remember when I have enough to cover everything I need and a lot of what I want.
1. Set the goalpost to stop.
2. Don’t compare to others
3. Enough is actually enough
4. Many things are not worth risking. Ie soul, morals, marriage.
Confounding Compounding
Ice ages and investing both do not need tremendous force to create tremendous results. Start now because these are the years with the biggest impact. Especially true in times of chaos. Don’t panic sell.
Behaviors that lead to keeping $
Getting money and keeping money are a different ballgame, one involves risk and the other humility. A survival mindset is actully highly effective because you don’t get cocky. Compounding wealth only works if it’s done over years and years.
1. Having financial longevity is far better than getting rich quick
2. Everyone has a plan till they get punched in the face. You plan, God laughs.
3. One ill timed stock sell matters more than picking 5 great ones.
Build in room for error: frugality, flexible thinking, loose timeline etc.
Mindset:
OPTIMISTIC YET RELISTICALLY PARANOID
“Destruction is a great way to get rid of excess”
Tails, you win
Some projects work and some fail. Do more projects!
Great art dealers bought lots of art in portfolios. If one was right it didn’t matter the other 99 were basically worthless. The real world lacks symmetry. Espesially in investing and business. The pareto distribution is everywhere and the tails drive everything. Black swans. Endurance.
I might DCA with bitcoin.
TIME is the highest dividend money pays.
Doing something you love on a schedule you have no choice in is similar to doing something you hate.
Your kids don’t want your money or luxury as much as they want you.
SAVE
One of the most powerful ways to increase savings is by increasing humility not income. And even better these are in our control while the markets are not. Simply spending less can build wealth. Save for its own sake, it is wise. Saving without a goal grants options and flexibility. Savings in the bank earning 0% interest could generate crazy high returns if that time is used to take a lower paying job with more purpose. Or by waiting for investment opportunities that come while not in a desparte mindset. This is one I don’t do s well becuase I overlook the value of savings at this point in my life.
Rational>Reasnoble
Fevers are not all bad and play a role in the healthy immune response. But that is the rational takeaway. The reasonable one is to take medicine to make the fever go away.
Loving an investment or strategy can provide an edge becuase you are more likely to stick with it even if that is not rational thinking. Commitment makes a huge difference because your portfolio will expireance downturn and surviving that leads to the compound intrest gain that Warren Buffet got to partake in. Do what looks good, it’s your money. It’s a lot like flyfishing in that way. Invest it with confidence! Even if it is not rational. And it is okay to be inconsistent like Billy Graham.
Element of surprise
“Things that have never happened before happen all the time”. History is NOT a map of the future. Don’t get tunnel vision on the past so you don’t miss outliar events that really make a difference. And notice the connections. Pay attention becuase the world is difficult to anticipate and things will change. Don’t ignore it though, look for generalities not specifics.
Room for Error: Acknowledge the unknown or it will bite.
Bubbles: Are complex and influenced by human greed. Momentum attracts short term traders a lot. A mistake is taking cues and getting sucked into the momentum, and this is a contributing factor to bubbles.
The room for error is in large part due to an attitude the market is not in our control and highly unpredictable. The best thing you can do is increase your time horizon and stay in the game, paying the price to play which includes losing money. It’s a fee not a fine. And the risk usually pays off in the long run. Don’t be influenced by a day trader, they have entirely different goals and timelines.
Independence as a financial goal is signifigantly stronger than getting rich. Being able to wake up and do what you want to do the best dividend money can give. Not just money, but spiritually too. If you wake up and you are a slave to a vice then you are not free. Financial independence doesn’t mean you quit working, it is having the freedom and flexibility to do the work you like with people you like, with a schedule you are choosing. AND this is KEY. This level of independence is not obtained by a higher salary, it is more about living below your means. Discipline around your lifestyle directly impacts your savings rate. Your savings can be an independence fund.
“True success is exiting the rat race to have peace of mind” Psalm 23
Cash is the oxygen of financial independence. Locking it up in noncurrent or even current assets that are not liquid can reduce your margin of error. For example, if you had more savings you would not need to sell the stocks that you do own…becuase without exception, everyone WILL face a large unaticipated expense.
It is harder than you think to outpreform market averages. Dollar cost averaging into a low-cost index fund would 100% meet my goals. There is very little correlation between effort and results in investing. That can be a leveraged upside of investing to where it does not consume you.
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