A reader asks my thoughts on financial matters,
Hi RQ. With the GME short squeeze/bubble (whichever term you prefer) making headlines, it made me curious what your perspective is on investing and financial security. Obviously one of the best ways to improve your finances is to not get married, something you have espoused all the time, but I would love to read a whole post about the subject.
Don’t have a unique view or expertise here… a lot of finance advice is pretty wasteful because there are only really two or three ways to really achieve financial freedom:
- Spend less.
- Earn more.
- Invest in assets that earn more than inflation.
That’s it. Numbers 1 and 2 are both hard (if they were easy, we wouldn’t have a $10 billion finance industry trying to sell us on ways to do them).
Re: #1, I rely on Mr Money Mustache for ideas, so start there… he has a nice philosophy too, where he says, “What are you really on this planet to do?” Money is usually a way to achieve other goals, e.g. make friends, create things, etc. The advertising industry is there to convince you the way to have a better human existence is to buy shit (hint: it’s not).
Re: #2, that’s good as well, and you should develop valuable skills, but many high performers spend whatever they make, cause the hedonic treadmill is real, and it’s also not easy to make a lot of money, in most cases (if it were, more guys would do it). A lot of guys who focus on making a lot of money forget why they want to (to live a better life). I’ve not maximized earnings in my life, and have spent more of it than I should have living on the edge, partially due to some choices that, from a finance perspective, haven’t always been the best. Okay and worth it, but I’ve taken a lot of risks with sex.
Re: #3, see John Bogle’s books on index funds. See A Random Walk Down Wall Street, and other finance classics that extol index funds. Efficient markets hypothesis is mostly correct and most people don’t beat the market, sorry. The math behind lower fees and dollar cost averaging is sound, unless you are RenTech or someone like that (extremely rare).
My perspective on investing and financial security is super vanilla, and for that reason I don’t talk much about it. Sometimes I will opine, e.g. Don’t trust stupid Internet financial advice. Compounding interest is real, but I don’t have real value-add here, apart from “don’t pay fees to financial advisors.” But I have also done stupid things like owned a vanity motorcycle at times, so, like most people, I’m a hypocrite. Also, electric vehicles are extremely good for the society as a whole (fewer emissions, reduced monetary power to enemy regimes like Saudi Arabia and Russia), so those should be strongly favored, IME, even though a lot of the cost of externalities from internal combustion engines are borne by others.
Unless you see someone’s financial documents and tax returns, you don’t know shit about them. Anyone can claim anything on the Internet.
Obviously some people did some unique stuff, like invest early in Bitcoin, or get in at the start of a speculative mania, and that’s great… if you can do it, great… most guys can’t. The last major market crash was in September 2008, when Lehman Brothers collapsed. Bankruptcies and foreclosure rates spiked. People who looked like financial geniuses in December 2007 could be declaring bankruptcy by December 2008 (I know some of the ballers who got their cars repossessed, their condos foreclosed, etc.). The big market crash before that was in 2000 – 2001. Lots of ballers look brilliant in a rising market, what happens in a falling one? That’s when we learn what’s what. Who’s leveraged? Who’s buying all that shit on credit? Who’s fragile, who’s robust, who’s antifragile?
Almost none of us is a match for the advertising industry. Most of us aren’t even a match for the “buy property” ideology that infects America, not realizing that the alternative to buying property is “investing in index funds.” Renting is not “throwing money away,” it is freeing up cash to invest in productive assets. Neither buying nor renting is better, and remember transaction costs… almost no one online, on twitter and similar, correctly accounts for transaction costs, alternate money uses, and the many other financial factors that go into correctly analyzing a buy-versus-rent decision. Almost all of us are susceptible to thinking that “buying things” creates our personality. It doesn’t. Too few of us focus on “making things” and “doing things,” both of which are better. Or “focusing on our family.” Your kid does not care what brand of whatever. Your kid cares about learning social and emotional and intellectual things, and about your love for them.
“Earning more” typically requires a person to develop special skills, which isn’t done on smartphones, and it isn’t done on Twitter… it’s done by focusing for extended periods of time to learn to create value.
Over time, people who are cheap, but not cheapskates, thrive. You are better off making a $15 dinner for a bunch of your friends than going out to an overly expensive restaurant with all of them. But it’s often nice to get a coffee out with an old friend. A gym probably has better life return on investment (ROI) than almost any other cost. Going for a walk is free, and try to find people who want to go on walks. Having enough money to not worry about money is a great and wonderful gift, but it’s one you can work to give yourself. I’ve been lucky and gifted enough to be able to waste time writing for vanity on the Internet instead of having to spend every hour earning $$$$, something that I’m thankful for.
So those are some of my thoughts, and beware the promises of the online ballers… you don’t know the truth until there’s a sharp market correction, and sometimes not even then. We are all tempted to lie about sex & money. Don’t believe it unless you see it. I’ve said about the many sex stories and advice on here, “Don’t believe it, try it for yourself.” Some guys have… others say they will, when they can. There is a rich literature in personal finance, Burton G. Malkiel and John Bogle being two classics. The material you will get from $10 – $30 books, that cite their sources, is usually better than what you’ll get from “financial advisors” charging three figures per hour. The truth often advertises minimally, and is cheap, while the lie often advertises maximally and attractively, and is expensive.