The Fable of the Monkey and the Trap

I'm pretty sure that this fable is a modern myth, dressed up in scientism.

Yet, like the fables of the old, it's a good one. Especially for everyone like us - lovers of freedom. What the modern version lacks in narrative, it compensates with simplicity.

The story goes, as we all know, that we can feed monkeys sweet, irresistible cookies. Or banana, I suppose, but there is something more illustrative and diabolical with an artificial cookie, so we’ll go with that. If we give the monkeys a few cookies, they learn to crave it. Then we can construct a simple trap. 

If it had been a fable of the old, it would have had a little bit more soul to it, and would have gone something like this.

It all starts with our young monkey in the jungle, who one day fell out of his tree, and found himself in a glade that he had never seen before. 

In that glade, the sunlight shone through the canopy on the strangest and most beautiful, yet outlandish thing the monkey had ever seen; a beautiful, colourful cookie, covered with the sweetest of frosting.

The little monkey went close, and sniffed the cookie. 

The cookie smelled like all the fruits the monkey had eaten  and could think of in the jungle, taken all together. The smell had something intense to it, as if this cookie could promise everything good with his little monkey-life; distant happy memories, present delights and future promises, the berrys and the ripe fruits, the honey of the honey-bees; yes, even love and recognition from his monkey-friends.

Sparks of joy shot up in his little monkey-brain as he tasted the cookie, and tears of bliss slowly rolled down his little monkey cheeks. 

Then the monkey saw yet another cookie, a little further away. 

Even before eating the new cookie, our monkey saw a small opening in the trunk of a jungle tree. 

The inside of the trunk was full of shimmering cookies. The monkey ran to the tree, and luckily enough, the opening was just big enough so he could squeeze in his little monkey-hand. 

The little monkey closed his little hand around one of the cookies. 

The little monkey tried to get his hand out of the trunk. Strangely, it was impossible. It was as if however hard he tried, he couldn’t break free. There was just not space enough. It was truly impossible. His hand didn't fit through the opening anymore.

The little monkey started to try to figure out what to do about that, but he could not come up with a solution. 

Perhaps it was time to get one of his little monkey-depressions, as sometimes happened when he didn’t get what he wanted. Or perhaps a tantrum and complaints? 

Then he heard a sound in the thicket. Was there someone who would take advantage from that he was stuck in this unfair prison? Was it perhaps even dangerous?

Déjeuner de jambon, Nicolas Lancret 1735

However heart-gripping the story of our monkey is, there are indeed cookies to let go off for most of us. Letting go of the bigger house, yet another car, letting go of the summer house, that vacation escape, realize that the children will be fine without prestigious schools, and the pool and yacht will not add to our happiness, in a neverending chase as real life passes us by.

When the hunters come, in the shape of worse times, a career that doesn't work anymore, lay-offs, skills that have less value, a boss we cannot stand, or a feeling that it's all unfulfilling. Then, instead of letting go of the candy, we opt for 'burn-out', crises, depression, bitterness and we convince ourselves that we are victims.

It’s hard, and harder the more used to the cookies we’ve become, to drive in that wedge that is necessary to free ourselves from our own tree-trunk that keeps us trapped. 

Yet, unclenching the fist and obtaining freedom of time is a shift of perspective that it’s as surprising as it would be for our monkey if he opened his hand. Suddenly what seemed a radical 50-70% savings become a reality. And we can escape the prison and achieve rapid financial independence and freedom.

All we need to do to obtain our freedom is to let go of the cookies.

Balancing The New Year's Resolutions - Part 2/2

This is part 2 of 2 about our overly ambitious way of making New Year's Resolutions for 2021. 

We've divided our resolutions in 4 areas with Epic Mission Statements and all! 

• Job: Leaving Earth's Gravity
• Fun: Enjoying the Ride
• Body: Building our Temples
• Soul: Expanding our Stories

How we think about focusing on the journey and how we set the mission in Part 1. Here comes our resolutions on the last two areas - Body & Soul.

Body: Building our Temples

Keeping the ambitions realistic

As said in the beginning, we are very keen on training and fitness, both of us. 

In the last two years we've improved a lot in our fitness (increasing muscle-mass while staying lan, hitting records on our running). But still - let's make it a focus. 

We've just put in a time goal, of 9000 minutes of deliberate training. And topped it up with at least 3 times 2 mile crawls. We like swimming. Running comes natural. 

If we keep that up, we probably can pull of the odd 42 km run as well. 

Soul: Expanding our Stories

So the last area. Perhaps the most nebulous one, but on equal terms with the rest. What stories do we tell ourselves about ourselves? And, more importantly, what stories do we tell ourselves that we are NOT? 

A question worthy of exploration.

So in the search for expanding our stories, we put things like:

- get a lifestyle / work-life coach

- take the fearless and tougher choice 2 times

- at two social events, having a (tasteful) focus that is 180 degrees contrary to our main personality traits 

- identify three stories we tell ourselves that diminishes us

- improve 1 language

As many non-English speakers do, we already speak a bunch of languages, but why stop there? To a certain extent, as Goethe puts it, those who know nothing of foreign languages know nothing of their own. And perhaps less about the world as well. If we think of where we will land, our story will probably include a touch of Socrates cosmopolitan - he who is at home everywhere and nowhere.

Antinous German is not quite were it should be, so he should basically be able to have a conversation in the end of the year. He will aim for reading four books and listening to four audiobooks. Lucilius Mandarin is rusty, so he will focus on building vocabulary and basic sentences, and should be able to survive everyday situations in Mandarin at the end of the year.

A word about that thing about going counter to our personality traits. It sounds strange. It should sounds strange! 

Two Examples: 

• For Lucilius, who naturally is very goal and result-focused, this means going to a social event, outside of work, with the sole purpose of being really nice to everyone. No other results needed, no learning telling mingling with ulterior motives. 
• For Antinous, who naturally is a very likeable person, it will mean putting his own will in the centre of a social event and make something happen that just depend on that he wants it. So it's "Expanding our stories" that have snuck into this category a little bit as well. 

What about that tougher choice? It's about at least twice taking a choice where we first feel like "nah, this is nothing for me" and say "yes, I'll do it!". It's probably related to worklife, but not necessary. The idea is to push us to expand our story of who we tell ourselves that we are. 

We will also try to get a coach this year. We've found a way to finance that, so it's not as expensive as it sounds. We will try to use the coach to identify a few stories that we tell ourselves that diminishes who we are. And just being open to getting new perspectives and ideas.

Let's see how this works out for us, but we hope this way 2021 will become more intentional for us. 

What are your missions and how do you go about to reach them?

Balancing the New Year's Resolutions - Part 1/2

We occasionally run marathons. It's not like we aim for it, but for us it's a proof that we stay reasonably fit. 

How do we pull this off? By loving the process, as the saying goes. Those 42 km:s become the outcome of early morning runs, good food, blissful swims and long, long runs in the woods.

Not a forest per se, but still very good for running

So how does this relate to New Year's Resolutions? 

It's about avoiding wishful thinking. Don't fall in the b*llshit trap of magically wishing for a goal (run a marathon). Wish for the journey!  

A good resolution moves us in a desired direction. Who exactly cares where we might end up, as long as it's in that direction? Super-fit but didn't run a marathon, would that really be a problem?

For a few years now we didn't have any New Year's Resolutions. 

We have been coasting along on our journey towards financial independence, and we didn't feel the need to think about where we were heading. That overarching goal blinded out all else. But this year, it feels like the coasting part has changed. 

Our lives will need to transform again, and start to prepare us for landing at some sweet spot outside  gravity's pull of the paycheck. 

Our New Year's Resolutions 

So how can we avoid losing sight of the horizon? After some thinking and some more running in the woods (snow included) we decided to split our resolutions up in four areas.  

And what the heck. Epic mission statements can't be wrong. Here they go:

• Job: Leaving Earth's Gravity.
• Fun: Enjoying the Ride
• Body: Building our Temples
• Soul: Expanding our Stories

Job: Leaving Earth's Gravity

In the job category, we put things like:

- Work more than 4+, 3 Sundays 

- Work more than 12h+ days, 8 times 

- Establish Total Budget Control, for each of the 12 months 

We try to stick to the motto that our jobs must feel worthwhile. Lo and behold, we are at work places were we think humanity is one nano-iota better off if we show up at work. When we haven't believed in work - then we've done all we could to wiggle ourselves out of that situation.

And with probably a much, much shorter work life than the average Joe - we don't have to get disillusioned to put in hard work every now and then. It's more amusing to go all in. So instead of seeing that as a sacrifice - we turn it around and make hard work a promise. 

We shall stand up and fight (when necessary!). Much more fun.

And on another note, related to that paycheck. We've never really had complete budget control. We have just stayed very frugal, and summed things up roughly at year's end. Usually we hit our budget.  

The thinking here is that if we better know where the money goes, it will actually allow us to spend more. We should feel allowed to actually spend what we've set off as our fun budget.

Which opens up for the next topic; the Fun Area.

Fun: Enjoying the Ride

One danger with the quest for financial independence, or rather financial freedom, is that we tend to become so goal oriented that we just forget having fun. We forget everything that doesn't have an obvious payoff. Like piano. We are never going to play the piano at Carnegie Hall, let's put it like that, but it's still fun to play!

So this year we decided to have a spotlight on Fun as well. 

In this area we put:

- 1 long-haul flight for fun only

- making the socially adventurous/interesting choice, 3 times

- able to play two songs well on the piano

- put in the time necessary for at least three close friends

I think the list speaks for itself. 

Why all the social stuff? We score somewhere on the middle between introvert and extrovert, hence some focus at the social side, as we know we enjoy it but need a push to take initiative. It's also an area that was somewhat sacrificed under our financial bandwagon during the last few years. So it's about coming back to something we used to have. I suspect we share that with many in this community. 

Related to that we also put an explicit focus on our close friends. It's tragic, but we admit that we tended to play down the time for friends while aiming stubbornly for financial independence. That is probably nothing that will serve us well in a financially free future.

Let's save the two last areas, Body and Soul for Part 2.

How are you going with your resolutions so far?

Time for change: The Pathfinder Portfolio

 How permanent is a Permanent Portfolio?

Antinous contemplating change 

Stick to the strategy. That is a good motto. Meddling with a portfolio is a dangerous thing. More than anything, meddling means that we are likely to shoot ourselves in the foot.

Perhaps we are about to do something that we will regret. But hey! stock prices are back on 2016 levels. 

And two more observations for us:

1) Cash. We have the advantage of having quite a lot of cash, as we have been sitting on a conservative permanent portfolio (which we thought was the best strategy for our accumulation phase, up until now) 

2) Stable. This dip has also shown us that we are more emotionally more stable than we perhaps thought. We observed the stock market plunge with a detached curiosity, and not the panic and white nights we feared.

Conclusions: We think we can somewhat increase the risk in our portfolio. But we still want a good price on the risk we take on.  

Enter The Pathfinder Portfolio
We had, as early as back in 2018, started to think of possible portfolios that would increase risk and return in a very, for us, bullet-proof manner. 

The basic idea is to change our portfolio allocation to this:

• 50% stock allocation 
• (details: 16% US Large Cap, 16% Domestic Large Cap Value, 17% Domestic Small Cap) 
• 25% long-term bonds 
• (details: 8% US Long Term 25y+, 17% Euro Long Term 25y+)
• 25% Gold 
• (details: in different Gold ETF:s)

Try this allocation out in your preferred financial alchemy lab yourself, and marvel at the properties. 

After our own trillion different simulations, our conclusion is that this allocation keep some of the most attractive characteristics of the permanent portfolio.

Some niceties
The average return with this portfolio can be expected to be up roughly 2% up from the permanent portfolio, so close to 10% in nominal terms. 

We're at a point where we've reached basic levels of financial independence, or Low Earth Orbite as we call it, and this return is a very good deal for the risk with the bleak and bad scenarios here.

Especially when opportunity presents itself.

Since 1970, the max drawdown time was around 5 years. This would be an acceptable drawdown time for us. It would mean that our accumulation phase would take around 1 year longer than we planned to reach the financial orbit we are aiming for, compared to the average scenario. For us today, this would be nothing we couldn't live with. 

Risk (volatility) is a nasty thing, and we rather use it to our advantage than fear it. 

It was around this point in our investigations that Antinous baptized our new portfolio the Pathfinder Portfolio, in an attempt to put a name on how this portfolio can help us finding our way to our version of freedom.

An often forgotten property
Another good property of our new portfolio is that it has a very attractive perpetual withdrawal rate (around 6%), due to it's reasonable volatility, and - like the permanent portfolio - ability to survive setbacks and - with another property it lends from the stock market - recover quickly. 

Together with the start date sensitivity which is pretty low, we think this is a kind of portfolio that we can stick with for a long time. The still low start date sensitivity means that we will not have to sit and try to time the allocation weights or worry if we need to take some money of the table when the financial climate seems good or bad. 

We also don't have to think about balancing out of the portfolio or "decrease risk" as we get older or leave the 9-5 life, as the withdrawal rate is already super-duper-attractive.

So, like the permanent portfolio, this portfolio has the sweet, sweet property of being, well, permanent.

Cue good sleep. 

Why not go all in on the stock market?
The total stock market - dividends included - can have drawdown times of more than 10 years. For us, that would seriously thwart our accumulation phase. 

So we rather "pay" with missed opportunity to keep us more safe from the darker periods of the stock market.

The perpetual withdrawal rate of the total stock market is also 4.5% for the same 50 year period. That is actually 1.5 percentage units LOWER than our Pathfinder portfolio. Yet another testament to the dangers of volatility. 1.5% difference is significant.  It would have a very real impact on our future budget, in the range of 1000€ a month.

Let's see how this portfolio works out and if and how we do the transition.

Take care,

//antinous&lucilius

Where to go from here?

• Read our thoughts on why to go with permanent-portfolio-type strategy here: A well-kept secret: A Portfolio for Accumulation (part 1/2)
• How did our portfolio do during the plunge in 2020? Our Portfolio During Tumultuous Times. 

NB. I hope we'll get to dive into an in-depth article on the ideas and reasoning behind this portfolio, and what we think around the concept of a fair price of risk.

Our Portfolio During Tumultuous Times

How did our portfolio fare during the corona crisis?

Sometimes one has to wrestle with the unexpected

The first question is of course to ask what kind of vessel we sit in. We were sitting in a very stable one, in the shape of our permanent portfolio. 

How did it go in February-March 2020?

Like everyone we've been though some interesting weeks.

We suspected that corporate short term bonds could get into trouble, as have happened repeatedly before when cash and risk appetite dries up. We didn't have to much cash in corporate bonds, but this time we were lucky and managed to sell them off quickly.

Lesson Learned 1: Only cash is cash. And when the knives are falling, cash is indeed king.

Another thing we noted was that we didn't get nervous at all. Either we are just very nivilated. Or we trust all the tons and tons of simulations we've done on the permanent portfolio that we have. 

When the dust started to settle, we were down with 11% from the peak. So basically well within the bounds that we expected - bearing in mind that our simulations were on year basis, and this was intra-year.

Lessons Learned 2: We might be more risk tolerant than expected.

What were your thoughts during the worst drop in almost a hundred years?

We're leaving Low Earth Orbit

Where are we in our journey?

The Method Works, as Jean Baptiste Grenouille noted in Grasse.

Lucilius is now safely past Low Earth Orbit, and since a few months he can count himself as robustly financially independent according to the 4% rule. 

Antinous is quickly picking up speed. He's soldering on, and he's armed with side hustles, and will touch Low Earth Orbit before the year's end. 

Even if we know the maths behind it, it's still surprising for us that this actually works. And that we now enter more into a period of building margin, rather than aiming for the lowest level of financial independence.

The shift in mood is large as well. 

Our take on work is that it should feel adventurous and fun. We've changed jobs when it didn't feel like we could put enough of our hearts in it. 

But now, with the first level of Financial Independence behind us, it is as if a new level of adventure, with an unusual calm and perspective is taking over.

Let's see what this will bring us.

Our Crawling Road: A Portfolio for Accumulation (part 2/2)

We think it’s a good idea to have the rock of financial independence under the feet quickly and safely, instead of going on riskier roads that might take longer than one thinks.

The portfolio we have used to reach financial independence, as certainly many have guessed, is the permanent portfolio. 

The permanent portfolio has been declared dead again and again, it's slow, archaic, contains funny assets like gold (!) and cash (!!), it's overly conservative, pessimistic, neurotic, and what-not. 

For some, this portfolio is like a monster that no-one really manages to kill off. For us, it's like the well-kept secret that made it possible for us to take the leap to the journey to financial independence.

Money doesn't care if it comes from one allocation or the other. And the portfolio, like a rusty ukrainian tractor, soldiers on with astonishing reliability. 

Even Achilles had troubles with that turtle.

(Part of painting by Francois-Leon Benouville, 1847)

The portfolio even enjoys and profits from volatility and bad weather. Antifragile, schmantifragile.

Once upon a time, a very very long time ago, like 2012 or something, there was a blog called the crawling road, by Craig Rowland.

He went deep into the details, and has written a good book on the Permanent Portfolio. It's written with a US perspective, but we still recommend it, and we hope this can illuminate some of the ideas and also the global appeal of this asset allocation. 

The asset classes in the permanent portfolio are:

• Gold
• Cash
• Stocks
• Bonds 

The basic, radically counter-intuitive yet surprisingly simple idea of the permanent portfolio is to put together four asset classes that behave differently from each other. 

As Fortune sails with her horn of plenty on the seas of the world economy, these asset classes perform differently, and as one is doing poorly, another asset class will be in the limelight.

We needed time to think it through and understand some of the portfolios intricacies. Slowly some of the beauty dawned upon us. 

Gold & Bonds

Gold was hard for us to grasp in the beginning. But let's not be fooled that one asset is necessarily better than another. 

Since we started, gold has performed exactly as well as US stocks. We would never have believed that when we started.

Bouillon can still beat the stock market.
Gold coin Septimius Severus, AD 193-211.

Euro bonds are not far behind either. 

Long-term bonds are a strange animal that do not behave as the treasury pleases.

But frankly, cash? 

Cash, as an asset, is a game of perspectives. 

Cash can grow explosively with several 100 percent over a few months or half a year. 

Of course the newspapers don't call it growth when it comes to cash. They look on the stocks, and call it a crash instead. Fear gets more clicks.

Seing big happy headlines about the sudden increase in purchase power of anyone with money in the savings account is unusual, to say the least. So we were not used to the opposite perspective. We had to learn to look on cash the other way around. 

During a year, the same amount of cash can allow us to buy 2-3 or 5 times as much of another asset class, most  notoriously stocks. 

And sometimes all other asset classes will, for a short period of time, be on sales by a factor of 2, 5 or even 7 or 8.

There's a reason why it is called a credit crunch. It's all about the perspective. 

Truly: let's not assume what tomorrow brings

Why so much of each asset class? Well, first each asset class needs to carry the weight of the portfolio when that asset is going well. A 1/4 allocation on each asset class means that there is enough weight to carry the portfolio at all times. And the other thing is to truly embrace that we do not know about tomorrow. Then it’s a good strategy to be roughly agnostic about what the future will bring, and bet equally on what will happen tomorrow. 

For us, the best comparison is perhaps with some kind of strange type of noise reduction. If one adds uncorrelated time series on top of each other, one is very likely to decrease the amplitude (volatility) of the time series. 

Less noise, more signal.

How to do it

We've set up our permanent portfolio according to the following, using standard mutual funds and ETF:s.

• Stocks 25% (8% US Large Cap, 9% Domestic Total Stock Market, 8% Domestic Small Cap)
• Long Term Bonds 25% (8% US Treasury, 17% Euro Government Bonds, all 25 years+ to maturity)
• Cash 25% (treasury bills, bank accounts and short term max 3 months fixed income, all in local currency)
• Gold 25% (several Gold ETF:s with physical gold that tracks the gold price 1-1)

As you see we've chosen to have US and EURO exposure in all variants of our portfolio, but that can easily be tweaked, even if we found, surprisingly, that increasing exposure to exchange rates in roughly these proportions actually, and very counterintuitively, increases safety and returns.

This is a portfolio that thrives on volatility.

Rebalancing

The last thing to mention with the permanent portfolio is rebalancing. 

Rebalancing the permanent portfolio means that we always have something the market wants that we can sell. Oh, the market is short on cash? We've got cash aplenty. Valuations of stocks are high? Let us buy some of that sweet gold that the market has forgotten to value. And on it goes, selling on high and buying on lows, between the asset classes, every year.

We rebalance back to the 25-25-25-25 allocation split if things get more than 10 percent units off, or otherwise annually and that's also when we invest the cash we accumulated during the year. 

This strange mix was our secret sauce, the well-kept  brew that would safely yet quickly and in as many scenarios as possible bring us to financial independence. 

Let's sum up

The permanent portfolio, we felt, had the ...

1) ... potential to protect us from the really bad scenarios and 

2) ... help us achieve financial independence also in a bleak scenario, while 

3) ... doing just as good as classic portfolios during average times.

That was our sweet spot to bring us to financial independence.

Our Crawling Road

Lucilius has achieved financial independence with exactly this portfolio. By the whims of Fortune it took the same time as it would have done if we went for a broad stock market portfolio. 

But that was just luck, which perhaps also illustrates why one shouldn’t rely on an average scenario when making a decision. And even being 6-12 or even 18 months behind the stock market would be a price he would be willing to pay to lessen the risk of a really bad or bleak scenario. 

The annual average return, including inflation ťhis time, was almost spot on the average expected return of 8 percent during that period.

Antinous is now half-way there.

We wanted to show our thinking behind this lesser-known and very conservative option. We think the permanent portfolio has merit, especially if one discovers financial independence a few years into one's working-life, and finds oneself with some money, motivation to aim for financial independence with a combination of safety and speed, but without a strategy that seemed to give a fair price for ones appetite for risk.

This was our crawling road to financial independence, and, dear reader, this is what works for us, and what we did. 

Something else might work for you.

Take care!

//antinous&lucilius

Where to go now?

• If you haven't read our reasoning why we went with a permanent portfolio during our accumulation phase, then read the beginning of this two-part article here: A well-kept secret: A Portfolio for Accumulation (part 1/2)
• Since 2019, we have made some changes to our portfolio, and given it a new nick-name: The Pathfinder Portfolio.