Character is destiny

This year is coming to an end as we're writing these lines. 

We've achieved some and missed some when it comes to the New Year's Resolutions from last year. 

The training is where it should be, above 9000 minutes during last year. A secret has been to try to train before lunch, either in the morning or during the lunch hour. That seems to help us to use the higher energy part of the day for training. 

Another thing we've achieved is our savings. We've saved around 44 k€ per person that goes into our pathfinder portfolio. 

Other things where not quite there. My Mandarin is not that much better. Antinous German though is a lot better. I would not aim for Carnegie hall neither with my piano skills.

On the other hand, we've spent more time with family.

Why did some things succeed?

Perhaps because we've made these habits easy to fall into, so the fist step to get them going is easy. 

It's a simple idea that seems to work for us.

Resolutions take habits that constitute character and creates destiny.

Here are some character forming micro habits that we've used this year. 

• Training. If we change to training clothes at 10am or 11am. Then it feels strange not to go training at 11:30 and instead sit and eat lunch in training clothes. 
  
  
• Savings. We've automated everything. We have a side account with what we should spend in a month on food and basics transferred to it. Then the card is refused when we go above that limit. There's a side account with a little more, where all invoices are payed and the salary ends up that we then can refill some with, but it's cumbersome.tp withdraw from it. And there's no other account easily accessible with money beyond our monthly expenses. 

So what to do next year? We should probably think more about the micro habits, because they are the triggers to the habits, and when we've put them in place we seem to be able to live up to what we promise. 

We should probably also give more thought to the social, friend and love department. We're not always overly interested in this area, because we know that the social mirror is dangerous to our financial journey.

Changing the status game is what allows our freedom.

But yet, we're also social animals. And there are interesting things to work with in the social game. What are our emotional responses around other people, and especially people we might dislike? And friends we like and love? How do we react, what of our own shortcomings do we project on others, what do we want of our social surroundings, and why? 

So there are three areas to focus on for 2022 perhaps, summarized as: wealth, health and love.

And all will take habits that create character, which steers us in these three domains,.

And what is wealth, health and love, if not destiny. 

Farewell,

//antinous&lucilius

Who has got the initiative over our life-energy?

Here's a thought.

We're dependent on the paycheck for our livelihood for a considerable time.

We earn that paycheck by giving our life-energy away; our concentration, enthusiasm, wit, skill or labor. 

What guides where we focus our life-energy is the force that gives us the paycheck.

That directing force is ultimately dictated by the needs of society and the market.

What does freedom do?

It brings the control of that force, to decide where we spend our life-energy (concentration, enthusiasm, wit, skill and labor) over to us.

Art wants out

Suddenly, the initiative is in our hands. 

We become true grown-ups, adults, and sovereign in deciding where to spend our energy, without a guiding force to nudge us.

The beauty of early financial indepet is that much of that life-energy still remains in our hands; in our relative youth; it has not yet been spent in the hands of the market and society.

We still have energy to spend.

It's, though, an error to think that freedom means that the life-energy shouldn't be spent on creative, interesting endeavors.

The energy we're granted is far too interesting to squander away, in our opinion, on too simple pleasures.

Hedonism requires complexity.

And mastery of complexity is art, and art wants out.

And with freedom, the initiative to set that art free is ours. 

Farewell,

//antinous&lucilius

The speed and the destination

When we want to go somewhere, is the speed we can arrive at the destination the only factor to consider?

Let's say that we are to go and visit some friends in a remote area in northern Sweden. 

The winter roads through the forests are full of moose, reindeer, bears, polar bears, and what-not.

What kind of driver (and car) would we prefer for the journey?

Let's make a thought experiment with obvious hints to a financial journey.

One driver promises to keep a good, high average speed, with the performance one can expect of a good, new car, let's say around 120 km/h (80 mph).

Another driver wants to arrive as quickly as possible. This driver proposes a new kind of car (untested on arctic winter roads) that he thinks could go really fast, let's say 160 km/h  (100 mph). We will reach the destination in no time, or so he promises us. All other alternatives seem unnecessarily slow to this driver.

The third driver seems, in comparison, dull and boring, but quite stable from a temperamental perspective, and proposes to drive in 80 km/h. Just in case.

There might also be this guy from the local bank who tells us to walk the whole way.

Quick? Or safer but slightly slower?

Speed might not be the only factor to consider when aiming for a given destination (that doesn't include a dead moose in one's lap).

To arrive at all, in an acceptable time, is for many much more important than being the first to arrive.  

Let's end with the analogy there. 

Many seem to focus on optimizing for just one parameter when considering one's financial journey.

• Insane returns. Including untested assets, which could be anything that is new. New is the definition of tech stocks. Or exotic assets that didn't exist 20 or 50 or 100 years ago. Might be quick, yes. Will it always work? Who knows? And what happens at an unexpected turn?
  
  
• Average speed, known car. Buy the index, or pick value stocks and reinvest the dividends. This is less insane and it's far from impossible to reach our destination. Yet, if one is not that familiar with the conditions of winter roads in northern Sweden, then do we really understand what risks we are exposing ourselves to? And what makes the assumption true, that high average speed is the only factor that is interesting for our journey? Is the assumption that average speed automatically also has a decent reward for the risk? Or that the risk matches our journey and appetite to arrive also if conditions or events are less than optimal?

• Slow yet steady. Even a sharp turn becomes much less challenging with slower speed and higher safety. The big swings, so to speak, of the road  becomes less dangerous, and we can both handle sudden ice and even the odd moose on the road. We might get to our goal in a slightly longer time. But in most scenarios we will get there, alive. 

We have given the question which vehicle will bring us to our destination some thought, and for us, slow and steady might not be so bad, as we prefer to arrive in most scenarios rather than being quick in the average scenario. 

You can read our thoughts on portfolios here, and our thoughts on volatility here.

How about you? Are you mostly considering your speed in your portfolio? Or is arriving at the destination even if the unexpected moose shows up behind a curve also in your equations?

Farewell,

antinous&lucilius

Why the Samurai shouldn't study too much Buddhism

There's so much mindfulness in today's world. And to enjoy freedom, the stoics, and quite a lot of thinkers like them, advice a kind of detachment from the material world - at least when it comes to deriving anger from material failures.

Yet - when we are NOT yet free; isn't it better to think of how to be good followers of our clan and company? Is then too much dwelling on the mental virtues for freedom really with what we should consider ourselves?

A Samurai is not overly concerned with a peaceful mind.

(Kusunoki Masashige, 14th century)

In the Hagakure, Tsunemoto writes that the Samurai should not study too much Buddhism. 

Instead, one finds other virtues, quite detrimental to preserving one's peace of mind, in the thinking of the way of the samurai - bushido. 

Act quickly

The philosophers in Their Elevated Elysium like to think and not make haste. 

Yet, the Samurai prefers to to act and act quickly. Only the feeble refrain from acting. 

Use the anger

The stoics stay clear of anger, and comfortably turn their fat necks away.

Yet, for a Samurai, rage can be turned into a force that can be directed at one's enemies or what needs to be done.

Don't be afraid of death

In one translation, Tsunemoto writing goes:

"This is the substance of the Way of the Samurai: if by setting one's heart right every morning and evening, one is able to live as though his body were already dead, he gains freedom in the Way; his whole life will be without blame, and he will succeed in his calling."

Perhaps we don't always have death over us, yet at some point, being attached to personal safety is obviously counter to Tsunemoto's samurai. If we accept that everything will vanish to the point that it has already vanished, we can do the right thing, free of fear. 

If we are afraid of death, we might refrain ourselves from doing the necessary.

Often, the hard way is the right way and can be enjoyed precisely because of its hardships. 

Live by honor

Honor, and the lesser byproduct of reputation, is everything in a clan-based society. 

Hint: much of business life, and beyond that, behaves like a clan based society.

In all action, show respect, stick to your word and never loose face.

Serve your master

Precisely because of honor and reputation, the Samurai cannot have anything but complete loyalty to his master.

A good follower

Most of us spend some time in a clan, nowadays called an "organization" or a "corporation". This existence can be enjoyed for its medieval, clan- and samurai-like attributes.

And being valuable to the clan is a sure way to achieve freedom.

So let's think how we become a good follower for our master, and put the horse before the cart, and consider this and enjoy this before we start to consider freedom.

A samurai shouldn't study too much Buddhism. 

Be a good samurai first, and then, be the monk who dwells on transcendental freedom in his state of higher and higher enlightenment. 

If we set our will to it, our goals will be in our grasp.

Tsunemoto again:

"Nothing is impossible in this world. Firm determination, it is said, can move heaven and earth. Things appear far beyond one's power, because one cannot set his heart on any arduous project due to want of strong will."

Farewell.

//antinous&lucilius

When lightning struck the cow

There was this farmer's tale, of a good ranch. The harvests were plenty, the meadows bountiful. 

Each and every year, everything at the farm got a little better, the barns were filled, the live stock was fat, the children happy.

Then, one summer night, the farmer looked to the skies and saw dark clouds gathering. A storm was building up.

Well, he was probably not sitting on the cow.

His favorite cow grazed on the hill, and the farmer had a tingling sensation. Too late he understood what was about to happen.

Lightning struck his cow.

From that day on, what was slightly better every year became slightly downhill as the years passed by. And just five years later, the farm fell into disarray.

It was a story that ran in the village for generations. 

To have a little bit too much is not a problem. To discover that one has a little bit too little is a big problem. 

Diversification and safety margins are there for the things we do not see coming.  

As when lightning strikes the cow.

Farewell,

//lucilius&antinous.

Only the wise are rich

Cicero was a funny guy. He used an old-school trick to maintain his financial freedom, which was the Roman version of house hacking - to have a lot of property out for rent. 

He was obsessed with how he should furnish his villa and which statues to buy. 

This was a fellow who did not live as he learned. His writings are confusing. Once when war called for duty, he escaped it by calling home sick.

He wrote about the stoics, and about stoic paradoxes, and sometimes he hit close to home. Perhaps because he could draw on personal experience of how paradoxical human behavior can be.

One of his paradoxes are: All Fools Are Mad. Only The Wise Are Rich.

Only The Wise Are Rich

We think that there's something creepy with the Rich Dad, Poor Dad kind'a'guys. Of course, a Poor Dad is doing something wrong with neglecting money all together, and we've been there. 

But someone who just want to amass as much money as possible, to the detriment of one's tranquility of mind or, worse, one's core moral values? 

A man, like Cicero, obsessing about buying the right statues to his villa. Is that person really wise? And if he's not, can one say that he's rich?

This question is tangible for us. 

We start to seriously leave the basic level of lean financial independence. But what after that is enough? 

Well, we add some safety margin. For instance, like Cicero's mad man, only a fool would assume that the highest mountain he has seen is the highest mountain (or financial crash) there is.

But after that safety margin? At a certain point, perhaps for us around USD 2-3 millions, there's a new level, the point where someone that are used with our level of expenses just can't spend the money on a monthly basis (unless we buy something very expensive or give the money away). 

For us, at that point of a few million dollars, we could always do whatever we could imagine; renting whatever car we wanted, travel from Sydney to Bali to a chalet in the Swiss Alps, hang out with the jetsetters, go to our conferences, meet the people we like all over the world - indefinitely, month after month - as long as we are at least reasonably conscious about the price and not paying over-prices. 

All experiences that we could imagine would be financially feasible without end.

This is of course what we want to do anyways, but with moderation. The key difference is the 'without-end'.

By just adding a little extra we could achieve all experiences we've imagined, forever, for as long as we want. 

Is it worth to work 3 more years to get to that point? Or should we use the last years of our relative youth to concentrate on for instance more health? Or can we do both?

Heli-skiing with the jet set bunch
Picture by Zach Dischner

And what comes after that? Are we becoming the Rich Dad, the mad fools? Appetites are insatiable. The financial independence community would agree with Cicero here; all fools are mad.

We are always at risk to become slaves to our appetites, be it the inferiority complex of the buyer of yachts and castles, the fear of having a too small safety margin of the too neurotic, the lack of imagination of the one that is forever stuck at the desk with the paycheck.

There's a point, where it is much more important to work on one's wisdom, rather than one's riches. 

Farewell,

//antinous&lucilius

How we dared to start investing

Our investment journey started with that we both went through crisis at work; where we realized that our financial future shouldn't rely on the paycheck alone.

Yet we had too much fear of the total stock market, and of stocks, to go all in on stocks.

Looking back we had some investments, mostly in mutual funds with corporate bonds that had a return of 4%. So very weak returns for the accumulation phase. And we really didn't pay attention to it. 

At some point, Antinous said that if we put our brains to it, we should be able to get at least a 7% return, still with reasonable risk. 

Sunrise for Antinous & Lucilius Financial Freedom Journey

Enter Asset Allocation

That's when we came across the permanent portfolio. We soaked up and read everything about it, we got the books of which we would especially recommend Craig Rowland's The Permanent Portfolio from 2012 that goes into more depth and answers some of the questions otherwise left unanswered. 

Compared to the advice one would get from one's bank, this is a wildly different approach.

It allocates 25% in four completely different asset classes (cash, long term government bonds, gold and the domestic stock market via a broad index fund).

Why? If we don't know anything about the future, then we bet equally on what's going to happen. And then the asset balance each other out, providing a radically different risk approach than anything one has heard from the old bank's investment advisors.

Why we dared going all-in

We already had a bunch of money when we started to be interested in investing. But it didn't feel good to go all in in the stock market, as many seemed to recommend in the financial independence-sphere.

Basically, it was the table below that made us dare to put our hard-earned money in a portfolio. The data below sums all periods from 1970 to now, with yearly re-balancing. We added US and France below just as a reference, with the US stock market as a benchmark. 

	PP SE	PP US	PP FR	Stocks (US)
Deepest Drawdown	-12%	-14%	-13%	−49%
Longest Drawdown	5y	5y	5y	13y
Average Return*	5.9%	5.2%	4.9%	8.2%
Short Term 3y Bad Case*	1.1%	1.6%	1.6%	-2.3%
Long Term 10y Bad Case*	3.2%	3.9%	3.6%	1.4%
Min Time to FI**	4y	7y	6y	3y
Max Time to FI**	10y	10y	10y	14

* Returns here are per year without inflation. So one needs to add one's expectation on inflation to see the same returns one would see in a brokerage account. The bad case is at the 15% percentile. 

** We assumed a 50% savings rate and 8 years expenses already saved. But this is 

When we started, we didn't really find online numbers for Sweden, so we crunched the numbers ourselves. It would show that the permanent portfolio is even better in Sweden than we first thought. Now there's portfoliocharts that is excellent for getting better ideas about different asset allocation strategies. 

So the higher average return in the stock market has also a very high price of 4 red boxes in our table, where each and one of the red box represent a very unnerving result for us. 

In short: the idea of asset allocation and perhaps the permanent portfolio might be worth checking out. 

So we did go slightly slower, but preferred to avoid the red trapdoors. Can you go more aggressive? Yes. Did we dare go more aggressive? No. So better to have something to start with rather then bring scared into doing nothing at all, or to pretend to be an ideal stoic sage that will be unaffected whatever happens just to discover that it might not be true. 

Farewell,

//antinous&lucilius