Ergodicity: Anything that can hit us will, eventually, hit us.

Ergodicity is an interesting property. 

The idea of ergodicity is that in a stochastic process, a point will eventually visit all parts of the system it moves in.

Another way of phrasing it is that given enough time, everything that can happen will happen, with a probability approaching one.

We're by no means mathematicians, and even less experts in probability theory. 

Yet, what we've understood (or misunderstood) about ergodicity might be interesting for how one looks at the world, and how one looks on investments and an investment strategy in particular.

Let's start with examples.

Two Sides of A Pet Example

And where better to start than with a gun. 

Mikhail Yuryevich Lermontov aged 33, four years before he was shot through the heart during a duel. He was, allegedly, the inventor of the morbid game of Russian Roulette.

Russian roulette is a favorite game of all amateur game theoreticians. 

1 gun, 6 chambers, 1 bullet in one of the chambers. We spin the barrel, and then the game begins.

So, in which of the following game settings of Russian roulette would we like to participate?

Game A: Ensemble probability

6 persons walk into a bar (in Novosibirsk). The first one puts the Russian roulette-gun to his head, and pulls the trigger. If he survives, he hands the gun to the next person, and so on.  

What is the a priori expected return from participating in this game?

Game B: Time probability 

Now a much more, for the individual, deadly version of the game. One person walks into a bar to play Russian roulette. In this version of the game, she puts the gun to her head, probably has an good glas of vodka, and pulls the trigger 6 times.

What is her expected return from participating in Game B?

Let's conclude that whatever the return is for game B, it's not good. 

What does this mean for us?

In life, one might easily believe that one is playing Game A. When a yearly expected return is calculated, it gives the illusion of Game A. 

It's as if we participated in one year only, and, like our six Russian Roulette-players above, we cross our fingers when we pull the trigger and hope that it's a good year.

We hear ourselves say things like 'Let's hope that the portfolio goes up this year'.

In Game A, hope is part of the equation. We can hope that we are on a good run. We can hope that we will pull out of the game before that fatal bullet. 

When we look at expected return, like in Game A - it's ensemble probability we see; an ensemble of years as if they happened at the same time, not as if they where happening one after another. 

Of course, years doesn't work the way Game A does. 

It's not ensemble probability that is a good model for designing a strategy. 

Like our unfortunate player in Game B, we must survive time probability. 

Which means acknowledging that bad events will hit us as well, due to ergodicity. What is unlikely to happen in a year might very well be very likely during a lifetime or over the timespan of our strategy, or for the unfortunate lady playing solitary Russian roulette.  

In investing, we are playing the long game, year after year. So the mechanisms of our strategy and the behavior of the game table we're at, are very important indeed. 

During a life time, a really bad year WILL hit us. Really bad events WILL happen. Then our strategy better be wiser than the one fool hoping about the average outcome of Game A above. 

Our strategy to increase and protect our wealth must be built in such a way that we don't end with a gory mess.

There's no use in having a strategy on the assumption "as long as nothing bad happens", or even worse, a strategy that leads to ruin if a bad event or year hits us. 

Then we might permanently be out of the game, and our strategy doesn't matter much anymore.

Real life examples

What does ergodicity mean for us, practically?

To sum up: if we are to stay in the game, ergodicity means that in the long run, our strategy need to be able to survive anything that can possibly happen.

Application 1. Return.

The diagram above shows the same run for the Pathfinder portfolio.Why does it look so spread out if it's the same run? We've just varied the start date with three year intervals and repeated the same series of returns on the same starting point. 

Look at the diagram again. The green, the red and the blue line all come from the same run of years. The green line sure looks lucky. But even a "lucky strike" as the green line, also has a "bad run" as can be seen around 2031 in this simulation, and what looks like hopeless laggards will overtake the initial good run. Remember that this is the same series, the variation comes from the starting year only.

The same strategy gets hit with every event; with everything that happened, and luck and misfortune even out. 

So this would be as example of a strategy that can do well both if we're lucky or unlucky with a run of years.

A side-note: Ergodicity also puts some lights on the thinking around the FIRE-number itself; the amount of money invested needed, to reliably cover one's expenses. If one hits the fire number early, one should probably be cautious. On the other hand, if one never seems to hit the fire number, one might be on a lower trajectory, with more upside potential. More about that in another article, perhaps.

Application 2. Risks.

When contemplating exiting the work life, we've set up a list of risks, consisting of things that might derail our future freedom. Socialism (this is Europe, after all), large unexpected costs, family members faring bad, our relationship taking a bad turn, and of course death. With risks, it's tempting to assign impact and likelihood and care about the high probability, high impact ones.

But ergodicity introduces something that normal risk-thinking doesn't quite comprehend. The longer a game is played, the more likely all events become. 

In the long run, we need a strategy for everything. Nothing can really be avoided.  

So we must be prepared that we will have to perform all the mitigations for all risks. We will at some point have to pay that unexpected cost. 

There will be a run of socialism with high taxes and a wealth tax during the roughly 50 years we will live from our portfolio. There will be family problems and relationship problems, illness and tragedy. And finally, one of us will die and leave the other one behind. 

Conclusion

If we at any time think it's meaningful for us to "hope" for a certain outcome, then we have probably fooled ourselves into believing that we are playing Game A.

Our strategy needs to be adopted to reality, and the long run. Amor fati; love what fate has in store for us. Or as Mark Spitznagel of Universa fame has it. He makes a parallell to Nietschze for a good investment strategy - being able to exclaim "Thus I willed it" for whatever fate throws at us. 

In real life, hope is not a good strategy.

Farewell,

//antinous&lucilius

Life as a training arena for the stoic virtues

Antinous is the true stoic of us. If anyone would rate the four stoic virtues, Antinous would clearly come out on top.

Antinous wears a better social mask; he's friendly, agreeable, likeable.

If there's something that is going for Lucilius, then that would be that he's got his emotions on close range. Too close, according to himself.

We have come up with all sorts of explanations of the differences that are most of the time quite amusing. Probably genetics, and the role we played in our early teens seems to have colored these parts of our personalities.

A lot of things about personality are on a flip-side scale; on one hand, and on the other hand, and everything can be both good and bad, and there's no real value judgement to a personality trait, or so the common wisdom goes.

But here's something where the stoics, and the ancients before them, knew: that some scales are absolute. More is just better. And that insight is underlying the concept of the stoic virtues: fortitude, prudence, justice and temperance.

Fortitude

Fortitude, strength, the ability to endure the necessary hard times and do what must be done during challenges that life unavoidably entails.

"Are you samurai?"  is a question we ask each other sometimes, after having had a stab at the playstation game "The Ghost of Tsushima" where the phrase gets thrown around a lot.  

We say it like a; "wht the f*ck, how hard can it be?" and a "stop complaining, and get it done!"

Are you samurai?

To some extend it works. And it reminds of that some of the ghosts we face and that are stopping us from showing the strength needed in everyday life is more in our minds than real.

Prudence

Prudence, the ability to step back and think about the course of action and make cold-headed decisions. In latin, the word is prudentia, and this virtue is sometimes just translated as wisdom. 

So the ability to back off, let go of anger, giving up short term wants or silly cravings of recognition, and clearly see what path is best. 

Lucilius, as said above, especially can feel the sting of anger and get carried away by emotions. And it's dangerous. Suddenly he might have said something, let something slip, that gets a life of it's own.

Once upon a time, allegedly, there was a tribe in the arctics, that had the concept that they had a soul that always walked beside them, a kind of mirror-spirit of themselves, that they called the bigger man. 

They themselves were just the little man, consumed and dragged into the petty things of life.

But when something happens, we (and they) can always ask what the bigger man would do. 

Do we feel assaulted? Then we ought to ask ourselves: what would be the little man's response? And what would the bigger man do?

Justice.

Justice is about doing the right choice, of having an adequate sense of right and acting in accordance with the laws and what's right.

So not trying to cut a shorter path that isn't right, doing evil for short term games, and accept the just laws that govern human interactions and act in accordance with one's values.

Do the right thing.

Temperance.

Temperance is knowing what is enough, knowing how to control oneself, one's emotions and one's wants. 

There's more to temperance. As anyone striving to financial freedom knows, moderation is an absolute necessity to walk this path. Someone who cannot temper his appetites will always want more, and thus never becomes truly rich and never reach any kind of significant freedom.

Being In The Arena

The virtues are learned in the arena, with other people, while we are trying to achieve something difficult and of value.

The arena provides the training ground needed for freedom.

We suspect that it's much harder to chisel out the virtues if one is too deep into a propped-up otium. 

The world and its challenges, correctly taken on, train us in fortitude, temperance, prudence and justice.

Venus punishes Psyche with a task (more precisely to get water from a high rock guarded by dragons).

Ca 1692-1702, Luca Giordano

That's why, according to a more hardcore attitude, we should thank the gods for the misfortunes they throw in our way. 

If one should be able to truly enjoy freedom, we suspect that one better be trained, and keep on training, and embrace the training opportunities the arena throws in one's direction.

Farewell,

//antinous&lucilius

Truly not a slave: when the paycheck looses its attraction

What would your boss say if you came in and requested a 40% salary increase for the next year? And a 40% increase the year after that? Would she happily agree? Or would the cadres at your company think that you are more than insane?

A few years ago, we could expect a 40 k€ return from our investments for that year. The year after, this had increased to 60 k€, as it happened to be a good year.  The year after that, it was up at 80 k€.

That's a 100% increase in our income from investments per year over two years, or roughly an increase with 41% per year. All that just because we save and invest conservatively in our pathfinder portfolio. 

This is after-tax, in-our-pocket (or rather, investment account) money. So in many regards, much better than paycheck-money.

Now, compare that to how our salaries increased during the same period. These years were good to both of us, as we had changed job and had some salary progression. In the same time, that increase was hardly above 10% per year, so very, very far from the 40% increases in investment income.

This increase in investment income keeps rolling forward in a pace that is much, much quicker than any salary progression. 

It compounds quicker than one expects

Scientif38, CC-3.0

So, as all proponents of the FIRE-movement knows, there's a point where the investment income can cover for one's basic needs. 

Let's ask for a radical salary increase, shall we?

But there's also a point where the investment income is as big as the salary itself, and then - quite quickly - comes a point where the salary income just can't match the investment income at all under any realistic assumptions.

That's the point when a very substantial increase in salary - which for most people would mean a very drastic increase in responsibility or required skills - doesn't really do a significant change in total income nor wealth.

And then, suddenly, there's no salary that can realistically be paid, in any wage-based profession, that can be economically interesting to us anymore.

Truly not a slave 

This is the point where we loose financial connections the labour market, at least for all kinds of normal, labour-market-based monetary reasons.

We suspect that we have no inherent feeling that such a point in the financial journey exists. It should always be economically useful to work and earn one's living, right? Yet take any billionaire. There is no economic way of employing them with motivation of any normal paycheck.

There's a point like that for you and us as well. In Sweden, the take-home after-tax average salary after 5+ university studies is around 40 k€ (yes, we're in Europe, but the point still holds). That is a number we swooshed by several years ago with our investment income alone, and then continue to go beyond, with a very significant increase in our "investment salary increase" every year.

The progression, as we saw with the numbers, is such  that our bosses would be very surprised if we asked them to please keep up with our investment income increases with matching salary increases.

When most people hits a million euro, and keeps lifestyle inflation at bay, then it starts to get really hard to make significant improvements to one's economy by working for a monthly paycheck. The investment income becomes more than twice as large as what one earns via the paycheck. 

Suddenly, as sudden as how quickly a surprise avalanche builds up, it's no longer possible to employ us anymore, at least not for economic reasons. 

Then truly, we're not slaves any more.

At that point, only our own devotion can buy our time.

Farewell,

//antinous&lucilius

Volatility from a 5 year perspective: Welcome to the 1825 days year

Once upon a time, at the birth of our solar system, the time for the earth to spin around the sun became the 365 1/4 days we are used to.

It was a God given, a necessity, perhaps, and of course entirely out of human control.

Those 365 days has some impacts on our life, and certainly our evolution. For the two of us, the arctic summer and winter are a stark reminder of the solar year, on other places closer to the equator the climate will be more stable year round. 

The Arctic Sun

In the heated, air-conditioned, civilized life of today, the impact of earth's rotation on everyday life is smaller. The time it takes for earth to orbit the sun would seem even more arbitrary if one lived outside our frame of reference, let's say on one of the moons of Jupiter. 

From a more elevated perspective, an earth year is a seemingly randomly set constant.

Yet, we tend to give this period an out-of-proportion importance. We count our age in it, we celebrate the summer and winter solstice and equinoxes with rites and feasts. 

In finance the year has significance as well; as if the returns of our investments where a crop to be harvested every year. The year is the basis for what we understand with returns; if we see the number 7% it's assumed that it's the annual return that is meant. 

What is the impact of this metaphor on our thinking about investments? Investments that might not really care about the arctic sun, the moons of Jupiter or the passing of midsummer? 

What if we measured returns in another constant? 

Let's say that we just as arbitrarily instead measured a new unit that we set at 43 800 earth hours, or 1825 earth days, corresponding to 5 earth years. 

A unit, as if earth was spinning five years slower than we are used to. Or as if one only can be bothered to have a look at the planet every five year and wouldn't notice that it's actually spinning faster. Or as if we saw that grand red dot in the clouds of the gas giant Jupiter from our moon every five years, and measured the passing of time in red-dot-revolutions and not earth years.

What would we think of our investments then? How would volatility look with our new, more relaxed, slower 1825 days year's perspective? What decisions would we make?

Let's plot our pathfinder portfolio's return excluding inflation in a logarithmic diagram, with our normal earth years and our new, 1825-days-years. 

A thin red thread that always strives upwards

And voilà. An almost straight, red line that always marshes on upwards and never ever turns the other way. It's the same return, just with a lower resolution.

Our way of looking at things are bound by conventions that might be out of place. This hints on what volatility looks like for the Gods. 

And perhaps, it could for us too.

Farewell,

//antinous&lucilius

The built-in Identity Crisis of work-life: How Dante's Inferno got it right

A common way to enter the fire community seems to be to go through some kind of mid-life crisis.

Identity, crisis and burn-out

At the core of the fire community (and mid-life crisis, for that matter) seems to be not finance, but identity. 

What do we mean with that? Let's start by looking at identity. Here's an attempt at a two-fold definition. 

For an individual in relation to a group, identity will be any trait that most sets the individual apart from the  group.

For instance, in a small work place being gay will probably set you apart. Are you among gay friends, being the country boy might set you apart, et cetera.

Inversely, for the individual, identity will be the counteracting trait; anything that includes the person to a group and, importantly, also preferably puts that person higher up in the hierarchy, the status ladder, of that identity-creating group. 

During university and our early careers, we suspect they most high- and medium-achievers are so consumed with an identity based on a strive to find a profession, conforming into a role, that the profession becomes the trait that includes us in a group and sets us apart from other groups. 

Hence profession is a strong candidate to create our identity.

And with identity comes a lot more: the feeling of self-worth, feeling of respect in society and by friends and family and so on and so forth.

If it's not profession, other aspects are likely to compensate for identity: the kids, the house, the husband, friends.

These identities are naturally shallow, and early in life they need to be shallow to guide us into taking concrete, tangible (and by necessity, shallow) action. 

But kids grow up. Work changes and evolves and we become obsolete. The apartment or house as an identity creator? Let's not even go there. 

This early identity, as it's shallow - and society seems to need to keep our identities quite shallow - will eventually hit that trigger event that causes the identity to shatter, and a personal identity crisis will evolve. 

There comes a point when the identity and status in regards to one's chosen group is lost.

But with the identity goes one's feeling of self-worth, respect, belonging and recognition. We're probably hard-wired to react very strongly when that is lost, as this is something that was - and still is - potentially truly dangerous.

This loss of identity is so painful that it needs to be masked in other terms; often given an aura of scientism in the miss-normer of burn-out.

There might be some painful truth here. But in the midst of all ideas around burn-out, identity might often be an unfortunately lost concept.

The Evolutionary Advantage of Burn Out

If a sense of loss of identity wasn't involved, a burnout and the related feeling of stress might be easier to brush off. 

But the loss of identity makes it go deep.

A change in identity is intertwined with a feeling of gliding downward on the hierarchy ladder that our shallow identity is attached to.

Unfortunately for us humans, this seems to have a natural defense system that kicks in, to prevent us from doing dangerous attempts on the hierarchy ladder, as we have failed, or so our evolution tells us. 

There's an obvious evolutionary advantage to avoid further group exclusion. The one that survives, even further down in the group hierarchy, might still be lucky and propagate some more genes, compared to the one that challenges the status ladder and gets killed by the new matriarch, or whatever.

The name of that defense mechanism might very well be depression. Depression seems to be designed to keep us at bay, passively, and consider our options.

Let's sum up: the rules of life forces us to create a guiding identity, that through precisely it's concreteness is shallow and easily scattered, and then makes us fall down the status ladder into burnout and depression.

Is this even designed into the fabric if the human condition in society? This seems to be nothing new. 

Dante's Inferno, which, like the tradition of the alchemists, might have been a way to disguise philosophy and life advice in a religious language acceptable of the age, seems to be one large allegory on this theme, as a symbolic master piece about the midlife crisis and how it affects us and how to get throw it.

As we recall the protagonist's decent starts with:

Midway upon the journey of our life

I found myself within a forest dark,

For the straightforward pathway had been lost.

Dante et Virgile en enfer
William-Adolphe Bouguereau,1850

The midlife crisis is not just a theme in literature and art, it is also a core idea in individuation: to cast off the limited potential we have forced to constrain ourselves with to fit in society. Which is really nothing else than our constructed, shallow and fragile identity that we need to shake off through the nadir of our life. 

Our ambitions lead us exactly to the point where we do not want to be.

At some point in life, one will discover that what builds our identity isn't as stable and reliable as we hoped, and well, then our identities weren't as reliable and stable as we thought.

And that, not surprisingly as Dante saw, leads to a journey though hell that we must endure to reach heaven.

Conclusion

Here lies part of the beauty with the FIRE-movement. We need to build something more reliable to lean against than an all-too strong identification with things that will be taken away from us. 

Financial independence is a good and important step on that journey.

As long as we needed the paycheck, we are in a sense doomed to struggle with our identity and how it collides with the demands of our profession. 

This kind of identity struggle is not a good foundation to build a new, more free and robust identity upon.

At some point, though, one can become more free, perhaps supported by financial freedom, and start to reinvent the potential one has in life.

As long as that doesn't happen too late.

Farewell.

//antinous&lucilius

Portfolio Stability And A Good Night's Sleep

If one goes to a place like portfoliocharts (strongly recommended for the interested asset allocator), there's a concept that we have struggled with.

It's the idea of Start Date Sensitivity.

For us, this is not at all intuitive, so let's try to go all the way to see where we are now in our understanding. We have discovered that it's key to quite a lot of insights around investment portfolios.

It's a funny and unusual measure. It took us quite some time to start to understand this way of looking at a portfolio. 

One way to define it is as a measure of how good a guide the 10 years last history has been for the 10 years that lay ahead. By pointing out when this difference is as large as possible (both in the postive and negative sense), it focuses on the year when the previous time period was as maximally misleading for the upcoming time period, and how big that effect was. 

Is history a good guide for the future?
(Reconstruction of the West Pediments of the Parthenon, CC BY-SA 2.0 Tilemahos Efthimiadis)

Going with one asset class

Let's look at some examples:

• Total US Stock Market: Luckiest 10 years = 14.9 percent points better, per year, than the preceding 10 years, Unluckiest 10 years = -18.1 percent points worse per year then what the preceding 10 years annual average return hinted at.

So this mean that a happy US investor could sit and look at the stock market and think that: well, this is sure looking good. And at some point, the investor would say that, what the heck, the last 10 years have been going really, really well. Let's jump in and put my savings in the stock market.

The most unlucky the investor could have been when doing that decision, was the period when the stock market performed on a yearly average -18.1 percent points worse per year, for 10 years, than it had done the last 10 year period.

So that's a measure of how bad a guide for the future the last decade was.

For the US stock market, that would have happened in 1999, back when we were in our teens. The market had had a return on around 14 percent per year for ten years, but that would not continue. The average yearly return for the next 10 years would be -4 annually. This gives us the most unluckiest start date sensitivity for 1999, with those 18 percent points .

As both of us experienced and at least vaguely remember 1999, this negative experience colored our view of the stock market and probably at least partly explains why we treat it with caution. 

Of course, time would have partly fixed it for our unlucky investor, but it would take a very long time indeed. Still today, that 1999 investor would have got only a modest 5% return per year from that initial decision, and a lot of volatility on the way. Not that much of an issue if one is a teen and just started to accumulate money. More nerve-wracking if one is deeper into one's career and accumulation, and put substantial money on the table.

On the other hand: the luckiest investor would have jumped onboard the stock market in 2009 and then been in for ten tremendously good years, a lucky strike we're still part of.

Just for fun, let's have a look on a much more volatile asset class. No, not bitcoin. Gold, of course. 

• Gold (USD): Luckiest 10 years = 21.0p.p. , Unluckiest 10 years = -30,7p.p.

One would probably be close to insane to put a significant part of one's money in an asset class that is as volatile as gold, but let's play with the idea. 

In that case, an investor, after witnessing a terrible performance for gold during 10 years and then by some miraculous inspiration buying into it anyway, could be 21 percent points better off, per year, for the upcoming ten years. 

So the start date sensitivity goes both ways, and the bigger it is, the less guidance we seem to get from the last ten year period.

What happens if we mix two assets?

Let's instead mix a healthy portion of the stock market with a substantial amount of gold. Let's say by using our hypothetical 80/20 split.

• TSM (80%), Gold (20%), looking on performance in USD:  Luckiest 10y= 10.6 percent points, Unluckiest 10y = -11.3 percent points difference per year

What does that mean? Well, our investor would still be in for a surprise if she hit the unluckiest year, but after yearly rebalancing in and out of that gold, she could comfort herself that she would be much better of than with going totally into the stock market, and she would have come out quite ok 10 years later and would be back in black numbers much quicker.

Good for her.

Several asset classes

What happens if we go to our more conservative portfolios that we've been using ourselves, where we mix gold, long term bonds in different currencies, cash and small and large cap stocks, both domestically and abroad?

• Permanent portfolio, our take on it, in SEK: Luckiest = 5.1 p.p. , Unluckiest = -4.9 percent points difference per year.

The results are roughly the same for the US market, but with even smaller sensitivity. You can read more about our take on the portfolios here, here and here.

What does this mean? Well, there was a  year, where the last 10 years had an annual average return of 10%. If our unlucky investor jumps in that year, she would be in for 10 years where the average annual return would be 5.1%, or 4.9 percent points worse than indicated by the preceding 10 year period. All this after inflation.

And that was the most unlucky difference that ever happened during the last 50 years.

So in the worst case it would be roughly the same as for the stock market, but with much lesser volatility. And the permanent portfolio is back in black much quicker.

That's a glimpse of why we, who both were into our careers and had a bunch of money, decided to start our investment journey with the permanent portfolio. 

The permanent portfolio with its more narrow start date sensitivity, in contrast to the stock heavy alternatives, almost entirely avoids the question of 'is this the right time'? 

That's an important, stress-inducing question that can be avoided.

Finding our path

But of course, one pays a price with the permanent portfolio when it comes to where return. So now the fun part. 

• Our Pathfinder Portfolio, our take on it, in SEK: Luckiest= 6.5 percent points, Unluckiest= -7.3 percent points difference annually
• Our Pathfinder Portfolio, our take on it, in USD: Luckiest = 4,1 p.p. , Unluckiest = -4,2 p.p.

Our pathfinder portfolio of course has a higher start date sensitivity, measured as the difference between the luckiest and unluckiest points, than the permanent portfolio.

But still, it's much, much lower than the stock market. For our domestic set-up, the average return for the pathfinder portfolio was 9.2%, and a US adaptation was 7.3%. 

The total US stock market for the same period had an average return of 8.3%. 

So by mixing a combination of individually high volatility assets, one gets a lot more safety, quite small sensitivity in regards to when to buy into the portfolio, and an average return on par or even higher than the stock market. 

Just saying.

A Good Night's Sleep

That could be the end of this article. But it's not. 

What we then slowly realized was that the question if one should put all one's money in this or that portfolio is not only a question about start date.

It's not a one-time question.

It's a question that comes up all the time, nagging with these little thoughts that can keep anyone who is not a Stoic God awake at night.

• Have the last years been booming? How much could we realistically loose by sitting still?
• For how long should we accept that the portfolio is lagging behind? 
• Should we sell tonight? Or should we sit still and hope that the boom continues for a little longer?
• Do we dare to buy into an asset that has been lagging for a long time?

All investors take the decision if we should stay in an asset allocation or leave it every night, irregardless of if we try to pretend that we don't. There's no real way of avoiding this, as taking no decision is still a decision.

At the bottom of it, start date sensitivity is about the stability of an asset mix. Having a good stability in the mix of assets means that one has to think much less about time periods, paradigms, bull and bear markets and timing in general, and all those little nagging questions that timing entails.

Because the effect of being lucky or unlucky with timing has much less impact on the performance of the portfolio.

The decision to stick with the portfolio can then truly become permanent, with less second-guessing, and better sleep at night. 

Farewell,

//antinous&lucilius

Where to go now?

• Go over to portfoliocharts.com and play around for yourself.
•  Read about the Pathfinder Portfolio
• ... or the Permanent Portfolio: A Portfolio for Accumulation Part 1 and Part 2.

Note on the numbers: As usual, this is back-testing from 1970, cumulative annual growth rate, with inflation removed. 

There's Nothing More Important Than Our Freedom

Lucilius was trying to go back in memory and see how the seeds to his quest for freedom, including financial freedom, was born. 

The First Seed

One of the most fundamental and first seeds where planted around the age of 16. 

I was then living in southern France. My family there was more African than French according to themselves, with a grounded attitude of trust in humanity. It was the kind of family that would never lock the doors to the house, in case if someone needed to get in, in the same way that people might do the same high up on arctic latitudes. 

Contrarian ideas fostered by necessity and climate.

One day my foster-dad got hold of me and said in the only language he knew - the local dialect of southern French, with a certain twang to it - if you know you know.

- Il n'y a rien de plus important que ta liberté. 

There's nothing more important than your freedom.

That wisdom stuck. He phrased it simply, in a heart-felt way that my real parents never had done, and we're probably incapable to even formulate. 

These words became an ingrained attitude to many of my choices later in life, and I still can recall the episode, more than 20 years later. 

Place de la Republique, Arles
CC 2.5 Rolf Süssbrich

The Second Seed

Then, coming of age as a young boy in Scandinavia, and in a surprisingly conservative, calvinistic and eerily religious village, had its next levels of impacts.

Let's not dwell too much on it, but for many obvious reasons I had a strong sense that the world around me was fake. 

To me, what was judged as the normal life was marrowed in what I saw as hypocrisy and narrowness. In parallel, I think, to the sense that the fire community also discover that 'normal' and 'what's in your own interest' are two very different things.

Happiness doesn't come in a standard package, for anyone, from what we've seen so far.

I started my life as a young adult with an ingrained idea of the importance of freedom, and knowing that normal and good where two different things.

Anyhow, we both started our lives as young adults.And our work-lives began. We thought we had so much figured out. But we were clinging to shallow identities based on our work, and still in a sense, we were quite lost. 

The Third Seed

Antinous and I met, became friends and finally understood that we could just move in together as well. 

But our jobs took worse turns, for both of us. This was of course nothing unexpected that this might happen sooner or later. 

But, in retrospect, we had built a lot of our sense of worth on our work identity.

And what felt like burnout at the time, was in all regards an identity crisis. Who where we if work didn't, well, work?

And work is nothing one can say no to, as long as one wants to pay the rent. 

Or so we thought.

What we actually needed was a deeper identity, not as linked to our titles and careers, but linked to something more fundamental: to who we were and what made us happy with life. And we clearly needed more sources of safety.

That was when we understood that work in the usual, identity-creating way of looking at it, as a profession, is not as robust nor as mandatory as it might seem.

The idea is born

I, Lucilius, noted that I had quite some money saved, mostly in bonds and on savings accounts, and I hadn't been thinking very much about it. But I did realize that the yearly return - around 4-5% - was not enough to live from our accumulate anything substantial from compound interest.

Antinous, who has this ability to have sudden insights as if the muses are talking directly to him, then noted that if I payed attention to the returns, I could probably quite easily reach 7%.

That idea changed things. Then suddenly we started to understand that it was feasible to actually build a fortune for us, not-at-all extraordinary people. And the nest-egg could become big enough to live indefinitely from.

There was a lot of rich-by-Excel going on that spring.

And we started to study how to set up our finances, and what portfolio to go for. That took around 3 months, then we acted.

Conclusions

To value one's freedom, then to see the shallowness a life called normal, and to crave a new, independent identity. A freedom that cannot easily be taken away.

Those were the three seeds that gave emotional fuel to value our path to freedom, when the realizations finally came.

Such was our build-up to our realization of venturing out onto the freedom journey.

Farewell,

//antinous&lucilius.