Shifting priorities

When we started the journey, we were so focused on getting to financial freedom. We put our eyes on the money, and we didn't expect superior results if we behaved normal.

We still don't behave normal, and we still have our eyes on the money.

Yet, there is a shift in our priorities. It is as if we start to settle in, realizing that we have enough and will soon have abundance.

And now, other things come back to our cone of light. 

Friends. But not the friends from before. Instead our friends have grown closer. It's not the ones we want to hang with, like one would hang with a bottle of beer. Instead our friends are those we care about, who don't compare themselves with us, that don't give much for the normal, that inspire us and attract us, that we can spend a night and a day chatting with. 

Family. But not the struggles of the past, but the appreciation of in-laws, the happiness of our nieces and nephews, a good hour spent with an old grandpa or aunt.

Art. Art is developing as a concept for us a little as well. But here we are still searching. We have some enterprises that reach out, and we feel that art wants to reach out. We still don't know everything that hides here.

Travel? Not so much. Even though we realize that with tons of bonus points piling up it's basically free for us to go where ever we want. But we still can't think that much of where that would be. We start to realize that there are other factors that are important to us. We don't want to travel for the same reasons as before, with the emptiness of escaping, for we have nothing to escape from anymore. 

That doesn't mean that we're never going to change the scenery around us. But then travel is more a background, and not actually of much importance.

We start to realize that most important for us might be to help the sun wander over the sky; helping ourselves, helping those we care about, and helping humanity to be a little better. 

Hermes, messenger from the Gods and wanderer of light over the skies.

And in the end, when the sun settles in the west, we know that the most important thing for us might be too be able to say; it was a good day.

Farewell

//antinous&lucilius

Other Asset Classes, and a Fun Sex-life

Where might conventions limit us?

What is there, that we might not see or understand, because we stay limited in our thinking? 

For those with a more open mind there are deeper ideas to explore. 

'Scandalous' but beautiful, reminding us that there is more to this world than just convention
(The Warren Cup, 5-15 AD)

Like the conventional stock market and the stock-picking, there are more, broad and well-acknowledged asset classes, but they are out of the main stream and probably nothing you will hear of if you only attend a conservative congregation.

So of course this is taking things a little over the top. But being gay we sometimes marvel how purple around us seem to be locked in conventional thinking in not only who you could live and have fun with in bed, but also do much more; as if there's an built in value to studying conventional.

When you're not so straight at all, one really needs to consider that what's normal might not be what's good for you.

Who knows, other ways might be something to consider.

And with finance, the real beauty is that we can bet on all at the same time. 

Let's consider some alternatives.

Long term government bonds.

Long term bonds are bonds that promise a fixed payment far off into the future, as far as 25 years from now. 

The price today is the market's valuation of what that future promise is worth today. 

That means that the value of a long term bond today contains the markets consensus of long-term expectations on inflation, monetary policy and interest.

Small changes in those expectations has a large impact on the current price of the bond.

Why do we prefer government bonds? Well, because governments - and we're talking governments from stable countries here - are rather reliable when it comes to paying back their debts. At least, they own the money printing press. 

And hence, the price of bonds are dictated by something very different than stocks.

It's a hedge out of the conventional.

Cash.

Cash? Can that be an asset class? 

Yes. But many are blind to cash as an asset class, because of convention; almost an illusion - that keeps it the asset characteristics of cash out of sight. 

Let's make a thought experiment to see the blind spot.

We usually measure wealth in a currency, that is, as if it was cash. 

And so, when the portfolio drops in value, we have a hard time to see the situation from the other way around.

The drop of value in prices is exactly the same thing as the cash increasing in value.

Stocks falling 50%? That's one perspective. 

Another perspective is that cash just increased 200% in value against stocks. 80% drop in the stock market? Or was it the other way around, and cash just increased 500%?

What about an option that is guaranteed to raise 500% in value if the stock market drops 80%? An asset that is guaranteed by the money printing press. And an asset that will be lovely to go on a shopping spree with when prices are low. 

Don't underestimate the value of cash as an asset. Available cash when there is blood on the streets will build a vast fortune. 

Gold

Why does governments keep gold in their reserves? 

Gold is a value storage through space and time. 

It keeps a piece of the long-term increase of value and production of all humanity, and it's much independent on political whims, short term booms and busts of stocks and unreliable monetary policy. It's even anonymous, if it is melted down.

And we know that we will always keep a reliably exchangeable piece of value with gold, and, when political turmoil and trust in the economy is low, it's more than unlikely that gold will have lost its value - quite the opposite, in most cases - and we will be in for a good deal. 

The states know this. 

When trust is low, gold might still trade.

Bet on everything: The Art of Re-Balancing.

As with all good things, there is balance to be found.

By doing a little bit of all, one also always have what the market wants. 

Are you into Gold? We've got gold aplenty. Cash? A credit crunch and you need a bail out? We got you covered, just hand us some of those stocks in exchange.

Are you crazy about stocks? We've earned a lot while the markets went up and you realized you want some of the fever. We will sell of ours to you.

By knowing more asset classes than the most common kind of love, we're on a sure, steady spiral upwards.

For a better experience: mix it up

And just like life might be better by broadening the perspectives; the financial life might benefit, even find a new stability and security, if one mix in more dimensions.

Farewell,

//lucilius&antinous

More to read:

- What is asset allocation? Some thoughts here: How we dared to start investing

- Our thoughts on portfolios.

We have already arrived, and why we carry on

We knew it at the beginning of the year.

But in all the tumult in the world during spring, we forgot it again.

We have already arrived.

We could spend all our time sipping on soft-drinks from now on.

We have low, probably even very low, monthly expenses. And atop of the 'must have to live', we still add around 30% of "pleasure spending", which makes us happy with life (in a stoic way). 

What dawned upon us now as summer goes over in fall, is that the safe withdrawal rate gave us, already in the beginning of the year, that we could withdraw all we needed + our small "pleasure spending" and another 50% in safety margin, and still be safe in the worst historical case.

That's a 50%-100% safety margin if one does the math. 

That's what we had already at New Years Eve earlier this year. 

And since then, half a year has elapsed, and we've been adding to our investments since then.

So on top of the safety margin, which is already a worst-case-scenario, we've been adding what correspond to several years of expenses. 

So, yes. We have arrived. 

Why carry on?

Fundamentally, we don't believe that more money from this point on will a big difference when it comes to if we feel content with what we have. 

If we're not happy, the biggest problem will probably not be if we can or can't spend a little more per month.

So why go on?

So why don't we stop then, and savor what we have? 

Well, one thing is that we don't really know our future preferences. Even if we think we're stoic today, why not give our future self the gift of actually being somewhat wealthy as well. A money-machine on top of the money-machine, so to speak.

And it's pretty easy for us to earn money right now. We're in the middle of our careers. We're relatively well-payed. Our jobs don't imply freedom for sure, but we're also in positions that are interesting, we perhaps even allow to delude ourselves that society is slightly better off if we show up for work. So it's not freedom, but it's not directly painful neither to build that money-machine on top of the money-machine right now. 

A third thing is the black-swan-factor. We only know the expenses we know, or can forsee. It's the unknown unknowns that will bite us. And we don't want to keep looking over our shoulder and wonder if what quacks (or whatever swans do) is that proverbial black swan.

So hopefully, we'll soon be free with a margin, and soon thereafter, wealthy as well.

Are we right? Are we wrong? Are we just greedy? Are we not greedy enough with the time that we have left? We don't know.

We'll see how it goes.

As Seneca has it in his second letter to Lucilius:

"[quotoes Epicurus]: "Contented poverty is an honourable estate." Indeed, if it be contented, it is not poverty at all. It is not the man who has too little, but the man who craves more, that is poor. What does it matter how much a man has laid up in his safe, or in his warehouse, how large are his flocks and how fat his dividends, if he covets his neighbour's property, and reckons, not his past gains, but his hopes of gains to come? Do you ask what is the proper limit to wealth? It is, first, to have what is necessary, and, second, to have what is enough. "

We're poor, in Seneca's eyes. And perhaps he's right, because we hope of gains to come. And this part of the journey will continue for some time more.

Farewell

//antinous&lucilius

Hope is not a good strategy

When we started to think about investing, one of our reservations - and a reason that we avoided investing - was that we felt that there was, well, far too much hope involved.

And hope felt like speculation.

Who would like to put one's hard-earned money up for something as fickle as that?

Hope is not a strategy

Yet, if one can make a decent return again and again, consistently, even if one doesn't end up on top every year, as time accumulates, one will have a very good return over one's investment lifetime.

John William Waterhouse, Pandora, 1896.
According to Hesiod, Elpis - the Goddess of Hope - was hiding as the last item in the box.

When thinking through a strategy, as we felt intuitively when we were young, the best path is to try to figure out a way to remove hope. 

If we can look at the strategy without hope for any particular scenario over another, then we're on to something.

Removing hope

For a small-guys investor, there are some ways of removing hope.

• Long-run. One strategy is to go for the long run (read: Welcome to the 1825 day-year)
  
  - If you don't need the money for 20+ years: invest in the stock market (but we have some reservations)
  - If you don't need the money for 5-10 years, invest in some kind of asset allocation

• Creating a well-devised money machine (read about our pathfinder portfolio, or the permanent portfolio), put the money there, and trust the mechanics that a certain withdrawal rate (3% or 4%) should work in the future as well. 

The stomach and the trade-off

The trade-off here is: will one stomach the lower returns when other assets are booming? When the less prudent investors chase hope and gets the fickle rewards as fortune sails in their waters?

Betting on both

The mistake in our youth was to think that there was no other strategy than hope.

But there is, call it the Kelly-criterion, the safer bet, or winning the war - not the battle.

Bleed a little, and win a little, all the time.

Yes, a strategy contains an element that bets on a good outcome.

But it also bets on protection, so even a bad outcome becomes good.

Don't chase the risky bet.

Or as Howard Marks has it: Take care of the downside, and the upside will take care of itself. 

Farewell.

//antinous&lucilius

More reads:

- Amor fati. The art (and Stoic habit) of loving whatever fate has in store for us. 

- Don't predict. The ego-defending little-sister of Hope is the Fortune Teller. 

- How long is the long run? Read: The speed and the destination

- What is asset allocation? Some thoughts here: How we dared to start investing

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

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.

Amor fati

Mark Spitznagel of Universa, the guy that did a 2000% return on the start of the pandemic, has an interesting thought experiment, that he attributes to Fredrich Nietzsche. 

It's about a curse (and a lion).

The curse is that we will freeze in a time-loop, being 5 years long (yes, there are a Hollywood clichés on this theme).

And the loop is there forever and contrary to the Hollywood clichés, there's no hope of escape. And we wouldn't know what would happen during those 5 years that would repeat forever.

What would be a wise strategy going into the time-loop, before we know the results?

In Nietsche's writing the answer to that question is represented by a lion, what else. And the lion turns "thou shalt" spend an eternity into "thus I willed it and thus I willed it for eternity".

Because, well, a lion doesn't much care what happens. 

Would we be able to say, whatever fate has in store for us; "thus I willed it"?

Medici lion, reasonably calm about the future.

sammydavisdog CC BY 2.0 

We do plan to live longer than 5 years. But we are also interested in what will happen during the next 5 years. It's a liberating thought-experiment to try to look oneself in the mirror and think about one's own strategy for the next half-decade. 

Is it a strategy that gives the confidence of a lion?

Are we so calm and confident with our strategy so we are able to, like Nietzsche's lion, say "Thus I willed it and this I willed it for eternity", whatever happens?

Or is something meeker looking back at us from the mirror?

Farewell,

//antinous&lucilius

Where to go now?

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

What we wish we knew about finance when we were 20

Lucilius recall when he was really young, how he could dream about having a big money bin not unlike Scrooge McDuck and how he was playing around with Excel (or something alike, on his Commodore Amiga 500) and did the 'rich by Excel' exercise. The young Lucilius somehow understood that if one just keep compounding with 10 percent annually, one could get into high numbers quite quickly.

Antinous once won a bunch of money at the age of 12, and he went to buy index funds and stocks for it.

So there was some interests in investing. 

But then we lost all interested in it. 

At 20, none of us had connected the dots of investing and financial freedom yet.

A clueless Antinous
By Ricardo André Frantz, CC BY-SA 3.0

What was it that we didn't understand?

Here are three things we wish we knew back then.

1. Fair investment doesn't require unacceptable risk

One can become financially independent as normal, working people without taking crazy risks (such as starting a company based on a wild idea, hitting gold with a film or book contract, the odd aunt that dies leaving a huge estate, or wild speculation on the moods of the stock market or even riskier schemes). 

In other words, there's a way to become financially independent that is methodical and will get anyone who has the right dedication to the goal. We had no clue about that.

A part from the more crazy ideas, we also looked at the stock market, not to mention, stock picking, as way too risky. 

And not without reason. We're still not convinced that the stock market alone, by default, is the right place to be to get a good return on risk.

The biggest hurdle with investing, and especially with stocks, we felt, was timing issues. Timing would make us always prone to question if it was the right time to buy, or if we should wait. 

We also recall from our youth how stock picking seemed to be some kind of social signalling among middle-brow realtives, and the whole affair just smelled stupid to us.

We were partly right. But we draw the wrong conclusions, and stopped caring about investments all together.

But then, we found that there are ways of investing that has a fair price on risk (around 7% after inflation), and where the historical drawdowns have been much more acceptable (3-5 years until recovery) and faires well in most economic conditions. 

Our solution to getting a fair (and good) price on risk, and to reach financial independence, that met the criteria above was the permanent portfolio. 

There are other strategies, but our portfolio for accumulation was our way to wrestle volatility, and it got us the goal both quickly AND safely.

And it worked.

So there was a way for us to get into investing without feeling that we did something akin to go to the horse track and bet all our earnings on Thunder.

2. Money is worth attention

When we got into our careers, we felt that this money thing was something for people occupied with buying big houses, fancy cars, a new pool to aforementioned house, and so on.

Nothing for us. Both of us where bewildered with work itself at that stage, and we didn't feel like we participated in the social game. 

It might be that being gay helps in questioning the social norms, but we guess that the questioning of norms is not limited to that.

Granted, we were always somewhat frugal, but we didn't know exactly why. It just felt like a reasonable thing to be.

So while we were frugal, we kind of felt that the pursuit of money was somehow beneath us. 

Money flowed in and we put it in a bank account and that was that, and we didn't pay any extra attention to the whole affair. 

We didn't understand that it's worth paying attention to money. Because the bewilderment about work is standing on a more shaky foundation than our 20-25-years selves understood.

That brings us to the last point.

3. Financial Independence Is Achievable Quickly

As many a 25-years-old, we liked our careers. 

We didn't have in our minds that there could be issues with having our careers as our financial security. 

But, we suspect, there is a built-in identity crisis and false security in work-life. Things weren't as rosy and safe as we thought. In a way, we were lucky enough to discover in time that a career was not quite that reliable. Just hope that the paycheck would come rolling in the whole life is not the same thing as financial safety.

Something more was needed. And that 'something' was second-level-stuff. Like a big money-bin, which in a way is the second level thing to a paycheck. And better values and virtues, which are second-level-stuff to a work identity. 

And freedom in early middle age, which is a second level thing to the slavery of work life.

Connecting the dots

And that was when the equation started to make sense.

We were back to where we started, with that Excel sheet and the investments. But this time we had learnt what to do.  

So to our 20-year old selves we would say; 

• invest with a good price on risk, 
• pay attention to money and save up and put them to work,
• and the path to independence will be much shorter than one might think

Farewell,

//antinous&lucilius

Time for rebalancing and avoiding the herd

We rebalance at 6 month intervals now, as we are still in the accumulation phase, so we never have too much cash laying aroundd.

And as it will take some days to move the money around we started today.

It's been a good 6 months. The portfolio is up 6 percent since the beginning of the year, so slightly above expectations, perhaps driven by some inflation also in SEK. Let's remember that any real return will need to have the inflation deducted at the end of the year.

Herd

Swedish small cap and investment companies are up 20+.  US stock market is not quite as impressive with + 13 percent from a SEK vantage point.

Gold is right plus minus zero in SEK.

Long term bonds are down much, around 20 down.

And as usual we bet on every future climate. Except that we don't bet. We behave more like robots.

So most of our money will go into long term bonds and gold. Feels strange to buy into a losing asset. But that's part of our strategy.

That is what it is to have a contrarian strategy and not follow the herd.

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

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.

Thinking too much or too little

We think that there's a dichotomy between thinking too much and too little in the financial freedom-sphere. One could call it oversimplification versus overthinking. 

Clearly overthinking.

(Ny Carlsberg Glyptotek, Copenhagen, 2019)

Here's an Einstein-ism: one should, generally, simplify as much as one can, but not further. 

In other words: it's better to aim for the sweet spot instead of finding oneself in the extremes.

Oversimplification

There's a popular advice in investment that goes something like this. Keep investments simple - really, really simple. Just put your money in one broad index fund and leave it there and don't think more about it. 

Then keep the savings rate high, and if it's really high (50-80%) one will hit financial independence soon enough.

It's admirable, and it's absolutely true that investments are easier than one might think, and if one does the above and sticks to it, one is probably well off in 10-20 years.

But is the advice good? 

The answer perhaps lies in that word 'probably'. There are several layers behind what the word 'probably' hides.  

We would like to point out three things with the seemingly simple advice above. 

Oversimplification 1. Difficulty of keeping calm.

The above assumes, and this is a BIG assumption, that the investor really can stay calm during a credit crunch and stock market setback. Many, many new investors can't do that. 

And many seasoned investors neither, even if they think so. 

When one jumps in and out of the market, driven by fear, one might very well destroy a large part of one life's savings. Then one might have a really hard time to get back, or perhaps get so scared that one never gets back to investing. 

Oversimplification 2. The risk is higher than the oversimplifier thinks. 

Risks don't just disappears because one doesn't want to think about them. 

One aspect of this is the effects of start date sensitivity. A new investor is likely to jump in after seeing others earn from the stock market. The stock market is, after our new investor has been standing by the sidelines, more likely to be close to the top of a bubble/burst-cycle.  The sudden fall might come as a big surprise, and there might be a long, long time until a beginner is back where she started, with the emotional toll that follows.

The adage is that there's just so many decades in a life and one probably only get one shot at early financial independence.

Another challenge is that the highest mountain we've seen is probably not the highest mountain there is. What does that mean? It means that during the last 100 years there have been several crises that set an investor back with 10+ years, and the worst with 25+ years. But that's the last 100. Going back to the 1870, it's even worse in many countries. 

A lifetime can prove to be long, so one should probably think a little about the possibilities for the future, and bear in mind that the highest mountain we've seen, well, as said, is probably not the highest there is.

This is a game where our freedom is at stake, and chances to play the right game are few. Probably we will only get one shot at truly early retirement. 

We only get one roll of the barrel for our gamble, so it might be wise to consider the odds. Or, in other words, we only get one shot at the target, so one should mind the precision of the weapon. How many empty chambers in that revolver do we need to be ok with, to play russian roulette? When the counterpart is unreliable and not quite revealing the whole truth to us? 9 to 10? Or 99 to 100? Or 999 to 1000?

Oversimplification 3. One doesn't get a fair compensation for risk. 

The risk, however we measure that, is related to what we pay to get something in return; in investing that's some kind of expected return - average return for the oversimplifying investor, baseline-return at 15% of the worsts cases for the more thoughtful investor perhaps. 

But what do we pay? However we measure, the quota between risk and reward is not particularly good for the oversimplifying investor. 

This is not just an academic problem. Let's not just consider the average case. Is it ok to have a bad case that prolongs the time to financial independence 8 years into the future? Or 15 years? Or 20 years? Where is one's ruin, one's breaking point?

For a total stock market investment, beginning some time into one's career, the bad case might not be acceptable, corresponding to that ill-fated chamber in the revolver.

And furthermore, and more importantly when getting closer to independence, volatility is BAD for the safe withdrawal rate. Really bad. 

Just some very easy tweaks with the investment strategy can significantly improve the safe withdrawal rate (e.g. 4%-rule). This can turn into additional budget to spend in the freedom phase, or extra safety margin, or an earlier retirement.

This is why we think one should think twice before giving the above overly simplified advice to oneself or anyone else. 

It might be worthwhile to stop and think, at least a little more then a few hours or reading one single author or blog post, before putting one's life's savings are the table.

Overthinking 

The first effect of overthinking is, of course, paralysis by analysis. Instead of thinking for too long, one should select a reasonably conservative approach, go for it, and learn as one goes. We have never really learned something from the armchair beyond the initial reflections.

It's by trying, repeating and refining that we make a sufficient emotional investment to really think hard, observe and learn.

So sitting still and overthinking will not help much more beyond some thorough initial investigations. Then it's time to act.

Ego & overconfidence

But when one acts, one shouldn't trust that logical-ego-complex-voice in one's brain, with its alluring whispers that everything is square, well-behaved and understood.

The consciousness is a late and secondary addition to the brain, as Joseph Campbell observed, and is never to be fully trusted. Our consciousness thinks it's in the driver's seat but, as it seems, the consciousness is better at making up a story why it's in control than truly run the show.

We don't understand what we don't understand. And if one is too prone to the ludic-fallacy - the fallacy that we mistake the world for being a casino with understandable risks; then it's about at that point that we get run over by a train that showed up from a totally unexpected direction.

Hence, for instance, for us we never pick single stocks and call that investments. Actually we never pick single stocks. 

Don't think soo much that you fool yourself that you can outsmart the market. Then we are overthinking. 

It's always much easier to fool oneself than the market.

What do you live for?

Even worse in the overthinker's corner is when one gets really interested by investments. The inner nerd takes over, and uses the stock market or other speculations to cover for another need: a feeling of emptiness, a hope of recognition, a want to feel alive, a complex of inferiority or superiority.

Needless to say, such games are not a good foundation for decisions regarding one's life's savings.

For a retail investor, like us, the stock market shouldn't be the meaning-creating part of life, or an emotional thrill.

There are much better things to spend one's time with.

Conclusion:

It's our life savings we are talking about. Think of all the long years it took to come where we are now.

It's worth to spend some time, perhaps even weeks, to dig into the subject and do research.

A checklist for those weeks of study could be:

• Do we know at at least three different portfolio strategies, and at least one that uses other assets than stocks and bonds? (so, at least, one knows what one is saying no to when selecting one's own strategy)
• What are the longest drawdown periods during the last 50 years for those portfolios? 
• How would the longest drawdown feel if that happened to us? If it was 20 percent worse?
• What is the difference between some kind of baseline return and average return, and why is that important?
• How long was the longest time and baseline time to financial independence for the portfolios of our choice, for our circumstances, during the last 50 years? 
• How would the longest time to financial independence feel for us?
• What is the safe and perpetual withdrawal rate and how does that compare for the portfolios?
• What can be meant with start date sensitivity, and in what way can the time-stability of portfolio returns be important both for starting with investments, and also after one has been in an investment for 5 or 10 years?

When those questions are at least partly understood, then there is probably not that much more to gain from spending years trying to understand an art that still at its core is both random and beyond the grasp of the ego--narration-complex-fellow in our monkey brains. If one tries, one needs to be prepared, as said, that one is more likely to fool oneself and not the market.

In the choice between overthinking and oversimplification; don't let the pendulum swing too much in either direction.

Farewell,

//antinous&lucilius

Where to go now?

Read more about our articles about portfolios here.

Or read more about volatility here.

Wrestling Volatility

Let's say that we during adventurous travels in the Hindu-Kush fall victim to a sinister maharaja. 

The whole affair has something to do with lovers, defamation and the beauty of punjabi men, that sort of thing.

To our horror, we learn that the punishment for debatable behavior is to be thrown out of a cliff. The maharaja then, according to ancient custom, gives us a choice: being thrown out of a ten meter (30 feet) cliff, or ten times from a one meter (three feet) cliff.

A big hit is, most would agree, much worse than many small hits. So either one has to make sure to chose the smaller hits, or else have a way to avoid the effects of the big drop.

The drop is of course our metaphor for volatility. Volatility, as our sinister maharaja, is the harbinger of ruin, and it's not symmetric. 

But volatility can also be the omen of good fortune. Let's say that one has prepared with a thick, bouncy mattress below the cliff (needs to be prepared in advance), or has learned how to fly a squirrel suit (takes some deliberation). In the last case, larger volatility might even be needed to get us somewhere. 

Volatility is also fractal. In the unlikely event that one survives the first drop, one might roll over the edge down below and find an even worse drop. One can lose 50% many times over when the markets go down. 

Volatility might seem to be calculable and controllable, but then shows up in new shapes unheard of; tulips, house markets, failing financial institutions, or the maharaja's crazy son, for instance.

Or perhaps the maharaja's (wooden) palace catches fire. An once-in-a-lifetime, high-volatility-event. And all the fire exits will be blocked by investors - or rather, ministers and courtesans, perhaps - that try to escape the burning palace, just as we ourselves might find that we need that fire exit. 

Some might laugh in the face of volatility. Some might want not to think of it. Some might earn from it, with that mattress and squirrel-suite.  

Whatever we might think of our tolerance, it's not naïve to expect that volatility might hurt more than our fragile human constitutions can take. 

The wise man prepares in advance. And while preparing our defenses, remember that it's better to protect against ruin rather than chase the higher return.

A high-volatility mountain range where it pays of the be both wise and prepared.

CC-4.0 Zeeshan-ul-hassan Usmanif

Let's look at three strategies to reach financial independence, from a Hindu-Kush perspective.

1. The very very heroic approach
2. The heroic approach, including mattress
3. The squirrel suit approach

1. The Very, Very Heroic Approach

A very, very heroic approach to financial freedom, akin to dare the maharaja's crazy son, Prince Singh, on a duel, is to start a company. To some extent or another, it's a gamble, heavily relying to our own capabilities and wit. No matter how good we fight there will be luck in the equation. 

We can fund the company with its own cash flows, or even more volatile: lend a bunch of money, buy something of value to others (rental properties, someone?) and sell the produce of the investment to others.

Then, lay awake at night at pray that the company doesn't burn to the ground, a competitor shows up and the market demands stays, or the Prince having a nasty trick up his sleeve.

Darius I, early ruler of the region.

It's as old as the the written word. Perhaps the written word even exists because of this strategy to wrestle volatility and get rich. And if you're lucky, one might get very wealthy with this approach - killing the prince, inheriting the whole of the Raj, et cetera.

But ruin can very well be complete, and severe.

2. The Very Heroic Approach

A less, yet still very heroic approach is to bet on all companies in the economy instead.  

The very heroic approach is to buy a broad stock market index fund, with the attitude that in the very long run the stock market will be going up.

Why is it heroic, and why do we say in the very long run? Well, because it can take 10-20 years to recover after a big drop for the stock market.

A few times in one's lifetime, one is likely to hit that big negative event. We know big volatility will come, because what is an unlikely event in one year suddenly becomes a likely event in ten years. Then, like our ten meter drop above, one better be of an unusually strong built, or have something prepared in advance to survive the drop. 

No, we hear you scream, you wrong, I've heard that the markets recover much quicker! But we're so sorry. Let's not mix up the duration of a crisis (often quite short) with the time for recovery of the stock market (can be several decades long). But yes, there is hope. Bear with us.

The way to survive this for many is to try to construct a mattress that will dampen the fall. 

The mattress can be a cash buffer one can live off during the worst year, or focus on the cash streams created by (hopefully) less volatile dividends. 

Another way is to have complete blind faith in the magic of back-testing and rely that the 4 percent rule* is not just a product of back-testing but more akin to a universal constant. 

So there are ways to try to get around the volatility of the stock market as a total. Open in new tabs for future reading!

• 20% Barbell - a better price for risk
• Dividends And The Sweet Scent of Mental Accounting

Yet, the attitude to risk still needs to be, well, heroic to say the least. In the accumulation phase, the goal of financial independence can suddenly be postponed five years or more into the future when the stock market misbehaves.

In the financial freedom phase, the size of the stash might be reduced for decades, and if one is unlucky, what felt like a safe margin for freedom might become a very small margin indeed. If something unforeseen hits - as it has a tendency to do in real life, we dare to say - that might even make the stash never recover again. 

3. Learning to fly on volatility

The alternative to the mattress might be to learn how to fly in times of big volatility, perhaps even understand how to earn from it. 

Instead of relying on one asset class, we have gone for four. The advantage with aiming for a set of very different asset classes is that they move much less in tandem, yet each and one of them takes part in the economic growth of humankind over time. 

Another appetizing property is that the portfolio profits from volatility in most cases. Each and one of the assets in the portfolio would be very dangerous to own by itself, but because they are put together, they create something that is much less dangerous, and will often  move counter to the stock market during a bad year.

So when volatility strikes, with big drops in any single asset-class, we can fly over the cliff with a surprisingly stable flight despite all the rough edges that are zooming past below us. 

And the types of portfolios we chose has an okay performance, getting us much more safely to financial independence by neutralizing the effect of a big drop. 

So with the right preparations, one can profit from the sinister maharaja's proposition, and both earn from the volatility that might kill others, and in the same time fly safely over rough terrain.

Read more about our thinking around our portfolio here:

• Time for Change: The Pathfinder Portfolio. 

Farewell!

//lucilius&antinous

* The 4% rule says that never, in the last 50 years, have a stock-heavy portfolio run out of money if one takes out a fixed sum each year and adjust it upwards with inflation. That yearly sum corresponds to 4% of the portfolio's worth the first year, and is often taken as a universal constant with the reliability of the Planck length, even though it's of course derived from historical data and thus assumes that nothing worse can happen than what happened during the last 50 years or so.

The Tragedy of Paul Allen

I don't know much about Paul Allen. Obviously, he has done much more for humanity than I or anyone reading this could ever hope to achieve.

A lonely man on a yacht

The only things I know are fragments, a few pictures in the media and a Wikipedia article.

Poor Allen will be a symbol here; a meme, something we might recognize. He is the picture of the lone billionaire who never married, sitting on his yacht.

Was he happy? I don't know. 

The Octopus, 2010.
By Issacc brock - Own work, CC BY-SA 3.0

Greatest Treasure

For Antinous and me, the greatest treasure is having one another. To be on the journey with our soulmate and married to our handsome best friend.

Sometimes we have the impression that heterosexuals might forget this, perhaps out of convention, more used to take a relationship for granted, or because the external and internal battling have been less confusing and conflicting. 

The picture is not that easy and stereotypical, of course. But whoever we are - let's not take our relationships for granted or as a convention, a comme il faut. 

The most fundamental capital we might have is our own, human capital. What we finally really own is our ability to create wealth.

This fundamental capital is infinitely boosted and magnified by having our best friend at our side.

And it's not only capital. It's two brains, two ambitions, two sets of friends and families and networks and passions and inspiration, and all that add up, and create something that exists between us, and is far greater than anyone of us can achieve, do, think or imagine by ourselves.

There's infinitely more wealth and adventure that materialize in the empty air when we are together. And adventure out of thin air is magic that not even Mr Allen's yacht seems to quite make up for.