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.

Essential Reads: How to find freedom in an unfree world

A scary question; do we have the courage to be free? To defend it for ourselves? To act on our own freedom? Or do we just prefer to sit in our prison and complain about things conveniently remote?

One of Harry Brown's not-so-known books has the title "How I found freedom in an unfree world". The book is almost 50 years old now.

It might feel outdated in today's world, or, so we thought. Still, we got hold of it as an e-book and put it into our favorite speech-engine and listened to it as an audiobook, with the fire cracking in the fireplace and seeing spring slowly arrive at these northern latitudes outside the windows. 

The book is not quite as outdated as one might think. There's a very vibrant core idea in Mr Brown's thinking.

Pericles, Athens 429 BC, defender of freedom in the larger sense of the word. 

To build freedom for ourselves, the idea is to focus on what we actually can act on, and have the courage to do something if needed, or let it go otherwise.

So: let's not talk about the grass on the other lawn. Let's not get hung-up about who is the president of the US, what's happening in China, or if our local parliament is passing a law that we hate. Nothing if that is of much importance, unless we can truly do something real about it.

Life is and will always be a battleground. Let's not sit and be upset about that.

Let's focus on ourselves instead. Is any of that upsetting for us, in our immediate surrounding and interactions? And even if it is, how big is the impact? Or do we feel insulted, rather than our freedoms being really decreased?

Let's act on our immediate surroundings and how that creates freedom for ourselves instead. Those decisions are tougher but far more impactful than complaining about far-away, theoretical assaults on some kind of idealized freedom. Provoking thought? Perhaps, but then tell impact might happen on a small scale.

Stuck in a marriage, or don't like the laws around marriage? Divorce. Don't like the taxes? Find a way to optimize them. There's much that can be done. Or just earn more money. Don't like to be employed? Start one's own company. Don't like the school-system? Find alternatives.

Is this a lack of civil courage? Yes and no. I would say that it takes courage to grasp our personal freedom and realize that much more than one thinks is under our control. And if we want to fight in the public arena for real, we should do as Pericles and actually fight, and not merely complain.

Do or do not: there are no complaints.

Let's not complain about being unfree, or what is outside our control, so we loose sight of what can be done with our actual freedoms here and now. 

The conclusion would be: being unfree is usually much more in our heads than in our reality.

Hardcore Health

Something that comes back again and again in the financial freedom-sphere is health. Perhaps because there is a similarity between breaking free from misconceptions about finance and misconceptions around health.

Our conclusion is that we need to be as radical with health as with finance. Actually, health came first for us, and we discovered investing later. The same concept still applies - what is considered 'normal' has gone far away from what is in our own interest.

The 'normal' has inactivity as its goal, inventions that remove discomfort (e-scooters, really?) and convenience as its means. The 'normal' markets health as a commodity, with roughly the same mediocre results as listening to financial advice from the old banks.

When one has been indoctrinated to the normal for too long, the break seems hardcore. Just like with finances. 

The body below the head is not a dead appendix sewn on under the shoulders. It's something that requires attention!

And a really nice butt. Hermes, quick runner.

Marble Statue (~200 BC),  Metropolitan Museum of Art, NYC

Go Hardcore!

1) Sell the car. Just get rid of it, give it away if need be. Get to everywhere within 12 kilometers (7 miles) from where you live with muscle power. Kids? They can bike. We're not kidding.

2) Go up at 6:00 every morning and go for a 5-km run (2 miles). It's not so short that it doesn't matter, but long enough to make you really happy, and healthy. And the heart is a super-Godlike-fabulous muscle, that literally keeps you alive from second to second, so give it Respect! The secret to getting up at 6 (or 5:30)? Start with going up early! That's how one gets sleepy in the evening and gets into the habit.

3) Office? Stand up! At least 4 hours a day. And go for a lunch walk or run.

4)  Don't underestimate micro-training. Do pull-ups in that outdoor gym when running. Do 50 pushups, squats and sit-ups when you can.

5) Always have ready access to training. Have kettlebells at home. Running shoes by the door. Live close to a swimming pool. Get rid of the gym card, that's just a silly excuse, draining costs and worth nothing by itself. Get real, get out and get going instead.

6) Surprise the body. Go for the odd long run. Swim in lakes. Jump. Dance.

Don't fool yourself that hand-eye-control and kicking or throwing things is training. It's not. It's just eye-hand-control and throwing things. Benefit? Unclear. Grow up. 

Where to start?

Don't let the Ego be the Enemy. Run 1 km, walk 1 km, and progress slowly until you can run a complete 10+ km. Do push ups, squats and situps with body weight. Do yoga. Keep on until your body starts to respond.

We keep some metrics:

- Our BMI:s should always be in the 20-25 range. 

- We log training. In a year we should accumulate 10000 minutes. 

- We should run 80 mornings, and we have some stretch-goals to strive for: go for a long run at least every month and crawl +3km 3 times a year. 

Food? 

Some suggestions:

- Breakfast is a stupid invention of modernity, made up by the food industry to make us consume junk food (don't try to excuse yourself in thinking your breakfast is an exception) and pooring in useless, low-quality calories. Have a coffee in the morning, learn not to fear some hunger that keeps you sharp - and eat an early lunch with real food instead.

- Bread was invented by the Devil.

- Cole and broccoli were invented by the Gods. 

- Give up meats. It's as stupid to let a cow eat grass and then eat the cow as one might think. Did we mention hardcore?

- No alcohol. Not kidding. Why the heck would you?

- Popcorn is underrated.

- Use sweeteners if you like, or stevia. The criticism is machiavellian propaganda to the uninformed and mentally behind by the sugar and farmer industry. Sugar is the worst cancerogenous substance we habitually consume now, after alcohol. And you will be able to decrease sweeteners as you learn not to expect food to be so sweet.

- Think about how much energy you put in (nuts = much, cole=not much), and how much you use up by training, moving and being active during a day.  

- For GODS SAKE: the MOUTH should NOT be a path to great pleasures in life! We would recommend scenic runs, happy kids, good art, a meaningful vocation and a fun sex life instead. Stop whining and get serious.

Leaning in too much

As with finance, one can go too far, and let the ego-complex-nerd, the inner little person fueled by insecurities and control-needs take over. Then, just as with finance, one's compensatory behavior quickly becomes unhealthy. No, you don't have to run EVERY morning. No, don't run marathons, ultramarathons, iron-mans or any races for that matter. Who are you competing with? Why should you? 

And no, don't go and lift a mammoth three times in the gym to get biceps as big as your legs. 

There's healthy, and there's too much.

Even Seneca recommended just jumping around, to avoid the excessive eating that comes with excessive exercise. 

A Hardcore Break

There's no excuse. Just as we can realize that the 'normal' in finance is anything but healthy and requires a radical break; the same applies to an even more important asset - our body, heart and butt -  and the approach needs to be just as thorough, consistent and radical. 

Good luck and get going!

//antinous&lucilius

Why the Expert We Follow Will Go Bust Tomorrow

There are no experts that will make us rich. Here are some thoughts why the strategy one copies is surprisingly likely to go bust tomorrow.

The Problem with the Expert

How can we fool ourselves by following an expert?

It feels good to let someone else do the thinking. And we could sure enjoy some high returns while we follow an investment-wiz, instead of the painstaking 5-8-10 years' slow road of frugal living until we achieve financial independence, right?

Let's say that we have been following some portfolio-wizard for a long time; a stock-picker or investor in some more or less exotic assets.

And by the Gods: is she good! Our guru outperforms the market with 20-30% year after year. Not so much that it's obvious that its a fluke; no - just so good that she Amounts to Being A Very Gifted Investor. 

And, in this hypothetical world, we can't help but to dream away. 

If we keep up with a 20-30% growth year after year we would already be deep into financial independence, sipping sublime pink champagne from a golden bathtub in a glade with the Gods since many years.

Poolparty for the Gods
Diana and Actaeon, Titian 1556-1559 

So we start to get more interested by the guiding light of this sage, and we read ourselves into the details of her thinking.

And indeed, she has a theory. Her ideas are based on bright and piercing observation. It just makes sense. How could such clarity, perhaps tinted with refreshing cynesism, be false? She might even be like us. How wonderful.

After several years of observation - we are overly cautious and conservative, after all - we decide to copy her portfolio.

We've done our homework. And we have the facts to prove it, or so we think, with increasing significance with the evidence accumulated of each successful year. It's a strategy that have been going strong for so long. What could possible go wrong?

The month after we buy into her portfolio composition, the losses are up to 90%. Her webpage and blog disappears, and she is nowhere to be found. And, before we understand what is going on, and because losses are fractal and can happen over and over again, we lose another 90%. 

Our life's savings are now obliterated.

The Expert We Copy Will Loose Everything Tomorrow

When we first read about the expert fallacy in Harry Brown's book about financial safety, a chapter entitled "Don’t expect anyone to make you rich", it seemed contra-intuitive, almost mystical. It smelled like a believe in foresight, a believe in faith; something to be taken as serious as a fortune teller armed with a crystal ball or a quack selling a cure against upset bowels, ill temper and social media addiction. 

How could one possibly know what will fail tomorrow? 

Now the funny part: It's not just the Gods machinating against us for their pleasure. There is math and logic behind this. The example above with the wunderkind investor wasn't as simple as us being unlucky. Just like a magic trick, where reality and our own dreams are the magician; a magician that turns one's expectations inside-out, a trick made by our own brains by wanting to cling to a good narrative.

But there is another, truer perspective. The failure of the expert is much more probable than it might seem at first glance.

The answer lies in the realm of our good ol' friend probability theory, and how she can sneak up on us in unexpected, opaque and subtle ways.

Winner Bias, once again

Apart from the opacity with an investor itself (do we know all about her investments? What are here motivations ? How oblivious to Fortune changing course is she?) But in a larger picture, this fallacy is about winner bias in one of its many disguises and reincarnations.

Many of the 'experts' we see, are just those that happen to still not have blown up. 

We might have been watching a few gurus, and semi-unconsciously lost interest as this or that 'expert' blew up with his or her portfolio. By forgetting about evidence - not to mention all evidence that never reach us - we masquerade the likelihood for ourselves if our a single expert is succesful or not. 

We see only Her, the one that survived, and it's Her that we fall in love with.

In reality, it was never much special with the portfolio of the wunderkind. It just happened to have survived a little longer than the others that went out of the game. And we happened to fashion a narrative around it, a constructed explanation why we liked the portfolio, or the person, or the made-up 'theory', or all of it.

But there was nothing special with any of it. We just got lost with the direction time moves. What one has seen is not what will be in the future.

When we act in the now, we loose this advantage of hindsight, and like a Heisenberg equation around an electron, the probability wave collapses to the observation - or rather, to our action. The strategy that we had been able to cherry pick in a cloud of possibilities, that strategy now become concrete, real. And we no longer has a possibility to cherry-pick. 

And this mountain of self-delusion is build on a truly, non-linear, high price for the risk of the strategy's over-achievement. Hence the dramatic downfall.

There is always someone standing on the battleground of life, and she might seem clever, but all things considered - it might be a question about luck, and it will be very ill-advised to copy her behavior.

Shouldn't We Never Listen to Advice?

What can we do against this? Can we never trust anyone?

Well, we think that it's just hard - we're so sorry to say. And as said over and over again, the easiest person to fool is usually ourselves.

Here are some rules of thumb we try to use:

1. We don't pick individual stocks. We just don't. 
2. We ask ourselves if an idea we have is actually just about chasing higher returns instead of balancing and protecting the downside. 
3. We think that it's very hard to reach above 10% annual growth consistently. And when one does, the risks behind the return are not linear. Then we believe that the hidden risks are much more dire, and can very quickly get us close to ruin and a loss of all our savings. 
4. We try to catch ourselves when we are retrofitting an explanation to past performance. In science, that would be very bad. In investing, it might be even worse.
5. We try to imagine if there might be dead, silent evidence that we are missing.
6. We try to look at similar strategies; did they leave blown-up investors in its wake? 
7. We ask ourselves; would this be good advice if history unfolded differently? Paradigms shift, what would happen if there was a new paradigm tomorrow? 
8. We don't believe in going all in in a single strategy. 
9. We don't tie our savings to a single asset class, and barbell the risks.
10. We try to construct a simple rule or algorithm, linked to the bouquet of strategies we use, and try to figure out if there's true return under different paradigms behind our idea, independent on past performance or a certain future playing out. But even then we don't trust our idea.
11. We test our thinking over a long run of past data. We really do remember the downturn in 1871 here, no kidding.
12. We try our thinking in many different countries, as a proxy for different paradigms and scenarios.
13. And we test even more scenarios that even never really happened, by doing Monte Carlo simulations; by using tools on the net and just building them ourselves.

We will not be the smartest ones out there. In all likelihood, no individual retail investor ever will, even if they might seem to be able to pick stocks or a fancy strategy for a while, even a long while. All that will change as soon as we invest.

So rather than chasing the higher return and dreaming about the divine pool party, we think it's better to waterproof our strategy before trying to join the Gods.

The Worst Way of Investing

Are we having fun watching our investments? Well, of course not. We shouldn't.

Today, I saw an add for some internet investment service.

One of all those thousands of ads that scroll past in a day.

I'm not sure if it was consciously designed to make me stop scrolling because of the stupidity of the message. If so, the ad creators succeeded, but on the other hand I don't remember the company behind. Only the ill-advised question stuck.

The ad asked: "Is this a Happy or a Sad day?" 

The masks of Melpomene and Thalia

Tim Green, CC BY 2.0

To replace the divine sensation of comedy and tragedy with quick thrills of if an investment went up or down, and to add to the stupidity, within only a day, is tantamount to spending a road trip in Tuscany with only eating on Kentucky Fried Chicken. 

If this is even close to one's view of investing, one can be sure that it's the absolutely worst kind.

Emotional neediness and one's life's savings should be kept far apart. The real struggle is in keeping emotions and investments separate. Not the opposite, deliberately joining them together.

It is easy to have a look if the portfolio went up or down within a day, because the internet brokers are designed that way, to make us want to log-in and do something, usually stupid, so they can gain on their fees.

If the most thrilling thing that happened over the day had anything to do with the stock market then:

a) the 'investment' strategy is guaranteed to be seriously flawed

b) one should rethink what one finds 'happy' or 'sad' in life.

If one is out of thrills, may I for instance suggest getting a squirrel suite?

   Other ways of getting one's dose of emotional thrills

Barry Holubeck, CC BY-SA 3.0 

I think it's every billionaire's right to die in a self-inflicted flight-accident, so if one has high hopes one better start practicing now. And it's probably beneficial to the development of the stash, as a dead investor is likely to be the best investor.

Or even better than getting superficial thrills from the stock market or a squirrel suit: grow up from toying around like an underdeveloped teenager.

Get a challenging, interesting vocation in life instead; one that actually matters to someone.  

//lucilius

Dividend Investing & The Sweet Scent of Mental Accounting

There are ways to wrestle with the volatility of the total stock market. One way is dividend investing. The idea is a very good one, and more perhaps in line with our thinking, because it's a strategy that doesn't ignore that we are mere humans, and doesn't suppose super-human tolerance with volatility, as a 100% stock-market approach seemingly does.

If one is starting from scratch so one has lots of future cash flow coming in from one's salary to use to damper the volatility of the markets, this might be one of the quicker path to financial independence. If one happens to hit a good 10 year stock market-run.

We still want to raise a very serious warning, though. 

It's not sure that the risk one is really taking on in the overall dividend portfolio has the best price. And one would need to be sure that one can stay very stoic, almost prone to self-hypnosis, during tumultuous times. Dividend investing still relies on a complete stock-only portfolio, with its grueling volatility. One important idea behind dividend investing is that one must rely on a very specific Yedi-mind trick to survive. 

We think that quite a few have gone into dividend or full-stock-exposure, without really reflecting on if they are able to do that mind-trick. 

But as long as one knows what one is in for, dividend investing has its charm. 

Let us explain.

How to Wrestle Volatility with Dividend Investing

The simplest way to achieve a dividend strategy is to buy broad index ETF that pays out the dividends as cash.

If one is brave, and sure that one will be able to spend much, much time keeping an eye on particular stocks, one can also cherry-pick stocks with a future potential for dividends and a good price per earnings-ratio, stocks that have a good proportion between the price one pays to own the stock and the dividends they pay out. 

A compromise might be to buy a broad value-ETF with dividends payed out in cash.

Stock cherry-picking comes with so many risks that we don't even want to start counting them, let's only mention the adage that the easiest person to fool is usually oneself.

Whatever way one choses, one intend to live off the dividends and stick with the same stocks, and strategy, for a long time - perhaps forever. Be it from the low-priced index fund or cherry-picking stocks that one hopes has a good future dividend (earnings) potential.

Hence one can concentrate not so much on the day-to-day or year-to-year valuation of the portfolio, but put one's mind at ease by concentrating on the dividends, which usually are much less volatile than the stock valuations.

Mental Accounting

So, as you, wise reader has already observed: by splitting one's focus on two different things, one can put one's mind at ease (supposedly) when the valuation of the portfolio itself gets cut in half and takes ten years to return.* 

Mentally, one imagines that the money from dividends are different from the money from portfolio appreciation. Hence, by mentally accounting for the dividends as separate from the appreciation, one gets a virtual stream of money that has acceptable volatility. The money one earns is, so to speak, split into two accounts. 

This is where the mental accounting comes in. 

One account doesn't move that much - the account with dividends; the mental account one dares to look at, and the other one, the portfolio valuation; there one shouldn't get upset if it swings. 

One needs to be able to look to the right (the dividends) and ignoring the left (the market valuation) to sleep well at night.

If one manages to pick good stocks, the dividend strategy might be one of the quickest ways to financial independence. It's s strategy that takes the price of what one is buying into the equation, and one that doesn't include totally wild speculation and pure fluke.

The Scent of Money

For us, as we saw it, it felt like too much of a mental trick to regard one part of the money as separate from the valuation of the portfolio. 

And we have never been sure that we would be able to uphold that illusion in a longer market crash, or sleep well at night in times of much volatility.

We also think that we wouldn't have the time or interest to pick individual stocks, and that would expose us to risks; for instance that we let our emotions decide, and an evident risk of too large a home bias.

Another problem we saw was getting a good price on the risk one is taking on. Downside protection has always had more allure to us than a higher average return, and the higher risk would then need to be compensated with a fair amount of higher expected return.

Perhaps it doesn't matter so much if one stops the mental accounting, even if one of the basic ideas with dividend investing then disappears.

When one goes to the grocery store, the cashier will not care if the money one pays with comes from dividends or stock appreciation. It's just money.

And as Vespasian said, money doesn't smell. 

Vespasian 17-79 AD, concerned with smell.

So if you venture out into dividend investing, be aware of the neutral, sweet scent of money, irregardless of if it comes from value appreciation or dividends.

//antinous&lucilius

Where to go now? If you want to read more on how to get a better price on risk, why not go here:

The 20% Barbell: A Better Price for Risk

* No, it's not a three years drawdown period of the total stock market. That's a misunderstanding from a misreading of an author that might have become slightly too popular in the financial independence-sphere.

Introvert-, Hippie- and Vagabond-Freedom

There are many types of financial freedom. The types of freedom are important, because our ideas about freedom put limits on our careers and implicitly sets a goal for our stash. 

What kind of life do we want to live? How sure do we want to be that we reach it? And what are we ready to sacrifice to get there?

Hole-in-my-Soul Freedom

No Entrance is Grande Enough
(Opéra Garnier Paris 1867, le grand escalier)

The most consuming kind of freedom is, as we all know, the never-is-enough-freedom; the kind of freedom that cannot be achieved even when one stands on one of the terraces of one's Penthouse, alone, at 70 years of age, silently looking out on the streets below. 

It's the Freedom of Imbalance, and an consuming one. The only capital on one's life's journey has been monetary. 

Where does the hole in the soul that needs to be filled with kitsch, in its many disguises, come from? Perhaps very poor beginnings, or at least a belief that one's beginnings were very poor, and then life turns into an everlasting revenge on that poor beginning.

The hole in the soul wants more, at the expense of all other sides of life.

Do you feel that enough is never enough? Well, at some point the money is better spent on a shrink than on more brilliant furnishings.

Joneses Freedom

Another kind of freedom is the one that is lived in relation with the closest social group that happened to be at hand: childhood friends, colleagues, neighbours and influences from media, social or otherwise. 

The common denominator is that the social group is not a conscious choice. They were just available, or imposed.

Freedom becomes what is reflected back from that unconsciously imposed social group: having that house, the two cars, better children, a better husband, more sanity, better work and better vacation. All in comparison to that group one happens to compare oneself with.

One becomes Ayn Rand's "Second Hander" who can only perceive oneself through the mirror of others. 

Introvert Freedom

A solution to the Hole-in-the-Soul and the Joneses is to go 180 degrees in the opposite direction. 

Cast all possible allure of the social mirror overboard. Let's not even be tempted to compare oneself with other people's social values, because, well, let's scrap social, shall we?

Especially easy if one is a stark introvert, who only needs the tiniest of external stimuli to be content. 

Hermit cave, Spain.

By Basotxerri - Own work, CC BY-SA 4.0

Financial freedom now becomes easy. There really isn't much need for money at all, so financial independence is almost automatically achieved. There are very few interactions with other people where money could even be needed.

Freedom, at last. 

As long as the hens survive the winter.

Hippie Freedom

Another kind of freedom is the one where one still participates in the arena of social life, but one is content with being a lot ... stranger than the Joneses.

Here one must put up with the scorn one will inevitable receive by not following the rules.

In many senses of the word, one is a hippie, a non-conformist, an epicurean; like the philosopher content with one's cheese.

Perhaps one can survive the social stigma by associating with something else, like the fire-moment, or some other kind of subculture, to build another, parallel but different pyramid of social recognition.

One is still connected with the world around, and one is not afraid to act in the arena, but in other ways, and not wanting to receive the usual kind of social recognition. 

And with that parallel value pyramid, one will probably start to value new things in life, more independently; be it the small things, the long runs, the good food and the peculiar hobby.

Vagabond Freedom

Whatever holes we might have in our souls; they are not about keeping up with the Joneses or building the Grandest Staircase of them all.

We suspect that our freedom is that of the vagabond, the wanderer, with a touch of the introvert. We've never been so much for a having a house or a home in any normal sense of the word.

We like the luxury of rootlessness, and enjoy the feeling of slight alienation that travels bring; being that citizen who is at home everywhere and nowhere.

Do we always want to flee the arena? No, probably not. Our appetite of vagabondism will probably change over the year and over time. So sometimes we will revert to a kind of epicurean hippie-freedom, and certainly also try to act with the world around us, and then be ready to leave for our next journey.

So that mean that we will probably not aim for the minimal stash when trying to seize up our portfolio. 

But even as one travels the world, one will discover, as the philosopher puts it, that one can really never truly escape oneself. Because one always has oneself in the saddle.

So where is the true limits of financial freedom?

As Seneca had it: 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. 

Farewell.