Friday, April 26, 2019
Los Angeles, CA.- We were talking about buying another building to accommodate a growing employee base. NM made the case for it, but BW was reluctant. He suggested we wait six months to give the stock market time to crash. “We’ll have a better idea of what space we need after that,” he suggested.
I have no doubt that the market will crash. I have no doubt that the USA will have to pay for its trillions and trillions of dollars’ worth of public and private debt. I just don’t know when or how it will happen. Will it be a crash followed by a depression? Or inflation? And if inflation, will it be a long period of moderate increases or a short period of Zimbabwe-like inflation?
Because of reasons I’ll get to in a minute, I am not much worried about this eventuality. My inclination was to buy. And so I sent NM and BW this note:
I once talked to a billionaire real estate investor at a cocktail party. I tried to impress him by asking him if the secret was buying right. He said that his secret was to “just keep buying.”
“When I look back at all the properties I bought,” he said, “I can identify those I felt were well and badly priced at the time. But after 40 years, I can see that I made as much or more on the overpriced properties as I did on the underpriced ones.”
Maybe he was trying to throw me off, but I have incorporated one element of this idea into my thinking… that accumulating lots of properties is generally a good idea.
To which BW replied:
Yep… as long as you’re in the biggest financial boom the world has ever seen.
And then NM added:
That would not have been good strategy in Rome in 410 AD.
Fair enough. As Nassim Taleb argues so forcefully in Fooled by Randomness,The Black Swan, and Antifragile, the most important events in life are the most difficult to predict. So, yes, just because the financial markets and our businesses have been growing nicely for so many years, it would be foolish to assume that there is little chance that things can’t collapse terribly in the future. Maybe next week!
Taleb’s concept of “antifragility” – the ability to not just survive but also benefit from random events, errors, and volatility– is his (sort of) solution to this problem. And one reason I don’t worry about financial collapse is because I’ve done everything I can think of to make my wealth antifragile.
Here’s the gist of the way I’ve structured my investments and allocated my assets:
Ninety-plus percent of the stocks I own are of companies that are likely to survive every sort of meltdown except perhaps a nuclear one. My debt portfolio is diversified. I own a small but diverse group of private, traditional businesses. The bulk of my real estate portfolio is in income-producing properties in various locations. I have my gold coins, an emergency fund, a start-over-again fund, and so on.
That gives me comfort.
But the main reason I’m not worried is because at a deeper level I don’t give a shit about how much money I have. I intend to protect and grow my wealth, but I don’t care if I do. Moreover, I’ve imagined myself losing some or even all of it and I’m okay with that, too.
I know that sounds like BS. It’s not. I prepared myself for being poor almost as long as I dreamed about being rich.
As a boy, I literally dreamed about it. And as an adolescent and young man, I attached those dreams to a willingness to spend afternoons and evenings doing odd jobs and even starting little businesses.
Eventually, my fantasies began to feel like fate.
But when, for example, I was working as a Peace Corps volunteer, I remember sitting on the porch of my 200-square-foot mud-walled shack in N’djamena, Chad. Our dog was barking at a monkey that had found shelter on a beam under the roof. Our garden was green and lovely. “One day,” I said to myself, “you will be rich. You will buy a big, expensive house, and you will want to believe that your life in that house is better than it is in this one. But it will not be.”
I was right. As soon as I could, I did buy a big, expensive house. (Over the years, I bought several of them.) And I was right, too, in predicting that my life would never be better than it was in that shack in Africa.
So here’s where I’m going with this…
I’m all for allocating your assets prudently to give yourself a reasonable amount of financial “antifragility” (as Nassim Taleb puts it). But it’s easier to make the right decisions about keeping your wealth if you have emotional antifragility as well. In other words, if you can detach yourself – as I have – from the desire to keep it.