Can You – Should You – Value Knowledge in Dollars and Cents?

Friday, September 28, 2018

Delray Beach, FL – I try to limit my wealth-building and business advice to what I know to be true from experience. That’s because I am skeptical of advice derived solely from thinking.

When I first began to read business books, long after I’d retired the first time, I was surprised to find that many of the bestsellers were authored by academics who had no actual experience. Their arguments were sometimes convincing. But most often they were not. They contradicted the lessons I’d learned.

As for books and speeches and essays about investing, some of them, like Warren Buffett’s advice, made great sense. And those were based on experience. The others, based on theory, were sometimes persuasive. But when I put the advice to work I was almost always disappointed.

All that is to say that I want to discuss a theoretical issue today. If you have my bias towards experience-based knowledge, this may seem like bullshit to you. But I think it’s actually very important. So here it is…

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That Was Then, This Is Now (but It’s Still About Then)

Wednesday, September 26, 2018

Delray Beach, FL – South Side High School’s Class of 1968 had its 50th-year reunion last weekend. About 75 of the 300 students in our class attended.

I wasn’t going to go. Then I decided to do it, but feared it would be an emotional disaster.

South Side High had a very stratified social order. At the top were the Chosen – affluent kids that arrived at school well dressed and confident. They came from good families, lived in beautiful homes, and dominated the school’s academic and social functions.

Below them were the Disposables – kids that came to school rudely dressed, emotionally unpredictable, and financially embarrassed. They (we) came from good to not-so-good families, lived in modest homes, and starred in sports but played secondary roles in every other school activity.

Finally, there were the Invisibles, representing perhaps 50 of the 300. Mostly minorities, they dressed better than the Disposables, lived in the projects, and, like the Disposables, had little interaction with school activities. (Except for sports.)

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Every Problem Should Have a Simple Solution

Monday, September 24, 2018

Delray Beach, FL – On August 15, I published an essay titled “Growers and Tenders” in which I suggested that there are two kinds of employees. I wrote:

This is an exaggeration, but I like to say that, in business, personalities can be divided into two camps: those that value growth and those that value order.

Those that value growth (the growers) want to make everything bigger. Those that value order (the tenders) want to make everything better. And you need both to enjoy unstoppable success. But the ratio depends on where in the business lifecycle your company is.

This idea is, of course, a simplification. But there’s nothing wrong with that. In business (as in almost any context), simple ideas are almost always better than complicated ones because:

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Elegant Solutions

Saturday, September 22, 2018

Delray Beach, FL – In his book In Pursuit of Elegance, Matthew E. May tells a story about Drachten, a Dutch village that had a serious problem with traffic at its main intersection. The village hired an expert, Hans Monderman, to help them reduce congestion and accidents.

The conventional way to do this is to implement various measures to get cars to slow down. Unfortunately, such measures – including stoplights, radar-controlled equipment, and a beefed-up police force – are expensive. Since Drachten had a small budget, Monderman was forced to do something different.

He realized that this was an opportunity for him to test a theory he had been developing about human behavior: that the more controls you impose on people, the less self-control they are likely to exhibit. In his words, “Treat people like zombies and they’ll behave like zombies. But treat them as intelligent, and they’ll respond intelligently.”

So instead of increasing traffic controls in the middle of town, he reduced them to a startling degree. Instead of adding regulations, he suggested repealing most of them. No speed bumps, no speed limits, no signs, no mandates about right of way.

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The Miracle of Compound Knowledge

Thursday, September 20, 2018

Delray Beach, FL – I have a little gift for you. A simple idea that can mean the difference between struggling and being immensely successful. It is a very small idea that will be worth a great deal to you if (a) you really understand it, and (b) you make it a part of your life.

The idea in a nutshell: Knowledge is a form of wealth. Like wealth, it provides dividends if it is invested. Over a long period of time, those dividends compound. Eventually, they become gargantuan.

Let me explain.

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Collecting: The Best Way to Satisfy Your Inner Material Girl (or Guy)

Tuesday, September 18, 2018

Delray Beach, FL – I’m a big fan of rewarding yourself whenever you’ve made significant progress on any of your long-term goals – especially your wealth-building goals. If, say, you get a raise, start a new side business, or negotiate a great deal on a piece of income property… you should give yourself a present.

For some people, that could be a gourmet dinner or a weekend cruise. For others, it might be an expensive toy – maybe a designer watch, a wave runner, or a motorcycle. I’m not against vacations, toys, and dinners. They make life (and hard work) grand. But today, I would like to make an argument for another kind of reward – one that is tailor-made for wealth builders.

I’m talking about collecting.

How good is it? Let me count the ways:

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Principles of Wealth: #19 of 60*

There are two ways that investments can build wealth. One is by the generation of income. The other is through appreciation – an increase in the value of the underlying asset.

Certain asset classes are inherently structured to increase value by generating income (e.g., bonds, CDs), while others increase value through appreciation (e.g., “growth stocks” and entrepreneurial businesses). But there are also many asset classes that provide both income and appreciation. The prudent wealth builder will likely have all three types of assets in his holdings, but he will favor those that provide both income and appreciation.

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Should I Care Even Less?

Friday, September 14, 2018

Next on My Passion Diet: Economic Theory

Delray Beach, FL – Popular philosophy today promotes the idea that a good life is a passionate one, that by caring more we can lead fuller lives.

I used to feel this way. Do it with passion or don’t do it at all. I can’t say it was an idea because I didn’t actually think about it. It was how I approached my life. I was passionate, sometimes get-into-trouble passionate.

So when I was introduced to Buddhist thinking in my college years, I was appalled at one of the “four noble truths” – that desire (i.e., passion) is a primary cause of suffering and that the proper path in life was to get rid of desire.

The idea seemed prima facie absurd and/or repugnant. All my fun came from my passions. Why should I give them up?

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Notes From My Journal

Does the SEC Really Give a Crap About Small Investors?

Delray Beach, FL– “The private markets are awash in capital these days,” Jay Clayton, Chairman of the SEC, told entrepreneurs and business-school students in Nashville recently. “The question is, who is participating?”

For decades, regulators have walled off most private deals from smaller investors. Because of the added risk of private investing, they must meet stringent income and net-worth requirements to participate. As a result, small investors never had access to companies like Uber Technologies and Airbnb.

Mr. Clayton wants to change that.

“This is good news,” TM said in a memo to my partners. “And it would be no small potatoes as it would open a big line of biz. Early Seeds.”

TM was talking about the opportunity for businesses like ours, publishers of investment advice, to sell more newsletters and other advisory services focusing on this newly opened and quite exciting topic.

Here’s what I think: Yes, it will be good for financial publishers like us. And it will be great for financial advisors and brokers and all the guys with suits that live off Wall Street. But it will not be good for ordinary investors, particularly the elderly and vulnerable. This change will make the sum of them poorer. And I’m pretty sure Mr. Clayton knows that.


From My “Work-in-Progress” Basket

A Serious Answer to a Dumb Question

 “What habit made the biggest difference in your life with the least effort?”

This is the sort of question you see on Quora – ultimately dumb but superficially interesting. I rarely open the links because I know the answers will likely be as silly as the questions.

That’s what happened when I saw this one.

But then I thought: If I am taking questions from an audience and someone asks this one, how would I answer it? I couldn’t dismiss it as a stupid. What would I say?

Hmmm… the audience is waiting. Clock is ticking…

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