Stats
Cash: 10.5%
Core: 77.0%
Explore: 12.5%
Workout: Walking around DFW, CLT, and the streets of Charlotte, NC
Alcohol: Sam Adams Winter Lager
Shallow Thoughts
Of all the things to forget when packing for your flight, do not forget to pack your headphones. Knowing that I would have to present from my laptop, I brought every cable and adapter in my quiver - HDMI, Thunderbolt to Ethernet, Thunderbolt to VGA, etc. But the headphones are sitting on the desk in my office laughing at me. Lesson learned.
Deep Thoughts
For the first time in a long time, I find myself with no internet, no headphones, no book, no magazine, a thousand thoughts sloshing through my head, and 2 uninterrupted hours of confinement in seat 17A. Fortunately, TextEdit still works without an internet connection. Instead of complaining about this decidedly first world problem, I’ll share some of these thoughts.
Please fasten your seatbelts and prepare for takeoff…
Unfortunately I don't have any simple answers for you. Invest in educating yourself across a broad range of topics in finance and history, and then go take calculated risks with amounts that you are willing to lose. Thinks of losses as tuition paid and profits as passing grades. Write down your thought process prior to each decision so you know your state of mind at the time and can learn from it objectively when you have the benefit of hindsight.
And don't get discouraged. It's very hard to time the market - it's much easier to put a process in place that you can follow at regular intervals. The hard part is then trusting the process.
It might not come through in the text, but I said it without a hint of sarcasm. Long story short, I’m in no position to give such specific advice to another person - all I can do is tell my story and hope that the audience can synthesize my experience with their own and then make informed decisions.
So, here’s what has worked for me:
1) Minimize expenses - this is the one thing you have the absolute most control over in life. Take a hard look at every expenditure in your life and ask yourself how much value and utility you derive from it. This isn’t budgeting or deprivation. . . it’s mindfulness. Once you activate this frame of mind, it’s very difficult to turn it off, and it helps drive every major and minor financial decision you make. When you realize that you need an investment of $24k earring 5% annually to generate enough passive income to pay your $100/month cable bill, it should change you. The money you save builds your Core.
2) Seek to be educated, not entertained - time is a finite resource, so be mindful to make the most of it. If you choose to spend 4 hours watching a sporting event, make sure you are absolutely loving every moment of the experience and not merely passing the time. If you have to sit in the dark with your 3-year-old for an hour until they fall asleep, read an e-book instead of Twitter. If you are truly stuck with a LONG commute and have no way of reducing it by changing domicile or employment, listen to an informative podcast instead of repetitive music or talk radio. Treat your time even more preciously than you are treating your money.
3) Figure out your Allocation - Cash, Core, Explore.
- Cash is the fiat you need to cover the next X months of expenses, depending on your risk tolerance. Think checking account.
- Core is the diversified mix of “classic” asset classes. Think stocks, bonds, and real estate.
- Explore is the experimental fringe where you teach yourself the hard lessons about the personal psychological drama of investing. It’s where you’re an angel investor for a friend starting up their own business. It’s where you invest $1k in a failed ICO. It’s where you try to arbitrage the Bitcoin price on Coinbase and MtGox. It’s where you build a diversified mix of crypto-assets in the hope that maybe one or two of them could have real long-term utility and adoption. Most important of all. . . it’s where you’re willing to lose at a moment’s notice, take stock of the lessons involved, and mentally prepare for you next opportunity. If you can’t stomach this loss, then you’ve strayed too far.
4) Build your Core - this is the central component of your investment wealth, and ideally should require little thought or attention. It’s diversified and it keeps pace with inflation. I stick with simple mutual funds. If you’re a bit more adventurous, purchase a property that generates rental income. I realize this is a crypto-focused audience, but remember that there are real people in the real world who live in real houses. There are also real companies in the real world that distribute food, provide internet services, and manufacture condoms, all of which you likely use (I hope). The crypto-driven wealth effect will spill over to these people and businesses. It’s not sexy, but the stability will help you sleep at night. And when this core provides returns in excess of your allocation, you have the seed capital needed to Explore.
5) When faced with new information, be willing to reassess everything. I’ve been tracking my allocations for 20 years, and every life event has an impact both psychological and financial. The dot-com bust tempered my early career earnings. My mother’s early death from cancer brought a minor financial windfall and a major reminder of how short our time here is. The 2008 financial crisis prompted a career change but also provided a major market investment opportunity. Marriage and fatherhood have taught me how important every decision is to maintaining the long-term wellbeing of my family. And the recent ascent of crypto assets reminds me that there is always a new opportunity on the horizon, but only if you are paying attention.
Please stow your tray tables and put your seat backs in the full upright position, we’re now beginning our descent.
