PassionSaving.com Home Page : The Financial Freedom Blog : December 2006
December 6, 2006 15:16 – Jellyman Gets His Comeuppance
There was an article that came out not too long ago that quoted me as saying that buying expensive video games for your children might not be the best way to spend your limited amount of earnings. I took some heat for that one. There were people who said: “Oh, just wait until your kids are old enough to want to have the same video games that all their friends want. You’ll get yours, Mr. Smarty Pants!”
God doesn’t like Mr. Smarty Pantses. So God decided to send me a little message without even waiting until my two boys got to that worrisome age where peer pressure kicks in big time.
On his last birthday, Timmy’s grandmother got him a copy of the movie Finding Nemo. It had a copy of a Nemo’s Underwater World of Fun video game pasted to the back. Timmy didn’t know what a video game was, so for awhile there it wasn’t an issue. On the morning of Thanksgiving Day, it came to him to ask: “Hey, dad, is this something that you can put on your computer?” My wife is teaching him how to read (we homeschool). Perhaps she does not yet fully appreciate the potential downside of doing too good a job.
“Uh, sure, I guess so.” Famous last words.
It’s a good game. When you get hit by one of the turtles, there’s a voice that says: “It’s a turtle, dude!” And when an exit into the next world shows up, theres’ a voice that says: “Theres your exit, Jellyman!” So far, I’ve gotten up to Level Ten.
There’s now competition for possession of the computer in Hoco-World. If you notice the blog often showing up late in coming days, don’t blame me, blame Jellyman and the turtles and Nemo.
I didn’t actually say that no one should buy video games for their kids. What I believe is that video games end up being more expensive than you think they are going to be when you buy them. I aim not to include too many judgments “for free” with my money advice. What I aim to do is to point out the good and bad features of various money decisions, and to let the reader decide for himself or herself what plays to call to make his or her life better.
Video games have a lot of bad points to them. But there are times when you just have to give in to the kid because he wants the darn thing he is asking for so much. My youngest (Robbie) is obsessed with Legos. Every time I help him go to the bathroom, he gives me a run-down on which Lego sets are in first, second, and third place on his list. It would be wrong for me to conclude that he can’t have Legos just because they cost too much. Robbie gets to have some sort of say in how the family money gets spent.
He doesn’t get to have a complete say. You’ve got to mix it all together and come up with what truly makes sense. My thought is that you need to show resistance to some spending ideas, and I would put the idea of spending on video games near the top of that list. If it turns out that an exception is called for because your kids just cannot live without a video game, then so be it.
People seem to get pulled to extremes in consideration of frugality issues. A few are absurdly cheap. Most pay little attention to trying to maximize value propositions. If they have money available to them and they see something they want, they buy it, end of story. Mention the idea of weighing the pros and cons of a purchase, and what comes back is a question as to whether you recommend never again having a little fun. There’s a big middle ground that lies between those two ways of thinking about things.
The invention of video games should be a plus for all of us. It adds a spending option that didn’t exist before. If we don’t analyze whether buying video games are in our best interests, we turn a positive into a negative. We end up buying video games even in circumstances in which our money would provide more life enhancement if directed elsewhere.
I am not cheap. I enjoy having stuff. I see the appeal of spending. I see the appeal of video games. I’m a Jellyman!
But I don’t hand over a dollar to anyone without having a rough idea in my head of what I am giving up in terms of financial freedom by doing so. Winning financial freedom early in life makes it possible for me not only to play at being a Jellyman, but to be one in real life. That’s more fun.
Spend on fun stuff, yes. But spend on fun stuff in an informed way.
Video games have their good points. They have lots of bad points too. Think it over before putting money on the table.
And never forget — It’s a turtle, dude! More on This Topic
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December 7, 2006 14:36 – The Price of Peanut Butter
They say that God works in mysterious ways, and it’s so, it’s so!
If you have been tuning in regularly, you know that we have a Goon problem on our boards. There are a number of us who use the boards to learn how to win financial freedom early in life and there are a number of others who use the boards to try out new ways of building and setting off stinkbombs.
As a general rule, it’s not my practice to point you to the “work product” of the bomb-throwers. Today is different. Today, one of the gooniest of the Goons (“NFS”) put forward a post at Goon Central (the board associated with the RetireEarlyHomePage.com web site) that makes a point that I believe can help you a great deal in your effort to win financial freedom early in life.
Please take a look at the Return Predictor (there’s a link at the left-hand side of this page). This is a calculator that John Walter Russell and I developed together. I think it is an amazing tool. I believe that there will come a day when it will be a rare investor who does not use such a tool (my expectation is that there will be many competitors in days to come) prior to investing in an index fund. The tool provides you information that is critical to the investment decision-making process but that is not today provided anywhere else in so convenient a form. It reveals to you the value proposition of the broad index fund you are buying at the time you are making a purchase.
You wouldn’t buy a car without asking the price, would you? You certainly wouldn’t buy a house without knowing the price. You need to know the price at which stocks are selling before you purchase them too. This is common sense, no?
Most of today’s investors do not know the price they are paying for the income streams they buy. That’s because an idea has caught on that timing doesn’t work. There is indeed a good bit of evidence that short-term timing doesnt work. Unfortunately, there are people who have come to believe that long-term timing too is impossible. It’s a silly thing to believe. But there are indeed people out there today who have confidence in that one. Please take my word on it, I know whereof I speak.
If long-term timing didn’t work, it would not be possible to determine the price you are paying for the income streams provided by the index funds you buy. Long-term timing does work, and it is possible to determine the price of the income streams you purchase. The Return Predictor is the first publicly available tool that does the job for you that you very much need to have done.
If you see two jars of peanut butter in the grocery store, how do you determine which is the better deal? It’s peanut butter you want and it’s cash you’ve got to give up to get it. So you find out how much you would be paying in each case per ounce of peanut butter obtained. The jar that offers more peanut butter per ounce offers the better value proposition (unless you don’t have enough peanut-butter lovers in your house to consume that much peanut butter in a reasonable amount of time).
It works the same way with stocks. It’s future returns you want and it’s cash you’ve got to give up to get them. To know whether stocks are worth buying or not, you need to know what sorts of returns you are going to obtain at various times in the future. It’s not possible to make a truly intelligent investing decision without knowing this.
There are some people who think this is not knowable. These are the people who say that long-term timing is impossible. Again, this is a silly claim. Buy a broad index fund, and you are buying a share of the output of corporate America. Corporate America has been generating sufficient profits to support a long-term real return for shareholders of about 6.5 percent real for a long time now. That number might go up or down a bit in the future. It’s not likely to go up or down dramatically. It is possible to generate a reasonably accurate estimate of your long-term return on a purchase of shares in an S&P 500 fund.
There are some complications. That’s what throws a lot of people off. People look at the complications and it makes them break into a sweat and they end up just throwing up their hands and saying “it cannot be done!” It can be done. You need to take it at a slow and steady pace, to work through one complication at a time until you get to where you want to be. That’s what we’ve been doing at the various Retire Early boards for the past 54 months. We’ve come a long, long ways. We’ve worked through many complications that some once thought we would never overcome.
Here’s where the NFS post comes in. Here is what he says in regard to the research into the historical stock-return data done by John Walter Russell that generates the numbers you see when you enter various valuation levels into the Return Predictor: “The problem is that, when it comes to the market, the confidence intervals are so wide that an investor cannot use the information. Giving an investor the confidence interval (a recent favorite was 1% real plus or minus 6% 9 times out of 10) is a recipe for paralysis, not action. Translated for the layman, he’s saying, ‘I am 90% sure that, ten years from now, you will have somewhere between 60% and 200% of what you invest today.’ ”
NFS is explaining the meaning of the term “confidence interval” or “confidence limit.” I noted above that there are complications in predicting stock returns. The complications are not so great as to make it impossible to predict returns with reasonable accuracy. The complications are so great as to make it impossible to predict returns with reasonable accuracy without including confidence limits. We do not know precisely what returns the S&P index is going to provide over the next 10 years. We do know (with 90 percent confidence) the range of returns that is possible, presuming that stocks perform in the future anything at all as they always have in the past.
It is NFS’ view that this information is of no value. He says, in reference to the last sentence of his that I quoted above, that “no one will act on that sentence.” The sentence we are talking about reads: “I am 90% sure that, ten years from now, you will have somewhere between 60% and 200% of what you invest today.”
The sentence is meaningful. It’s more than that. The sentence is powerful. The sentence conveys information of great importance to the middle-class investor.
One thing it tells you is that there is a strong chance that, if you invest in the S&P index today, you will have significantly less money at the end of 10 years than you have today. That’s a big deal. Another thing it tells you is that, if you have more money in ten years than you have today, it’s not going to be a whole big bunch more. If the best that you can do is double your money in ten years, the upside potential of stock investing is greatly diminished from what it is when stocks are selling at more reasonable prices.
The reason why I founded the Financial Freedom Community way back in December 1999 was so that people from all over the world with an interest in the topic of early retirement could get together and share ideas for building wonderful tools like this. The reason why I kicked off The Great Debate on May 13, 2002, was to clear up a lot of the misconceptions that people had come to hold about how stock investing works during the wild bull of the 1980s and the 1990s.
The Goons are a stone cold drag. I don’t say different. The Learning Together experience that we have enjoyed amidst the bombing and the stinking is the most important learning experience that has taken place in any discussion-board community in the history of the internet. Let’s not let the Goons ruin our fun.
If someone tells you that what we’ve done together is so wonderful that it cannot be real, pay no heed. We’re not the first community that ever dreamed the impossible dream or that dared to go where the brave dare not go. We made it happen. That’s what matters. If someone tries to stink you out, say”no thanks, Goon.” Tell him that your mother doesn’t let you play with stinkbombs.
Tell him that it’s a Dolphin thing! More on This Topic
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December 8, 2006 17:22 – On the Boards
Discussion boards are a drag in some ways. You can probably guess what I’m getting at here. The Goon Factor.
So why bother with them?
I’ll tell you why.
Discussion boards are an exciting new communications medium. There are things that you can learn by posting to discussion boards that you cannot learn by reading books or listening to speeches or taking courses.
When you write a post, you need to organize your thoughts. Doing that causes new thoughts to pop into your brain. Free thoughts. Thoughts that come to you for free but that can generate wealth for you somewhere down the line.
It wouldn’t be the same if you wrote the thoughts down in a file that you kept on your hard drive. You say things differently when there are people listening.
You get feedback on boards. You learn from that.
You don’t only learn from reading the things people say in response to your posts. You learn from the things they don’t say. You learn by taking note of the things that cause people to become silent.
As you accumulate new insights, you find your old insights falling into exciting combinations of the new and the old. The more insights you launch, the more of them you find sailing into port. You cut the grass and it grows taller.
So what?
Sew your underwear.
Here’s what.
When I put up The Post Heard ‘Round the World, I knew that the conventional investing advice was off. I had learned that when doing the research I did putting together my Retire Early plan. I knew it, but I didn’t really know I knew it, you know?
Now I know I know. Watch out, world!
By getting it out there, and by getting kicked around a thousand times, and by kicking back once or twice or three times (or maybe four times — Father, forgive me, for I have sinned), I learned.
I don’t know if the Goons were learning or not. I think they might have been learning the wrong sorts of things. That’s their issue. I was learning how the pieces fit together.
How does somebody write a song? Dylan sometimes writes them in the recording studio ten minutes before they push the button. Does he really just make them up on the spot?
Not really. He’s calling on ideas that have been passing though his brain for months or even for years when he writes a song in ten minutes. There can be five years of mental struggle behind a song that gets put down on paper in ten minutes. A song like “The Highlands” doesnt just pop into your head one day, even if you head is Dylan’s head.
It works that way with saving and investing and budgeting insights too.
I remember when I wrote post that I called “The New Luxuries.” This was in the Motley Fool era. The title came to me one day. That’s all that I had for about six months. The rest came to me one morning in the shower. All at once. I got to the computer, and I let it bleed onto the page, and I pushed the button, and that was that.
You can’t come up with a concept like “The New Luxuries” or “Unwritten Rules of Wage Slavery” or “Retire Different!” by entering personal finance terms into the Google search engine. And you sure don’t come up with them by sitting in a room thinking Big Thoughts.
There is learning that comes by following a logic chain from link to link to link. That’s not the only kind of learning. There’s a learning that comes from mixing it up with others of somewhat like mind and of somewhat unlike mind.
I know what I think. To learn, I need to get away from that. I need to see what others think. And to see how I respond to what others think. And to see how others feel about my response.
Paul Simon wrote a song about it:
Someone told me that it’s all happening at the zoo.
I do believe it.
I do believe it’s true. More on This Topic
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December 11, 2006 06:40 – Uptight (Everything’s Not Allright!)
I once had a woman boss who said something to me that made my face turn red. She told that she had read an article saying that whether people shine their shoes or not is a good indicator of success.
I presume that the theory was that people who shine their shoes care about their appearance, and people who care about their appearance have a positive outlook, and people who have a positive outlook overcome the obstacles they find in their path. Dull-looking shoes are a bad sign.
It could be that she was passing this information along to me because she thought it was an interesting article. I don’t think so. I have the dullest-looking shoes of anyone on Planet Earth.
I find it boring to take my shoes in to get them polished. I always have ten things on my mind and it never seems like a good idea to take time out of the day to go to the dry cleaners and get my shoes shined. I rationalize. I say: “They were good enough for last week, and they can’t be that much worse this week than they were last week, and so they should be good enough for this week.” Clever logic chain, eh?
People who wear dull-looking shoes are losers. I wear dull-looking shoes. Am I a loser?
I don’t think so. I don’t think that that is what my boss was trying to tell me. I think she was trying to tell me that people who are meeting me for the first time might happen to take a look at my shoes and the thought might form in their heads that perhaps I am a loser and that I might not get a second chance to make a first impression.
I think she’s right about that. I think she was offering me good advice. I didn’t act on that advice. I still wear dull-looking shoes. But I think she was right about how people form their views of other people and about the ideas that those other people put forward too.
They are always asking girl pop singers what their views are on the Iraq war and global warming and the latest movies and all that sort of thing. People complain that it’s a dumb thing to do. No one argues the other side. But they keep asking the girl pop singers for their views and the girl pop singers keep saying what they are and a good number of us keep listening to what they say.
If you want to take over the world, you don’t need guns and bombs and armies anymore. You need influence with girl pop singers.
The reason why we care what girl pop singers say is that they present a good image. Image matters.
Are you a bull or a bear?
I hate that question. I’m not either one and I have no interest in becoming either one.
Bears are famous for shitting in the woods. Is that what you want to be famous for?
Bulls are famous for producing on a daily basis large amounts of the same sort of material referenced in the above paragraph. If you don’t believe in something, you say that it reminds you of the work product of a bull, right? So you don’t want to be perceived to be “bullish” anymore than you want to be perceived to be “bearish.”
The words we use to describe things tell us something about our inner beliefs about the things we are trying to describe. There’s a reason why the universe of investors has long been divided into bear camps and bull camps. The sort of people who elect to spend their life energy writing about investing don’t think of themselves as conversing with the sorts of people who are akin in any significant way to mice or goldfish or alley cats or mountain lions or sweet-looking little deers.
Investment writers are important. They have to go to school for three-hundred years before they are permitted to tell people how to practice asset-allocation. They wear ties over their pajamas. They overeat. They smile sometimes, but only in response to sarcasm. They never ever cry. They fart often, but it’s probably best to pretend that you don’t notice.
In real life, I am confident that these people are regular Joes and Janes. They ride bikes. They watch stupid television shows. When one of them is dumped by someone that he or she loves, he or she feels a serious hurt.
The unfortunate idea has caught on that, if you are going to offer advice on how to invest, you had better be pretty darn sure of yourself, you had better speak in low and measured tones, you had better have credentials.
Credentials are good. I don’t say different. But I find the self-importance that you see in evidence in many investing discussions a turn-off. These people use big words and charts and all this jizz-jazz to hide from the real world. They need to practice saying things like “I don’t know” and “I’ll have to look that up” and “here’s what people who don’t share my viewpoint say about that” and — my favorite — “I now see that I was wrong.”
Image matters. The reason why investing advisors act the way they do is because they want to impress us. They were told that that is the first step to winning people’s confidence in one’s investing ideas.
I’m not impressed.
I’m impressed by an investing advisor who shows his or her humanity. Not because I am a people who loves people. Because long-term investing is a human act. If you don’t know people, how the heck are you gonna be able to figure out what is needed to be successful as a long-term investor?
Long-term investing is different from short-term investing. It takes a different skill-set to succeed at it. It takes a different sort of financial advisor to tell people what is needed to develop the required skill-set.
We’re not bulls. We’re not bears. We’re dolphins.
We’re smart, yes. But we’re also upbeat. We’re engaged. We’re curious. We’re playful. We’re sleek.
Truth be told, we’re kind of sexy!
We probably should make more of an effort to keep our shoes polished. That’s the other side of the story. More on This Topic
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December 18, 2006 13:19 – Am I a Bad Father?
John Greaney has an article at his web site arguing that I am a bad father for having left corporate employment before saving enough not to need ever again to work for money. The numbers in the article are of course all wrong (are you beginning to notice a pattern?). But the question being asked is one that all Passion Savers should consider before handing in a resignation from a well-paying job.
I’m reading a book on Solzhenitsyn (Solzhenitsyn: A Soul in Exile, by Joseph Pearce). It contains a prose poem (“The Evil Weed”) by him that ends with these lines: “And to each of the living is granted nothing more than his labour — and his soul.”
That says it just right, in my assessment. So many of our money management problems are rooted in our mixed-up understanding of the goals that it is we are pursuing. The conventional idea of retirement is that it means to stop working. If that were our true money management goal, it would be as easy as pie for everyone to come up a winner. All you would have to do to retire successfully would be to shoot yourself. No more money problems.
That’s dumb, of course. But it is a logical extension of the idea that the point of saving money is to accumulate enough financial resources not ever to work again. All of the complications of life come from the reality that we are beings with both material and spiritual desires. It’s not all about money, but ignoring money gets you nowhere. All money management questions are questions that arise because of the tension between our material and spiritual quests.
Work is the exertion of effort toward attainment of some practical purpose. The day you stop working is the day you stop living. The day you “retire” in the way that some people understand the concept is the day they put you six feet down and say prayers over your embalmed body.
“Retirement” as it is conventionally defined should not be any reasonable person’s goal. Those who have corporate jobs work. Those who have government jobs work. Those who are self-employed work. Those who do not have a corporate job or a government job and who are not self-employed work. Work is something we all have in common. If you are human, and you are not hospitalized, you are engaged in some form of work.
The question always is — What choices do you have in selecting the work you do? If you have no savings, you take whatever work you can get to pay the bills. If you have a lot of savings, you can be choosey. Saving buys you financial freedom. Successful savers do work that is important and fulfilling and enjoyable. Our movement is a movement of people who want to do more of that sort of work (defined in all sorts of ways by all sorts of people) and less of the soul-draining kind.
Greaney is an idiot. That’s not an uncharitable comment. That’s a plain fact, obvious to any reasonable person. Greaney’s heart is filled with hate and contempt for all community members who use our boards for the purpose for which they were created. I think it is far to conclude from his behavior that he is not even a tiny bit satisfied with the path that he has elected for himself. He has the money needed to live a fulfilled life. His lacking is in some other department. He is financially rich and life-satisfaction poor. I call him an “idiot” because he wastes the resources that so many would be able to put to better use if they came into the good fortune that he has enjoyed.
I like to think that I am a whole big bunch smarter than Greaney. I ain’t got it all figured out, however. Not by a long shot. So I don’t dismiss the question he raises in his article. The title of the article is “Do Good Fathers Voluntarily Place Their Kids in Financial Hardship?” It’s a good and far-reaching question posed in this case by a true idiot. Please try to ignore the idiot part for a moment and think through the question being put on the table.
Do good fathers voluntarily place their kids in financial hardship? Well, do they?
My two boys would have more stuff if I were still bringing home a six-figure paycheck. True fact.
My two boys would not grow up proud of the work done by their father if I were still doing the work that provided the six-figure paycheck. Also a true fact.
Solzhenitsyn is no idiot. Let’s listen once again to what the informed community member has to say on this topic: “And to each of the living is granted nothing more than his labour — and his soul.”
The idea is to strive for a balance. If your kids don’t have shoes, you take whatever work any employer will give you until they do. If your kids are getting a good schooling and good health care and have lots of food and lots of toys and lots of heat, you shift your focus a bit to the soul side of the equation. Daddy’s new job has a whole bunch more soul than the old one. That’s good not just for Daddy, but for Timothy and Robert too.
It’s tricky, however. I think I made the right call. If it turns out that I never sell enough books to afford Disney World, I’m going to look back and wish that I had stayed at the corporate job for at least another year, perhaps two.
No one knows the future. The Passion Saver studies the pros and cons of all of the various moves open to him, assesses the probabilities of various possible outcomes, and makes the best call he can given his limited understanding of things. Then he prays that he didn’t mess up.
Here are some words from another sort of poem by another sort of poet, John Prine:
The old man sleeps with his conscience at night.
The young man sleeps with his dreams.
And the mentally ill lie perfectly still
And live out the time in-between.I write for the conscientious dreamer. I write for the middle-class worker just mentally ill enough to believe it’s worth striving for a promotion to something better.
We eat. We sleep. We dream. We work. We love. We pray.
Money helps with all that stuff. That’s been my experience. So while we’re busy doing all that in-the-sky poetic stuff, we’re always keeping one eye on the down-to-earth money implications too.
We try hard not to let the idiots who have mistakenly come to believe that they have gone beyond the need to work out a balance between the physical and the spiritual get us down.
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December 21, 2006 15:52 – Workingman’s Blues #2 — A Different Sort of Protest Song
A recent entry to the “From the Pen of Chris Gregory” blog examined Bob Dylan’s financial freedom song “Workingman’s Blues #2.” Gregory concludes that: “the renewed confidence he now shows in his music and his writing – the result of years of hard work – can be felt in every moment of this transcendent, far-reaching piece, which stands with his very best songs.”
Here is the text of the comments that I posted to Gregorys blog this morning:
I enjoyed reading this interpretation of “Workingman’s Blues #2.” I agree with the comment above that it does a good job of explaining what Dylan means by saying that it is his aim to “stop time.”
My own interpretation of the song is that it deals with Dylan’s work ethic. This is in line with comments you offer in your last paragraph. I see this as a “protest song” not against globalism, but against those who “never worked a day in their lives” and who “don’t know what work really means.” If you don’t put your heart into your work, you don’t know the hurt that comes from having your work dismissed or seeing your efforts fail.
I hear concern being expressed over how his work ethic damaged his marriage. You sometimes can’t have it both ways — you can’t always have both a good home life and a successful career. Those who don’t care intensely about their work don’t know that, they don’t know what work even means.
I also see Dylan portraying himself as a soldier in this song, comparing his work writing songs to the work done by someone who kills for a living (good songs kill illusions). There are cruel weapons that must be employed from time to time. There is at times a longing to put the cruel weapons away.
In the end, you forget the chitter-chatter of those who don’t know what work really means and “remember always” the family members who were hurt by your need to accomplish something in the world. But you can’t really say that you are sorry that you did the work you did. It was work that had to be done and it was left “up to you” to do it.
Something that I like about this interpretation is that it unites the classes. It is not just the low-wage worker who suffers from the workingman’s blues, but all who care about the work they do. The division is not on economic terms. It is between those who put their heart into what they do and those who go through the motions to collect a check. I see the proletariat line as being a joking reference to this. A white man can sing the blues if he cares enough to go through what he needs to go through to learn how to sing them right. Even a rich man can be a slave to his passions.
Programming Note: The next blog entry will appear on Tuesday, January 2, 2007. This workingman is taking a little rest. As Dylan observes elsewhere on the same album: “Put some sugar in my bowl, I feel like laying down.”
And, as he observes on the album that came before it: “I had them [dreams and hopes] once though, I suppose. To go along with all the ring-dancing Christmas carols on all the Christmas Eves.” That’s my way of letting you know that I will say a prayer tonight that you see some of your dreams and hopes come true during the next year.
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