Vagabonding: An Uncommon Guide to the Art of Long-Term World Travel (Book Review)

vagabonding1

I don’t recall how I discovered this book, but I remember being initially skeptical. I was wary that Vagabonding: An Uncommon Guide to the Art of Long-Term World Travel by Rolf Potts would be a poorly-written eBook with a very catchy title and little else. I’m glad to report that instead, this compact book was a nice mix of inspirational philosophy and practical advice.

What is Vagabonding? Vagabonding is defined by the book as taking time off from your normal life – from six weeks to four months to two years – to discover and experience the world on your own terms. Vagabonding focuses more on growing your self, while “vacation” is more about resting and preparing yourself for coming back to work. Stretching your boundaries always involves a certain level of discomfort. Put another way, you can’t buy vagabonding as a package deal (58% off!!) from a vacation wholesaler.

Do you even want to do this? I think this is the most important question. Reading this book is a good way to see if you would actually like to do long-term travel. By skipping the tour guides and charter buses, you’ll actually need to interact with strangers and locals. You will arrange your own transportation, order your own food, carry your own bags, and start your own conversations. While you should try your best to be safe, it won’t be perfect. Occasionally, you will look foolish or be ripped-off. Potts reminds you that this is a time-honored tradition for travelers, and at least you’ll have a story to tell.

This will either sound awful, or it will sound awesome. Will you feel the wanderlust?

Can I do this? This is an easier question. In terms of hard numbers, you’ll need to budget about $750 to $1,000 a month. To me, the overall message of the book is that yes, you can, as long as you want to do it.

  • Vagabonding is easier than you think. You must, however, loosen your grip on the certainties of life.
  • It costs less than you think. Visit lower-cost countries. Stay in hostels or AirBNBs. Eat like locals at street vendors and food stalls.
  • You need less stuff than you think. He provides tips, although there are many online resources about packing light.
  • You need less planning than you think. In fact, you shouldn’t plan everything ahead of time. Slow down. Move deliberately. Make choices as you go.
  • You are simpler than you think. Long-term travel helps you strip away all of the the rituals, routines, and possessions you’ve accumulated.

Parallels with early retirement and financial freedom. Many of the themes that came up aligned with my own thoughts about the pursuit of financial freedom.

  • It’s not for everyone, only you know if you feel the calling. This motivation is critical, as there will be speed bumps ahead.
  • You must put in some serious effort and savings discipline in order to make it happen. The good news is that this hard work will make you appreciate your eventual freedom even more.
  • 80% of people never even consider the possibility of vagabonding or early retirement. They will quickly dismiss long-term travel as too exotic or too expensive for them to accomplish. 15% of people may consider it, but never actually seriously pursue it. Less than 5% will pursue and achieve it. (I made up these numbers.)
  • Inevitably, some of your friends and neighbors will scoff at the idea as either impossible and/or foolish.
  • In the end, it requires you to take a leap of faith by quitting or at least taking an extended leave of absence from your job. You must trust that “it will be okay”.

The book also includes some great quotes from other travelers. A sampling:

Travel can be a kind of monasticism on the move: On the road, we often live more simply with no more possessions than we can carry, and surrendering ourselves to chance. This is what Camus meant when he said that “what gives value to travel is fear” – disruption, in other words (or emancipation), from circumstance, and all the habits behind which we hide. – Pico Iyer

Suddenly you are five years old again. You can’t read anything, you only have the most rudimentary sense of how things work, you can’t even cross a street without endangering your life. Your whole existence becomes a series of interesting guesses. – Bill Bryson

Who are you that wanted only to be told what you knew before? – Walt Whitman

vagabonding0I borrowed an original 2002 copy from the library for this review, but after reading it I decided to order the “revised and updated” 2016 version from Amazon. There are many passages and other tidbits that I will want to refer back to later. I went ahead and bought a new copy, as I wanted to guarantee myself access to the new material. If I bought it used, I may have gotten the older version again, as the new version isn’t being called a 2nd edition and has the same old ISBN.

Bottom line. If you are curious about long-term independent travel, you should read this short book for a mix of motivational thoughts and down-to-earth advice. Good stuff and a lot cheaper than doing the actual thing. 🙂

Warren Buffett’s Ground Rules: Do-It-Yourself Investing Guidelines

groundrules0

Okay, so you probably aren’t reading a book titled Warren Buffett’s Ground Rules: Words of Wisdom from the Partnership Letters of the World’s Greatest Investor if you are perfectly happy owning solely index funds forever. While the shared concepts with low-cost, passive investing still apply, here are things to consider if you want to do some of your own picking and choosing between individual stocks and bonds.

Given how much energy an 86-year-old Buffett seems to have, it must have been very interesting to invest with him as a hungry young man. On the other hand, reading through the partnership letters also shows how mature he was in his late 20s and early 30s.

Be honest with yourself. Pick a yardstick ahead of time. You need to pick a proper benchmark against which to measure your performance, not just having positive or negative years. Back in 1966, it was the Dow over the last 3 years. Note that it wasn’t just an index, but also a timeframe of at least 3-5 years.

If you’re going to invest a portion of your portfolio on your own, always keep track of your performance. You need to be honest about your results and whether they beat the rest of your portfolio, or even a simple target-date fund.

Investing modest amounts is an advantage. Use it. Warren Buffett had a lot more flexibility with a smaller asset base. There are many deals out there that on a percentage basis are attractive, but if you have to deploy billions, it won’t even move the needle. For example, there might a 12-month CD that earns you 8% APY, but only on $10,000. If you only have $20,000 to invest, putting a big chunk of your portfolio in a risk-free 8% would be much smarter than stocks over the next year. However, if you have $100 million to invest, such a deal would be a rounding error. Some other transactions like odd-lot tenders are also ideal for smaller investors.

Worry about risk and return, not about the name of the product. It doesn’t matter if it’s a laundromat, rental unit, shares of a public company, or bonds. When Buffett was winding down his partnership, municipal bonds were yielding 6.5% on a tax-free basis. In his mind, it was a better investment to buy the municipal bonds rather than stocks given the near-term prospects. So that’s what he recommended.

Ignore the crowd. Think rationally and independently. If you’re going to “beat the market”, then you have to think differently than the market. You’re looking for some area where the market price is much lower than the intrinsic value. By definition, that means a lot of people will be disagreeing with your opinion.

Develop your best ideas, and then bet big on it. Buffett is not a big fan of owning 100+ stocks in the name of diversification. If you have your 5-10 best ideas, why also invest in the other 90 that are worse? If you’re going to actively manage your portfolio, you must have the conviction to bet big on your opinions.

Self-confidence is required, as you will have periods of bad performance. For me, keeping my conviction during times of underperformance is the primary reason most of my portfolio is indexed. Here a stat from the book credited to Joel Greenblatt: Of the top 25% of managers who had outperformed the market over the decade: 97% spent at least 3 years in the bottom half of performance and 47% spent at least 3 years in the bottom 10%.

If you are hiring an outside manager, look at integrity first. Buffett on the types of managers he seeks for Berkshire:

We look for three things: intelligence, energy, and integrity. If they don’t have the latter, then you should hope they don’t have the first two either. If someone doesn’t have integrity, then you want them to be dumb and lazy.

As a side example, here is how Buffett organized his own fee structure for the partnership. If the fund did not accumulate anything past a 6% annual gain every year, he would not take any fees at all. Above the 6% annual rate, he would take 25% of gains as his fee. While some hedge funds also employ a “high water mark” system, they usually still have some form of flat fee that they take, no matter way. If Buffett didn’t reach his 6%, he got nothing. In addition, he had nearly all his own net worth in the partnership as well. He “ate his own cooking”.

Warren Buffett’s Ground Rules: Shared Concepts with Low-Cost Index Funds

groundrules0If you get in a debate about owning index funds, Warren Buffett will likely be invoked as an example of successful stock-picking. A recent book called Warren Buffett’s Ground Rules: Words of Wisdom from the Partnership Letters of the World’s Greatest Investor covers a period when Buffett was arguably at his peak of active stock trading. However, even during this time, Buffett’s rules and wisdom still shared a lot in common with low-cost index investing.

From 1956 to 1970, Buffett managed a relatively modest amount of money through the Buffett Partnership Limited (BPL), mostly from family and close friends. Already a good teacher, he wrote his partners a series of transparent, frank, and educational letters. While he does write a lot about his outperformance goals and successful trades, but here are examples of how you can be both a Buffett fan and an index fund fan.

You are buying fractional ownership of a real business. Too often, stock trading is treating like playing a game with numbers that zip up and down. Even if you just buy index funds, you should always realize that you are still buying a piece of a business and all its future earnings. These businesses employ hard-working people and provide tangible value and useful services to customers.

In the long-term, the market is efficient. Value investing tries to take advantage of times when the quoted prices of shares vary from “intrinsic value”. Market quotes will vary in the short-term, and you can’t predict them. You can only choose whether to buy, sell, or do nothing. However, value investing also relies on the price eventually returning towards intrinsic value in the long run.

If you buy index funds, you do not spend your time and energy determining intrinsic value. However, you also believe that the markets will work themselves out over the long run.

In the short-term, be ready for big drops in prices. Even though index funds give up the search for intrinsic value, all stockholders are subject to the same short-term swings. From a 1965 BPL letter:

If a 20% or 30% drop in the market value of your equity holdings is going to produce emotional or financial distress, you should simply avoid common stock type investments. In the words of the poet Harry Truman – “If you can’t stand the heat, stay out of the kitchen.” It is preferable, of course, to consider the problem before you enter the “kitchen”.

Beating a diversified index of companies is hard. From a 1962 BPL letter. Buffett made these observations more than a decade before a single person owned an index fund… because they didn’t exist yet.

The Dow as an investment competitor is no pushover and the great bulk of investment funds in the country are going to have difficulty in bettering, or perhaps even matching, its performance.

You may feel I have established an unduly short yardstick in that it perhaps appears quite simple to do better than an unmanaged index of 30 leading common stocks. Actually, this index has generally proven to be a reasonably tough competitor.

Consider after-tax results. Buffett offers good advice in that you should always keep track of your portfolio on an after-tax basis. If you are creating a lot of short-term capital gains, your outperformance has to be rather significant in order to counteract the additional tax drag. This doesn’t mean that Buffett never traded – he did a lot of transaction in the partnership years – but he also had many years of awesome returns.

Today, some people criticize Berkshire for not distributing a dividend, but in fact Berkshire does a great job deferring taxes so that the growth can keep compounding and keep your after-tax returns higher. If cash is needed, a Berkshire shareholder can always sell some shares.

A market-cap-weighted index fund usually has very low turnover and thus minimized tax drag. An actively-trading mutual fund that has the same pre-tax performance numbers as a passive mutual fund will often have lower after-tax performance.

More assets makes it much more difficult to create outperformance. More assets doesn’t always translate into lower returns, but as Buffett states you must have enough ideas to put that money to good use. From a 1964 letter:

Our idea inventory has always seemed 10% ahead of our bank account. If that should change, you can count on hearing from me.

Buffett stopped accepting new partners when asset levels reached $43 million. He decided to unwind the partnership completely in 1969, for a variety of reasons. He eventually found a better way to align his interests by all becoming shareholders of Berkshire Hathaway (and only taking a small salary as CEO).

A mutual fund with high performance will naturally attract a lot of assets. The good ones will stop accepting funds if the asset levels outrun their supply of great ideas. The bad ones will keep accepting funds because it means higher management fees. However, with Vanguard index funds the problem goes the other way. As the asset levels rise, the costs go down and the performance is unaffected. Here’s an interesting profile of the little-known manager of the Vanguard Total Market Index Fund, which now holds nearly a trillion dollars in assets.

Smarter Better Faster by Charles Duhigg: Book Review and Highlights

smarterfaster0

We’d all like to improve our productivity. Ideally, this would only involve downloading an app for 99 cents. 🙂 Instead, Charles Duhigg did a lot of research in various areas and filtered out universal concepts that we can apply to our everyday lives. The books is called Smarter Faster Better: The Secrets of Being Productive in Life and Business. I won’t create Cliff Notes for the entire book, but instead here are the big ideas that I want to apply to my own life.

Motivation. People work harder and push themselves more when they believe they are in control. People also work harder when they can apply meaning to their work. Their actions should be an affirmation of their greater values and goals. This, you can motivate yourself by injecting even a little control or your values into the situation. For example, you may be ambivalent about heading a committee this year, but you can state you’ll do it if you can train someone else for the job next year. Or you may not enjoy cleaning up the yard, but you can focus on providing your kids a safe, outdoor place to play.

Goal setting. To get things done, you must move from vague aspirations like “do your best” to concrete plans. You’ve probably heard of SMART goals (Specific, Measurable, Achievable, Realistic, Timeline). However, it is important to start with a big “stretch” goal first, and then break things down into appropriate SMART sub-goals. Otherwise, you are in danger of picking a bunch of little, easy goals in order to check them off your To-Do list.

Here’s a video that Duhigg created called How to Build a Better To-Do List:

Teams and Managing Others. Teams work best when everyone feels that they have the authority to speak their mind. To accomplish this, people need to be sensitive to others so that they feel safe in expressing their opinions. This can be hard to do, but it is critical. I’ve definitely seen the opposite of this many times in group settings. Specific anecdotes show how this applies both to Google tech workers and Toyota’s auto factory workers.

Overall, I felt the book to be well-written and easy to read. The books has a lot of interesting stories to help illustrate the concepts. I like that sort of thing; you may not. I borrowed this one from the library, and I think it was definitely worth the time spent. Don’t skip the Appendix, either.

Book Review: Money for Something – A Free Investing Primer

mfs_cover180

There is always a demand for starter books on investing and personal finance, especially as graduation season is coming up again. Although they often cover similar topics, the execution varies widely. For example, I found Tony Robbin’s “7 Simple Steps to Financial Freedom” to be dense, unfocused, and it somehow ended up suggesting a complicated insurance product. Blech.

This is why I found it refreshing to read Money for Something – A Handy Field Guide for Turning Small Investments into Financial Freedom by Matt Henderson. This starter book was short, focused, and practical:

  • Short – The book consists of 17 brief chapters. In roughly the time it takes to read 17 of my blog posts, you can finish this book.
  • Focused – The world of investing is wide and deep, which makes it very tempting to explore every nuance. This book keeps the supporting material very tight.
  • Practical – The same holds true for the actual implementation of his plan. For examples, he gives you two options for model portfolios, he tells you where you can buy them, and that’s just enough to get you started.

Henderson has an engineering background and says the book is based on his own experiences. Here’s an excerpt from the introduction:

Hoping not to rely on luck, I began reading books about personal investment. What I discovered was very exciting—that practically anyone can achieve financial freedom.

I put the principles I learned into practice, and over the next 15 years confirmed that they work. It seems profoundly important that the path to financial freedom is so accessible—just by following a set of basic principles with discipline. At the same time, it seems profoundly sad that so many never find it, simply because they are unaware.

In terms of criticisms, it would be the same as with any starter investment book. Readers should take it as a rough roadmap, something motivational that shows a way to get from here (starting out) to there (financial freedom). But actually following the map will take many years, and there will be many distractions and moments that question your faith along the way. In my experience, you will need to keep learning in order to build up the required confidence in your (probably somewhat different) plan. It’s not that the original plan wasn’t good, more that you need something that you truly believe in. Don’t let that scare you off though, because the payoff is worth it!

This may also help… Money for Something is now available for free to read online, $5 in PDF format, and also available for purchase in Kindle format.

Recap. Concise and practical starter investing book. If you need a short roadmap, I recommend reading this book and doing additional research as needed. It’s free to read online, so that’s one less excuse!

Related: Another recommended starter book on personal finance is If You Can by William Bernstein, which is also free in PDF format and about $6 in paperpack. You can use the included recommended reading list for additional research.

Sick in the Head by Judd Apatow: Comedians and Financial Freedom

apatow_book160I’ve never really identified with comedians. I’m not funny, and I always avoid large crowds. But after reading the fascinating notes at The Waiter’s Pad, I had to read the new book Sick in the Head: Conversations About Life and Comedy by Judd Apatow (Knocked Up, This is 40, Freaks and Geeks). It is not an autobiography, but instead a collection of intimate conversations with famous comedians including Mel Brooks, Jerry Seinfeld, Jon Stewart, Roseanne Barr, Louis C.K., Chris Rock, Amy Schumer, Seth Rogen, and Lena Dunham.

Comedians are virtually required to be nonconformist and view the world differently than everyone else. Otherwise, they wouldn’t be funny. Those are also important traits to have for a person who want to be financially independent, at least before the Social Security checks start arriving. I found myself relating to their stories on many different levels. Here are some selected quotes and my takeaways from this book.

Find people who encourage your voice and originality. Find your tribe. Judd Apatow started working at comedy clubs when he was 15 and spent several years as a stand-up comic before becoming a well-known director and producer. He knew he was different, and so he started interviewing his idols for his high school radio station. After high school, he moved to the LA comedy scene and became roommates with people like Adam Sandler. I often see “tribe” defined as “followers” or “hardcore fans”, but I think it is enough to find people with similar interests and passions.

For example, most people will never really consider financial freedom. Most people just want to be like everyone else, except maybe a bit richer. That or hit the lottery. The reality is that you have to be different and embrace it. The good news is the internet allows you to find people who are different just like you, or at least close enough that you can learn an enormous amount.

Hard work with focus. To be successful at anything, you need a combination of hard work, talent, and the ability to maintain the proper focus.

In the book, multiple comedians use Jerry Seinfeld as an example of the rare combination of very talented and very hard-working. Most comedians try to get by with only one or the other. As shown in an early 1983 interview, he also showed his high standards for where to point his energy.

Judd: And what kind of vehicles are you looking for?

Jerry: Quality. That’s my only real consideration. It could be anything, as long as the people are trying to do something good. I don’t want to do a piece of junk. I’m not starving, you know.

This was before the TV show Seinfeld, which started in 1989, so he wasn’t rich or famous yet. Yet he was already using the word quality. In a later interview, he reveals that the reason he ended the show was also quality. He couldn’t keep on going without compromising the quality, so he ended it.

In a 1984 interview, Garry Shandling laid out every single thing he intended to do the rest of his career. Looking back today, Apatow realized that Garry Shandling went on to accomplish everything he said he would. Apatow:

The lesson here, for me, was that you have to have a dream before you can execute it. That the people who succeed are the ones who think through what the next stages of their careers might be, and then work incredibly hard, day after day, to attain their goals. They don’t just flop around like fish. They have a vision, and they work their asses off to make it a reality.

Jay Leno is another example of a comedian known as a hard worker. It’s hard to appreciate how difficult it is to produce good material. Here I will paraphrase Leno from a 1984 interview:

To find the really good jokes, you have to go somewhere awful and if they laugh there, then they will laugh when you use them on Dave Letterman. You just get better the more you do. Throw out what doesn’t work, and keep refining what does work.

Motivation, keeping the spark, and being true to yourself. In a 2014 interview with Jerry Seinfeld, they landed on the topic of motivation.

Judd Apatow: “I wanted to be a comedian and I wanted to work from a very young age because I was afraid of being broke.”

Jerry Seinfeld on his motivation: “To never have to do anything else. I learned very young in this business that you bust your ass or you get thrown out of the kingdom. My motivation was not wanting to leave the kingdom. Plus, I just love the life of it. I love my independence and the joy of hearing laughs and making jokes. It’s as simple as that.”

Again, paraphrasing Jay Leno:

It’s a job, but you should have fun doing it. If you can’t get up for it, then get out of the business. It [Comedy] doesn’t get boring for me. I really like it.

From a 2013 interview with Eddie Vedder:

I just try to always remember where that initial spark came from. It’s like a pilot light, and you try to make sure it doesn’t go out.

Even Judd Apatow recently went back and started doing stand-up just for fun. He doesn’t have to. He doesn’t do it for money, he doesn’t do it with a career goal, he just does it because he wants to. He wants to get good at something that he loves, something that he was only okay at before. He calls it “unfinished business”.

Here’s an excerpt from a 2015 interview with Jimmy Fallon about the early stages of his show:

We just went in knowing that we might get canceled. And if you’re going down, you have to go down going what you like doing and what’s fun for you, because I don’t ever want to do something painful and then have everyone go, “Hey, that works. Keep doing that painful thing for years.”

How many of us went down exactly down that route, or at least could have? “I’m reasonably good at this, even though I don’t like it much, but it pays the bills so I guess I’ll have to do it forever…”

Low overhead. Here’s Sarah Silverman (2014):

I’ve always kept my overhead low so I could do whatever I want. I think of myself as lazy with spurts of getting a lot done. I find myself rooting against things sometimes because I get excited at the thought of a clean slate. I also really like sleeping. My friends make fun of me because, you know, I love hanging out but I always hit a point in the night where I just want to get home and sleep. I have a very active dream life and I have to be there a lot.

This last bit wasn’t in the book, but Jay Leno never spent any of the paychecks he received from hosting The Tonight Show. He only spent the money from his other jobs – stand-up comedy, paid personal appearances, and endorsement deals. His philosophy was Bank one paycheck, Spend one paycheck. From USA Today:

I had two jobs as a kid, one at a fast-food restaurant and one at a Ford dealership. And I’d put the money from one job in one pocket and spend it. And the other paycheck I’d save. I do that now. I have always banked my Tonight Show money and lived off the stand-up. I have one credit card, no mortgage, and I don’t lease.

Invest With The House + Free Investing Books by Meb Faber

investwiththehouseAsset manager and author Meb Faber has a new book out called Invest With The House: Hacking The Top Hedge Funds, where he explores the idea of simply copying the publicly-available holdings of top investment managers. I haven’t read it yet, but for a taste, consider that a copycat portfolio of Warren Buffett using simply the Top 10 holdings of Berkshire Hathaway would have beat 98% of mutual funds since 2000. It is free to borrow for Kindle Unlimited subscribers and $9.99 to buy on Kindle.

(Test your investing nerd skills. How many of the hedge fund manager caricatures can you name on the cover?)

To celebrate and promote this release, Faber is also making his last three books free to buy on Amazon Kindle for a limited time (1/7-1/12/16). Here are direct links to those eBooks, plus links to my book notes.

Now, Faber does a fascinating job going back and finding such market-beating tricks, and I will probably read this new book as well. But before you put your hard-earned money at risk using such strategies, please realize that even if they continue to work (which is in no way guaranteed), they are also very hard to stick to in real life. Don’t change your investing strategy unless you are supremely confident you will keep to it through thick and thin.

Amazon.com: Extra 25% Off Another Print Book

zenp

New code so you can get 25% off again. Good through 12/13 Midnight Pacific. Take an extra 25% off any book at Amazon.com with promo code 25OFFBOOK. Print books only, max $10 off, must by sold and shipped by Amazon.com. Valid until December 14, 2015 at 02:59am EST. This is a different code than the previous 30% off and 25% off coupons, so you can use it again.

Stack with your $15 off $60 at Amazon from American Express, 10% off Amazon from Chase Freedom, and 5% off Amazon from Discover (10% with Double Promotion).

Here are some recommendations for those looking to give or receive some financial inspiration:

Here are all my book reviews in reverse-chronological order.

My favorite book of 2014 was Dinner A Love Story. It has some inspirational material to help you cook for yourself and your family, along with the best compilation of weeknight dinner recipes I’ve read in a cookbook. They taste special enough (not bland or boring), but they also take 30 minutes. I still use it to this day.

My favorite book of 2015… I looked back at my book reviews and didn’t really have a strong favorite. I would say one trend is that I have become a fan of re-reading Vanguard founder Jack Bogle’s classic books. His old stuff has a lot of common sense reasoning that doesn’t always fit with today’s “one-size-fits-all” advice.

How To Start Your Very First Business by Warren Buffett’s Secret Millionaires Club (Book Review)

startbiz_180While I don’t expect my kids to be the next Warren Buffett, I do plan on encouraging them to start and run their own tiny businesses someday. I’ve previously shared an online cartoon series called Secret Millionaires Club that teaches financial literacy and is supported by Warren Buffett. As an extension of that effort, there is a new book called How to Start Your Very First Business.

I accepted a free review copy of the book and here are my notes.

I think the best question to start with is – why do you want a kid to start their own business? The primary goal is not to make them rich. It’s about helping them to be successful at life in general. Both Warren Buffett and Charlie Munger think this way. Consider the many character traits and interpersonal skills involved:

  • Reliability
  • Honesty
  • Social skills
  • Attention to detail
  • Patience and tolerance
  • Failure and perseverance

The book does a good job of covering the different aspects of starting a business. For example, there are worksheets for figuring out your per-unit profit and your equivalent hourly wage. One area that has light coverage is business licenses, taxes, and legal permits (understandably I suppose). Here is the table of contents, nabbed from its Amazon page.

startbiz2

Lots of good examples and ideas. There are several case studies of other young entrepreneurs along with additional business ideas in the book. A few examples:

  • Hart Mann started Man Cans, candles that smell like sawdust, bacon, or coffee. (Started at age 13.)
  • Jake and Lachlan Johnson invented and sell customizable bow-ties at Beaux Up. (Started at age 14.)
  • Greyson Maclean sells reusable stickers and cling decals for Lego products at BrickStix.com. (Started at age 9.)

Lots of Warren Buffett quotes and quips. Oldies-but-goodies include:

Protect your reputation. It takes years to build a reputation but only minutes to ruin it.

Decide early in life to make your money by selling things that you really believe are good for the customers.

The book understands that it can’t teach you everything. They really have to go out and do it themselves. There are so many intangibles in real business, this book is just a starting point. Hopefully the book can give them a base, and parents can support their efforts (but also let them fail, and hopefully get back up).

Overall impression. This book would make a great gift for the motivated tween or teenager. I enjoyed the mix of approachable advice, Buffett quotes, and real-world examples of young business-owners. The book says it is intended for ages 9 and up, but you’ll have to decide yourself if the recipient is ready. It won’t be much use if they aren’t ready to take action.

If you’re a parent, you’ll have to look up any legal requirements in your area. The book comes with a free Square reader for accepting credit cards, but the parent will have to sign up for an account first.

Charlie Munger: The Complete Investor Book Review

mungercompleteI’ve just finished reading new book Charlie Munger: The Complete Investor by Tren Griffin. For the unaware, you can read the Wikipedia for Charles T. Munger, otherwise probably best know as the Vice Chairman of Berkshire Hathaway and partner of Warren Buffett. The book is meant to corral all the various sources of Munger teachings into a “unified theory” of investing. As is my practice, here are my favorite highlights of the book followed by a quick review. I will try to clearly separate what are Munger quotes and Griffin book excerpts.

First, some good sentences on why learning from reading is awesome (Griffin):

The point is not to treat anyone like a hero, but rather to consider whether Munger, like his idol Benjamin Franklin, may have qualities, attributes, systems, or approaches to life that we may want to emulate, even in part. This same process explains why Munger has read hundreds of biographies. Learning from the success and failure of others is the fastest way to get smarter and wiser without a lot of pain.

Munger on efficient markets:

I think it is roughly right that the market is efficient, which makes it very hard to beat merely by being an intelligent investor. But I don’t think it’s totally efficient at all. And the difference between being totally efficient and somewhat efficient leaves an enormous opportunity for people like us to get these unusual records. It’s efficient enough, so it’s hard to have a great investment record. But it’s by no means impossible. Nor is it something that only a very few people can do. The top three or four percent of the investment management world will do fine.

The book also serves as a good introduction to value investing based on Benjamin Graham’s teachings. Griffin emphasizes the fact that it is about patience and waiting around a mispriced asset to appear. It is not about forecasting the future. Griffin:

Successful Graham value investors spend most of their time reading and thinking, waiting for significant folly to inevitably raise its head. Although Graham value investors are bullish about the market in the long term, they do not making investing decisions based on short-term predictions about stocks or markets.

What kind of qualities does any person owning stocks need (even index funds)? Here’s what Munger said when once asked about how much he worried about a big drop in the value of Berkshire:

Zero. This is the third time Warren and I have seen our holdings in Berkshire Hathaway go down, top tick to bottom tick, by 50%. I think it’s in the nature of long term shareholding of the normal vicissitudes, of worldly outcomes, of markets that the long-term holder has his quoted value of his stocks go down by say 50%. In fact you can argue that if you’re not willing to react with equanimity to a market price decline of 50% two or three times a century you’re not fit to be a common shareholder and you deserve the mediocre result you’re going to get compared to the people who do have the temperament, who can be more philosophical about these market fluctuations.

Why professional money managers don’t make big alpha (Munger):

For most professional money managers, if you’ve got four children to put through college and you’re earning $400,000 or $1 million or whatever, the last thing in the world you would want to be worried about is having gumption. You care about survival, and the way you survive is just not doing anything that might make you stand out.

Munger has been talking about the link between behavioral psychology and investing before it was popularized by books and mainstream media. There are many sources of misjudgments, but I like that he covers many of the more subtle ones that I put under “help me live a good life” more than “help me make more money”. Take envy and jealousy (Munger):

The idea of caring that someone is making money faster [than you] is one of the deadly sins. Envy is a really stupid sin because it’s the only one you could never possibly have any fun at. There’s a lot of pain and no fun. Why would you want to get on the trolley?

On drug and alcohol addiction, this is Griffin writing about Munger:

His timeless advice is to avoid situations with a massive downside and a small upside (negative optionality). Why play dice with something that can ruin your life forever?

Commentary. This book was a solid, short introduction to the world of Charlie Munger from an investing point of view. It has a ton of Munger quotes, but Griffin also does a solid job weaving in quotes from other famous investors like Warren Buffett and Seth Klarman. If you are a fan of Warren Buffett, you will like this book.

Of course, what makes Munger special to me is that he talks about stuff beyond investing, like ethics and morality. For example, I liked that he points out the lifetime benefits of simply “being reliable”. So many workers are just not reliable. Therefore, for a more complete picture, I recommend reading Poor Charlie’s Almanack, which includes transcripts of all his talks, lectures, and public commentary. Reasons for why it is not more popular include the length (really long) and the cost ($50+). After reading and digesting it all, I feel it was fifty bucks well spent. However, if you choose to skip the Almanack, I’d say you’d get $15 of value out of this book.

Elon Musk: Tesla, SpaceX, and the Quest for a Fantastic Future (Book Review)

elonmusk_book

After reading many reviews including from Bob Lefsetz and Brad Feld, I had to add Elon Musk: Tesla, SpaceX, and the Quest for a Fantastic Future by Ashlee Vance to my reading list. I can recommend this book to anyone who likes biographies about interesting and unique people, especially entrepreneurs and technologists. (Also available on public libraries linked up with Overdrive e-Books.)

Musk has grand vision, relentless drive, and a confrontational style. As a result, he is usually either loved or hated. As someone with an engineering background, it is impossible not to be impressed that he is a critical force behind promising companies in solar power (SolarCity), electric cars (Tesla), and space travel (SpaceX). Here is a brief selection of quotes from the book that I wanted to share.

Consider the difficulty of his pursuits:

For most of their histories, SolarCity, Tesla, and SpaceX have been the clear underdogs in their respective markets and gone to war against deep-pocketed, entrenched competitors. The solar, automotive, and aerospace industries remain larded down by regulation and bureaucracy, which favors incumbents.

He’s not making Snapchat or Tinder. He wants a legacy:

“I really like computer games, but then if I made really great computer games, how much effect would that have on the world,” he said. “It wouldn’t have a big effect.

On Tesla Motors:

Had anyone from Detroit stopped by Tesla Motors at this point, they would have ended up in hysterics. The sum total of the company’s automotive expertise was that a couple of the guys at Tesla really liked cars and another one had created a series of science fair projects based on technology that the automotive industry considered ridiculous. What’s more, the founding team had no intention of turning to Detroit for advice on how to build a car company. No, Tesla would do what every other Silicon Valley start-up had done before it, which was hire a bunch of young, hungry engineers and figure things out as they went along.

The guys like Straubel who had been at Tesla since the beginning are quick to remind people that the chance to build an awesome electric car had been there all along. “It’s not really like there was a rush to this idea, and we got there first,” Straubel said. “It is frequently forgotten in hindsight that people thought this was the shittiest business opportunity on the planet. The venture capitalists were all running for the hills.” What separated Tesla from the competition was the willingness to charge after its vision without compromise, a complete commitment to execute to Musk’s standards.

On SpaceX:

The more he thought about space, the more important its exploration seemed to him. He felt as if the public had lost some of its ambition and hope for the future. The average person might see space exploration as a waste of time and effort and rib him for talking about the subject, but Musk thought about interplanetary travel in a very earnest way. He wanted to inspire the masses and reinvigorate their passion for science, conquest, and the promise of technology.

Who knows if any or all of his companies will ultimately be successful. I still appreciate that he is a force of hope and optimism, not some doom-and-gloomer telling everyone to get ready to live in caves and learn how to shoot each other.

Weight Management vs. Money Management: Taking the Long-Term View

nodietI’m currently reading Smart People Don’t Diet by Charlotte Markey. The book offers a “science-based approach” to weight management backed by academic research from scientists, doctors, nutritionists, and psychologists. Sounded good to me. The main takeaway from the book so far is exactly what the title says: Diets don’t work.

Why? You can’t achieve permanent weight loss with a temporary plan. A diet is almost always a short-term gimmick, like “no carbs” or “eat only this smoothie for lunch” or buying meals from Nutrisystem. Once you go back to your original eating habits, you’ll go back to your original weight. Therefore, any changes you make should be something you can maintain for the rest of your life. Can you really not eat bread ever again? Or eat processed frozen meals forever? For a few people yes, for most people no.

Looking at everything through the long-term “rest of your life” filter encourages you to consider carefully and find changes that are sustainable. Skip the ideas that are unreasonable (for you). These days, there is no way I am waking up early to work out every day. I will probably never be a vegan or even vegetarian. However, I can exercise twice a week in the evenings and reduce my portion sizes.

It feels natural to compare weight management and money management. For weight loss, you are consuming and burning calories. For personal finance, you are earning and spending money.

  • In terms of consuming less calories, this meant consciously choosing food that truly give me joy, and cutting back significantly on the rest. I love cheese, crusty bread, and roasted vegetables. I discovered that I could reduce the following to once a week or less without significant pain: beer, desserts, and red meat. Research supports the idea that for weight loss, eating less is far more important than exercising more.
  • In terms of managing my spending, I tried to identify the things that truly give me joy, and cutting back significantly on the rest. I plan to always spend a big chunk of money on travel every year. On the cutting room floor: I spend very little on clothing and entertainment, I never go to bars or clubs, and I dine out at restaurants less than once a week. Here, your savings rate is most critical, which places high importance on your income levels as well.
  • One-time actions can also be sustainable as you don’t have to use up your willpower over and over, such as moving into a smaller house (lowering housing, maintenance, insurance, and utility costs all at once). In terms of eating, simply never allowing certain tempting foods to enter your home will help you avoid eating them (salty, crunchy things like potato chips are my weakness).

Can I keep all of this up forever? I don’t know, some stuff I’ve already kept up for years, and others have only lasted the last 6 months or so.

  • I suppose you could argue that if you manage to accumulate a big enough pile of money, you could never have to work again. But even that assumes a certain level of long-term discipline, as many people with many millions of dollars still manage to go broke all the time.
  • No matter how much or how long you starve yourself, there is nothing that will allow you to eat junk food all the time without gaining weight again. On other hand, this also means that even if you eat horribly for a day or even over a month, you can still recover. Now I don’t feel too bad about that bag of Cheetos I had for “lunch”. 🙂

Which reminds me… taking the long-term view also means you need to expect failures, both financially or weight-related. The important thing is to accept that you stumbled, pick yourself up, and keep moving forward. You’ve got the rest of your life to go, right?