Poor Charlie’s Almanack: Wisdom of Charlie Munger – Book Review, Part 1

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Charlie Munger is best known as the long-time friend and business partner of Warren Buffett, and officially as the Vice-Chairman of Berkshire Hathaway. Even though he is Buffett’s partner in investing, Munger is different in that he does not enjoy the spotlight as much and is rather more blunt and cranky. For some reason that just makes me like him more. :)

Ever since I read more about him in the Buffett biography The Snowball, I have wanted to learn more about him via the book Poor Charlie’s Almanack: The Wit and Wisdom of Charles T. Munger, which is mostly a collection of his speeches but also includes some of his own personal notes and reflections from his peers and family. From the website:

For the first time ever, the wit and wisdom of Charlie Munger is available in a single volume: all his talks, lectures and public commentary. And, it has been written and compiled with both Charlie Munger and Warren Buffett’s encouragement and cooperation. So pull up your favorite reading chair and enjoy the unique humor, wit and insight that Charlie Munger brings to the world of business, investing and life itself.

The first thing you should know about this book is that it is not meant to be an investing How-To book. Yes, there is a lot of investing advice in it, but the book is more about how to live a successful and fulfilling life more than the accumulation of money. Munger puts more emphasis on integrity and how to think correctly than how to calculate a company’s return on capital.

Financial Independence
One of the reasons that Buffett and Munger appeal to me is that their primary motivation for doing what they do is not simply to be rich, it is to to be independent. Here’s a quote from Buffett on why he wanted to make money: [Read more...]

How To Retire Early and Live Well With Less Than A Million Dollars [Book Review]

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I enjoy reading older books about early retirement; I seek to learn from their experiences, but I also look for ways in that their perspective is colored by their own time period. For instance, a book written in the 80s1 – an era of high inflation – would likely assumed that interest rates would be moderately high forever, at least in the 5% range. The tendency to extend recent trends into the future is unavoidable, and something you should consider when reading or making forecasts today.

This is a review of How To Retire Early and Live Well With Less Than A Million Dollars by Gillette Edmunds, a book published in 2000 that was recommended to me by a reader. Edmunds was a former tax attorney and financial journalist who retired in 1981 at age 29.

Unreasonably High Expected Returns
Remember that for both the 1980s and the 1990s, the average annualized total return of the S&P 500 for both decades was around 18% a year. Imagine two decades of such returns, all before the dot-com bust and the housing bust. Edmunds retiring in 1981 turned out to be some of the luckiest timing possible. As a result, a major criticism of this book is the continued expectation of high stock returns going forward. The quoted excerpts below are taken verbatim from the book:

  • Can you retire today? His answer is that “most middle-class Americans, including me, could live comfortably on the investment returns from $500,000.” Perhaps, but with currently-accepted safe withdrawal rates of 3-4%, this would only create $15,000 to $20,000 a year in income. Instead, the book promotes withdrawals rate of 8-10%, which would have left many nest eggs completely wiped out from 2000 to 2010.
  • “An average, educated, experienced investor can reasonably expect to make 10% a year for life.”
  • “Anyone should be able to produce a 7.75% return.”

I bet these assumptions sounded reasonable, perhaps even conservative, in 2000 but they are just bad jokes today.

Owning Non-Correlated Asset Classes
Edmunds tells us not to time the markets, ride out temporary market drops, and to maintain low investment costs. He advises you to hold a variety of “non-correlated” asset classes such as:

  • Real Estate
  • Foreign Stocks
  • US Large Stocks
  • US Small Stocks
  • Emerging Markets Stocks

Edmunds believes that these asset classes are on different business cycles. When one is going up, the other is going down. However, I don’t like the term “non-correlated”, as very few asset classes have negative correlations these days. Low or minimally correlated is a better term. As we saw in the recent financial crisis, when the poo hits the fan correlations can go back to 1 (everything goes down together). However, I agree with the general asset allocation advice of holding different asset classes with minimal correlations. He counts as an early proponent of not holding too much in US stocks (no more than 1/3rd of total portfolio), and an equal amount in foreign stocks (also use for 1/3rd of your portfolio).

I did have an issue with the lack of supporting evidence as to why these assets and not others, as we only get weak arguments like “after owning bonds for about five years, I realized that a portfolio of five different high-return asset classes that excluded bonds had both high predictability and high returns”. I’m sorry, but making a conclusion to stop holding bonds after 5 years of data is just plain bad advice and makes him come off as egotistical.

He ends the book with a philosophical epilogue with the usual “money isn’t everything, enjoy life with family and friends” material. I don’t mean to belittle the importance of this factor, just that I didn’t really learn anything new from it. He does come off as well-intentioned and talks about the effect of his divorce. Despite its flaws, I found this book worth the read as it encompasses the overall philosophy of one person who had been successfully retired for 20 years. Just remember he had a very strong tailwind of high returns, and adjust your own expectations accordingly.

Other “early retirement” books that I’ve reviewed:

The (Next) Big Short: Current Investments of Michael Burry and Steve Eisman

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I’ve read parts of The Big Short by Michael Lewis before, but finally re-read the entire thing over the weekend. If you are unfamiliar with this bestseller, it tells the story of the housing bubble through the viewpoint of investors who saw the crisis coming and bet big money on the collapse of subprime mortgages. Lewis portrays these guys as almost heroes, courageous individuals from smaller hedge funds that went against the commonly-held beliefs of the big firms on Wall Street.

Instead of writing the 8,449th review of this book, my question was – what are these characters betting against now? Now, this doesn’t necessarily mean I think they’ll be right, but I’m still curious.

Michael Burry, Scion Capital
Burry no longer accepts money from outside investors (he doesn’t need to), but still invests at Scion Capital using his own money. He doesn’t write a blog or release his recent letters to shareholders to the public, except for a few old ones. He did make a April 2011 lecture at his alma mater Vanderbilt University entitled Missteps to Mayhem where he sees continued problems with the government printing too much money and not tackling our current fiscal problems.

The government’s borrowing of money for the purpose of injecting cash into society, bailing out banks, brokers, and consumers, is a short-sighted, easy decision for a population that has not yet learned that short-sighted and easy strategies are the route to long-term ruin.

He ends his speech with the ominous advice “All that said, I might suggest opening a retail banking account in Canada.” I’m not even sure that’s possible to do as a U.S. citizen… is it?

From this complete transcript of a September 2010 interview with Bloomberg, he states that he believes that “productive agricultural land with water on site is — will be very valuable in the future”, he is bullish on gold due to currency debasement, but he doesn’t have a good feel for the timing of things as it could take a while to play out.

Steve Eisman, FrontPoint Partners
Eisman left FrontPoint in June 2011 and is reported to start his own hedge fund Emrys Partners in 2012. He has gotten the most publicity in recent years for shorting the stocks of certain for-profit colleges taking advantage of easy credit from government student loans. Basically, people who can’t get into traditional colleges are pitched a great future and convinced to take out large amounts of debt that they can’t pay back, all so these pseudo-accredited colleges can profit. Sound familiar? From a 2010 conference speech:

Until recently, I thought that there would never again be an opportunity to be involved with an industry as socially destructive and morally bankrupt as the subprime mortgage industry. I was wrong. The for-profit education industry has proven equal to the task. [...] This is similar to the subprime mortgage sector in that the subprime originators bore far less risk than the investors in their mortgage paper.

I also looked for information on Charles Ledley and James Mai of Cornwall Capital, but really didn’t come up with much. They have a website, but there is nothing to see for the public.

Cashing in on the American Dream: How To Retire at 35 by Paul Terhorst (Book Review)

How To Retire at 35 Banner

One of classic books on many early-retirement reading lists is Cashing in on the American Dream: How To Retire at 35 by Paul Terhorst. However, this book was published in 1988 and has been out-of-print for a while. Luckily, I noticed that there were several used copies available on Amazon for $0.01 + 3.99 shipping (or $4 with free shipping) and grabbed one.

Author Background
Terhorst earned his money as an accountant, making partner at a major accounting firm in his early 30s. He retired in 1984 at age 35 with a nest egg of around $400,000. He and his wife Vicki (no children) refer to themselves now as “perpetual travelers”. He wrote this book in a era before the internet became popular – imagine how hard it would be to gather information on this topic back then, limited to early BBS chat boards or snail-mail newsletters. Sometimes I take for granted how easily we can share and discuss information today.

Paul and Vicki used to have a Geocities page that is now defunct, but they still occasionally write travel articles and it looks they have a small internet presence here.

Implementation: Managing Expenses
The basic retirement plan in the book is to spend no more than $50 a day = $18,000 a year (1988). Adjusting with the Consumer Price Index, this would be around $33,000 a year in 2010 dollars. However, personal inflation does not necessarily match the CPI, and they reportedly still manage on $50 a day as recently as 2003.

A major part of lowering your expenses is to avoid living somewhere expensive. Realize that the most expensive cities in the US are up there with the most expensive cities in the entire world! When you’re retired, you can live anywhere. The book includes several example of smaller cities in the southern US with temperate climates, lots of things to do, and a proximity to a major city and airport. They also support living close to the center of these smaller cities, using public transportation, and not owning a car – another big source of savings.

In addition, the author is a strong proponent of spending a good chunk of your time in foreign countries where a dollar goes a lot further. Latin America (Argentina) and Southeast Asia (Thailand) are places where they have lived. The key is to “live like a native, not like a tourist”. Don’t stay in hotels or live in gated communities made for expats. If the natives live on $10,000 a year, you should be very comfortable at $20,000 a year.

They pay for health care with cash in the same foreign countries, which offer quality care at much lower prices than in the US. The rest of the frugal-living advice is pretty standard. Prioritize your spending, cut out the excess consumerism, etc.

Implementation: Creating Investment Income
Investment advice is often referred to as the weakest part of this book. You have to realize that the 1980s were a completely different financial environment. With high inflation, you could buy FDIC-insured CDs paying 8% interest annually. Thus, he recommended liquidating all your assets to cash, including selling your home, and then build a CD ladder creating 8% income. Obviously, this is not an option today. But if you take a step back, you’ll see that the basic premise is that you should never take on any more risk than you need.

It’s hard to find any updated investment advice from Terhorst, but it appears like they are still happily retired and don’t worry about money much. If they needed money, you’d think they’d republish their book. :) I did find this 2003 Kiplinger’s Personal Finance article which provided some insight:

…they began to move their money into stocks – mostly low-cost index funds – when interest rates declined in 1992. Now they have 40% of their portfolio in large- and small-cap stocks, 40% in natural resources companies (oil, gold, platinum), and the rest in money market accounts. [...] Their assets now total more than $1 million

These days, I pose that a more realistic early retirement portfolio might be 50% dividend stocks and 50% investment-grade bonds paying out a 3% yield that will keep up with inflation overall. However, creating $33,000 a year would require $1,100,000. Creating $18,000 a year ($50/day) would require $600,000.

Implementation: Saving Up That Nest Egg
I think this area is actually the weakest part of the book. The advice is essentially work hard at your career and be a good company man. Do all the right things to get promotions and work your way up the ranks to management and upper management… until the day you bail out. This is what Terhorst did, and he doesn’t really explore any other options like starting your own business. I suppose the truth is that this method will work for many, but it’s not very satisfying.

Takeaways
The main lesson that I got from reading this book is that the concept of “early retirement” for everyday middle-class folks has been around and available for decades. However, most people today don’t seem to even know it’s an option. I guess it takes a special disposition to be unsatisfied enough with the normal 9-5 grind to do what it takes to get out of it. I’ve also realized that many people – good people! – are quite happy with working 40+ hours a week for 40+ weeks a year for 40+ years of their life. There are so many different ways to balance work, investment income, and spending to retire partially or retire early.. but first you just have realize that you have that option!

The Last Lecture: Legacy, Achieving Goals, and Gratitude

The Last Lecture Book

The late Randy Pausch became well known as a Carnegie Mellon professor who made a inspirational “last lecture” called Achieving Your Childhood Dreams (over 14 million views) after his diagnosis with pancreatic cancer. He later then wrote a book called The Last Lecture with Jeffrey Zaslow. As a former bestseller, you can now find copies on the cheap. It is a short and worthwhile motivational read. All the quotes are from the book.

Legacy

Time is all you have. And you may find one day that you have less than you think.

One of the things I think about a lot more these days is legacy. As a human, I think most of us have a desire to outwit our own mortality.

What wisdom would we impart to the world if we knew it was our last chance? If we had to vanish tomorrow, what would we want as our legacy?

I think children help fulfill that need, as they allow a chance for a part of us to live on forever. For him, the Last Lecture itself was a legacy project for his family so that his young kids would know him better when they grew up. He also talked about his professional legacy:

Now a computer science professor at Washington University in St. Louis, Caitlin (oops, I mean, Dr. Kelleher) is developing new systems that revolutionize how young girls get their first programming experiences. [...] (You can keep tabs on their progress at www.alice.org.) Through Alice, millions of kids are going to have incredible fun while learning something hard. They’ll develop skills that could help them achieve their dreams. If I have to die, I am comforted by having Alice as a professional legacy

So his legacy projects were three things: his family itself, something for his family, and something to leave the world a better place. I think this is good framework for creating my own legacy.

Achieving Goals
Now how did he achieve those childhood dreams, as well as his legacy goals? More or less it was just hard work and persistence. What stood out to me was the idea that some things should be hard to achieve, and if you get it anyway you should be proud of it. Time spent complaining is time wasted.

The brick walls are there for a reason. They’re not there to keep us out. The brick walls are there to give us a chance to show how badly we want something.

…The brick walls are there to stop the people who don’t want it badly enough. They’re there to stop the other people.

Gratitude
Pausch didn’t get there on his own, even with all the hard work. He showed gratitude to his parents, his wife, the professor that got him into grad school after he was rejected, his kids, and many other colleagues.

Michael Lewis’s New Book – Boomerang: Travels in the New Third World – Free Copy Online

Michael Lewis Boomerang Book

I’ve enjoyed every Michael Lewis book that I’ve read, from Liar’s Poker to Moneyball to The Blind Side. Reading his writing is as easy as listening to a great storyteller, making the most mundane subjects interesting. I’ve been hearing about his new book Boomerang: Travels in the New Third World, and was surprised learn from Felix Salmon of Reuters that the book is simply a collection of previously written articles from Vanity Fair magazine. Articles that are still available, for free, online!

I looked inside a copy of the book, and it’s true. Amazon reviews confirm it. The articles are the same, word for word. You can even read the only “new” thing, the Preface, online for free at Amazon since it’s the “free first chapter”. I don’t feel bad sharing this, since Vanity Fair paid Lewis good money to write these articles, put them up publicly with ads, and no doubt enjoy the traffic. So if you want to read Boomerang electronically, the Table of Contents of the book is below. I used Instapaper on my iPod Touch and read parts of them while waiting at the doctor’s office.

Preface: The Biggest Short – Amazon book page (“Read first chapter FREE”)

I. Wall Street on the Tundra – Iceland (Partial only, but Archive.org has the entire article. Thanks to reader Travis.)

II. And They Invented Math – Greece

III. Ireland’s Original Sin – Ireland

IV. The Secret Lives of Germans – Germany

V. Too Fat To Fly – California

Warning: Reading this book will make you some combination of scared, angry, and depressed. I’ve only read the Preface, Greece, and California chapters, and I’m already seriously thinking of buying some gold and guns to join my food hoard. I remind myself that Lewis is a gifted storyteller, but some people still disagree with they see as oversimplification and broad stereotyping of cultures. But just going by the hard numbers given, I’m still worried.

* Update: The Iceland article has been changed to only a partial stub at VanityFair.com, pushing you to buy the book “The Hangover” to read the rest. Interesting, the same article recycled in two separate books. The rest of the articles are still up, but I’d print to PDF or similar in case they change them as well. The Iceland article was free to read for years before this book came out, so it’s still out there if you look hard enough. Update 2: A couple of astute readers found saved versions. I recommend visiting this Archive.org link and saving it quickly.

Cheap: The High Cost of Discount Culture [Book Review]

Cheap: The High Cost of Discount Culture by Ellen Ruppel Shell covers a wide variety of topics, but the main idea I got from reading it, was that we are too focused on price, and not enough on value. We have shifted from quality, durability, and craftsmanship towards quantity at the lowest possible price. I previously wrote about how it’s harder to judge quality these days as it relates to Coach Outlet stores. Next time you buy something, think about what you actually know about who made the product, the materials or ingredients used, and how long it will last before you have to buy another one.

Thanks to globalization and a relentless pursuit of efficiency, we now have $1 chicken sandwiches, $5 toasters, and $10 IKEA coffee tables. That saves us money, right? However, also notice that it’s often the crap in our lives that gets a bit cheaper. The real essentials – rent, education, healthcare, gas, never seem to get less expensive. On top of that household wages are stagnant, partially because all the jobs making stuff have gone to the countries with cheapest labor before our workforce has had a chance to learn to do something else. Look at the current unemployment rate. So are we really coming out ahead?

The book includes an interesting history of the evolution of retailing and the creation of the discount superstore. There was a time before Wal-mart when small shops sold specialized products through educated salespeople. Now, everything is propelled by mass advertising everywhere, followed by do-it-yourself shopping. Now, I personally like reading tons of peer reviews on Amazon before buying a product, but you have to admit that the genius of a store like IKEA is that so much of the cost is shifted onto the consumer. We load up the huge boxes onto a shopping cart ourselves, cram it into our car, drive it back home (paying for the gas), and build it ourselves with hours of labor.

There is also the interweaving of behavioral economics topics you may be familiar with by academics like Daniel Kahneman and Dan Ariely. For example, you probably get excited when you buy something marked down 60% at the mall. We’re all genetically wired to get hyped up for that, so it’s not surprising. Well, these days basically everything is marked down. Only 20% of department store merchandise is actually sold at full price. If everyone is getting the same “deal”, is it still a deal or just manipulation?

On a related note, discount stores often tout “everyday low prices”, but they really just try to compete hard on things that we buy most frequently and are most familiar with. Wal-mart actually has higher than average prices on about 1/3rd of its inventory. On the items for which prices are lower, the savings is 37 cents, with about 1/3rd of items carrying a savings of no more than 2 cents. The loss leaders draw us in and make us feel like we’re saving money, but the other things we toss in our basket make the profit.

Although some of these trends are unlikely to be reversed, we should remember that it’s not all about the price tag. An example of how things “should” work is the grocery store Wegman’s, which I am not familiar with but sounds a lot like Trader Joe’s on the West Coast. Locally-sourced products, good wages and benefits for employees, and good service create an atmosphere that is not solely focused on price (although it is still an important component).

Book Review: Explore TIPS, A Guide To Buying Inflation-Linked Bonds

Explore Tips Book

No, this not another book on gratuities and service workers. In the investing world, TIPS stands for Treasury Inflation-Protected Securities, which are bonds issued by the US government that pay interest which is linked to inflation. Inflation is measured by the Consumer Price Index (CPI).

As a greatly simplified example, if you bought a TIPS bond with a real yield of 2% and inflation ends up at 3%, your return would be 5%. If inflation later on jumps to 8%, your return would be then 10%. Most bonds are what we call nominal bonds. They pay a certain interest rate like 5%, regardless of what inflation is. Thus, having such inflation-linkage provides protection against inflation that is higher than expected.

These are just the basics. A cynic would tell you that you don’t hear much about TIPS because they don’t make Wall Street very much money. However, I think they are a critical component of my portfolio. So how should you go about buying them? Enter the book Explore TIPS by the anonymous blogger and former guest poster The Finance Buff. For example, it will show you how to navigate the many different ways you can buy TIPS:

  1. Via a mutual fund or ETF like VIPSX or TIP
  2. Via an official auction through TreasuryDirect or a broker
  3. Via the secondary market, through a broker

As with many things, buying them directly gives you more control, but less convenience. The good thing is that like Treasury bonds, holding a single bond has the same credit risk as holding 100 of them. However, you’ll need to understand things like noncompetitive bids (actually a good thing), yield-to-maturity, and inflation factors.

Even though it’s only about 100 pages long, Explore TIPS definitely comes through as its tagline promises: “A Practical Guide to Investing in Treasury Inflation-Protected Securities”. It may take a while to get through… even I don’t get excited about reading about bonds. Well, maybe a little. ;) Now, you could probably learn most of this stuff on your own if you spent all your time browsing investment forums and the Treasury website, but this tidy reference book will save you loads of time. On Amazon it currently runs $11.96, but you can buy the PDF version for $4.95.

Book Review: Early Retirement Extreme

Early Retirement Extreme Book

Earn more, or spend less. That’s what you have to do in achieve financially independence. My own philosophy has been to try and earn more than average, perhaps look about average to casual observers, and spend below average. Now, what if instead you earned about average, but spent way, way below average?

Various studies have shown that with a portfolio of about 60% stocks/40% bonds, you can withdraw 3-4% of your portfolio value each year (inflation-adjusted) and have a 95%+ chance that your money will last a lifetime. Using a 4% rate, that means to retire, you’ll need to save up 25 times your expenses. So if you spend $40,000 a year, you need $1,000,000. By that same math, if you only spend $8,000 a year, you only need $200,000 to retire.

Impossible, you say? Not to Jacob Lund Fisker, author of the book Early Retirement Extreme, who says he lives on about $10k a year and retired by 33. Extreme is a good word for it, though. In the US, the poverty line for a single person is $10,890; for a family of four is $22,350. But that’s how he can make the following claim about his book:

It’s possible to retire and live on invested savings after just five years of full-time work.

Five years?! No, I don’t think he’s crazy. I think it’s awesome that he presents such a different perspective, even if few others can achieve it. He observes that as humans we are more productive than ever, yet we work just as hard or harder than before. The opportunity for early retirement is definitely within grasp in this country.

So how do you manage to lower your expenses to such a level? You’ll likely need to alter your entire philosophy. Living a low-cost, self-sufficient lifestyle must be the end goal, not just a means to an end. If being financially free means driving fancy cars and eating at a new restaurant every night, this will not work for you.

Being Fisker’s ideal “Renaissance man” means going back to when people were mostly generalists (proficient at many things) instead of specialists (exceptional at one thing and outsourcing everything else). It means buying stuff that last forever (high-quality shoes), and learning to fix stuff that doesn’t (darning your own socks). It means not using air conditioning and accepting that sweating also cools you off. It means being willing to bike/run/walk 5 miles to the store instead of jumping in a car. It means living in smaller, more efficient housing that should cost no more than $200-$350 per month per person. It means not paying $100,000 for a college education, but going to a trade school or apprenticeship instead.

Going back to the 4% withdrawal rate. Let’s say your cable bill is $40 a month. That means you would need to save up $12,000 solely to pay for your ongoing cable bill. Is cable TV worth $12,000? Maybe, maybe not. Now do this for all your expenses.

Investing philosophy. Fisker does not like “Buy and Hold” or even low-cost index funds as an investment strategy. However, he does not offer up a satisfying alternative. There are some vague references about how if you devote some time to learning about investments, you’ll be able to earn much better returns. After gathering up clues from the book and his blog, I can only guess that he focuses high dividend stocks that have a very small market cap and thus avoid Wall Street analyst attention (a less efficient market). He doesn’t share actual holdings, so we are unable to follow along or track returns.

Conclusion

Jacob is a Physics PhD and this book is written like a scientific paper or textbook. The text is small, the information is densely packed in, there are lots of footnotes, and it was even written with LaTeX. Much of the same material is available from Jacob’s blog at EarlyRetirementExtreme.com. I recommend reading the archives chronologically from the beginning, especially now because there are few new articles (most are simply randomized re-posts of his old ones and it can get confusing).

In the end, I enjoyed reading this book primarily because it is so “extreme” and thus different from any other book on my nightstand. Even if you don’t adopt his philosophy entirely, it will hopefully make you question some of your current choices. I feel that we need more insight on this side of the spectrum, as opposed to all the attention on the “I sold my company to Google and made a bajillion dollars that’s how I retired early” folks.

Book Review: SuperFreakonomics – Economics Lessons

Super Freakonomics Book

Super Freakonomics is the follow-up to the 2005 bestseller, Freakonomics by Levitt and Dubner. This review will not be a summary of all the stories inside, although they are indeed entertaining. Given that they compare Santas and prostitutes, you quickly realize this is no economics textbook. However, I think both books should be required reading for high school students anyway because they teach that economics isn’t just about supply-and-demand curves. Economics is really about how people respond to incentives.

One main lesson is that sometimes you can’t clearly see what incentives people are responding to. When you think it’s just about money, it often isn’t. People respond to the need for sex, praise, love and the desire to avoid shame, judgment, and criticism. For example, why do people give to charity? It’s not just to help others. We do it for the tax break, for recognition in a newsletter or on a plaque, to feel better about ourselves, to avoid guilt, to help guarantee a spot in the afterlife, or simply because somebody important or attractive asked us to.

Or when you think it shouldn’t be about money, it actually is. Not very many people in the U.S. consent to organ donation, even though it could directly save countless lives. Iran compensates people for kidney donations, something that is considered unethical in the U.S. Remember, most people have two kidneys, and can live with one. How many lives could letting money play into this save?

Another worthwhile lesson is to watch out for unforeseen consequences. Here’s another example. The feminist movement resulted in dumber schoolchildren. Early in the last century, teaching was one of the few jobs available to women that didn’t involve cleaning, cooking, or other menial labor. In 1940, 55% of all college-educated females workers in their early 30s were employed as teachers.

As more and more women entered the fields of law, medicine, finance, science, and so on, resulted in a “brain drain” for schoolteachers. There are many excellent teachers still today, but according to cited research the overall teacher skill level and quality of instruction has declined over time. Between 1967 and 1980, U.S. test scores fell by the equivalent of about 1.25 grade levels.

If you liked Freakonomics, you’ll probably like this book. You have to read carefully to separate what “the research says” and the authors’ theories as to the actual reasons why. Again, there weren’t any direct applications to personal finance inside, other than perhaps showing us how pimps provide more value than Realtors. Their chapter on global warming was especially controversial. It’s been out for a while, so it should be easy to find at your local library, and used copies can be found at Half.com or Amazon for about $2 + shipping.

Book Review: Rework by Fried and Hansson of 37Signals

Rework is a book written by the founders of 37Signals, a company that makes online collaboration software like BaseCamp. They also write about running small businesses on their blog Signal vs. Noise. It is readily admitted that this book is a condensed and tightly edited version of topics from their blog. I don’t read their blog regularly, but had heard of it when I came across this book while browsing inside Barnes & Noble.

This is a short book with a casual writing style, complete with about 60 “chapters” that read just like blog posts. Many of the posts chapters make it a point to contradict common “rules” within the entrepreneurial and/or MBA-driven world. Here are few overall ideas that I noted, which the authors support with their own experiences.

  • Don’t learn from your mistakes. Learn from your successes.
  • Don’t make your business big. Small is okay.
  • Don’t do surveys or market research. Make something you would want to use.
  • Don’t wait for perfect to launch. Just make a decision and correct course as needed.
  • Don’t make your product do everything, especially if it means you’ll have to do it half-ass. Make it do important things, well.
  • Don’t hire based on GPAs or degrees. 90% of Fortune 500 CEOs did not come from an Ivy League for undergrad. The most common undergraduate school among them? University of Wisconsin.

I don’t use any of the 37Signals products, but they have their own niche, and they make what seems like good money at it. I believe their target sweet spot is for people who are self-employed or wish to work in a small but passionate small business that has no intentions of hiring 500+ employees or filing for IPO. This book is not for those with Facebook or Twitter-like aspirations, but if you’re trying for something smaller, I would recommend reading this book.

Book Review: The 4-Hour Workweek Expanded Edition

I recently finished re-reading the updated edition of the popular book The 4-Hour Workweek by Tim Ferriss. I read it quickly when it first came out in 2007 or so, but this time I think was more ready for the message.

In the last lifestyle book I read, The Art of Non-Conformity, the goal was to find a convergence between your work and your passion. Ferriss goes the opposite way and clearly separates them. Forget “dream job”, matching your true dreams with a job is too hard for most people. Instead, the ideal job is the one that gives you enough money in exchange for the least amount of time. Now you can pursue your dreams.

This is a critical difference. The overarching goal is now to create automated income and free up time.

Highlights & Notes

Motivation and getting started. The timing will never be just right. Just go for it and correct course as needed. The price of failure is often low, while the price of never trying is often high.

Creating your own income. Includes various ideas on starting your own business with the goal of high income and low time commitment. Resell someone else’s products. License a product. Create your own product. Physical objects are okay, but informational products are even better if you can pull it off. Ferriss himself made his first big money by selling nutritional supplements using ads in magazines. (Not exactly a product to be proud of, which I guess fits into his point above. Good thing he’s great at marketing.)

Shifting from 9-5. Let’s say you don’t want to quit your current job yet. The goal is again to separate work from time. If you can do the work that you spread out over 40 cubicle hours in just 20 hours at home, that will create a lot of free time for you to start that side business. For some, this may be enough to start pursuing your other dreams. Detailed instructions on how to negotiate a remote-working arrangement, starting with a two-week trial and reaching a full-time remote situation.

Time management. As said elsewhere, it’s critical to stop wasting your time and energy on things are really aren’t important. Being busy is not necessarily the same as being productive. Cut out interruptions, stop time-wasters like checking e-mail all the time, and batch tasks together.

Have others work for you. Hire virtual assistants from India. They aren’t just drones, if you teach them a system and allow them to use their own discretion, they can really remove a lot of your workload. Outsource whatever you can, remember that you’re not trying just to maximize profit.

What if I actually succeed? How will you spend your time? Instead of the potentially vague pursuit of “happiness”, he asks why not simply pursue what excites you and makes you feel alive. Ferriss enjoys “mini-retirements” where he does long-term international traveling. People also tend to find satisfaction with tasks that require continuously learning and/or include helping others.

Recap

Even though sometimes I have the urge to go against popular opinion, especially when the author’s primary skill seems to be marketing, I have to say that I really enjoyed reading this book. For me, it provided a good balance of big picture theory and practical advice. As with any book of this type, 99% of the readers won’t be able to actually attain a 4-hour workweek. But in return for ten bucks and a few nights of reading, I definitely felt I got good value.

I would recommend anyone who has the entrepreneurial urge to read this book, and I’m keeping my copy around because the included companies and links are useful for future reference.