Buffett & Munger Wealth of Wisdom on CNBC: Full Video and Transcript

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Update: Apparently there was a lot of the interview that wasn’t shown in the CNBC video below, but is being released in a four part series on their podcast, Squawk Pod. Let me know if you find a transcript.

Original post:

For the Buffett and Munger fans out there, Becky Quick had another CNBC special interview with the pair about their longtime friendship and partnership, called Buffett & Munger: A Wealth of Wisdom on June 29th, 2021. Thankfully, you can watch the full video online and/or read the full text transcript.

All in all, this interview didn’t offer a lot of new insights if you already listened to the 2021 Berkshire Hathaway shareholder meeting and 2021 Daily Journal shareholder meeting (Robinhood still promotes gambling and Bitcoin is still a delusion), but it did provide a little more background into their personal histories.

Here is my single favorite quote from the interview (emphasis mine):

BUFFETT: And we’re still doing it, yeah. We made a lot of money. But what we really wanted was independence. And we have had the ability since pretty much a little after we met financially we could associate with people who we wanted to associate with. And if we had, if we associated with jerks, that was our problem. But we didn’t have to. We’ve had that luxury now for, you know, 60 years or close to it. And, and that beats 25-room houses and, you know, six cars or that stuff is, what really is great is if you can do what you want to do in life and associate with the people you want to associate with in life. And, now, it, it’s and, and we both had that, that spirit all the way through.

These two friends may be famous because they are rich, but they are happy because they are able to spend their time with people that they enjoy.

Buffett and Munger explicitly wanted to get rich, so they could be independent. True freedom is the ability to control how you spend your time. But that usually takes a certain amount of money, so we have the term “financial freedom”.

I think it’s okay to say “I want accumulate a lot of money for the next X months or years”, especially if you’re in debt. As Munger has also stated, the first $100,000 is the hardest. If you really want independence quickly, then you need to embrace some pain and sacrifice to earn your freedom. This is why I try not to criticize anyone taking “extreme” measures to improve their savings rate. Some people are willing to endure a very spartan lifestyle for independence sooner, while others aren’t, or they may have a higher income and not need to give up much.

At the same time, after reaching a certain level of financial stability, we then need to figure how what game we really want to play with our limited time on this planet, beyond simply buying more luxurious stuff. Buffett enjoyed the game of capital allocation and accumulating more dollars; that was his idea of fun. He even had a partner to play the game with him. For most people, I think continuing to make more money involves more stress and hard work.

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The Sweaty Startup: Think Small and Do NOT Pursue Your Passion

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How’s this for a different path to entrepreneurship: Don’t have fun. Don’t pursue your passion. Don’t try to change the world. This Medium article profiles Nick Huber, founder of The Sweaty Startup is basically the opposite of the Silicon Valley story that you see everywhere else:

“The Sweaty Startup,” on the other hand, is all about achievability: Create a service business. Do it better than competitors. Make a couple hundred thousand a year, work 40 hours a week or so, and leave plenty of time for family, friends, and hobbies. […] “It’s get-rich-slow,” says Huber, who cautions against following your passion when creating a business. “You gotta do something not-fun for five years to make this work.”

Why? It all comes down to competition. If it’s fun, the competition is too intense and as a result the margins will be too slim. You have to find the stuff that nobody else really wants to do, searching the “inefficient markets”, and do it better than the (limited) competition.

His point: there’s too much competition for the fun stuff — so go for the scut work. “People don’t want to hear this stuff,” Huber says.

“Let’s think about who’s making really good money by not being very good businessmen, and go compete with them.”

Not Fun = Good (Less Competition)

  • Plumbing
  • Pest Control
  • Lawn Care
  • Firewood delivery
  • Maid services
  • Water damage removal

Fun = Bad (Too Much Competition)

  • Smartphone App that goes viral
  • Bakery
  • Designing jewelry
  • Cute stuff on Etsy
  • YouTube/Instagram influencer
  • Life coaching

As with many things this is all easier said than done, but I’m sure some folks will happen to have the personality and knack for this type of thing – which is also perfectly compatible with financial independence. Create your own six-figure job, save a large percentage of it for years, and when you’re close to being done, the best part is that you also own a valuable asset. You can now sell that small business for a multiple of the annual revenue. (Compare this against a franchise, where if you don’t do it right, you are simply “buying a job”. Read this Hustle article about Subway franchises.)

I became curious about early retirement after I couldn’t think of any job where I’d say “Wow, I love doing this so much, I’ll work until I die”. Some people truly love their work. I know that now. However, other people are built to “suck it up” for a while and then get the heck out. With this concept, you can sell your job when you’re done, and sail off into the sunset.

My Money Blog has partnered with CardRatings and Credit-Land for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

Scott Galloway’s Algebra of Wealth (or: How To Become Rich)

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Scott Galloway shares in The Algebra of Wealth his thoughts on how to achieve financial security (be rich). You should read the entire thing, but the ingredients in his formula are Focus, Stoicism, Time, and Diversification. I’m only including a few notes and personal interpretations here.

Focus. If you want to get rich, you have consciously take action to make it happen. It rarely happens by accident. Look for a good wave to ride when you are young. Look carefully for the right life partner.

Successful people often unwittingly head fake young people with the humblebrags of “follow your passion” and “don’t think about money.” This is (mostly) bullshit. Achieving economic security requires hard work, talent, and a tremendous amount of focus on . . . money. Yes, some people’s genius will be a tsunami that overwhelms a lack of focus and discipline. Assume you are not that person.

Stoicism. Develop some self-discipline and character. Be generous and helpful to others. This will help you spend less money.

Determine what you can and can’t control. You can control your reactions to temptation — a lack of discipline is the antichrist to economic security. Our society of superabundance makes this difficult. Billions of dollars are spent every year on schemes to manipulate our natural impulses into spending more money, consuming more fat, and believing everyone around us is more successful than we are. The upgrade from economy to premium to business to first class to private jet can seem like an investment in yourself — it’s not. The most powerful forward-looking indicator of your financial freedom is not how much you earn, but how much you save.

Time. Steady improvements over time can supercharge your results. Don’t focus only on the short-term. As the saying goes, “Time in the market is more important than timing the market.”

Compounding is not just a financial thing. The most important returns in life come from the compounded effects of our investments over time, whether in our finances, careers, hobbies, or relationships.

Diversification. Never expose yourself to a fully catastrophic loss. Make sure you can walk away to fight another day. If you do it right, you only need to get rich once.

Diversification is the kevlar that protects you — with it, bad decisions will still hurt, but they won’t prove fatal. Diversification, in other words, is your bulletproof vest. […] That doesn’t mean I don’t look for opportunities that offer asymmetric upside — I do. I just don’t ever take off my kevlar. You don’t need to be a hero to get to economic security.

There is no simple step-by-step plan to become financially independent, otherwise everyone would be rich. Luck matters too, but working on all of these factors helps maintain maximum exposure to good luck.

My Money Blog has partnered with CardRatings and Credit-Land for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

PPP Updates For Self-Employed and Independent Contractors: Single-Page Forgiveness Form, 2nd Draw Applications Open

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Updated. There are many people who are eligible for 100% forgivable federal assistance from the Paycheck Protection Program, but aren’t applying for it, either due to misinformation or being discourage by all the bureacracy. Many PPP loan recipients are self-employed workers, sole proprietors, freelancers and/or independent contractors that file a Schedule C who may be eligible only for a modest amount, but that amount can still make a big difference. I am not an accountant nor a lawyer, but I encourage the (really) small businesses out there to get help if impacted by COVID. It’s not too late, and COVID isn’t over!

New focus on business with LESS than 20 employees. The Treasury Department just announced that businesses with more than 20 employees will be shut out of the PPP for a two-week period starting Wednesday, 2/24. In other words, only businesses with less than 20 employees can apply for PPP loans during the next two weeks. From ABC News:

In an attempt to improve equitable distribution of loans, administration officials said changes would also be aimed at helping sole proprietors, independent contractors and self-employed individuals to receive more financial support by revising the program’s funding formula.

PPP Round 2 loan applications now open. First of all, if you never took a PPP loan, you can still apply for a first-draw PPP loans under the more lenient first-draw eligibility rules. Second-draw PPP loans have a different set of eligibility rules, notably you need to show a reduction in revenue. If you are a self-employed worker with no other employees and have higher than a $100,000 net income (2019 IRS Form 1040 Schedule C line 31 or equivalent), then you must reduce it to $100,000. Here are the full SBA 2nd Draw guidelines. In terms of loan size, you can still get 2.5 times your average monthly net profit from 2019.

The next general hurdle is that you must show a 25% drop in income when comparing the same quarter in 2019 and 2020:

Applicant must demonstrate that gross receipts in any calendar quarter of 2020 were at least 25 percent lower than the same quarter of 2019. Alternatively, Applicants may compare annual gross receipts in 2020 with annual gross receipts in 2019 if they were in business in 2019.

Looking for a PPP lender? One problem is that most banks are restricting PPP applications to those with existing business credit relationships. Many freelancer and independent contractors don’t have that. The small-business fintech Fundera has an open PPP loan application (both for first and second-draw loans) to help freelancers and independent contractors find a lender without any no prior relationship.

Single-page form for PPP Round 1 loan forgiveness now available. If you have an existing loan under $150,000, there is now a single-page form that requires you to submit no additional documentation (it must still exist, of course, and they may ask you for it later if audited). That form, called the PPP Loan Forgiveness Application Form 3508S, has been released and lenders are starting to accept them. You may even be able to use the longer 24-week covered period and get more of your loan forgiven than with the previous 8-week period. (I haven’t heard of widespread final forgiveness being granted by the SBA yet.)

Looking for a self-employed or small business payroll provider? I want to mention Gusto here, as I use them for payroll and saw them create many tools this year to help their users satisfy the PPP documentation requirements and help them take advantage of this relief. If you are a single-person company, they have a basic tier that costs only $25 per month, which is much less than the major payroll providers. (You can also split up your direct deposit however you like, handy for various banking promotions.) Right now, referred user can get a $100 Visa gift card after running your first payroll with Gusto (my referral link).

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Eat and Run: On Moving Forward and Taking True Risks

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Scott Jurek is a well-known ultramarathoner that I first learned about in the book Born to Run (my highlights) by Christopher McDougall. Jurek later wrote his own memoir, titled Eat and Run: My Unlikely Journey to Ultramarathon Greatness. I’ll probably never have the physical and mental endurance to run 100 miles in a day. But perhaps I could learn how to push myself farther outside of my comfort zone?

As the title suggests, Jurek attributes much of his racing success to his plant-based diet. Some folks still claim that it’s too hard to get excellent nutrition just from plants, but Jurek’s performance is the perfect counterpoint. However, he isn’t overly preachy on the subject, and I appreciated that he sprinkled his favorite vegan recipes throughout the book. The few that I tried tasted pretty good.

He shares about his challenges as a child and teenager, and how that really shaped him. His mother was diagnosed with multiple sclerosis when he was very young, and he had to juggle the responsibilities of being head of his household by the time he was a teenager. In addition to schoolwork and sports, he had parenting and housework duties as well. Yet, he still managed to graduate as the valedictorian of his high school.

In my valedictory speech I said, “I would like to leave you with four messages to help you and others benefit from life.” (I still have the speech.) “First of all, I ask you to be different. “Second, find a way to help others rather than thinking solely of yourself. “Third, everyone is capable of achieving. Never let anyone discourage you when trying to pursue a goal or a dream. “And finally, do things while you’re young. Be sure to pursue your dreams and goals even if they seem impossible.”

He also learned that being physically able should not be taken for granted. He provides some simple, practical advice about taking up running as a beginner:

Running efficiently demands good technique, and running efficiently for 100 miles demands great technique. But the wonderful paradox of running is that getting started requires no technique. None at all. If you want to become a runner, get onto a trail, into the woods, or on a sidewalk or street and run. Go 50 yards if that’s all you can handle. Tomorrow, you can go farther. The activity itself will reconnect you with the joy and instinctual pleasure of moving. It will feel like child’s play, which it should be. Don’t worry about speed at first or even distance. In fact, go slow. That means 50 to 70 percent of your maximum effort. The best way to find that zone is to run with a friend and talk while you’re doing so. If you can’t talk, you’re running too fast and too hard.

On the importance of the journey:

We focus on something external to motivate us, but we need to remember that it’s the process of reaching for that prize—not the prize itself—that can bring us peace and joy. Life, as countless posters and bumper stickers rightly attest, is a journey, not a destination.

On finding your path over time:

It’s easy to get wrapped up in deadlines and debt, victory and loss. Friends squabble. Loved ones leave. People suffer. A 100-mile race—or a 5K, or a run around the block—won’t cure pain. A plate filled with guacamole and dinosaur kale will not deliver anyone from sorrow. But you can be transformed. Not overnight, but over time. Life is not a race. Neither is an ultramarathon, not really, even though it looks like one. There is no finish line. We strive toward a goal, and whether we achieve it or not is important, but it’s not what’s most important. What matters is how we move toward that goal. What’s crucial is the step we’re taking now, the step you’re taking now. Everyone follows a different path. Eating well and running free helped me find mine. It can help you find yours. You never know where that path might take you.

My favorite highlight – On paying respect to the true risk-takers. Jurek is known for staying at the finish line after winning an ultramarathon and cheering on every other single runner until the last one has crossed. Every single one! For an ultramarathon, this could be another several hours or longer. Here is part of his reasoning:

Every single one of us possesses the strength to attempt something he isn’t sure he can accomplish. It can be running a mile, or a 10K race, or 100 miles. It can be changing a career, losing 5 pounds, or telling someone you love her (or him). I can guarantee that no one at the Western States knew they were going to finish, much less win (including me). A lot of people never do something great with their lives. A lot of people never attempt it. Everyone here had done both. Staying at the finish line and greeting those runners, I could pay tribute to the pain and doubt, fatigue and hopelessness, that I imagined they had pushed through.

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Gamestop Takeaway: Taking Risks Can Pay Off, But Find Smarter Risks

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I’ve mostly ignored the Gamestop noise as I didn’t see any actionable takeaways, but then I saw this Reddit post conflating gambling winnings with paying off student loan debt.

This is the same as saying that you bet $10,000 on the Super Bowl, and then used the proceeds to pay off your student loans. The decision didn’t involve much skill, and you got lucky. You get credit for taking the risk, but is that really a newsworthy event?

Consider that if you bet $10,000 on red at a roulette table twice in a row and won both times, you could also turn $10,000 into $40,000. Simple! Every single person reading this has roughly a 1 in 4 chance (22.5%) of achieving the exact same feat (American roulette odds). You just have accept the 3 in 4 chance (77.5%) that you will lose your entire $10,000 and walk away with nothing.

For the most part, these were zero-effort, zero-sum bets. A few clicks, and there is a winner and loser. Last week was not about class warfare, it was just different traders betting against each other. Some average folks won big, others lost big. Some hedge funds lost big, but other hedge funds won big. Nobody “stuck it” to Wall Street! For every Robinhood screenshot that looks like this:

…there is a Robinhood screenshot that looks like this:

My concern is we will continue to see people make easy money (whether in Gamestop or another trade), and others will get sucked into this casino. Like a hot craps table, you want to join in the fun as well. When the market goes up, everyone looks like a skilled trader.

Risk-taking can pay off, but I prefer to search for smarter bets where the upside is huge, but the downside is small. Ones that involve investing a decent amount of time but only a little money. Ones where your personal qualities tilt the odds more in your favor. This is still a risk because you might start a business and fail. You might interview for a promotion and get passed over this time. You might try be a landlord and get a really difficult tenant. You might pursue a specific degree and realize it’s not a good fit. You might ask someone out on a date and get rejected.

In the worst case, you gain valuable experience for later, dust yourself off, and try again. In the best case, you can gain a meaningful life and career (which then leads to financial freedom with a bit of planning). I try to remember that every day we “spend” our time somehow, and it’s a risk because we never get it back. Opening yourself up to the truly big wins is so much better than spending it on gambling (see above), video games, or dead-end jobs. Tell yourself to take good risks.

Here are two WSJ articles about people taking action despite the risks: In the Covid Economy, Laid-Off Employees Become New Entrepreneurs and Is It Insane to Start a Business During Coronavirus? Millions of Americans Don’t Think So. These types of articles are so much more interesting to me than anything about Gamestop.

My Money Blog has partnered with CardRatings and Credit-Land for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

Stimulus 2nd Round, Unemployment, FSA Changes, PPP Loans 2nd Draw

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I know I’m a bit late on this, but after reading several media articles, here again is my curated collection of highlights and perhaps overlooked items that might be worthy of additional research.

Second round of Economic Impact Payments. Many people have already received this direct deposited to their bank accounts, up to $600 per taxpayer ($1,200 for married filing joint) plus $600 per qualifying child under age 17. If have questions, try using the IRS Get My Payment tool.

The amount starts getting phased out at $75,000 AGI for most single filers and $150,000 AGI for most married joint filers. Here is a graphical chart per Tax Foundation:

If you made too much according to your 2019 income, but your income in 2020 was actually low enough, you will be able to claim the rebate when you file your taxes. If you qualified based on your 2019 AGI but your 2020 ended up too high, you get to keep the payment; there is no clawback.

Unemployment benefits expanded again. The new COVID-19 relief package extends certain unemployment benefit programs for 11 weeks, including an unemployment supplement of $300 a week for many people from December 26, 2020 to March 14, 2021. It also increases the maximum number of weeks of benefits to 50 from 39 for many people. Certain self-employed workers will also see an addition $100 per week benefit.

Charitable Deductions. In 2020, you were able to deduct $300 in charitable (cash-only) donations, even if you used the standard deductions. In 2021, this deduction was extended and increased to $300 for single and up to $600 for married filing joint, again even if you use the standard deduction.

Healthcare FSA, Dependent Care FSAs. If you didn’t use up all your “use-it-or-lose-it” FSA funds in 2020, the new law allows your employer the option of carrying over unused balances for an additional 12 months (through the end of 2021). For Dependent Care FSAs, the age limit was also increased from 12 to 13 (since those 2020 funds may have been for your former 12-year-old). Check with your HR department and/or benefits manager.

PPP Forgivable Loan, 2nd Draw. The new COVID-19 relief package clarifies that businesses can still deduct expenses paid with forgiven PPP loans. (Typically, forgiven debt is considered taxable income, but forgiven PPP loans are specifically marked as NOT taxable income.)

Certain small business owners can now apply for a second draw of forgivable PPP loans (up to $2 million). Applying for the first round does not prevent you from applying for the second round. Second-draw loans are limited to businesses with fewer than 300 employees and at least a 25 percent drop in gross receipts in a 2020 quarter compared to the same quarter in 2019. (If this is your first time taking a loan, there is no requirement for the drop in gross receipts.) Businesses taking a PPP loan may now also be eligible for the Employee Retention Tax Credit (ERTC).

Sources: WSJ Article, Tax Foundation, IRS.gov

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Flippa: Buy and Sell Digital Real Estate Like eCommerce Stores, Amazon Products

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Flipping, rehabbing, or rental residential real estate is a popular entrepreneurial activity, but I’ve always been more partial to digital real estate (websites). There are similarities in that anyone can enter the business as long as they are willing to learn quickly and put in the hours. Nobody gets a degree in “landlording”, just as nobody gets a degree in “digital marketing”. Everything is about results, not letters after names. Some own $500 websites, while others own $5,000,000 websites.

You can now also buy and sell digital properties via online marketplaces. I often spend idle moments browsing the email newsletter of the biggest one, Flippa.com, and realized that a beginner could learn a lot about the industry by just reading through the listings. The best way to learn is still to jump in and get your hands dirty, but seeing the inner details of all these properties will accelerate your education. How does their website valuation tool work? What are the ranges in terms of multiples of revenue? How do you verify traffic stats? By signing up for a free account, you can see the non-public listings as well. I’ve learned a lot more about the Amazon ecosystem myself.

Some people love to start websites from nothing and quickly sell them for $1,000 to $10,000. Others like to find a starter drop-shipping site or Amazon product with potential and improve it into a six-figure property. Others are just looking to build a portfolio of properties that creates a steady cashflow with minimal maintenance. The market is a lot more mature than when I was buying domains on small internet forums. Private equity funds and publicly-listed corporations are also increasingly in the game.

You should also know that digital properties are much more volatile in price. A condo in Manhattan, NY or a 4-plex in Portland, OR might double in price in the next 10 years, but it won’t go up 2,000% or drop by 95% either. They also vary widely in the ongoing work involved. Some require hardly any maintenance, while others require ongoing marketing campaigns and a team of independent contractors.

One of the pathways to wealth is to find an asset type that you have a passion for, instead of a consumer product. Some people get $1,000 and spend it on video games, a car modification, or some nice clothes. Others get a kick out of buying another share of BRK, JNJ, or VTI stock. Same for a downpayment toward a rental property, reinvesting into their own private business, or to improve or acquire a digital asset. You also end up increasing your knowledge in that industry, which is highly valuable on its own.

Disclosure: I did sign up to be an affiliate of Flippa, and will receive a commission if someone clicks and lists a site for sale, but not if you just sign up for an account to browse listings.

My Money Blog has partnered with CardRatings and Credit-Land for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

Skin in the Game: How Much Do You Have To Lose? (Book Notes)

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The central idea behind the book Skin in the Game: Hidden Asymmetries in Daily Life by Nassim Nicholas Taleb is simple. Never trust anyone without skin in the game. In the real world, behavior changes for the better when you have to pay a price for your mistakes. This is a very handy heuristic to apply in everyday life and applies in many areas. A good example of why we shouldn’t allow people to not have skin in the game is Bob Rubin:

The Bob Rubin trade? Robert Rubin, a former Secretary of the United States Treasury, one of those who sign their names on the banknote you just used to pay for coffee, collected more than $120 million in compensation from Citibank in the decade preceding the banking crash of 2008. When the bank, literally insolvent, was rescued by the taxpayer, he didn’t write any check—he invoked uncertainty as an excuse. Heads he wins, tails he shouts “Black Swan.”

If someone is giving you financial advice, don’t worry about what s/he “thinks”, ask them what they actually hold in their own portfolio. Sure, what is optimal for them may be different than what it optimal for your own situation, but at least put it out there and let the consumer decide. Predictions are cheap without real risk of loss/pain.

In case you are giving economic views: Don’t tell me what you “think,” just tell me what’s in your portfolio.

How much you truly “believe” in something can be manifested only through what you are willing to risk for it.

Conflicts of interest can be good, if it means skin in the game. Taleb argues that while many people think it is better for CNBC “experts” and/or journalists to not own the stocks or companies they talk about, it’s actually better that they do.

There are two types of “talking one’s book.” One consists of buying a stock because you like it, then commenting on it (and disclosing such ownership)—the most reliable advocate for a product is its user. Another is buying a stock so you can advertise the qualities of the company, then selling it, benefiting from the trumpeting—this is called market manipulation, and it is certainly a conflict of interest.

We removed the skin in the game of journalists in order to prevent market manipulation, thinking that it would be a net gain to society. The arguments in this book are that the former (market manipulation) and conflicts of interest are more benign than impunity for bad advice. The main reason, we will see, is that in the absence of skin in the game, journalists will imitate, to be safe, the opinion of other journalists, thus creating monoculture and collective mirages.

In general, skin in the game comes with conflict of interest. What I hope this book will do is show that the former is more important than the latter. There is no problem if people have a conflict of interest if it is congruous with downside risk for themselves.

Bureaucracy too often means NO skin in the game. We allow people elected for only a few years be allowed to bind all of us into agreements that last for decades. We should also look more closely at the former “civil servants” that conveniently land high-paying jobs soon after their terms are over.

Bureaucracy is a construction by which a person is conveniently separated from the consequences of his or her actions.

More critically, people with good lawyers can game regulations (or, as we will see, make it known that they hire former regulators, and overpay for them, which signals a prospective bribe to those currently in office). And of course regulations, once in, stay in, and even when they are proven absurd, politicians are afraid of repealing them, under pressure from those benefiting from them. Given that regulations are additive, we soon end up tangled in complicated rules that choke enterprise. They also choke life.

Employees have skin in the game, but perhaps not in a good way.

A company man is someone who feels that he has something huge to lose if he doesn’t behave as a company man—that is, he has skin in the game.

What matters isn’t what a person has or doesn’t have; it is what he or she is afraid of losing. […] The more you have to lose, the more fragile you are.

It is no secret that large corporations prefer people with families; those with downside risk are easier to own, particularly when they are choking under a large mortgage.

People whose survival depends on qualitative “job assessments” by someone of higher rank in an organization cannot be trusted for critical decisions.

How can you achieve true freedom?

Financial independence is another way to solve ethical dilemmas, but such independence is hard to ascertain: many seemingly independent people aren’t particularly so. While, in Aristotle’s days, a person of independent means was free to follow his conscience, this is no longer as common in modern days.

Intellectual and ethical freedom requires the absence of the skin of others in one’s game, which is why the free are so rare. I cannot possibly imagine the activist Ralph Nader, when he was the target of large motor companies, raising a family with 2.2 kids and a dog.

I have held for most of my (sort of) academic career no more than a quarter position. A quarter is enough to have somewhere to go, particularly when it rains in New York, without being emotionally socialized and losing intellectual independence for fear of missing a party or having to eat alone. But one (now “resigned”) department head one day came to me and emitted the warning: “Just as, when a businessman and author you are judged by other businessmen and authors, here as an academic you are judged by other academics. Life is about peer assessment.”

You can define a free person precisely as someone whose fate is not centrally or directly dependent on peer assessment.

Embrace taking some risk (those that don’t endanger your survival). Starting a business is one way.

Yes, take risk, and if you get rich (which is optional), spend your money generously on others. We need people to take (bounded) risks. The entire idea is to move the descendants of Homo sapiens away from the macro, away from abstract universal aims, away from the kind of social engineering that brings tail risks to society.

Doing business will always help (because it brings about economic activity without large-scale risky changes in the economy); institutions (like the aid industry) may help, but they are equally likely to harm (I am being optimistic; I am certain that except for a few most do end up harming). Courage (risk taking) is the highest virtue. We need entrepreneurs.

By definition, what works cannot be irrational; about every single person I know who has chronically failed in business shares that mental block, the failure to realize that if something stupid works (and makes money), it cannot be stupid.

A final summarizing quote:

Recall that skin in the game means that you do not pay attention to what people say, only to what they do, and to how much of their necks they are putting on the line. Let survival work its wonders.

My Money Blog has partnered with CardRatings and Credit-Land for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

The Warren Buffett Pilot Story: The Importance of Making a NOT To Do List

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Even before COVID, I hated that feeling at the end of the day that comes after running around but not being able to list anything accomplished. Here’s a helpful idea of what I call the story of Warren Buffett and his pilot. I’ve read a few different versions from various sources, and I honestly don’t even know any of them are true. This one is taken from the book Grit: The Power of Passion and Perseverance by Angela Duckworth:

Warren Buffett—the self-made multibillionaire whose personal wealth, acquired entirely within his own lifetime, is roughly twice the size of Harvard University’s endowment – reportedly gave his pilot a simple three-step process for prioritizing.

The story goes like this: Buffett turns to his faithful pilot and says that he must have dreams greater than flying Buffett around to where he needs to go. The pilot confesses that, yes, he does. And then Buffett takes him through three steps.

First, you write down a list of twenty-five career goals.

Second, you do some soul-searching and circle the five highest-priority goals. Just five.

Third, you take a good hard look at the twenty goals you didn’t circle. These you avoid at all costs. They’re what distract you; they eat away time and energy, taking your eye from the goals that matter more.

(Note that this is from a book about not giving up!)

Creating this list provides a clear yardstick at the end of each day. Did you make any progress towards your top 5 goals? Even a little progress makes the day seem well spent. A common problem is that not even knowing what those top 5 goals are.

However, equally if not more important is the second list. Instead of the ever-expanding To Do List, we need a NOT To Do List. In order to be truly productive, we need to be willing to focus on the most important things and not just ignore the unimportant things, but also ignore the simply not-quite-as important things. You only have a limited amount of time and energy (focus). As someone with completionist and perfectionist tendencies, this is hard!

Doing this properly means giving up on a good and respectable goal (at least temporarily). For example, I chose to give up pursuing rental properties and residential real estate. I also spend minimal time on Facebook/Twitter/Instagram, even though it can be useful for research, networking, and marketing. These might be near the top of someone else’s list, but just not high enough on my personal list. I still don’t feel like I have enough time, but it is nice to let go of feeling guilty about not doing something that other successful people do.

This concept can apply to many different areas of life. Money is finite as well, so we have budgeting. You should have two lists: What can you cut? Yes. But also, what do you love so much that you want to spend more on? Ideally, you now have a positive reason that motivates you to make that change.

Marie Kondo has created an entire brand in applying this to getting rid of your stuff. I don’t claim to grasp her ethos completely, but my take is that you can spend more money (and space and time) on the list of things that “brings you joy” if you get rid of the other list of things that “you don’t really need but still can’t seem to give away”. (Still working on this one too.)

My Money Blog has partnered with CardRatings and Credit-Land for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

Financial Independence Not As a Number, But Creating a Content Lifestyle

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If you’re reading this, then financial independence is probably a goal of yours. Yet, most people who accumulate a pile of money big enough to retire upon keep on working if they are able. Why? They may truly love their job and be willing to work for free, they may worry that they won’t have enough, they might decide they’d rather have nicer things, or they may simply not have fully considered a life after paid work.

The problem is that reaching your “Number” is like finally buying that big house or fancy car or 100,000th social media follower. There is never a point at which you can say “I’m here! I’ll be forever happy and satisfied from now on.” It is always tempting to keep reaching for more. As the saying goes: If all you care about is money, you’ll never have enough money. If all you care about is social prestige, you’ll never have enough social prestige. You are forever stuck on the hamster wheel.

The article Redefining Success So It Doesn’t Crush Your Soul touches on many concepts related to this puzzle.

It’s high time to redefine success. Success is not something that you reach—not something that is outside of yourself, just down the field. Success is creating a life you want to live in right now. The great tragedy, Fromm writes, is that “man misses the only satisfaction that can give him really happiness—the experience of the activity in the present moment—and chases after a phantom that leaves him disappointed as soon as he believes he has caught it—the illusory happiness called success.”

According to decades of psychological research, a successful life is one in which your basic needs for food, shelter, health care, and income are met and in which you have a sense of autonomy, mastery, and belonging. A life that is not about enduring means you can’t stand in order to reach ends you are supposed to want; but rather, about selecting pursuits based on how much you’ll enjoy the process of doing them.

Happiness is not a goal. It is a side effect of how you spend each day. Imagine a day where money is not limitless, but it also doesn’t matter to your wellbeing. You can pick to “work” on something you both enjoy and find meaningful, while also spending time with people you love. What would that look like? I completed a similar Dream Day activity in 2005, and the improved clarity definitely helped.

Starting out, I thought of financial independence as a race to a fixed goal. Track numbers, plot them on a chart. I’d work hard, save hard, reach my net worth target, and finally turn in my resignation letter and disappear.

Looking back, what worked better was a gradual transition between two versions of the same sustainable lifestyle. To build up your assets, you have to enjoy your daily process so you don’t burn out, while also maintaining a gap between your income and expenses. Invest that excess money into productive assets (building a private business, buying stock shares of public businesses, rental real estate, etc), and over time your choices expand. You can work the same job but less hours, work a different job with lower pay/lower stress, decline promotions, or simply do nothing (much rarer than you think). Part of this is the ability to be content with your non-work lifestyle and expenses. Life should just keep getting better and better, instead of you simply wanting more and more.

But it all starts with that work lifestyle, which requires something meaningful, moderately enjoyable, and pays well. Even with an aggressive savings rate, you’ll need to work for more than a decade, so invest money into yourself first! Get a job that is more interesting, more enjoyable, or just pays better. Use your money to take time off, switch to a entry-level job in a different industry, go back to school full-time, or spend nights and weekends working on new skills. Perhaps find a government-based job with a secure pension agreement if that fits you.

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I plan to advise my own kids to spend their 20s in this manner. Live cheaply and invest in yourself. An emergency fund is important, but after that – What are you willing to spend 80 hours a week doing? Take the job that opens up future opportunities. Work with a great mentor. Study hard and don’t settle until you finally get into your target professional school. Work 80 hours a week because you (and maybe your friends) are building a business from scratch. Take asymmetric risks with big upsides and minimal downsides. Find your joys, and don’t waste money on the rest.

I’m still working on improving my own daily routine. I look back onto my 20s as a special period because time felt so abundant before you have others to support (partners, kids, parents). Having dependents also makes it harder to take risks and change your life. These two factors help explain why life satisfaction is lowest in your 40s. Yet harder doesn’t mean impossible. My father went back to school in his 30s and didn’t finish his schooling until I was already 10 years old. I constantly remind myself that I will eventually think of today as “back when I was young”:

Bottom line. Financial independence is not simply a faraway number like accumulating $1,000,000 in 30 years. Most important is figuring out how to enjoy the process by creating a content lifestyle that is meaningful and aligned with your values so that saving regularly doesn’t feel like a constant struggle. You want life to keep getting even better as you go vs. simply wanting ever more.

My Money Blog has partnered with CardRatings and Credit-Land for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

Kneading Dough Podcast: Athletes Talk Openly About Money

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Another podcast that I discovered late is Kneading Dough, where famous athletes sit down and talk openly about their finances. Created by UNINTERRUPTED (founded by Lebron James and Maverick Carter) and sponsored by Chase, guests over the three seasons range from Lebron James to Serena Williams to Simone Biles. The description sounded similar to Celebrity Money Diaries.

Despite the old saying about death and taxes, studies show that personal finance is actually the most difficult topic for most Americans to discuss. But while most Americans aren’t comfortable revealing their finances, athletes’ money mistakes are splashed across newspapers and the internet.

Chase’s Kneading Dough series connects the money challenges of average people to the hard-earned lessons of pro athletes. In exclusive, one-on-one interviews, famous athletes discuss how they learned to budget responsibly, balance the needs of career and family, and prepare for retirement.

You can view all of the shorter video interviews on this YouTube playlist, but the podcast version includes the full unedited interviews.

In the end, these are often people who were not born into wealth, so I did find them relatable and enjoyed the casual conversational style. You hear straight from Lebron how he handled the fame and responsibility of becoming the family breadwinner at age 18 (and how other athletes handled huge windfalls and learned to manage their budgets), but also how one navigates the more modest WNBA max salary of $110,000 a year (now higher but the average player earns $130k). There are amusing moments like how Serena Williams tried to deposit her first million-dollar tournament check at the local bank drive-thru window, which the teller didn’t know how to handle.

My Money Blog has partnered with CardRatings and Credit-Land for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.