Three Things Matter in Your Twenties

[Instead of telling kids they can be anything they want to be]
Tell the kids the truth. You can be anything you’re good at…as long as they’re hiring.

And even then it helps to know somebody.

— Chris Rock, Tamborine (2018)

How irritating would it be if you clicked something suggesting only three things matter in the formative time of your adult life and you had to scroll far to find them? So, here they are:

  • getting good at something that people will want (expertise)
  • relationships
  • organization (two types)

By focusing on these (and saying no a lot) for a decade, you will likely have more options available to you on how you live the rest of your life than you would otherwise.

Characteristically, this post sat in the virtual garage for a while because I wanted the list to be concise. Travel, for instance, is highly valuable to personal development, but it feels awkward saying that it is one of the only things that matters. Your author has meal-prepped spinach smoothies (much to the aesthetic dismay of his coworkers) almost every week for 6 years, so I wanted to include health and fitness, but I also wanted to remain unbiased. Some people sacrifice health and fitness in their twenties to work, and those people may soon have the choice to eat wild salmon and ride bicycles from their 30th birthday on.

As the post gathered electronic dust, it occurred to me that if someone forced me to present this to a group of people beyond their twenties, these suggestions would only shift slightly (and I would have to add health). The two diagrams below show the suggestions for the two age groups (capital means wealth). The distinction is made between them because thinking about money is energy-consuming. Once you start thinking about it, and especially if you have to think about it, it is difficult to think about other things (like becoming a doctor). Further, organic (i.e. earned, non-inherited) wealth creation takes time, usually decades. If you want apples, planting apple trees is more fruitful (had to do it) than thinking about apples.

If you are in your twenties and you are not building relationships or getting good at something, you are likely wasting valuable time. Organization is a broad term. My original intent was to specifically suggest that we organize our thoughts — clearly labeling ideas and feelings in a structured way, equipping us to see gaps in our understanding and our motivations — but I realized that being organized generally (i.e. having your shit together) is beneficial in obvious and non-obvious ways. In fact, it is hard to focus on important things like relationships and developing expertise if you are disorganized.

Let’s look at each of these individually.

Expertise
An eternal tension exists between being a generalist and a specialist. I think about it directly or indirectly every day.

You do not want your dentist and your proctologist to be the same person. This is easy to say from the outside view, yet when it comes to ourselves, we generally like trying out different jobs and having other interests. Otherwise, life would be painfully dull. Plus, there are penalties for staying in our own narrow focus. Without a basic understanding of psychology, we are likely to get taken advantage of by advertisements and the major news outlets. Without a basic understanding of finance, we will have a hard time holding onto money. Without a basic understanding of math, we might play the lottery.

There are some notable examples of well-paid generalists (e.g. the best CEOs are by definition generalists). Having said that, nobody wants to pay extra for average. We pay premiums for expertise.

What do we do then?

My favorite solution to this intractable problem comes from British biologist Thomas Huxley who suggested we try to learn something about everything and everything about something.

If you want to test whether you have gotten good at something, see if you can write a primer for beginners.

Above, I said getting good at something that people will want because eventually you will need to be financially independent. How would you like to work your for ten years to become the best floppy disk repairman and find out no one values the set of skills you worked so hard for?

As long as there are people, there will always be wants. And as long as there are wants, there will always be problems. Fortunately for you, if you can give people what they want and solve their problems, they will often give you money. Remember in high school when they taught you how to do that? Me neither. That’s why I respect trade schools.

In high school, it seemed like an unspoken challenge to be able to barely study for tests and get good grades. It made sense as a strategy if you thought there was no point in learning the material because most tests in school involve rote memorization. Memorization is a low-value skill. Why? First, we have a million ways to document things that are better than human memory (e.g. pen and paper). But more importantly, you don’t solve new problems by memorizing facts and spitting them back up. You solve problems by understanding cause-and-effect relationships. When I was 23, my roommate doubted that I could memorize all of the presidents in one night, so naturally that was all the motivation I needed to memorize the presidents that night. That might have been cool for 10 minutes, but that told me nothing useful about presidents or politics.

If you do not have knowledge in a readily accessible or usable format, what do you have? You might have resourcefulness, but the further you get in any field, it might not be enough. Consider the difference between a quarterback who has memorized all the plays compared to one who goes a step further and knows when to call an audible. The quarterback most famous for this ability to anticipate what a defense is going to do then change the play accordingly is of course Peyton Manning. At that level, most quarterbacks are experts at throwing the ball and as far as speed goes, it isn’t guaranteed that Manning could beat Jonah Hill in a 40-yard dash, so his physique is unlikely responsible for him being one of the best of all time. It is his judgment, derived from a deep understanding of the game. There are no shortcuts to cultivating understanding, expertise, or good judgment. These are worthy pursuits in anything we choose to get good at.

Speaking of quarterbacks, regardless of their level of expertise, they literally cannot do their jobs without other people. Which leads us into…

Relationships
Certain words trigger contempt when you hear them in an advice context. Relationships is one of those for me, up there with positive thinking. The reason these get used too much is because they are true and they are open for interpretation. The reason for the contempt is because words alone are useless and people cannot do much with abstract concepts. Be a good friend and have a good attitude are meaningless, whereas, always return texts and calls and talk to your coworkers as respectfully as you would talk to your grandmother are actionable.

If everyone already talks about relationships, why am I? Because they are that important. When I left my first job, I realized what I cared about was who I could call if I needed them in the future, not what I learned. Wait, didn’t I just say that expertise is one of the only three things that matters? Yes. That’s how important relationships are.

We can put relationships into four categories:

  • Romantic
  • Family
  • Friendships
  • Professional network

On a snowboarding trip to Snowshoe in college, an embroidered list of life tips was hanging in the kitchen of our rental house. At the top it said 95% of your life’s happiness will depend on who you marry. I have been around a lot of married couples since then and I doubt any of them would argue with the embroidery. We went in-depth on that topic in The Millennial Marriage Manifesto.

Other than the relationship with your grandparents, the rest of your familial relationships will transition from necessary to optional. For instance, once they no longer have a say in what you do, your parents in a way stop being your parents and become more like an equal or friend. In some circumstances, at least one of them might become your best friend.

Romantic relationships are unique because you don’t get to pick who you fall in love with and attraction is complex. However, with friends, family, and your professional network, one question can take you a long way for the rest of your life: Are you reliable?

Are you there to pick your friend up from the airport? Can your customers rely on you to solve their problems?

The line between friends and “network” should be gray at worst. Borrowing a thought from Naval Ravikant, if you would not do business with someone for the rest of your life, do not ever do business with them. For many of us, that decision is outside of our control in the short term, but it can be a Northern Star, something to head towards in our career.

According to The Atlantic, it takes about 50 hours of socializing to go from acquaintance to casual friend, an additional 40 hours to become a ‘real’ friend, and a total of 200 hours to become a close friend. It takes about one week in the real world to realize how hard it is to find that much time for anything. That is one reason friends made after school will reflect more of your own traits & characteristics because you would never let yourself waste that much scarce time. This can serve as a perpetual personality mirror.

My high school football coach may or may not have known who Ralph Waldo Emerson was, but both men said, “What you do speaks so loudly I cannot hear what you are saying.” In all of your relationships, pay the most attention to actions.

Organization (Two Types)
More things are competing for our time and attention than ever. Focusing is harder than ever, too. This is why you must be organized and it is one reason why I choose to look at life as a design problem¹.

Type I (Getting Squared Away)
If you want to get technical, what we are talking about here is fighting entropy.

What is entropy? Your kitchen gets messy and disorganized which requires energy to clean it – that’s entropy. Everything in the world (and apparently universe!) is fighting this same battle, right now.

One of the wealthiest men in the United States (Munger) says, “It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.”

I would add simply being organized. I have watched business owners, who have expertise and good relationships, lose millions of dollars by being disorganized.

How is that possible?

Many businesses rely on banks for loans. In turn, the banks need reliable information about those businesses to make the loans. If the business owner makes plungers, she thinks everyone in the world already knows about plungers because without them, the world would be a crappy place to live. But everyone doesn’t know about plungers; she knows. She needs to be able to explain in a few sentences how the business makes money. She needs to be able to provide three years of accurate financial statements, tax returns, and her personal financial information in an electronic format. She needs to be able to explain why sales are plunging (okay I’ll stop).

The point is businesses have an enormous incentive to get these things right and have this type of information, which is seemingly obvious, yet they often do not. If businesses fail at doing this, individuals are at least as likely to make the same mistake.

You are going to want a lot of things, like an apartment or home. You are going to need to have check stubs, rental history, references, et cetera. Further, these things are going to depend on someone you don’t know saying yes to your request. If you want someone to say yes to anything, then you should make it as easy as possible for them to do so. They are not going to be able to say yes if you do not have the information they need to make the decision.

I am always looking for practical takeaways, so here are a few:

  • Pick a file-sharing site (e.g. Dropbox), create folders for the categories of your life (Auto, Medical, Housing, etc.), and keep everything important so you can easily access it. Bonus points if you have a system for naming files.
  • Create and maintain a personal budget with monthly cash flows in Excel.
  • Never pay a late fee for anything.
  • Get a whiteboard (it will help with Type I and Type II).

Type II (Waking Up)
You might have heard people say, “You don’t know anything when you come out of school.” How can they say that when you have spent your entire life presumably learning? One interpretation is that we are relatively unconscious of the workings of the world at that age because many of us have been insulated from parts of reality (e.g. growing up in the suburbs, the massive amount of raw information to be processed, etc.). A metaphor for gaining consciousness is waking up. I think of it as a combination of intellectual and emotional maturity and an existential ah-ha moment. From what I can tell, this is not inevitable, so it must be deliberately sought out, by paying attention and thinking.

If you do not organize your thoughts, you do not know what you really think or why you feel a certain way. There are many ways to do this. One of my favorites is writing because we don’t think in paragraphs and essays, we think in words and sentences. Without writing those thoughts down, they can disappear or trail off without cohesion. Putting them together in a way that makes sense takes work. That is why good writers are good thinkers.

Take superstition. If people say their superstitions aloud, they often get embarrassed because they sound ridiculous under scrutiny (e.g. Your team wins because of your lucky underwear? How?). You can do this with anything. If you are willing to go through this process, you will not only get to know yourself better and form more accurate perspectives, you will become more persuasive and be able to get more things done.

These two types of organization will help you think clearly and clear thinking is priceless.

As you can see, expertise, relationships and organization take time. You will find that habits are more important than motivation.

There are 521 weekends in any decade of your life, which may sound like a lot, but if you trust me on anything, trust me that this particular one goes by fast.

Don’t forget to have fun.


  1. Designing Your Life

Disclosure: Long DBX

The Most Important Question

So there’s an iron rule that just as you want to start getting worldly wisdom by asking why, why, why, in communicating with other people about everything, you want to include why, why, why. Even if it’s obvious, it’s wise to stick in the why.

— Charlie Munger

The most important question we can ask is Why?

Why?

Because answering it is how you figure stuff out and at the extreme, if we don’t figure stuff out we might die.

Okay that sounds awfully dramatic¹…Why?

Because everything humans have observed so far is governed by cause-and-effect relationships. For instance, we figured out very quickly that our bodies need food. All it takes is a few people dying of starvation to figure out that we better eat something; then a little trial-and-error (oops, not those berries).

Why?

Well, we want to stay alive.

Why?

To have babies that pass our genes along.

Why?

Boom. In five one-word questions we have hit the limit of the author’s understanding. We could have taken different routes, but would have likely ended up in the same place. What word or sentiment is more efficient and effective at doing that? The question does not guarantee the truth, but it at least illuminates the respondent’s logic, premises, and drives. If it does that, you are well on your way to the truth in any domain.

If this question is so powerful, why doesn’t everyone² ask it all the time?

I have an answer, but like anything else, go ahead and see for yourself*. My guess is you will find that people do not want to answer it. The truth about the truth is that it can get uncomfortable and people deeply dislike being uncomfortable. It is much easier to watch Jerry Springer than to ask To be or not to be?

In this light, it becomes painfully clear why at the exact same time it is both the best and worst question! It is extremely important, but no one wants to answer it.

This stuff sounds hard. Life would be sooooooooo much easier if we could pick something we can all agree on, like Winning! Everyone wants to win, right? Yes, but…

Y tho? 


* If you end up being brave enough to ask someone why a few times, share your experience here.

  1. Lightening it up a bit, per Munger’s quote, if you want to be a better communicator, boss, or parent, begin including the why when you say things. You might discover people are more willing to do what you ask them to do.
  2. Wait, what about kids! They ask it all the time. Why does that change? Generally, because of a combination of fear, social penalties and power. Big questions can be scary, no one likes a killjoy, and eventually an authority figure gets tired of having to answer it and finally uses power to shut down the dialogue (e.g. “Go to your room because I said so.”). These conditioned responses influence behavior over time.

Finance: Part 2 (Money, What Did You Expect?)

What’s the answer to 99 questions out of 100? Money. 

— Vanilla Sky (2001)

In Part 1, we used sushi to introduce the fundamentals of finance, namely the time value of money and the related concept of risk vs. reward. We talked about why we would discount expected cash flows from the future to figure out what they are worth to us today and the opposite process of projecting the value of money in the future (compounding).

We also said finance is related to everything, which is a bold claim, especially to those who, let’s just say, outsource their thinking on the subject and get along just fine. Therefore, from here we could go in an infinite number of directions (I will recommend some books and other resources below each post if you want to go down any of the many potential rabbit holes). We will try to build up from where we left off, (which ironically again means backing up), summarize topics that we can expand upon with dedicated posts or entire series later, and keep it easy to follow.

Coconut City 
Here is a grossly oversimplified explanation of what I mean when I say finance is related to everything: It starts with people (how quaint) and economics. For a long time now, people have been trading their goods (e.g. Prozac) and services (e.g. foot massages). People created money because at some point, the way I imagine it, in a place called Coconut City, one caveman wanted some comfortable moccasins and another wanted a cheeseburger (a week before the Original Paleo Diet caught on). The problem became quickly obvious: How many moccasins equal a cow? The cavemen both agreed that they needed an easier way of dividing things of value, because there was no way the bovine caveman was giving up an entire cow for a pair of shoes. We won’t even talk about how offended the cow would be if he was turned into a cheeseburger over one pair of moccasins.

So, the one with the shoes says, “Look, we have 100 coconuts laying around and we are 500 miles from an ocean (meaning I can’t make anymore coconuts). I will give you 100 coconuts for your cow and you give me 5 coconuts for the moccasins. You can use the remaining 95 to pay me to do your laundry, prepare your tax return, paint portraits of you, and so on.”

Discerning readers will want to unpack the above scenario (including the latent control and obligations represented in the coconut, the advantage of owning the cow, and what happens if the moccasin man decides he’s done folding clothes) which we will save for later. As the example hints, the reason you have heard of all sorts of things being used as money is because it is less important what it is and more important what it means (for our purposes here, let’s assume that money is roughly the same thing as currency).

Updating our scenario, the best modern explanation of a currency I have come across is something you would be okay getting paid your wages in and you would be comfortable paying your rent/mortgage/obligations in. The implication is that the people using it have to trust the value of it and the stability of that value. As long as we feel good about those, it doesn’t matter whether we use dollar bills, electronic dollar bills, or coconuts. Imagine if you did a month’s rent worth of work (say $1,500), then went to pay rent, and they said, “Oh sorry the value of the dollar dropped, so we are going to need $3,000.”

Connecting this to the example above, it would be like our caveman going to use his remaining coconuts and finding out someone snuck 100 new coconuts into their system. As everyone gradually figures this out, they now want 10 coconuts for moccasins and 200 for cows, and our original seller still only has his 95, which buys half as much as he was expecting when he made the trade. This is called inflation.

If you know any Venezuelans, this isn’t a hypothetical nightmare for them, this is happening. Here in the US, not immune to such possibilities and wishing to avoid similar inconveniences, we go to the trouble to make sure the word trust is on every coconut bill (economics meets psychology and sociology). This is not a coincidence. The implicit premise is: Trust us that we won’t “print” too much money and inflate its value away. (They have printed a couple trillion since 2008.)

Odds are, even before the butchered economics lesson above, you understood the theme: Money is important and we don’t want anyone messing with the value of it. The basic reason is because that we need things and it facilitates transactions of those things between people. Without it, we would get bogged down trying to compare values of unrelated things and it would take much longer to get anything done.

So, we have loosely defined money and we know from Part 1 that the recurring inflow of money is called cash flow. And if there is one thing I know, it’s that everyone likes the recurring inflow of money.

If everyone likes this stuff so much, why does it cause so much anxiety?

As it happened, the other people in our fictitious Coconut City liked the coconut-as-money concept¹, so once things were up and running, the cavemen started getting used to their cash flow. This brings us to another fundamental observation: people build their lives around assumptions and expectations. At the extreme, we assume the laws of physics remain the same from day to day — for instance, we take it for granted the sun will be up tomorrow. Although it sounds goofy to talk about it like that, you would not argue against the importance of the sun for very long. In fact, we could spend the rest of the day listing things that depend on the sun, but that’s not what we came here to do. So how does any of this relate to money and finance? All business, and thus finance, is based on expectations. We spend money on our debit or credit card based on expectations of how much money we have or will have. These expectations likely include Wells Fargo storing our electronic money safely and securely on its servers to relying on someone to give you the money they owe you. Businesses do the same thing.

Which leads us straight into one of the central insights of finance, neuroscience, and essentially anything human-related: When something you expect/depend on happening does not, it becomes the most important thing in the world. Have you ever walked into a public restroom expecting to take a normal breath of air when suddenly you were blindsided with a whiff of such a horrid combination of smells that your nose refused to inhale until the rest of your body escaped? That visceral disappointment is the same feeling an analyst somewhere gets when Apple sells 78 million iPhones instead of the 85 million he projected in his (financial) model. That is the same feeling a manager gets when his team fails to meet its sales goals. It is the feeling Elon Musk has right now with his Tesla Model 3 promises.

Effectively everyone has some form of cash flow that they are expecting and any time that number is less than what they have in mind, they feel like they have walked into that public restroom².

This intuition makes sense, but a surprising number of people do not think in these terms; therefore, if we do, we give ourselves an advantage in an important game.

We could keep going, but as they say, Rome wasn’t built in a two-part blog post. The Get-Rich-Quick type who might have found their way here based on the title might be disappointingly thinking, “WHERE’S THE MONEY LEBOWSKI!?”

We will get there eventually.


¹ You might think that taxing authorities are big fans of improvements in transparency and the ability to count things of value. They are.
² The author is designing his life to avoid both the metaphorical and literal interpretations of this scenario.

See also:
The Mysteries of Money (Venkatesh Rao’s cerebral series on money from his blog, ribbonfarm – the link is to the eBook)
US Debt Clock (interesting resource)

Finance: Part 1 (A Primer)

I’m glad I learned about parallelograms instead of how to do taxes. It’s really come in handy this parallelogram season.

— Sage Boggs, Twitter (2015)

A poet once said, “The whole universe is in a glass of wine.” We will probably never know in what sense he meant that, for poets do not write to be understood. But it is true that if we look at a glass of wine closely enough we see the entire universe. There are the things of physics: the twisting liquid which evaporates depending on the wind and weather, the reflections in the glass, and our imagination adds the atoms. The glass is a distillation of the Earth’s rocks, and in its composition we see the secrets of the universe’s age, and the evolution of stars. What strange arrays of chemicals are in the wine? How did they come to be? There are the ferments, the enzymes, the substrates, and the products. There in wine is found the great generalization: all life is fermentation. Nobody can discover the chemistry of wine without discovering, as did Louis Pasteur, the cause of much disease. How vivid is the claret, pressing its existence into the consciousness that watches it! If our small minds, for some convenience, divide this glass of wine, this universe, into parts — physics, biology, geology, astronomy, psychology, and so on — remember that nature does not know it! So let us put it all back together, not forgetting ultimately what it is for. Let it give us one more final pleasure: drink it and forget it all!

 Richard Feynman, American physicist (The Feynman Lectures on Physics, Vol. 1, Lecture 3, “The Relation of Physics to Other Sciences”)

Guac Loyalists! Thank you for your patience. Newcomers, welcome. Amidst my absence, someone who works in finance recently asked me if I could explain how the stock market works. I was shook. During a haircut later that day, I gripped the armrests nervously hoping my barber wouldn’t ask how scissors worked. Joking aside, if you have ever received (ten million) credit card offers in the mail, heard the word stock or bond, or want to avoid being the person digging food out of a trash can in a San Francisco mall food court wearing a zebra print outfit (true story), this is a topic that is worth your time and energy to at least understand the basics.

I value my readers’ time as much as my own and I want to save anything that is better suited for a Google search for Larry Page, so I kept this one in both my mental & electronic Draft folders for a long time. The parallelogram quote, like many other Tweets and memes, has a deep truth embedded in it, which made me realize that the majority of people bump into finance by necessity or on a one-off basis, instead of have it incorporated into their worldview. Whenever I started writing about the stock market to address the original question, I kept thinking: “Well before we can talk about that, we have to talk about this.” So let’s back up and do that.

Therefore, this post has two aims:

1) briefly explain how finance works in an intuitive and approachable way
2) broadly lay a financial & philosophical foundation to build off and serve as an easy self-contained reference for future discussions that may (realistically, will) involve markets, financial assets, and business

If you are a practitioner, feel free to either skip this one or use it as a refresher. If this is new to you, you can read it at any pace you choose. If you get it on your first try, you are ahead of the game.

The Main Concept

First, we start with some critical definitions. Finance is the management of money, which generally involves assets (things you own/control) and liabilities (things you owe). An asset is something of value that is expected to make money in the future. A few examples:

  • coffee machine (a tangible asset; makes coffee that you can sell in the future)
  • academic degree (an intangible or non-physical asset; signals you allegedly have the capability to do something an employer wants you to do, for which they would pay you)
  • Netflix’s content licenses (they pay someone for the right to show their content (unless they make it themselves), then charge us monthly fees to see it – they are betting that over time you and I pay them more than it costs them to buy it)
  • share of stock (an ownership interest in a business that entitles you to a share of the profits)

The value of every financial asset can ultimately be described by this formula:

Screen Shot 2018-07-06 at 10.57.19 AM

Simple enough right? Well, the first kink in the hose is that the top number, cash flow, is uncertain because it takes place in the future. Cash flow is money coming in and out of an entity. If you make $10,000 a month in cash and spend $9,000 of cash, your cash flow is $1,000 per month. Same goes for a business.

Next, you may be asking “WTF is a discount rate?” I promised we would be quick, but the time value of money is so important in finance that we have to make sure we get it before we move on.

The good news is you already know it, you just might use different words or think about it less formally.

A Dollar Today is Worth More [To You] Than A Dollar Tomorrow

Aesop’s Sushi: A tuna in-hand is worth two in the ocean. 

Suppose you have $100 and someone you know and trust (just enough) asks you for $100. You initially tell them to get lost because you’re going out for sushi tonight. But then, he/she/they sweetens the deal and says, “I’ll give you $110 tomorrow.” Now you’re interested because if you wait until tomorrow and he pays you back, not only can you get sushi, you can also get two coffees before brunch the following morning. The additional $10 is called interest and in this case it worked out to be 10% ($10 / $100). This is the part you know. But what about a reverse scenario, where you know you are going to get $110 tomorrow, but you want to figure out what that is worth to you today? This is called the present value. Essentially, you have to quantify the value of time (hard), the chance that you may not get the money (also hard), and what else you could do with that money (slightly easier and more fun, but still hard). That process is called discounting and the number is the rate at which you do it, hence discount rate. In this case, we may determine that the interest rate is the best discount rate, so we use the same 10% ($110 / 1.10 = $100).

When figuring out the present value we put a 1 in the denominator plus the discount rate to get a smaller number. Without it, as in the first equation, we are assuming that the top number (cash flow) will go on forever and that the bottom number (discount rate) is the right number forever. That is called a perpetuity, but anyone offering you a perpetuity (money forever) is probably giving you a crummy deal so we’ll skip that for now.

Therefore, the more realistic and complete present value formula is shown below. Before you get intimidated, take comfort knowing that you already solved it two paragraphs ago!

Present Value Calculation_2018

  • m = number of periods (e.g. days, months, years)
  • n = number of years

Cash flow: $110
Discount Rate: 10%
Number of periods: 1
Number of years: 1

Therefore, this simplifies to $110 / 1.10 = $100.

It is important to point out that there is nothing magical about the 10% number we used. If you get 10 cooks in a kitchen, you are going to get 10 recipes. The same is true in finance. If you ask 10 financiers at what rate they discount their cash flows, they too will give you 10 different answers.

We have mentioned in a previous post that in the publishing world, if you want to sell fewer books, include math in your writing. Unfortunately, if you want to make or keep money, you need to be numerate.

This chart takes the sushi example above, puts it into numbers, and extends it over a period of years instead of one day.

Year 1 Year 2 Year 3 Year 4 Year 5 Total
Cash Flow $100 $100 $100 $100 $100 $500
Discount Rate   10%  10%  10%  10%  10%
Present Value $90.91 $82.64 $75.13 $68.30 $62.09 $379

In words, this table is saying we would feel exactly the same between taking $100 in one year or $90.91 today. If we increase (decrease) our discount rate, the amount we would be okay taking today gets smaller (bigger).

It is also implying that we would be okay taking $100 each year for the next 5 years or $379 today. Above, we mentioned the reasons we might make this trade-off: 5 years is a long time (sushi today is better than sushi tomorrow), what if the person we expect the $100 from can’t or won’t pay us (risk), and/or we may have something else we would rather do or somewhere else we could put the money that makes more than 10% per year (opportunity costs).

In the table above, we use the same discount rate, but obviously two years is twice as long, so you discount it twice, repeating the process as needed.

Screen Shot 2018-07-06 at 10.57.23 AM

Screen Shot 2018-07-06 at 10.57.26 AM

If this is the first time you have seen these calculations in your life, open the iPhone calculator app, turn the phone sideways so you get the expanded functions, and try doing this yourself. If you are really curious or want to know what your finance friends have been doing for most of their twenties, open up Excel and throw some of these in there.

Repetition for emphasis: This implies we would be indifferent between getting $379 today and $100 every year for 5 years. It is also implying we would pay $379 today to get $100 every year for 5 years.

Regardless of the complexity, whenever I’m scratching my head looking at something financial, I always try to figure out how it comes back to these main concepts above. Whether it’s $100 or $100,000,000, coffee sold or income earned, the formulas still apply.

The key distinction in the formulas we have talked about is whether you are going forward or backward in time – whether you want to see what money today is worth in the future or what money in the future is worth today.

  • $100 x 1.10 = $110 (future)
  • $110 / 1.10 = $100 (present)

I named this Part 1 because it is such an expansive subject we could end up like Idiosyncratic Whisk, whose most recent post is Housing: Part 306.

Whilst this is less exciting on the surface than endurance races, heists, or Kim Kardashian, finance is connected to (nearly) everything in the same way that Feynman’s divisions of scientific disciplines in the opening quote are connected. Finance is versatile – it allows you to do things like assess the validity of a politician’s claims (cough) and figure out if you’re getting screwed on your next loan to making sure you can afford sushi and wine.

Or, in keeping with Feynman’s instruction, it may be time to drink it and forget it all.

Why You Should Plan a Heist

You can plan a pretty picnic, but you can’t predict the weather.

 Outkast, Ms. Jackson (2000)

The operative word in the title is plan. Don’t do a heist. If you need further persuading, watch the ending of Dog Day Afternoon. Besides, you can get much more money from bankers if you give them a colorful PowerPoint presentation.

A famous joke by the (former?) comedian Dane Cook begins: what a guy wants most–even more than sex–is to be in a heist.

This thought has hung around in my mind for over a decade, but for a different reason than the one implied by the joke. It is actually a useful metaphor for three things: trust, temperament & systems thinking. Let’s call this the Heist Heuristic. (Your imagination can determine the details of your custom heist scenario).

1. Trust

We like to give people the benefit of the doubt, but sometimes we end up giving them too much credit. You can figure out the most trustworthy people in your life by asking, “If I just pulled off a heist, who would keep it a secret?” Or, if you are interviewing someone, think to yourself, “Would I trust this person to _____?” Fill in the blank with the job description, but assume that the job is their role in a heist scenario with you and if they mess it up, you spend the next 10-15 years in prison. This started out as a joke, but over the years I have noticed the clarity this deceptively simple question can provide.

2. Temperament

Remaining calm under pressure is, in my mind, one of the ultimate human qualities, because of what it entails, including the preparation required, worldly benefits over time, and the pure authenticity of it. Many things can be faked, but temperament–like wit–isn’t one of them. In the financial markets, it has been said that temperament is more important than IQ. If you have what it takes to stay calm in a heist, you most likely have what it takes to remain rational in stressful situations (e.g. deciding to hold a position while you are losing amounts of money that nearly make you throw up or while patiently watching others make money faster than you). In more prosaic affairs, maybe you will calmly talk through disagreements instead of throwing plates? Now, planning a heist alone won’t make you calm. In fact, beyond having a natural disposition, experience in high-stress situations is usually the primary way to develop this trait, but the more you have thought through potential outcomes in a scenario, they are by definition less likely to surprise you, allowing you to maintain composure. Plus, the world will often find a way to put you in such situations, giving you plenty of practice for increasingly stressful situations in the future. If you never have to use this developed skill, even better.

We will revisit temperament in future posts, especially once we introduce poker as a mental model.

3. Systems Thinking & Complex Adaptive Systems (“CAS”)

System: An organized entity made up of interrelated and interdependent parts

When I first heard the term “Complex Adaptive Systems” I thought a special kind of pretension was required to come up with something that douchey. But, like many things seemingly esoteric, once you understand it, you can never go back. Nor would you want to. This one takes a little more explaining, so you will have an opportunity to use your patience from the temperament section.

Initially, I planned on writing a separate essay on Systems Thinking, but Donella Meadows does such a good job in her book Systems Thinking: A Primer, that I would essentially be paraphrasing all of her thoughts without adding much value. If you incorporate the lessons from her book I guarantee your understanding of the world and decision making will improve. Here, I will simply introduce the concept as a reference for future conversations about CAS and explain why a heist is a convenient metaphor for situations we face.

The idea underlying systems thinking is that there are a lot of factors to consider for any given situation and, with complex adaptive systems, they interact and change. The reason this is important is because humans are necessarily reductionists and want things to be framed in the simplest terms (yes or no, good or bad, Mayweather or McGregor, and so on). Unfortunately, the world generally resists this simplification. As soon as we say something like “Real estate prices always go up!” everyone adapts to this premise by bidding up real estate values and next thing you know it’s 2008 and home prices collapse like a European soccer player after getting grazed by an opponent. The [people, in this case] adapting part is what makes it complex instead of complicated. Let’s pause for a moment to make sure we’re together with the definitions in this context. Getting gasoline to make your car move is complicated, but it’s not complexThe gasoline doesn’t figure out that it’s about to be lit on fire to sacrifice itself for the greater good of your engine, then adapt by teaming up with the other gasoline molecules and finding a way out of your tank (wild if it did though right?). Complicated processes follow a set of (generally) unchanging rules — difficult to learn, but reliable once learned. A football team is complex because the players and coaches have personalities and the way those personalities interact and evolve is inherently unpredictable. We are watching that play out right now with Tom Brady, Bill Belichick, and Robert Kraft.

Many systems take a long time for the symptoms to show up (like the negative ones of the financial crisis or the the positive ones of worldwide internet access), but in a heist the timing is accelerated and the stakes are amplified. This forces intellectual humility because as soon as we starting thinking through our plan, we realize how many factors are involved and how their interactions can drastically change the outcome. Even the simplest (most boring) of heist strategies, a note handed to a bank teller with the instructions “Put the money in the bag” could result in a wide range of outcomes depending on the teller’s mood, whether someone else notices it, and if so, is that someone a cop, and on and on we go. The consequences have consequences.

Next, and equally important, is the idea of feedback loops. Since the heist metaphor has served our purposes so far, let’s keep using it. In the movies (my favorite being The Thomas Crown Affair, followed closely by Bandits), the robbers usually use one particular feedback loop to their advantage: the spread of fear. This is an example of a positive feedback loop, where one person being afraid makes it more likely that someone else panics, which then means it’s even more likely the third person will get scared (a more tame case being more people use Instagram because more people use Instagram). From here, they can take advantage of a negative feedback loop. The classic example for a negative feedback loop is a thermostat keeping your home a certain temperature, but that example is boring, so we’re going to pick up right where we left off. Like any other working professional, random people screaming in our ear prevents us from doing good work, so after an intimidating shotgun blast through the ceiling, the hostages have gone from freaking out to being paralyzed by fear. Now we need them to stay quiet. Any time one of them opens their mouth, they are carted off to another room, never to be seen from again. This promotes stability, which is exactly what we want given that there are so many other things that could go wrong.

Returning to positive feedback loops, be mindful they can go in both directions, which may sound counter-intuitive. Suppose a college–let’s pick a random one like Penn State–had a head coach that let another coach touch boys. When people find this out, they stop wanting to play football there. The team gets worse and now even fewer people want to come play football there because no one wants to play with a bunch of losers and pedophiles (positive feedback loop to the downside). Positive feedback loops: instability (or big returns), negative feedback loops: stability.

There is much more, but as I said, I simply wanted to get you thinking about the topic if you don’t already. While there’s still no way around sounding like a pretentious douche when saying it, adding this framework to your mental toolkit will probably be beneficial in your life, although it is impossible to say exactly how. You will start noticing complex adaptive systems and feedback loops everywhere, which will likely inform your understanding of situations you’re in and how to appropriately respond. Your curiosity from there will carry you the rest of the way.

Now, I don’t want to walk by a television in a few weeks and see there’s been a 20% increase in heist activity. But what would be great is the next time you saw an armored truck, you thought about who you can trust, your ability to manage your mood, and the complexity surrounding us.


See also:

Thinking in Systems: A Primer by Donella Meadows
The Fifth Discipline: The Art & Practice of The Learning Organization by Peter Senge
What Does Charlie Munger Mean When He Says Something is a Lollapalooza? by Tren Griffin
More Than You Know: Finding Financial Wisdom in Unconventional Places by Michael Mauboussin
The Thomas Crown Affair(1999 version is better than the 1968 one, sorry Steve McQueen fans)
Bandits (2001)

An Alternative to New Year’s Resolutions

The world never tells you that you’re wrong; it only gives you outcomes. 

— Shane Parrish, Farnam Street

Kierkegaard, in Either/Or, makes fun of the “busy man” for whom busyness is a way of avoiding an honest self-reckoning. You might wake up in the night and realise that you’re lonely in your marriage, or that you need to think about what your level of consumption is doing to the planet, but the next day you have a million little things to do, and the day after that you have another million things. As long as there’s no end of little things, you never have to stop and confront the bigger questions. Writing or reading an essay isn’t the only way to stop and ask yourself who you really are and what your life might mean, but it is one good way. And if you consider how laughably unbusy Kierkegaard’s Copenhagen was, compared with our own age, those subjective tweets and hasty blog posts don’t seem so essayistic. They seem more like a means of avoiding what a real essay might force on us. We spend our days reading, on screens, stuff we’d never bother reading in a printed book, and bitch about how busy we are.

— Jonathan Franzen, Is It Too Late to Save The World?

It is safe to say the New Year’s Resolution is dead. Gyms will still likely see the customary uptick in new memberships in January, where the lines will be blurred between legs trying to escape yoga pants and a busted can of biscuits. We may eventually get lunch with that person we said we would the past 7 times we bumped into them at the grocery store. We might even “enjoy life to the fullest” (perpetually in the Top 5 most common New Year’s Resolutions)…whatever that means.

Odds are we won’t.

It would be great if The Resolution was dead because people realized that an arbitrary date was unnecessary in making necessary life changes. Instead, I think it died because doing what you say you’re going to do is hard and people get discouraged by the demands of changing their habits. At any rate, all of us are prompted by the New Year to think at least a bit about the upcoming year. Companies do this too, but their process is a little more formal. They look forward, budgeting for the upcoming year, and looking forward is what all of us must ultimately do. But many companies, and all public companies, also look backward and write letters to their respective shareholders (owners) explaining how the year went in an annual report. If you’re a stakeholder in the company or in finance, you may read them. If you have no (financial or intellectual) interest in the company, you would never read them.

Although not entirely necessary for this post, it would be worth reading one (Google your favorite public company’s shareholder letter). Management talks about the company’s financials, risks, competition, etc.–all things that impact the performance of the business.

Most businessmen I respect believe that the most appropriate place for projections is the trashcan. My own experience has certainly reinforced this idea as I have never seen a case of someone projecting that they are going to do badly (because they normally want something from the people they’re showing the projections). Therefore, we look to the past to come up with the best way to move forward. The past doesn’t predict the future, but it’s usually the best we have. Since successful investors and companies think this way I got to thinking, why don’t people do this for themselves? Replace all of the business components with a person’s. In the way that projections are often (though not always) less useful for a business than their historical performance, looking at what I did yesterday is often a better predictor of what I’m going to do tomorrow than what I think I’m going to do. At the end of 2015, I did this and found it useful. I have since shared the idea with a few more people and their reaction influenced me to share it more broadly.

Below, I’ll suggest some categories and questions to get you going, but since this is an individualistic activity, you can ignore mine and come up with your own. The temptation is to quickly skim it over and answer them in your head like a What Kind of Cheeseburger Are You? personality quiz on Facebook, but the idea here is to open up a Word document, put pen finger to paper keyboard, and get the thoughts outside of your head. If you’re still enjoying the holidays, you’re in luck because the real purpose of binge eating at this time of the year is to cause such physical lethargy you have no other option but to allow your brain to confront the bigger questions Franzen alludes to in his quote above.

Physical
We’ll start with the most popular New Year’s Resolution category. Two questions can carry a lot of weight here.

  • How did you treat your body this year?
  • Is your body fat percentage higher or lower than it was last year?
    As far as how I treated my body, one area I tried to work on in 2017 was getting enough sleep. I (used to) idolize people who can operate at a high level without much sleep, but after trying that out for a year or two, I realized this is either impossible and/or it simply doesn’t work for me. We have all heard an idiot say, “I’ll sleep when I’m dead.” When have you ever slept 4 hours each night for a week and on Friday felt like you’re performing physically or mentally at the same level as you would have if you were fully rested? Extrapolate that for a meaningful period of time and there’s no way that’s a sustainable game plan. Jeff Bezos, the boss of that online company the retail industry loves, makes getting 8 hours of sleep a top priority. If Jeff can find time to make everything happen that he does in 16 hours, I suppose I have no excuse.

Family
Coming off the holidays, this may be a delicate one. Some people may be crying as they leave their families returning home, while others are getting to the airport 3 hours early to get away from theirs. Assuming you have family and respect them, did you strengthen your relationship with them? Any new additions? Did your roles and responsibilities within your family evolve? Do you want the same things?

Work
There must have been a writers’ conference on New Year’s Day 2017 that determined the theme of the year was tech. Given that I can barely go to a website or read a book these days without seeing a version of how Artificial Intelligence or FANG (Facebook Amazon Netflix Google) is in the process of taking over the world, on one hand I’m convinced a robot is going to take my job and Mark Zuckerberg is going to have me tilling fields in Farmville. On the other, an automated phone system has literally never solved a problem of mine so I’m a little skeptical of impending mass unemployment. So, assuming we still have a few years left, perhaps we should ask ourselves the following: Am I getting better at what I do for work? What skills did I acquire this year? What did I create?

Mental/Emotional
I was trying to order a pizza on the phone the other day from Mellow Mushroom and the guy kept calling back the wrong order to me. As I bit my lip, I was reminded of something the stoic philosopher Epictetus said 1,900 years ago, “If someone succeeds in provoking you, realize that your mind is complicit in the provocation. Which is why it is essential that we not respond impulsively to impressions; take a moment before reacting, and you will find it easier to maintain control.” There’s a related idea that when you’re right, you can afford to keep your temper, and when you’re wrong, you can’t afford to lose it. A distinguishing factor between a child and an adult is the management of our emotions. Children cry when they are hungry, adults (usually) don’t, although they have the same fundamental desire. This is a never-ending tension, as we are emotional creatures and everything that happens causes us to deal with them. The good news is we can train our emotions (think yoga). It takes some work, but over time the more we align them with rationality, the more likely we are to get what we want.

Educational
Are we really going to learn Mandarin Chinese? I have Rosetta Stone installed on my computer, but unless I move to China, the odds of me learning Chinese are about as good as Kim Jong-Un beating Dennis Rodman in basketball. There’s nothing wrong with lofty goals, but the whole idea of this post is that many resolutions are sufficiently difficult to the point people give up on many of them before they have even gotten all the glitter off. Instead of coming up with big goals, it’s amazing what can happen over time if we simply try to go to bed smarter than when we woke up. We can ask ourselves the following questions to get a feel for whether this happened or not.

  • What did you actively learn this year?
  • What books did you read?
  • Can you explain the big ideas in them to a six-year-old?

Financial
This one is easy. Take all the money you can get your hands on and buy Bitcoin! I’m 100% kidding, don’t do that. The only thing more polarizing than cryptocurrencies in 2017 was Donald Trump, so is an end-of-year blog post culturally relevant without mentioning them? I am not going to talk about them long at all here because I’m unqualified to have an opinion on Bitcoin specifically, but I can tell you that the odds of you having sustainable and repeatable financial success in something you are not an expert in are significantly low. Paraphrasing Charlie Munger from a recent interview at Michigan’s Ross School of Business, you have people being lured into the concept of easy wealth without much insight or work. Whether it’s 2017 or 2017 BC the idea of easy money is seductive. Even though it’s less fun, it pays to be skeptical. Getting rich slowly is a better goal than getting rich quickly.

Moving onto more prosaic matters, we all worked hard this year and maybe we even got paid for our work. Money buys things we want, getting things we want makes us happy, boom! Money buys happiness. If we want to be happy, we’re probably going to have to think about our finances.

  • Is your net worth (value of what you own minus what you owe) larger or smaller than it was last year? By how much? Why?
  • What was the highest and lowest quality financial outflow you had this year?
  • Did you reduce debt or add debt?
    • Most credit cards/bank statements have an Annual Summary that breaks out spending categories.

For more on personal finance, check out The Financial Wisdom of Rap Music.

Relationships
Since we covered relationships earlier in the year with The Millennial Marriage Manifesto, we’ll stick to friendships here. I increasingly try to only spend time with people I like and admire. That seems obvious, but is it? The older you get the more you ask yourself the types of qualities the people you want to be around would have and realize that your friends are inevitably a reflection of yourself. You may have heard “You’re the average of the 5 people you spend the most time with.”

  • Who are those 5 people? Are they different this year than last year?
  • Did you develop deeper relationships with your existing friends? Make new ones?

While we’re talking about new friends and resolutions, in March I went to Cuba with Garrett Gravesen and a group of guys for what we ended up calling the First Annual Entrepreneurship Summit (going to start formally naming all of my vacations). Since then, he wrote a book called 10 Seconds Of Insane Courage and I had the opportunity to help edit it. Garrett lives the belief that big decisions are made in moments–10 seconds to be exact–and that your courage in those moments will determine the trajectory of your life. I’m such a big proponent of careful evaluation that the seemingly contrasting thought is compelling because regardless of how much thought goes into a decision, ultimately you must make a decision. You’ll have to read his wild stories for yourself, but viewing your decisions over the year through this lens will be illuminating.

Fun
What did you do to have fun?
This category reminds me of Kanye West’s song Paranoid “You worry bout the wrong things, the wrong things” because people who aren’t thinking about this are the ones that should and the ones who worry about whether they’re having enough fun are likely already having enough. My disposition is geared more towards delaying gratification because I feel like the payoffs are better, but the future is uncertain so we could get hit by the proverbial bus and never get to the long-term which is why we should try to have fun along the way.

In addition to the ones above, some don’t fit squarely into any particular section, like acknowledging my terrible habit of mindlessly looking at my phone too frequently. I also have started asking myself, “What is the dumbest thing I did this year?”

If you’re like me, you’ll find two things:
1. These are all interrelated.
2. By going through the process of writing these down, any changes to be made will be so glaringly obvious to you that making a formal resolution will be unnecessary. If I looked down and someone had run over my foot with a lawn mower, I hardly need to make a resolution to go to the hospital.

The opening quote from Shane Parrish at Farnam Street about outcomes is one of my favorite ideas I came across in 2017 because it seems there’s so much sensitivity in the world that the idea of someone being wrong or making a bad choice is almost taboo. It’s a subtle nudge that gets us thinking about our choices and what happens because of them while removing the black and white idea of right and wrong. Being mindful of this quote will be helpful as you go through your letter.

What would be interesting is if you made this an annual tradition and in 10 years you looked back through them. You would have a decade of personal development in front of you and a pretty good map of how you got to where you are in your life.


See also:

10 Seconds Of Insane Courage by Garrett Gravesen
Rise of the Robots: Technology and the Threat of a Jobless Futureby Martin Ford

How Kim Kardashian Got Famous: A Way to Think About Almost Everything

Got a truck full of dope, plug on the coke
Renzel done came up, prosecutors want to know
Is everything dope? Is everything dope?
How does everything go?

— Rick Ross, D.O.P.E. (2015)

Mechanism (mekuh-niz-uh m)

noun
1. an assembly of moving parts performing a complete functional motion, often being part of a large machine; linkage
2. the agency or means by which an effect is produced or a purpose accomplished

Today, we are going to use something boring to introduce something interesting. I have been reading a lot of loan documents lately (I know shoot me, right) and thank God I work with smart attorneys (corporate, not criminal, at the time of this writing) because loan agreements and the other legal documents involved when businesses want money are often hundreds of pages long, and unlike the Terms & Conditions in our Verizon contract, you actually have to read them. As important as they are, time often does not allow me to read every word. Like other bankers & businessmen, I find myself needing the information translated from Legalese into English. This is one of the reasons we happily pay lawyers.

Here’s the interesting thing: Although we generally think of legal contracts as jargon-filled and effectively unreadable to a layperson, they are still written in English. When we say, “We just signed our life away,” somewhere buried in the document spells out, in a language we can understand, exactly where we signed our life away and on what terms.

In any situation, we tend to care about what is relevant to us, right? Well, in my case I may care about what actions the bank I work for can take and when. Therefore, I need to know the exact words in the document that allow me to do that. In your phone contract, amidst all those small-print words, there are a few key ones that address the things you ultimately care about: how long it lasts, how much you pay per month, and what happens if you don’t. So if you don’t pay your phone bill, there are two important things at play: 1) The contract that gives Verizon the right to do things, like cut off your service; and 2) The physical signal no longer being sent to your phone.

Let’s call those important things mechanisms, which would fall under the bold definition at the top. If I’m you, I am thinking “Okay, I stopped checking my newsfeed to read about mechanisms?” BUT stay with me because I think we are onto something more general as an approach in trying to understanding almost anything. By asking in your own words or way, “What is the mechanism?” you can cut through the fluff to the substance in most situations. The substance is usually built on basics and most situations are ultimately about the basics. If someone knows, they will be able to tell you (now they may have an interest in you not knowing, which is often, in which case they won’t tell you) and if they don’t know, they will be unable to answer the question or the answer won’t make sense. There are similar phrases with a similar goal of getting to the fundamentals quickly: “What’s the point?”, “What’s the bottom-line?”, “How does it work?” Let’s look at an illustration to see the subtle differences between those and what we’re talking about.

Suppose you’re at the mall. You walk into one store and before you know it you practically need a restraining order to keep the salespeople out of your personal space while in another you could get a leg amputated and no one would be there to notice, much less answer a question on some Size 2 leggings. What explains the difference? One gets a commission and one doesn’t. You would normally call that an incentive, and it is. However, I would say that what we are more generally trying to figure out is the explanation & cause of the salesperson’s behavior (“Why they all up on me here but not there?”). In this case it happens to be an incentive (her commission or lack thereof), but it just as easily could have been one being excited after a recent promotion and the other had just gotten E. coli from lunch at Chipotle, and it is because of these different possibilities the term mechanism is more encompassing. We probably think in these terms intuitively quite a bit, like with Rick Ross in the opening quote knowing the value of dope logistics, but the more explicitly we think this way in complex or new situations the better positioned we are to figure out the truth, especially when we need to know it sooner than later. It’s this intersection of why & how that I’ve found so interesting lately.

And like most things I find interesting, someone else much smarter than me has already thought about it more than I have. I found this out when I started reading The Gene: An Intimate History by Siddhartha Mukherjee, which I picked up for two reasons: 1) my best friend is a biochemistry & genetics major getting his PhD, so I figured I better learn a little bit about genetics if I want to talk to him and 2) I liked Mukherjee’s approachable writing style in his Pulitzer-Prize winning book on cancer, The Emperor of All Maladies.

So what are the odds that before finishing the prologue I saw a variation of that engineering term that had been on my mind?

DNA is identified as the source of genetic information. The “action” of a gene is described in mechanistic terms: genes encode chemical messages to build proteins that ultimately enable form and function. 

I didn’t count, but Mukherjee goes on to use the word throughout the book, a lot. His point is that this idea of focusing on the action or mechanics was shared by many of the world’s best scientists & led to the discovery of how heredity works!

No one will ever mistake me for an expert on genetics, but an important takeaway from the book was the reinforcement of this mindset that has already drastically helped me filter what I hear & see. When someone is telling you why something is the way it is, look for the mechanisms that allow it to be that way. A complicated issue like opioid drug addiction in the United States can be better understood by looking to the possible mechanisms. Here are a few:

  • Why does this exist? Drugs make people feel good (shocker right?).
  • Why is this a problem? They have negative side effects that may eventually outweigh the positives.
  • What explains the number of people this affects? The availability of addictive substances.
  • Why are they available? Doctors frequently writing prescriptions to many patients for a variety of different conditions.
  • Why would that happen? A combination of thinking that is the appropriate solution to the patient’s underlying issue and making money by doing it.
  • What allows the businesses & doctors to do that? Their credentials, experience, governing bodies, and so on.

The reason this is worthy of our consideration is because of the time and energy spent addressing symptoms instead of root causes. Sticking with the same example, you’ll see news stories involving drugs that seem to ignore the part about people taking them because they make them feel good or the people providing the drugs making money from it.

The gut reaction that this is all too obvious to talk about is due to something called the illusion of explanatory depth (“IOED”) which is a confident, but mistaken feeling of knowing. If you ask 50 people if they know how a washing machine works, they’d probably say yes. But if you asked them to give detailed step-by-step instructions on how it works, most would look at you like Simple Jack in Tropic Thunder. If we are aware of this IOED, we will instinctively start looking for ways to fill in those gaps.

If you do this for a while, as weird as it sounds at first, a couple of things will start to happen.
1: You will become dissatisfied with things that have vague mechanisms and will push for greater clarity (e.g. “Oh, so you two were just hanging out?”)
2: You will start realizing that many of these hinge on the definition of a single word or phrase. Recall Bill Clinton and his famous “Depends on what your definition of is is.”

Arguably, doing anything other than focusing on the mechanisms is superfluous.

Using that same idea, we can look at our own work. Most of us would like to be organized for various reasons, and we could likely see benefits from it over time, but they are indirect (I use this as an example because I highly value organization, so I’m challenging myself). However, can you imagine me sitting in my office thinking “My desk is clean, so the deals should start rolling in.”? When seen from that perspective, unless you are part of a cleaning crew, it’s clear that being organized isn’t the mechanism. When we acknowledge what generates the final service or product we provide, we will avoid potentially misleading ourselves about our productivity. Emphasizing this point with my coworkers, I’ll say: “Why don’t we report on our earnings call how many hours we spent in our offices?” We all remember from college that there is a big difference between going somewhere to study and actually studying.

Some other simplified examples:

  • Fewer drunk driving accidents
    • The mechanism: Uber & Lyft
  • Why no one says anything contradicting the boss, when it’s evident he’s wrong
    • The mechanism: The threat of the boss firing the person who said it
  • How Apple can charge $1,000 for a phone (at its current volume)
    • The mechanism: Breaking up one big payment into more manageable monthly payments
  • Capitalism:
    • The mechanism: Forceful protection of personal property
  • Traffic
    • The mechanism: brakes (can’t have traffic if you never use your brakes! Although this is impractical, it’s a useful framework for thinking about how people should drive, which would be at a speed that requires everyone to use their brakes as little as possible. Obviously, something like traffic is a complex situation and it is influenced by several factors like number of drivers, wrecks, construction, traffic lights, etc. but this is actually one of the purest examples of a mechanism because all of those other factors ultimately lead to you hitting your brakes. If your goal was to reduce traffic, you would be mindful of this every time you considered adding a new intersection with a traffic light.)

On one hand, this is common sense. On the other, there are structural reasons why people don’t want you to know the mechanisms of many things (e.g. Coke recipe), making it even more important that you are able to figure them out for yourself. Now that we’ve seen how this looks in everything from rap songs & genetics to loan documents & drugs, please remember your humble blogger when thou art upon the podium receiving thy Nobel Prize.

I’ll let you determine the mechanism for Kim’s fame.


See also:
The Gene: An Intimate History by Siddhartha Mukherjee
Thing Explainer: Complicated Stuff in Simple Words by Randall Munroe

Principles by Ray Dalio

The hardest thing of all to see is what is really there.

— J.A. Baker, The Peregrine

For me, there is really only one big choice to make in life: Are you willing to fight to find out what’s true?

— Ray Dalio

Ray Dalio is the founder of Bridgewater Associates (“Bridgewater”), one of the largest & most successful hedge funds of all-time (it manages $160 billion). Bridgewater has a famously unique cult(ure) of radical honesty & transparency with the goal of promoting “open-minded, idea-meritocratic, collective decision making.” If you don’t like someone, you get it out in the open, then together you figure out a way to move forward. Essentially every conversation is recorded (and every employee has access to them) so that nothing is said behind someone’s back. 40% of new hires either leave or get fired. Intense right?

Now that we know what the organization is, let’s knock out the first question.

What is a Principle? 

Principles are fundamental truths that serve as the foundations for behavior that gets you what you want out of life.

In having read Principles: Life and Work now for a third time, I realize how influential it has been and will be in my life. It’s the only book of any meaningful length I’ve read multiple times, so naturally I thought it would be appropriate for my first book review/summary. I say summary because I find his lessons so effectively communicated, it’s tough to reduce them any further.

If I had to pick one book to read this year, this would be fighting for the top spot. Your life will be more painful and better because of it. I have 143 books in my Amazon cart right now, plus some unread ones on my shelves, so in order to have a life, I have to be selective. That often means I come away from each book saying it’s one of the best I’ve ever read. With that in mind, this is one of the best I’ve ever read.

Why is this better or different than the other 25,000 business/self-help books? I’ve (regrettably) read a lot of them over the years and no other book has led to more real-world change in my life than this one. I feel like most books pass through your consciousness like advertisements; they affect you, but subtly and over time. If I had to make a blanket statement about the books in the genre, they are mostly a collection of bromides that provide no deep new understanding, and here is the real commonality: they are all positive (and life is not). Almost none encourage real pain or acknowledge how truly difficult improvement is (because that doesn’t sell books!). Think of it this way, you can read every business book and self-help book, and never manage a business, or help yourself. Said differently, there is place for them, but one can last you a long time.

If you tackle this book with an open mind, pen and paper, it will nearly force you to think and thus act differently, like the next time you hear yourself rationalizing: This is a cheat day. No, it’s Tuesday morning and eating leftover pizza at 10:00am from the night before is not going to get you to #goals.

Dalio opens the book with: Before I begin telling you what I think, I want to establish that I’m a “dumb shit” who doesn’t know much relative to what I need to know.

He probably spent a long time tailoring that sentence because of the levels to it. First level: it’s funny. Second & third levels: He is acknowledging that you should assign a “believability” weighting to him (we’ll talk about it later) and not simply take him at his word, he is relatively humble (he’s calling himself a dumb shit, which he believes, but he also implicitly believes he’s less of a dumb shit than other people because of how much work he’s put in to testing his ideas in the real world), and despite all his success, knowledge & wisdom, he is still acutely aware of how much he doesn’t know.

His sentence-by-sentence delivery is succinct (remember he’s a billionaire, not a writer), but the book is ironically 552 pages (mainly due to repetition). Any one of those pages has the potential to casually shake some readers’ intellectual foundations even between his main points. I tend to be cerebral, but this guy turns the volume knobs to an 11. This isn’t a book you read 30 minutes before you go to the bars or if you need a participation trophy. This is more for when you’ve just polished off your second 16 oz. cold brew coffee and you’re ready to be CEO of Mother Earth, or your life is going off the rails, nothing is going the way you want it to, and you need the schematics for fixing it.

The book has three parts. We’ll spend most of our time on the first half because Work Principles are simply Life Principles applied to groups.

Part 1) Where I’m Coming From (memoir)
Part 2) Life Principles (for individuals)
Part 3) Work Principles (for groups)

“When I ran into situations I hadn’t seen before, I would be painfully surprised. Studying all those painful first-time encounters, I learned that even if they hadn’t happened to me, most of them had happened to other people in other times and places, which gave me a healthy respect for history, a hunger to have a universal understanding of how reality really works, and the desire to build timeless and universal principles for dealing with it.”

Echoing Dalio’s sentiment, it seems like our attitude toward learning should be influenced by the idea that we would prefer to learn the implications of driving off a cliff by watching someone else do it than having to learn the lesson first-hand.

To give you an idea about his level of dedication & credibility, during the financial crisis in 2007, using history books and old newspapers, he and his team went day by day through the Great Depression, comparing what happened then with what was happening in the present. Further, he is admittedly terrible at rote memorization (e.g. people’s names), but he can tell you what happened economically & politically in every year since 1960.

Life Principles

Dalio defines success simply as getting what you want. I’ve been looking for a better definition for 5 years and haven’t found one yet.

“Think for yourself to decide
1) what you want
2) what is true, and
3) what you should do to achieve #1 in light of #2, and do that with humility and open-mindedness so that you consider the best thinking available to you.”

Embrace Reality and Deal With It 

Referring back to the opening quote, you can pretty much put your pencils down if you aren’t committed to finding out what’s true. It’s a waste of time to talk about individual trees if we can’t agree there is a forest. Over the past 5 years, I’ve asked several people how comfortable they are with reality, and initially I expected everyone to say that they were whether they were or not, but what I heard was a wide range of surprising honesty, with a heavier weighting of responses toward “I have a hard time with reality.” That honesty is highly valuable, because that is precisely what you need to deal with it.

The reality is, books with math in them are guaranteed to sell less copies. Dalio is a math guy though so that’s off the table, but he keeps them manageable as long as you’ve learned addition. Here are his two main formulas:

Dreams + Reality + Determination = A Successful Life

Pain + Reflection = Progress

His way of thinking could be misinterpreted as a buzz-kill, but he’s simply saying our ability to send a cell phone signal around the world or fly planes is the result of people dreaming that we could do that, while applying the existing rules of reality–the physical laws or principles that govern the natural world. When you lose your fantasy football league and have to take the SAT with high schoolers (pain), because you picked Ben Roethlisberger as your quarterback (reflection) next time you’ll pick Dak Prescott (progress).

He is ruthless and efficient in the pursuit of this.

Don’t mistake possibilities for probabilities. Anything is possible. It’s the probabilities that matter. Everything must be weighed in terms of its likelihood and prioritized.

In case you already suppose he’s a dispassionate sociopath, he says having meaningful relationships and meaningful work are the ultimate goals (I assume that’s predicated on his computer deciding you’re worth keeping around long enough for him to become your friend). Despite limiting the discussion of his relationship with his wife to slightly beyond how they met to respect her privacy, there are some surprisingly emotional personal stories. He talks about being publicly wrong about the effects of the 1982 Mexican debt crisis and his son’s battles with bipolar disorder, lightening it up with some entertaining drama–he once punched his boss in the face. He was fired for a different reason.

How to use Principles

  1. Slow down your thinking so you can note the criteria you are using to make your decision.
  2. Write the criteria down as a principle.
  3. Think about those criteria when you have an outcome to assess, and refine them before the next “one of those” comes along.

An ex-girlfriend of mine hated whenever I referred to something as a principle, and even more so when I stuck to them.

If Ray Dalio were dating my ex he would have said, “While such decisions might seem too erudite for your taste, you will make them either consciously or subliminally, and they will be very important.” I can’t replay history, but if I’d have said that, I think the relationship would have ended at “erudite”.

“People who have shared values and principles get along. People who don’t will suffer through constant misunderstandings and conflicts.”

Here’s the thing, like the guy who realized he was speaking in prose his whole life, we all have a guiding philosophy whether we know it or not. How much you tip waiters, how you handle disagreements, if you drive slowly in the left lane; these are all reflections of your principles regardless of what you call them. Although principle as a word and decision-making as a term are both abstract and mean nothing, you eventually realize that everything you do is a decision and it’s guided by a blend of conscious & subconscious thoughts and habits. Ultimately, working to improve decision-making is extremely practical.

Therefore, the most important thing is that you develop your own principles because if you accept prepackaged ones without giving them much thought, you risk living inconsistently with how you really feel, which probably won’t work out well. This is like small children espousing political beliefs, obviously regurgitating something they heard from their parents. When a kid does this, it’s cute. When an adult does, it’s dangerous.

He also emphasizes the importance of writing them down and wishes people like Steve Jobs and Leonardo da Vinci wrote theirs down. For those who find writing anything down weird, we’ll dedicate an entire post to the benefits of writing your thoughts down. For those who already write, consider adding a Decision Journal (whenever you make big decisions (new job, to move, making an investment, etc.) write down your thought process during it so you can review it later and see if you got what you wanted from your decision).

I think people allow the underlying reasons for their actions to go unexamined because it is either scary/uncomfortable to think about why we do a lot of things, and it could be viewed as unimportant if things are “just fine” the way they are. Dalio would respond to this by saying the most rewarding life comes from reaching your potential and you aren’t going to get there without reflection and discomfort. Living a comfortable life, as opposed to committing to your own painful goal machine, is neither worse nor better, if it works for you. I had a conversation about this recently. If you saw a friend you cared about sitting on a couch, doing nothing else for an entire week, and he said he was so content he couldn’t imagine anything else that could make him happier, you would be a little skeptical. That skepticism is rooted in you having experienced things that are better than sitting on the couch, and you want him to share in that joy. Without putting words into Dalio’s mouth, I think that’s his underlying belief, and he has simply taken it to the extreme in how he lives his life and operates his company.

“For all those reasons, I cannot say that having an intense life filled with accomplishments is better than having a relaxed life filled with savoring, though I can say that being strong is better than being weak, and that struggling gives one strength.”

“Encountering pains and figuring out the lessons they were trying to give me became sort of a game to me. The more I played it, the better I got at it, the less painful those situations became, and the more rewarding the process of reflecting, developing principles, and then getting rewards for using those principles became.”

Who to Trust?

You should be skeptical when you read anything, and this is no different. It reminded me of famed physicist Richard Feynman’s idea that if it disagrees with experiment, then it’s wrong. Dalio encourages everyone to poke holes in his thinking. He doesn’t care if the right answer comes from someone other than him, but he wants the right answer. I would like to be a fly on the wall at Bridgewater when he acknowledges someone has a better idea than him and watch how graceful that process is.

He even goes so far as to say knowing when not to make your own decisions is one of the most important skills you can develop. This is a balancing act between independent thinking and seeking wise counsel.

The book proposes the best standardized bullshit detector I’ve ever come across, which is applicable in all environments. “Believable parties are those who have repeatedly and successfully accomplished something–and have great explanations for how they did it.” 

It’s impossible to overstate the value of clarity and experience. If you can’t explain it, you don’t fully understand it. He makes this point several times, but my favorite is when he imagines a group getting a lesson in how to play baseball from Babe Ruth, and someone who’d never played the game kept interrupting him to debate how to swing the bat. Would it be helpful or harmful to the group’s progress to ignore their different track records? Treating all people equally is more likely to lead away from truth than toward it. But at the same time, all views should be considered in an open-minded way, though placed in the proper context of the experiences of the people expressing them. In his hypothetical scenario, he suggests having a Q&A after Babe Ruth finished explaining.

How to Argue

  1. Put our honest thoughts out on the table,
  2. Have thoughtful disagreements in which people are willing to shift their opinions as they learn, and
  3. Have agreed-upon ways of deciding (e.g., voting, having clear authorities) if disagreements remain so that we can move beyond them without resentments.

Basically, go find the smartest people you know, tell them your ideas and what you’re thinking and ask them if they disagree with you. If they do, you have an opportunity to learn. You should at least try to understand their reasoning.

This requires you to detach your ego/identity with your ideas. The way to tell you are doing this is if you remain calm when you are debating and/or wrong. Imagine if all debates (e.g. presidential, media, personal) required each party to stand in separate soundproof booths with microphones and they cut off at a certain volume threshold so nothing could be heard until the person lowered their voice to an appropriate volume.

Peter Thiel’s favorite interview question is: What is something that is true that almost nobody agrees with you on? We won’t spend much time on Thiel today, but this section of the book reminded me of my answer to his question: Disagreements are good, if you are open-minded. I argue almost exclusively with people I like. Why? Because I care about their thoughts and want them to challenge mine. Arguing with people in the confrontational sense is a fool’s errand. Arguing with people in the truth-seeking sense is beautiful. The distinction is adopting an attitude of cooperation towards the topic as opposed to demonstrating superiority. Conversation is plainly the real word, but I use argue to acknowledge the reality that it’s impossible to have the same ideas as someone on everything. Handling that in a real way instead of sweeping it under the rug in superficial agreement is the basis for a genuine relationship. Ego detachment opens the door for calmness and the calmness leads to clear thinking and that leads to all sorts of good things.

Work

Dalio’s mindset towards work is: we have the best chance of succeeding if the best idea wins every time. Everything above applies to this goal. If you can do something, that’s great. If you can’t, learn or find someone who can.

Creating this type of company or culture may be unobtainable or unrealistic for many. The prerequisite ingredients alone are rare, much less the execution & maintenance.

If you’ve worked at a big corporation, you may be laughing at the prospect of managers even acknowledging reality within their department, much less them actively looking for ideas better than theirs. It’s equally unusual to find employees openly professing their weaknesses in an effort to get the best possible idea out there, especially if that “best idea” means someone else gets promoted over them or that they are unnecessary to the company. It sounds good on paper, but even if you get past the fact that most people understandably care more about their own well-being than a company’s, you still have big obstacles.

It says a lot about the state of affairs when it’s controversial to be transparent and honest.

“But while almost all of us quickly agreed on the principles intellectually, many still struggled to convert what they had agreed to intellectually into effective action. This was because their habits and emotional barriers remained stronger than their reasoning.”

It’s all too easy to see how difficult Dalio’s concepts are to implement, which is why I think it’s more practical to factor them in while developing your personal principles. In a work context, you need to be the founder/CEO to have any real chance at comprehensively incorporating them. Or go work for Bridgewater.

Here’s a summary of the work tools/apps Bridgewater uses (complementing the book, Dalio is going to release versions for the public):

  • Baseball Cards: Each employee has a card that lists their stats. Spoiler alert, this wasn’t initially well-received.
  • Issue Log: Primary tool for recording mistakes and learning from them
  • Dot Collector: An app used in meetings that allows people to express their thoughts and see others’ in real time. Participants continuously record their assessments of each other by giving them “dots,” positive or negative, on any number of several dozen attirbuts.
  • Pain Button: An app allowing you to record the emotions they’re feeling in real-time, then come back at a later time to reflect on them
  • Dispute Resolver: App that asks a series of questions used to guide people through the resolution process
  • Daily Update Tool: Brief email of what they did that day, issues pertaining to them, and their reflections
  • Contract Tool: App that lets people make and monitor their commitments to each other.

I admire his ability to walk the walk here. Admittedly, I’ve never created, nor particularly desired, this level of accountability for anything. It’s an idea carried to its logical extreme, in the same way that Michael Jordan carried the idea of being good at basketball to a logical extreme.

Oh by the way, he literally takes all of these principles and builds them into algorithms so that computers are making the investment decisions and he’d like to get them making hiring & firing decisions, too. The skeptic in me thinks he is going to use the data from the apps to find top talent and/or use it as a database for Bridgewater.

Final Thoughts

Dalio attributes much of his success to Transcendental Meditation, which he has practiced for 30+ years. Nothing of any substance he advocates for is possible without making time for reflection.

Even though the book is largely about his life and principles, one of my favorite passages is his timely perspective on geopolitics.

“Most people who haven’t had direct contact with the leadership of their own and other countries form their views based on what they learn in the media, and become quite naive and inappropriately opinionated as a result. That’s because dramatic stories and gossip draw more readers and viewers than does clinical objectivity…As a result, most people who see the world through the lens of the media tend to look for who is good and who is evil rather than what the vested interests and relative powers are and how they are being played out.”  

I feel like that quote is going to hang around for a while.

Throughout his life, he found himself at big moments wanting two seemingly incompatible things. As someone who loves nothing more than having his cake and eating it too, I was particularly curious how he goes about such situations: slowly and creatively. This could be considered useless advice, but I’ve seen the power of slow progression. “Slowly” is the answer for a lot of things, including the related topic of circularity (chicken & egg) problems which have been on my mind the past year or so. Since management strategy & circularity is right in Venkatesh Rao’s wheelhouse, I hope he reads the book and provides his own review.

Most visitors to this thought sanctuary already know there’s no such thing as a “life secret”. There is the connecting & executing of ideas that are readily available to those seeking them. That’s the beauty of his advice, if you figure out what the right decision is and you have the courage to make it, your life will be better. It’s all about the execution.

Know that the most constant struggle is between feeling and thinking.

Ultimately, this is a book about tough love. I hope you struggle well.


See Also:
Is Bridgewater a Fraud? (unlikely, but always consider the other side right?)
Ray Dalio’s Ted Talk

Designing Your Life

design

verb  de·sign \di-ˈzīn\

1: to create, fashion, execute, or construct according to plan
2: to plan and fashion artistically or skillfully
3: to intend for a definite purpose

There is only one success in life — to be able to spend your life in your own way. 

— Christopher Morley 

The chains of habit are too light to be felt until they are too strong to be broken.

— Warren Buffett

When you were in elementary school and your teacher asked you to draw a picture of your life on a blank sheet of paper, your Crayola stick figures probably weren’t on the phone with AT&T asking them in restrained deep breaths to explain how your phone bill is different every single month. Nor were they likely choosing between different door knobs at The Home Depot on a nice little Saturday. 

I was lucky if I was well-behaved enough to even participate in the drawing activity, so now that we’re all adults let’s revisit the idea. One problem with asking young people to draft their futures is they have no idea what possibilities are available. This is the basis for travel, knowledge, and experience. How can you know what you want if you don’t know it exists? If you lived in the US before 1980, there is a good chance you had never eaten sushi. Take my eyes but not the sushi.

The rapid pace of technological developments makes predicting our opportunities even harder. Take virtual reality. Although the foundations were set long ago, the impending widespread use is something relatively few people outside Silicon Valley were aware of five or ten years ago. Whether it’s sushi or VR, the more familiar we make ourselves with the physical, social, and cultural aspects of the world, the more capable we are to label our wants, and thus get them.

When I look around I see that some people have better lives than others (it’s amazing how reluctant people are to explicitly acknowledge this and will inevitably be a topic we explore in-depth later). Of course each person’s genetics, environment, & relative positioning within that environment are critical. If your dad is Shaq, you are going to be tall. If you were born in the US, you have access to air conditioning and medicine. If your mom is the CEO of the corporation you want to work for, guess who’s getting that summer internship.

Having said that, there is room for decision making in determining outcomes. The problem is, most people shape their lives without knowing it through the decisions they make every day. I can’t seem to shake this theme. Even people that seem like they don’t have choices do. Nelson Mandela spent 27 years in prison and he still found time to run a country, abolish apartheid, and get Morgan Freeman to play him in a movie.

You make thousands of decisions every day. How many times to hit the snooze button, who to email, call and visit, what websites you go to, number of cartons of Halo Top to eat, and so on. If we have control over these micro-decisions, do they add up over time to something more meaningful, and can we steer them in a direction that leads to only having the people, things and experiences in our life that we want? If so, would it make sense to consciously figure out what we want ahead of time? This is what I mean by designing your life.

It’s like a bucket list, but for while you are living normally, not just before you die.

Like any idea, this can be carried to extremes. Our actions are rarely insulated to ourselves, so don’t mistake this to be suggesting that you surround yourself with people who enable you to live in your own unchecked fantasy (you know someone who does this and it’s not a good look). Having said that, the people you have in your life profoundly impact the quality of it and I’ve found that I generally want to avoid the type who stand under waterfalls and complain about being wet. We’ll find the right balance.

The only reason this idea justifies an essay is because of the second & third-order effects. It’s quite obvious that everyone wants what they like and they generally make decisions they think will get them those things. However, it gets a little nuanced when 1) we do not know ourselves and therefore our true wants and/or 2) choosing something we want today means we will be unable to have 10 things we want in five years. Let’s make sure we’re on the same page with order effects. Take exercising. First-order effects are sweating, exhaustion, and some level of euphoria. A second-order effect would be better posture, or not panting after walking up a flight of stairs. A third-order effect would be lower lifetime healthcare costs due to improved health which frees up time & cash for you to do and buy other things.

People usually start doing something for first-order reasons, but down the road through an accumulation of the small decisions we mentioned earlier, end up somewhere else due to the second- or third-order effects – sometimes undesirable. The opposite is also possible. In our future life drawing, we may have been incapable of imagining a future job as an electrical engineer or sommelier (sign me up), but through continuous iterations of deciding what we like as we go through more experiences, we end up somewhere with a previously unimaginable & desirable result. I suppose if you stand behind every decision & action you ever make then who cares where you end up?

Here is a hypothetical, but useful, example of things getting away from us. Suppose a guy says, “I want a big house in a good school district because my wife wants one, that would be great for my family, and that’s what people do.” Well, pretend it’s slightly outside the budget, the mortgage payment stresses him out on a daily basis, and he’s at work too long trying to pay for it. Therefore, he never spends time with his wife and kids. Each time something breaks, his face gets a shade more red. Multiply this daily routine by a few years. Gets divorced, sells the house, and the kids become Tennessee Volunteers fans (Go Dawgs). Complete misery.

As a reminder, I have nothing against houses. I use them as examples because they are ubiquitously relatable to most Americans. In fact, your housing and where you live are essential components of designing your life. Winston Churchill nailed the idea mid-cigar when he blew out a contemplative cloud of smoke and said, “First we shape our buildings and then they shape us.”

Two central premises to this are the importance of time and agency over your life. Those who do not feel the clock of their life ticking or often feel like victims of circumstances will not find this concept compelling.

There are two general approaches to designing your life:
1) being selective about each addition to it (harder on the front-end — try resisting Netflix or french fries)
2) experience as much as possible and cutting out/replacing the ones you do not want (harder on the back-end — try deleting Facebook, permanently ending a toxic relationship, or even worse, trying to reverse irreversible outcomes). In design, there is an idea that when you are trying to make something beautiful (for instance a bedroom), first remove everything that is ugly. This is a useful heuristic, especially for older people who are unsatisfied, but do not know where to start. Ask: What do I dislike the most about my life?

Regarding #1, Warren Buffett says, “The difference between successful people and very successful people is that very successful people say no to almost everything.” Don’t go watch Yes Man right after reading this or you’ll be stressed out for the rest of the day. The quote has layers of meaning to it, but the relevant point is there are so many things competing for your attention, if you are always saying yes you are spreading yourself too thin and you are by definition not focused. I practice what I preach, but this one is difficult for me.

I will use an easy example in my own life for #2. When I first started working, I wanted to be Frugal Fred and save money, so I ironed my own shirts. I hate ironing shirts. As one of the world’s worst/most distracted ironers, I can probably iron 5 shirts an hour because I watch stand-up comedy on Netflix while I do it. There is pathetic and then there is 5-shirts-an-hour pathetic. I decided to deploy what economists call comparative advantage and let the professionals do it for $1.25/shirt. If you do not already do this, you should quantify how much your time is worth (working) per hour and what a reasonable threshold is to outsource chores and routine tasks, because once you are putting significant amounts of energy into your craft/occupation, saving $6.25 when you could be recharging is simply not worth the energy. Mathew McConaughey’s threshold is higher because in an hour he can make $100,000 shooting a Lincoln commercial. No idea if that number is right, but you get the idea. Star Cleaners is better off pressing my shirts and I’m better off not having interruptions so I can focus on the things I want to focus on. What optimists call a win-win.

Once you pick your approach, it sounds alluringly simple: Imagine your life exactly as you want it. Then make decisions that get you closer to that. However, readers will notice that constraints, trade-offs, and discipline have either been implicit or explicit in every post so far. There will be blood.

It can be as simple as if you hate traffic, get a place close to work. If you hate work, spend time outside of work deserving the job you want. If you want to save money, do not spend it all on rent, car payments, and going out. But we want it all. The place next to the office may cost more, your social life may be more important than your career, and so on.

This is where the decision-making part comes in and you figure out what you really want. It is better to do this deliberately. Venkatesh Rao over at Ribbonfarm would caution against “getting trapped in imitative life scripts that may not work for you.” This is similar advice to “You do you” (which could be valid if it was not mostly given at terrible times). In other words, if you try to copy the design of someone else’s life, it will likely disappoint.

We need feedback to determine the quality of our decisions. The feedback from our choices is often received fastest in our physical appearance and mood. Like our life, we can shape our body, getting closer to what we ideally want it to look and feel like. We control this with inputs, rest, exercise, skincare, et cetera. A medium- to long-term approach in these categories gets rewarded. Once you begin to see the cause-effect relationship in such a direct way, it gives you confidence to trust the process in planning longer-term, more abstract goals where the feedback is often delayed and sometimes invisible. For instance, if you want a strong vocabulary (abstract goal), the most effective way to achieve this is by reading the work of great writers. If you read one book, you will not notice any effects. If you read 100, you will.

In the way I imagine it, designing your life entails taking steps to make each phase or season of your life better (abstract goal) than the one before it, however you define that. I am sure we can agree that increasing degrees of freedom is better. There is a paradox here. When you were a kid you did not have a driver’s license and now that you are an adult you do not have to sit in a classroom for 7-8 straight hours like you did in school, so at least spatially, you have much more freedom. However, most adults would laugh at the idea that they have more freedom now. This is because of the way they have designed their life and the responsibilities their choices and circumstances necessitate.

For adults, freedom is almost synonymous with money. Although financially, it is easier than ever to design your life, this convenience can get slippery. One day you buy something online. Next thing you know you have Amazon packages magically appearing on your doorstep every day. Good for Amazon, bad for your credit card statement.

As you can see from the few examples here, each seemingly compartmentalized part of our lives spills over into another, adding complexity, and there are infinite directions to take this idea. Your life is your canvas.

Occasionally, someone will say, “Not everything has to be so planned out JOSH, just go with the flow,” or something similar. This person either innocently misunderstands what I am saying or more likely, has just realized how doing some of these things could have prevented pain. It is crucial to be clear on these two possibilities. One, spontaneity is great. The best day of your life is not the day you plan to be the best day of your life. The entire goal of planning is to save time and give you flexibility, not cause stress. Relaxing is not wasted time. It could be argued that the goal of human activity is leisure time. In contrast, wasting time is doing something without a benefit. If you value a ton of time spent on the couch watching football and you can support that lifestyle, structure your life such that you can spend heaps of time on the couch watching football. For the second, mistakes happen. Some are fixable, some unfixable, some in our control, many out of our control.

We are simply aiming for better-than-random conditions for ourselves. 


See also:
The Design of Everyday Things by Dan Norman

Algorithms to Live By: The Computer Science of Human Decisions
by Brian Christian & Tom Griffiths

Stumbling on Happiness by Daniel Gilbert


Where’s the bag?

Wisdom crieth aloud in the streets.
Proverbs 1:20

Floyd Mayweather, Jr. carries around a bag that has $1 million cash in it. He often has an entourage with him, and if he’s not carrying it, he frequently asks to no one in particular, “Where’s the bag?”

There’s a case to be made that this is dumb, and other reported & rumored things Floyd does are loathsome. But, I look for good ideas wherever I can find them and it reminded me of a piece of advice Warren Buffet received and reprinted in his 1970 Letter to Shareholders.

Dear Fred & Catherine [Buffett’s uncle & aunt]:

Over a period of a good many years I have known a great many people who at some time or another have suffered in various ways simply because they did not have ready cash. I have known people who have had to sacrifice some of their holdings in order to have money that was necessary at that time.

For a good many years your grandfather kept a certain amount of money where he could put his hands on it in very short notice.

For a number of years I have made it a point to keep a reserve, should some occasion come up where I would need money quickly, without disturbing the money that I have in my business. There have been a couple occasions when I found it very convenient to go to this fund.

Thus, I feel that everyone should have a reserve. I hope it never happens to you, but the chances are that some day you will need money, and need it badly, and with this thought in view, I started a fund by placing $200.00 in an envelope, with your name on it, when you were married. Each year I added something to it, until there is now $1000.00 in the fund.

Ten years have elapsed since you were married, and this fund is now completed.

It is my wish that you place this envelope in your safety deposit box, and keep it for the purpose that it was created for. Should the time come when you need part, I would suggest that you use as little as possible, and replace it as soon as possible.

You might feel that this should be invested and bring you an income. Forget it — the mental satisfaction of having $1000.00 laid away where you can put your hands on it, is worth more than what interest it might bring, especially if you have the investment in something that you could not realize on quickly.

If in after years you feel this has been a good idea, you might repeat it with your own children.

For your information, I might mention that there has never been a Buffett who ever left a very large estate, but there has never been one that did not leave something. They never spent all they made, but always saved part of what they made, and it has all worked out pretty well.

This letter is being written at the expiration of ten years after you were married.

(Signed)

The letter was written in 1940 and Buffett found it in 1970 (with the $1,000 still there haha). To modernize the advice, using an inflation calculator I found on Google, $1,000 in 1940 is equivalent to $17,623 in July 2017. Buffett’s company, Berkshire Hathaway, takes it a step further than Floyd, and keeps $20 billion. We can tailor our number to our individual circumstances. I like the advice (including the safety deposit box) precisely because it feels unnecessary and inconvenient.

Can you imagine one day waking up and getting an email from your bank, “Sorry, we got hacked. We think you had $x in your account. You’re prolly not getting it back. Hopefully the FDIC has you covered. Maybe check out Bitcoin. If the power hasn’t gone out. Peace & Blessings.”?

“Where’s the bag?” -You, next year