The event of my life happened on April 2, 1987. It was the most unlikely of events and was totally an accident. Unfortunately you can’t enjoy what I experienced. The modern world no longer tolerates that kind of thing.
The spring of 1987 was a calm part of my life. I owned my own home, I had money and I was living the dream. Only one thing was missing.
My lust to learn goes back to my childhood. With plenty of free time I could read from sunrise to sunset. I would walk to the corner café for a cup of coffee and dinner most days. I would putz around the place and yak with the local farmers as I swilled my coffee. To prevent my underwear sticking to my ass or crawling up thereof I would hop behind the counter and pour coffee. The patrons loved the conversation so the owner comped most of my meals and coffee.
As much as I was enjoying life I was lonely. (And young!) The farmers were a mild diversion and books were a mild form of cocaine, but there was still something missing.
I would take a class or two at the local college those years. Eventually I met some people I really enjoyed talking with so we started to take the same classes. A degree made no difference to me so I just took what interested me with an emphasis in having a friend or two in each class.
The spring of 1987 was different. The loneliness was becoming unbearable. I had my eye on a cute girl in Microeconomics. She was heavy on the makeup, but had the look I found intoxicating. I tried to make small talk with her. I thought we were making a connection.
One day a group of guys were sitting in a side area with plenty of windows discussing historical issues. Some of the other guys had the class; I didn’t. My love interest was listening to the conversation.
At one point another guy participating in the conversation said something I felt was effeminate. My love interest was very offended and let me know about it. The gloss was off the rose. There are things worse than loneliness.
The next semester our small group, including my prior love interest, moved on to Macroeconomics. It was the spring 1987 semester.
Class was Tuesdays and Thursdays from 4 p.m. to 7 p.m. Tuesday was fine, but there were issues with Thursday. You see, our group was a bit on the frugal side and next to the college was The Image, a bar connected to the bowling alley. Thursday night was happy hour and if we got there before 7 we could buy a drink (I was a soda guy back then) for $1 and we could eat all the tacos we could scarf down.
Our group must have been charismatic because the professor understood our plight and agreed to cut breaks short so class could end 10-15 minutes early on Thursdays.
So far so good.
But as frugal as our group was we also needed to get out and enjoy life a bit, too. Every so often we would make plans for a Friday night at The Image. Then the fateful event happened.
The Image had a dance floor and contemporary music. We danced as a group but dating among our own was rare. I had no interest in any female members of our group. In fact, some of the female members of our group were later invited to my wedding.
On April 2, 1987, a meek girl with a sad face was dancing with her friend center of the dance floor. I had to meet her; I had to know her story.
She was the most beautiful woman I ever saw. Girls like that don’t date guys like me. But the pang of loneliness was too strong to ignore. I gathered my courage and walked onto the dance floor and asked if I could join her and her friend. She nodded.
Why I didn’t pass out on the spot is beyond me. God probably loves crazy fools. We danced a few more songs and then left the dance floor and talked. It was loud and it was hard to make a real connection. We enjoyed a slow dance. Did I mention God, heaven and a few other out-of-this-world feelings I had?
The beautiful woman turned pale when I gave her my name. She didn’t tell me her name. I was disappointed.
I begged her to return the following week. To my surprise she did.
Instead of dancing we left The Image for the sitting area of the bowling alley where it was quieter. (Now you know how loud the music was.) We talked for hours. The connection was instant. I found my soul mate. If only she feels the same.
She finally shared her name. Sue. Her name was Sue. (She doesn’t like to be called Susan because that is what her dad called her when she was in trouble.) She told me she was engaged a few years prior to a guy with my name. It explained a lot.
She still refused to give me her phone number or address, but did say she lived near only a few blocks away, pointing in the direction of her home. She mentioned the name of the avenue, but not the exact address.
At the end of the evening I walked her to her car. I was rewarded with a hug. Sue promised to return the following week. We would see each other sooner.
Somewhere around midweek I started missing Sue. (I missed her sooner, but I was able to control myself for a few days.) After class (it might have been Thursday, but knowing me it was certainly Tuesday) I decided to take a ride down her street after class.
I couldn’t believe my luck when I saw her car outside a home a few blocks up from the college. Emboldened by my prior luck I stopped. I contemplated the risks Sue’s dad might own a gun. Lust got the better of me.
Sue’s mother answered. Sue came to the door. She invited me in. I was the luckiest man alive.
That was 31 years ago. We were married one year and six days after we met. A few weeks ago we celebrated 30 years of marriage and I never regretted a one.
When in a crowd I tell the story a bit differently now. I like to tell people the basic beginning facts where I met Sue, we danced, she wouldn’t give me her name or address or phone number and I walked her to her car.
Then I add I decided to drive up and down every street close to The Image until I found her car and made a nuisance of myself.
I think my fantasy story is more entertaining. And people like to think it’s funny. At least they used to. Up until the #metoo movement.
A Different World
If I pulled the stunt I did 30 years ago I would be drawn and quartered by the #metoo movement if not arrested. There’s even a good chance a few from the movement will criticize me for not knowing how the future would turned out and didn’t adjust my behavior accordingly back then.
Under today’s unwritten rules a lifetime of happiness for Sue and me would be sacrificed. Two beautiful daughters would never have been born. And we would never have celebrated our 30th wedding anniversary. What a waste!
Yet, the #metoo movement had to happen! Had to. With a wife and two daughters I feel deeply for the rights and safety of girls and women. Men can be cruel and even violent. Rare is the man suffering catcalls walking past a group of women. Women are not as lucky.
As important as the #metoo movement is, there are real problems with the revelations. So many women—if statistics are correct a majority of females (women and girls) suffer from harassment, assault and rape—are victimized that when they all come out with their story it is overwhelming. It begins to feel normal. And that is really bad.
So many women (and girls) have been abused that it is easy to start thinking every female is a victim and every male a scumbag. Nothing is further from the truth.
There are degrees of inappropriate behavior. (You can shoot me later for my opinion.) Rape and abuse of children is always the ultimate bad when discussing these issues. Touching is equally bad, but rape still is worse.
The real problem is communication. If men are honest they all have to admit saying or doing something inappropriate at one time or another. It could be as simple as an insensitive comment about appearance. As innocent as it was meant it still can cause harm because men have no idea how raw the nerves on women are after a lifetime of unrelenting male behavior.
Men who agree with the #metoo movement find themselves in a corner. What can they say without causing harm? What is an innocent inquiry could be construed in a harmful way.
As important as the #metoo movement is we must be careful. When a mere accusation becomes a conviction of guilt in the public arena we risk destroying the movement which offers so much hope for women in the future. Accusations are front page news and for good reason. People we thought highly of did some pretty shitty things!
But not every accusation should be treated equally. I saw an article in The Economist several months back where they listed all the famous people accused of inappropriate behavior. One man was listed with his photo. The inappropriate behavior? He made her feel “creepy”.
It gets uglier. Lawrence Krauss is an American cosmologist I highly admire. He talks English when explaining the complex issues surrounding theoretical physics and cosmology, two subjects I am very interested in and spend serious time studying.
In February of this year Krauss was suspended with pay from his position at Arizona State University due to a BuzzFeed article accusing him of inappropriate behavior and comments. He also resigned from positions in charitable organizations to prevent his attendance becoming a distraction.
Here is the funny thing. Nobody has accused Krauss of anything. Nobody! A news article (it’s on the internet so it must be true) was published with the intent to harm. That’s it. I’m not privy to all the facts, but what I do know concerns me. Nobody has complained over anything Krauss has said or done even when it was made public people were to come forward with anything they had.
That is really messed up and doesn’t do any good for society or the #metoo movement.
There is absolutely no doubt women and girls are abused and experience unwanted vulgar comments on a regular basis. The sheer volume is no longer an unspoken concern, but a raging crisis!
Every woman must be allowed to tell her story. We must also take appropriate action. If the accusations make it likely more women will be harmed immediate action must be taken as a precautionary. If imminent risk is not present we need to wait before passing judgment. The incidence of false claims is low, but still present. We can’t allow a movement with so much to offer to suffer due to a few questionable claims. The risk is too great.
Men are getting gun-shy. The newsfeeds are so filled with women victimized by men that men are feeling they are all guilty. On some level most men have said hurtful things. But an inappropriate comment shouldn’t stigmatize a man for life!
And men are not alone in saying things they shouldn’t. My office is all women so I hear what the ladies say and sometimes even I get uncomfortable. (I don’t avoid hiring men; they just don’t apply for the job.) I try to tone it down when they get boisterous with variable success.
The females in my office are a good bunch, but if men acted that way around women the boom would be lowered and the #metoo movement invoked. I might be the boss, but shouldn’t feel uncomfortable around female employees. Or should I?
When women talk about women stuff guys look nervously for the exits. Uncomfortable doesn’t mean wrong! Yes, my staff talks girl-talk because they are all female. I turn and walk the other way whenever I can. Just because it is uncomfortable for a male, me, to hear something doesn’t mean they are saying bad things. (Except when they think it would be funny to dress the boss in drag. Not funny.)
Men and women are not that much different. We say and do things from our perspective, our worldview. Inappropriate touch is always wrong. Words can be wrong while not crossing a line. Anything insinuating unwanted sexual contact is always taboo and deserves a strong reaction.
The #metoo movement is causing some unwanted results. As men feel more and more isolated they are pulling back from intimacy. What Sue and I enjoyed 30 years ago is less likely to happen today. Why would I, or any man, pursue a love interest the way I did? That’s inappropriate behavior! And over 30 years of wedded bliss and two wonderful girls would never have existed.
The #metoo movement needs to find a middle ground where men and women can coexist.
The world is different today. The internet makes it easy for men to satisfy their, ah, needs without a human being present. Sorry for being so blunt, but it has to be said.
Women want intimacy and complain men no longer provide it. A simple hug is a social crime so men avoid all contact.
Let me be clear on what I am and am not saying. I’m not talking about sex. You can have sex without intimacy. That is what prostitution and strip clubs provide. Sex can include intimacy, but intimacy doesn’t require sex.
Intimacy is the emotional and personal connection between two people. Co-workers can have it; so can lovers. In each case it is a different level of intimacy. Soldiers on the battlefield must have a non-sexual intimacy sometimes referred to as trust. As you can see, intimacy has many flavors.
The intimacy I’m concerned with today involves the interpersonal relationships between men and women. Most women hunger for intimacy. Honest men admit the same. If I had to give up my snuggle-time with Sue my life would be greatly diminished. And for the record, snuggling is not for the young only. After 30 years of marriage I enjoy a warm snuggle more than ever. Pinky (my cat) only wants to snuggle on her terms. Sue is open to compromise to my delight.
What Does This Have to do with Personal Finance?
A frequent refrain in the personal finance arena involves happiness. Bloggers love to talk about the “why” of early retirement and financial independence (FI). FI can bring us happiness, we are told.
I think they are all wrong! Your goal isn’t happiness; it’s joy. You just don’t understand the difference between the words and it does make a difference.
Happiness is generally triggered by an external event while joy comes from within. Winning the lottery brings a lot of happiness upfront. That is why a leading book on Stoicism is called The Joy of Stoicism and not The Happiness of Stoicism. (Yes, I know I butchered the title. I did it to fit my storyline.)
We want happiness, but crave joy. When I felt lonely I was still happy, but longing for joy. Sue brought me happiness and I allowed it to bring me joy. No matter what happens, what is in here (pointing to head and heart) is what will bring me joy and Sue will always be in here.
What value is financial independence or early retirement if you don’t have joy? If happiness is what you want pretty much anything will do. But joy. That is a whole different animal.
I am well aware how long this post got. I’m still not sure I got everything out I wanted to say. The #metoo movement is so important and still at such risk of burning out before desperate changes are made in our society.
While changes are necessary to allow women to live without threat of assault or abuse, a common ground must be found where a man can pursue his love interest in an appropriate manner and not be branded. Chivalry should never be dead.
Most women enjoy being courted. It feels good to be wanted by someone you find appealing. Men must learn boundaries. It is easy (with a look or a word) to get permission to hug. This isn’t a hard game to learn: you don’t touch an intoxicated woman sexually; you never touch without permission even if you’re married (there are still boundaries in marriage; that is why mine is still strong after 30 years); offer intimacy before offering sex. Intimacy is more fun than sex! Sex is better with intimacy!
Or you can succumb to the alternative—prostitutes and strip clubs—a world devoid of intimacy. And a world I don’t want to live in.
There is a secret seldom spoken of by the financially independent. Those in the know can hear echoes of the secret periodically in the utterances from great financial leaders like Charlie Munger when he said the surest way to get in financial trouble is with the three Ls: liquor, ladies and leverage. Then Munger’s buddy, Warren Buffet, laughs about the comment in an interview saying Charlie was joking about the first two; it’s leverage where all the trouble lies.
Did you miss the secret? Unless you are loaded (financially, not with liquor) there is a good chance the greatest secret of wealth whistled past your left ear unnoticed.
Here is the secret for those who missed it:
When you are in debt the clock works against you. Every morning when you wake—weekends, holidays, sick days, birthdays and work days—you are already behind. The mortgage, credit card, car loan, et cetera, all tacked on interest the second after midnight. Long before you rolled out of bed and poured your first cup of coffee you need to work to pay the interest before you have money for food, clothing, shelter or entertainment.
Here is the secret if you weren’t paying attention:
Saddled with debt the clock works against you. Tally up all your debts and calculate the interest accruing daily. Now you know why it’s so hard to get ahead. It isn’t your wage; it’s you! You forgot to do the math and now the universe is teaching you a valuable lesson. If you survive. More on that in a moment.
Here is the secret if you were distracted by the bright lights:
If you have no debt you start each day with a clean slate. You owe nothing to anyone as you start your day. You still need to take action to cover your daily needs, but at least you are not behind before you start.
The secret again is:
Without debt, but with investments, interest accrues to your account before the coffee is brewed. Dividends were earned, wealth created.
The secret again:
Investments in interest baring accounts build slowly, yet daily. Investments in index funds means virtually every purchase by every man, woman and child added something to your nest egg. Each sale added to the coffers that pay you dividends. Each sale adds value to the companies you own in the index fund. Each sale is part of the wealth creation process.
In case you missed it, the secret is:
Without debt and a load of investments you have millions of people on your payroll managed by some of the brightest and most educated people in the world. They work hard for a salary. They work hard making you rich!
***In debt you are a slave; without debt you’ve broken the chains and ripped open the shackles and threw them into the abyss.
Without debt you are free; without debt and in possession of wealth, each day is yours to use as you chose.***
Pay attention! I will repeat the secret one last time:
Debt turns you into a slave! Every day you owe your master. Every day! He is a cruel, heartless master. When the clock ticks past midnight the interest for the day ahead is due.
Only those without debt and in possession of investments are free! Those with wealth are free to live each day as they choose. They can build or create more value or take time to reflect on a life well lived. You can share it with family and friends. Without a harsh master demanding your soul you can walk any path you choose. Any path.
I could go on for another 2,000 words, but it would be to no avail. This doesn’t need a long story. The message is short and simple. Even a child can understand it. It requires the poison of mass media to brainwash you into wanting more than you need on a short term of slavery, ah, easy payment plan.
Copy this post and paste it on the refrigerator door so you see it first thing in the morning.
Paste a copy on the bathroom mirror so you can read it as you brush your teeth.
Carry a copy in your pocket close to your heart.
Never forget the message. Read it again and again until it is internalized. Only then is the ultimate secret of wealth personally yours.
Now you know the secret:
1.) Get out of debt.
2.) Invest constantly in broad-based index funds.
3.) Live the life of your choice.
Now that you know the secret you are free. Perhaps for the first time in your life.
Wealth Building Resources
Personal Finance is an incredible tool to manage all your investments in one place. You can watch your net worth grow as you reach toward financial independence and beyond. Did I mention Personal Finance is free?
Medi-Share is a low cost way to manage health care costs. As health insurance premiums continue to skyrocket, there is an alternative preserving the wealth of families all over America. Here is my review of Medi-Share and additional resources to bring health care under control in your household.
QuickBooks is a daily part of life in my office. Managing a business requires accurate books without wasting time. Quickbooks is an excellent tool for managing your business, rental properties, side hustle and personal finances.
A cost segregation study can save $100,000 for income property owners. Here is my review of how cost segregation studies work and how to get one yourself.
Countdown clocks abound. The most ominous is the doomsday clock counting down to Armageddon. With 26 days to the tax due date here in the States tax professionals are counting down to a less tragic event.
Early retirement was something I dreamed of from high school on. I was attracted to the seasonal nature of the tax profession. The ease at which tax offices can be sold also held my interest. The original goal was to build the business, save like crazy, invest said monies and take an early bow. I decided I should at least enjoy my profession if I’m going to give it my all. The unintended consequence was that I couldn’t unplug as planned.
By the time the birthday cake reached 40 candles I was ready to retire to a quiet and secluded life. Pulling off the Band-Aid fast was tried to no avail so I started a countdown clock. I published it on an old blog. The countdown clock listed the years, months, days, hours, seconds and even tenths of a second. That baby really had a lot of action on the right side.
So I could adequately plan my transition to Easy Street I set the clock at three years. I started an active search for buyers. Serious investors showed up. As the clock ticked down I started to visualize my life in retirement. I hated what I saw and chickened out.
Time Counts and Keeps Counting
When I was a young man I tagged along with my dad as he went to meet the owner of a restaurant in a small town near where I live. The restaurateur was in the final stages of selling his baby. He put 15 years into the venture and did rather well. I was perplexed over why he would quit at a time when he was at the top of his game. Now I realize how often professional athletes make the same mistake I did back then. He then gave a nugget of wisdom that has never left me. “If you can’t make enough to retire from a business in 15 years you never will.”
As the conversation went on he expanded his philosophy. He said the first five years you work like crazy to get the thing off the ground. The second five year period you start making real money. The final five years you should turn obscene amounts of money and if you save and invest there should never be a demand to work again for you.
Wisdom shows up from unlikely sources. An afternoon ride with dad turned into a learning experience. Learning experiences are everywhere when you are open to the knowledge.
In a way the restaurateur had a countdown clock he started the day he opened the doors. In a way I did too. The difference is I didn’t follow through.
Life is too short to waste on things you don’t enjoy. Part of the excitement of life is the feeling we had as kids on Christmas morning. Wanting is far more pleasurable—and memorable—than having. Once the gifts are opened the excitement is over!
Countdown clocks provide adults with the same opportunity. It’s common for people to have a countdown to vacation or retirement. Expecting parents countdown to the expected delivery date. Now if baby would just adhere to the schedule mom and dad would be grateful. (Baby will provide many more disappointments after messing up the delivery day. And a diaper or two hundred.)
Should Everything Have an Expiration Date?
We’re all familiar with countdown clocks in all their manifestations. The real question is: Should we embrace the countdown clock?
I personally think the countdown clock is one of the most powerful tools we have if used properly. As much as I love tax work I’m still feeling the burn as we approach the deadline. I don’t start the countdown clock in February. I’m still fresh and full of lust for another tax project. Now, with a couple months of endless sitting and pounding out returns, I’m ready for the expiration date to arrive. (Twenty-six days and counting as I write, but accountant’s already know that.)
Life should be exciting and filled with anticipation. Expecting a child is awesome (I’ve done it twice so I know), but as Mrs. Accountant can attest, there comes a time when you want that creature cut out of the womb!
Anticipation only works if there is a release at the end. My business exit countdown clock lost its punch when I removed any chance of an expiration date. It also lost meaning.
There will still come a day when I no longer can walk the mile. It would be a dirty shame if I continued on my current path until I was unable to perform in an acceptable manner. There is a sad story behind that.
When I started my practice I hired an extraordinary tax professional. Her name is Bev. For decades she lived the dream of seasonal labor with plenty of time the rest of the year to pursue additional dreams. Bev’s husband worked for my dad’s business. Bev handled books for another business of my dad’s. She also had experience working in other tax offices. She was good at what she did.
Then that thief we call time left his mark. Bev grew older and I sometimes like to say she lost a step as she approached 70, but that isn’t the reason I didn’t call her back one year. The last few years she worked for me the weather of NE Wisconsin made life miserable on Bev. When the temperatures dipped below zero as it does every winter, Bev struggled getting from her vehicle to the door of the office. It wasn’t a long slog either. The cold just took her breath away and it started to scare the hell out of me.
If anything ever happened to Bev because I kept inviting her back for one more year I could never forgive myself. I planned the exit for the last few years she worked for me. Eventually there was no question. She had to take a knee.
Bev is now a client. She is due any day now. I am grateful for all the years she gave to my firm.
If only I could garner the courage to treat myself with the same respect.
Expiration Isn’t the End!
Only one expiration is the end and we all get that one right the first time.
A countdown clock can create anticipation for a vacation, wedding day, retirement party or any other event. Letting go is really hard for some people. Remember who you’re reading.
A countdown clock, an expiration, doesn’t mean the end; it should signal the beginning of a new adventure. Bev was hurt when I told her my concerns for her health. She knew I was cutting her loose. Bev is a lot like me. She would have died running the obstacle course for my company. As her employer I had an obligation to make sure she didn’t die for the cause. Bev deserved an awesome retirement and is enjoying one. Another tax return isn’t worth risking your life over.
There are countdown clocks I have adhered to. When this blog came around I had a difficult choice to make. I have a farm, a tax practice and a new blog. One had to go. I farmed most of my life so I decided it was time to take a different path. There might be a day when I return to my roots. (You can count on it.)
I started a countdown clock to liquidate the farming obligations. Now I have a few chickens for personal consumption. Breakfast is on my ladies.
One end was also a new beginning. You can do anything, just not everything. Choices must be made. Everything should reach an expiration point.
Expiration opens opportunities. I can set a countdown clock in my office without walking away from the profession! I can hire more qualified tax professionals and train them. I still get the thrill of tax season without the pain of endless hours in a chair. (For the record, that sounds mighty nice about now.) Clients sometimes hate I don’t take every last stinking step myself. They don’t know what they are asking for. Most men (and I say men because we are weak compared to the more civilized gender) run until they break. Clients will not like that either.
Now that we have the farm sold (okay, I still own the farm; it’s just devoid of animals at the moment) and the tax practice has an expiration date, what about this blog? Oh-oh! Did I strike a nerve?
I haven’t started a countdown clock for my practice though it is for sale at the right price. (Note: It’s cheaper now than latter in the year.) Realistically I’ll be around for the foreseeable future. But I may not pound as many numbers as I once did.
I’ll let you in on a secret. I spend more time reviewing tax returns than preparing them. Keep it quiet though. Clients don’t have a clue. If clients ever find out they’ll be glad to hear I reviewed every return this year. (So far.) That will change as the calendar rolls a few more years into the future. It’ll be gradual. New and old employees will do more of the work and the world will never know.
The countdown clock has begun.
And as for this blog? I’ve been writing since high school. Finished my first novel my senior year. (Or was it my junior year? I always forget. Age.)
I’ve written other blogs, published books, sold magazine articles and short stories. I even published on content farms. (Notice I didn’t provide any links. Not all material is worth reading. Even your favorite accountant needed a growing and maturation phase.) There is no doubt I will write until the day I die.
But I also wrote what I now call my skanky blogs in the flash fiction TG community. I did it for four years and the traffic was seven to eight times more than this blog. I had my reasons for writing the material. One reason was I always wanted to learn to write flash fiction people would read. I worked that out of my system. Next!
All good things must end. Today isn’t that day for this blog or my practice even, regardless what I say while in a sleep deprived coma. Tax work, consulting and this blog are here to say for at least a few more years.
But if I did start a countdown clock and place it front and center on the home page it might bring back some of that excitement and anticipation.
Back in the old days the FI (financial independence) community was a different place. Advice was simple and straight forward. King Solomon reminded us to avoid lending or borrowing. Nearly half the parables of Jesus have to do with money and wealth.
The simple message sold well. So well in fact it became ingrained in religious dogma. The goal was honest. Work hard, save and you will enjoy your old age.
The old school in the Church of FI made the most of a basic message. The advice and values were handed down generation to generation. It lasted for one simple reason; it worked!
The early FI community didn’t have a cool name to draw a crowd. Solomon had proverbs and Jesus had parables. Short stories with a powerful message were the perfect device to hand down important information through the ages.
The early days of the Church of FI are similar to the early days of Christianity when there was a Catholic church. The learned may recall the word catholic (little c) means universal. The Catholic Church was therefore the universal church of God. There was one message, one literal scripture, one true triune God. The FI community for millennia was also an all encompassing philosophy.
Some philosophical movements contained the truths of FI, but had other motives. Sophists, Epicureans, Christians, and let’s not forget the Stoics. But that isn’t what our story is about today. Today we will explore what happened to that FI community of old and how is survived (so far) to become the cult classic so loved by business media outlets everywhere.
The Eve of Reformation
If something is working fine, break it to see what makes the darn thing tick. You know, like killing the goose that lays the golden egg so we can mass produce the goose.
For thousands of years the perfect FI message did the job it was intended to do. But as the Industrial Revolution convinced man he could do better a more scientific approach was needed. By the early 20th Century intelligent men were popping the hood to figure out how the goose laid that darn golden egg.
In 1926 George Clason gave us The Richest Man in Babylon. The story resonated because it basically outlined the same message from the ages. The message delivered in parable was also comfortingly familiar to the more religious time. The story of how a rich man saves money boils down to “Pay yourself first”. It worked back then and works now! Our ears find familiarity in stories advising to save first and spend what is left rather than the foolish other way around.
Now that the ice was broken it was time to dig deeper into the details. Dale Carnegie showed us How to Win Friends and Influence People in 1936 followed by Napoleon Hill’s Think and Grow Rich in 1937. Hill also did something unheard of up to his time. He researched his topic by interviewing the wealthiest people of his time: John D. Rockefeller, Charles M. Schwab, Henry Ford, Thomas Edison and more. The scientific genie was out of the bottle. The goose lived and we now knew a bit more about how those golden eggs were produced.
The scientific revolution in wealth creation brought a new wave of FI leaders willing to spill the beans. Ben Graham published The Intelligent Investor in 1949 and the world has never been the same. Graham’s great disciple is none other than Warren Buffett who proved you can do very well stuffing your money in equities.
More and more books and seminars were to follow. No one had a clue a schism was on the horizon in the FI world. The Reformation was here. The Catholic Church would survive, if smaller, and would never be the only game in town to protect souls, ah, financial fortunes ever again.
Ever since the reformation of the FI community took place scholars have debated what caused the schism. Some say it was boredom, others our advancing way of life and technology. Me, I say it was the internet.
Before the internet you had a limited avenue to spread your message. Printed material and word of mouth dominated. Television and radio allows for a broader audience, but these forms of media needed a message with mass appeal. Save money! The majority of people didn’t want to hear it. Besides, you can’t take it with you.
(Yes, kind readers, the tone of this post has changed. I set the scene and now my warped sense of humor is bubbling to the surface where I wanted to end from the very beginning.)
The internet changed everything. Never before could a young man see a naked, ah, sorry wrong story.
The internet allowed every niche an audience. If you had an interest in conspiracy theories you could now spend all day on YouTube and websites conspiring until you bleed from every orifice. And people didn’t mind since you were comfortably locked in your mother’s basement.
A lot of false starts dominated the early internet days. Several blogs found a following in the FI community, kind of.
You see, the blogs weren’t true canon. The Church of FI had a specific set of rules handed down by God to Moses and passed along to us. The internet gurus were NOT following the rules. They added something to the text! HERETICS!
What is it they added, you ask? RE! Yes, RE, as in retire early. This was the greatest sacrilege in the history of FI! FI was now FIRE to many, as in hell FIRE if you get my drift.
Wealth was always important to the Church. (How else you gonna toss some coins into the plate on Sunday if ya ain’t got nothing to toss in?) Work ethic ranked nearly as high as wealth. This crazy notion of retiring was heresy. Work was good for the soul. Retirement was for old worn out people. To retire before you were practically dead was more than the Church could handle. It was time for a few excommunications, as if that ever worked.
The ninety-five theses were spiked to the church door for the world to see. A few fearless crusaders broke from the catholic church of FI to create the FIRE community. We’ll call them Lutherans in honor of Martin Luther and his behavior back in 1517.
The Lutherans embolden a whole new crew of people predisposed to FI thinking, but preferred a less rigid orthodoxy from the catholic faith. These crazy religious fanatics took the RE thing the nth degree. Most loved the RE idea, but needed something to fill the empty spaces. A large number wanted to fill their days with a side gig or start a business. In essence they traded one job for one they could be boss in. They became the person they loathed at their day job. These guys are the Baptists and Episcopalians of the FI world.
Then we got the true whack jobs who thought they would gallivant around the world. These FIRE people couldn’t wait to break out of their cubicle and get on a plane/boat/car to go someplace else. This group splintered fast into even more sub-sects of the shattered FI religion. One group traveled the world; another enjoyed travel closer to home in an RV or even ditched a terra firma home for the RV. Most FIRE community travelers found ways to hack the system with credit card rewards. Travel was virtually free and certainly cheaper than living in a normal house. These folks are the FI communities Mormons and Jehovah’s Witnesses.
I saved the best for last because it is the smallest (and newest) sub-set of the fragmented FI world. Yes, these are the people who reach FI, refuse to quit, keep working their day job or business and enjoy home life with nary a thought given to travel.
Your favorite accountant falls into this last category, I’m sad to say. Travel is punishment to me and my kind (grammar police can send their comments to. . .). I wake up early, excited to get to the office. I love my work life and am fulfilled by it. I create value in my daily duties and as a creature of habit prefer to keep doing what I’ve always done. I guess that would make me the Westboro Baptist Church of the FI world.
My kind is wont to carry signs outside FIRE conferences where they make their travel plans and other such acts of sacrilege. We picket airline counters and RV centers wearing burlap on a regular basis. We’re a fun bunch of guys when you get to know us.
We also think we’re purists! Our Westboro Baptist Church is closer to god and the real FI community of antiquity. We work hard at our job or business and come home to our farms and workshops to build stuff with our hands. We think we’re better than you and we are! Dammit!
Our Diverse Community
(The meds kicked in so we are back to our serious voice now.)
I hope my attempt at humor made you smile. The humor part of this post IS a parable of sorts (in a sick religion). The FI community is more than just a bunch of frugal people working to improve their minimalist skills. Members of the Church of FI have different levels of comfort along the frugal scale. Some bike everywhere while some stay attached to their car habits. Some are minimalists living with virtually no belongings. Others try to live on a set amount of money each year; say $25,000 or less (U.S dollars, living in the U.S. or traveling).
Conferences and meet-ups are now everywhere! You can meet fellow FIers around the world. Very few weeks exists anymore where you can’t attend a FI/RE gathering.
Unfortunately there is one part of the community who will not be there. Yes, the Westboro people love the community and its values, but would rather stay at home with family and local (versus loco) friends. If you plant a FI gathering close to their home they might attend. Maybe.
The FI message didn’t always reach the masses in the past. The message may not have resonated. With the FI schism we are a more diverse group than ever. All races, creeds and genders are represented and welcomed.
As we open our doctrine the old canon is expanded. FI/RE had a slash between them in the past. The catholic church didn’t care much for the protestants and the same applied in the return direction. Soon we realized we all worship the same god: FI. The catholics (FI) and the Protestants (RE and all their cousins) are back together as one (FIRE).
It’s a wonderful place, our faith. All are welcome.
The next time you hear a knock at the door, answer it. When you open the door it might be two young people who say, “Can we talk to you about our faith in financial independence and early retirement?” Do yourself a favor, let’em in.
(I know how easy it is to offend writing a post like this one. No offense was meant to anyone’s religious faith. Please enjoy the humor and consider the message. It’s important enough for me to stop picketing airports.)
Crying over spilled milk is an adage most of us first heard at a young age. Minor inconveniences are blown out of proportion when they happen. Eventually someone says you should stop crying over spilled milk
We’re living a spilled milk event as I write. The stock market and the economy have been growing steadily for about eight years now. Constant media covered convinced a large percentage of the population things were dire. We were scared shi+less and tucked our hard-earned money in the mattress. There was no way you would be tricked into investing in a bad economy.
The years kept rolling by as the economy ticked ever higher with the stock market in tow. You not only kept your powder dry, you spent a large portion of it (a 100% loss) and kept the rest in a 0%, or nearly so, bank deposit.
Now the media says everything is good news. The economy and stock market have bent heavy to the left as it heads for the stars.
Tax cuts will stimulate an economy at or near full employment. Things have got to be good. They have to be!
You missed the bitcoin craze, but you refuse to be left behind again. This is it! You’re going to do it. You’re going to jump into this high flying market for your share of the bounty even if you have to borrow to do it.
The Road Well Traveled
You might not believe it, but I’ve seen this storyline play out before. The last time we saw tax cuts of this size the DJIA was under 800 (that is NOT a typo). The year was 1981. Inflation and unemployment were both double digits and draconian measures were needed as the economy was heading into the back leg of a double recession.
By 1987 the party was in full swing before a sunny day in October refocused attention on reality. In a few years the market was at new highs again and all was good.
The dotcom bubble — like the Nifty Fifty of the early 1970s — promised a brave new world of ever increasing profits. Then the century turned and so did the market.
The beginning of the current run started in 2009 with people screaming the world was coming to an end and the sky was falling. The ugliness started a year or so earlier.
In each case the market found a bottom, the world went along just fine and the market eventually made new highs.
We had the Nifty Fifty of the 70s, the tax cuts of the 80s, the dotcom world of the late 90s, and the housing bust of 2008. Now we are back to tax cuts, low inflation, low unemployment and a market promising to rise every day as if the Lord promised it himself.
So now you’re ready to invest.
I’m the last guy to tell you to time the market. This thing could rock for longer than anyone expects. What is certain is the day will come when it will stop going up temporarily. That is the day greed turns to fear. And fear is a far more powerful emotion than greed.
If you stayed out the stock market the last ten years I have a suggestion. Don’t invest now! This is not a market timing call either!
The market direction or conditions should have a relatively small bearing on your decision to consistently invest.
After all these years of economic and market growth and only now you think it’s the right time to invest? If this is true you don’t have the temperament to invest in equities (stocks, mutual funds, index funds or ETFs). Buying because everyone is talking about it is insanity!
My granddad was a farmer who saved at an insane rate. The guy tucked away in the neighborhood of 70% of his income. When he hit retirement age his saved half or more of his Social Security check! (You read that right.) He even took a part-time job to fill his days when he was in his 70s and 80s and saved the entire take-home pay!
I always called granddad Doc because he always studied natural healing. Doc is a value lesson in today’s market.
Doc invested about 10% of his money at AAL, now Thrivent, the Lutheran investment house. The rest of his money sat in several banks. He had CDs, money markets, savings accounts and some land.
The 1929 stock market crash was etched into his young mind. He was born in 1922. The Great Depression colored his opinions on money.
Doc understood guaranteed money. Banks offered guarantees up to the FDIC limits. My dad convinced Doc to put at least something in the broad market. Only the investment house connected to the church could be trusted.
Better Safe than Sorry
Putting money in the bank is not a good way to build your net worth fast. Regardless, he managed a sizable (seven figures) of liquid net worth before the farming world collapsed and he lost most of his money trying to save the family farm.
Undeterred, Doc went back to what he knew worked. He started filling bank accounts again and had another seven figures liquid by the time he died.
To recap, Doc spent a lifetime building a seven figure liquid net worth, lost it in the farming crisis of the early 1980s, kept saving all he earned, put maybe 10% in a rip-roaring market, put the rest into bank deposits and had seven figures liquid again when he died ~ 10 years ago.
People are passionate about the market as I write. Netflix in the last month alone went from 187 to 272. From top to bottom this is a 45% gain. This is rare for any company to accomplish, but even more significant from a company slated to burn up to $4 billion in negative free cash flow this year!
Coupled with the recent bitcoin craze and people are primed for action. It has the feel of a casino! (As a reminder, the house always wins.)
There are only two mistakes that will kill you in the market. The first is getting enticed into buying when everything looks perfect and the market is parabolic. And second, getting scared out of the market when the market is suffering a gut wrenching decline.
Most people fail at investing because they trade the market. Emotions WILL get the best of you if you PLAY the market. Doc knew his emotional readiness and did what any smart man would: put his money in guaranteed bank deposits.
If you’ve been investing a portion of your income every month you have the emotional stability to weather the inevitable storm. (Or the intelligence not to look at your retirement account balance.)
Now is not the time to get brave and jump into the stock market. Even if you use index funds or ETFs. Odds are there will come a day soon when painful reality sets in temporarily. The last thing you want to do is buy now and find yourself waiting a few years for a new market high. Or worse, selling at the low due to fear.
Borrowing money to invest in stocks is the worst! You could find yourself forced to sell as the market declines if you buy with debt. DON’T DO IT!
Dos and Don’ts
Missing the current market rally is spilled milk. Chasing the market is a crazy idea. Here are a few dos and don’ts to consider in today’s investing environment:
- Use index funds or ETFs
- Keep investing in your work retirement plan at least to the matching level and to the maximum if you have the mental and financial will to do so
- Keep calm
- Stay the course. Stay invested and keep automated investing active. You and I both don’t know where the market will be over the short term so stay the course. The long game is higher
- Borrow money to invest
- Try to time the market by selling
- Listen to the media hype. Wall Street loves the hype so they can sell to the greenhorns as the market weakens
- Get too excited about your account balance. Those just hitting their FI (financial independence) goal might want to consider sticking around a while long as the FI number is built on a market spike higher with a real possibility these numbers could temporarily decline
- Listen to your hairdresser, taxi driver, Uber driver, buddy at the bar, mailman, or even your accountant on hot stock tips
- Look at your account daily
Young investors have it worst. They haven’t experienced one of these cycles before. The last real market decline was a decade ago!
This isn’t new either. Every 10 -15 years we rinse and repeat. Each cycle is slightly different while humming the same tune.
Investing, even in a hot market, isn’t necessarily a bad idea. Doing crazy stuff and getting greedy is!
No borrowed money for investments in the market! If you have a regular investment plan, keep it. Your investments will ride out the storm when it comes along. If you haven’t invested yet, now is not the time to be brave. Bravery is easy now because the feeling you have is really FEAR you’ll miss out.
The steady hand will always win in the end. Warren Buffett tells us to be fearful when other are greedy and greedy when others are fearful. Greed is rampant now so a healthy dose of fear is warranted.
Steady, kind readers. Steady.
The world is crazier than it is sane. People complain about having no money and then get rid of what they have as fast as possible. How many people can’t make it until the following week without money issues? A short week and most people are already down to fumes. Thank God, payday is Thursday so you can stop at the bar on the way home. Anything to relieve the stress of money.
Chaos is all around us. Concerns over an overheating stock market and economy are always present in the background. If it isn’t the economy being too good, it’s the bad economy. There is no just right.
Before anyone forgets, there’s plenty of chaos from politics. Talk about a distraction! Best if we all stand alert in case Rex Tillerson, the current Secretary of State, calls us for advice. One never knows.
Talking about politics, it’s hard to get any useful work done when a fat guy from the backwoods of Korea (not necessarily close to the backwoods of Wisconsin where your favorite accountant resides if anyone’s concerned) is waving missiles and nuclear weapons around.
It’s easy to get distracted with the chaos all around us. Traffic, work, a screaming client, the wife and kids all add to the endless disruption of our natural flow of productive activity.
Complaining doesn’t help; it only encourages complaint! There is good news, however. Great men and women throughout time have all had the uncanny ability to focus on the important while the world burned around them. If you don’t believe me, ask any mother with an infant.
An American Hero
President Herbert Hoover is an unlikely hero to most Americans. Most people consider him a failure because all they remember is the Great Depression starting about the same time as his presidency and he was unable to solve the issue. It’s the wrong impression. The Great Depression would have started when it did regardless who was President. If Hoover weren’t President, he would have been the guy called in to fix the problem.
I had the same distorted disillusion of Hoover most of my life. My interest in Hoover was more about the market collapse than about the man. Then a recent issue of The Economist recommended a book by Kenneth Whyte titled Hoover: An Extraordinary Life in Extraordinary Times. I love books and knew this one had the promise of heavy use for years so I bought it.
Over the years I built a spotty sketch of Hoover and his life. There were plenty of gaps and misconceptions. Whyte set me straight. So much so I have a planned post comparing Hoover to Trump since we sometimes hear the two Presidents have much in common. No they don’t! I think it’ll be an enlightening read once I get the words spanked onto the digital page.
Today we will focus, ahem, on one facet of Hoover’s personality: his ability to focus under extreme conditions.
My favorite story of Hoover and his can-do attitude started in England.
On June 28, 1913, Archduke Franz Ferdinand of Austria was assassinated. It didn’t seem like a serious issue on the surface. Life went on as usual, but behind the scenes a diplomatic disaster was in the making. Then, a month later, the world exploded.
Americans were vacationing in Europe as usual on the eve of the Great War, as it was called until we decided to do it again even better twenty years later. It can be argued Europe was resting from November 12, 1918 until August 31, 1939; a sort of war halftime to regroup for the second half. (Yes, I know many consider WWII started when Japan made her move in China in 1931. We’ll stick to the European theatre for this installment.)
Hoover was in London with no warning of the impending armies gearing for war. When the fighting started a large number of Americans needed to be evacuated. A humanitarian disaster was certain if someone didn’t find a way to fix the problem.
Hoover never hesitated. He orchestrated the evacuation of Americans with unimaginable efficiency.
Once the continent was cleared of vacationing Americans, another even greater problem arose. Belgium was caught between the warring powers and the Belgium people were suffering. Food was scarce as the country was virtually quarantined.
People were dying! Civilians. Women and children. And neither side cared to help over concern it might bolster the opposing side.
Herbert Hoover never wavered. He worked relentlessly with the Germans, British and Americans to provide relief for Belgium.
Germany controlled Belgium. Germany requested the right to cross Belgium in her run for Paris at the start of the war and moved within days without waiting for an answer. Belgium was defenseless and at the mercy of the German military. The suffering in Belgium during the Great War was some of the greatest human suffering in history.
Amidst the chaos Hoover went to work. He traveled to Berlin to seek aid from the German government to no avail. Great Britain didn’t trust the Germans and Hoover wasn’t even British!
Hoover built a relief effort rapidly, saving millions from starvation. The U.S. government reluctantly, at Hoover’s incessant prodding, provided limited funding and permission to organize the American farmers into producing the food necessary for the relief effort. President Wilson, along with the British, feared the relief effort would help the Germans by diverting food to the German troops.
Enemies allowed Hoover free rein to travel across borders without restriction. He was the only man alive allowed to do so by both sides. His constant drive built the Commission for Relief in Belgium that helped American farmers produce more, raise private and public funding to deliver the goods to Great Britain and get the food to the Belgium people in desperate need.
Hoover visited Belgium several times during the war to see firsthand the devastation and suffering. His mind was always going, working on solutions to the intractable problems of feeding the Belgium people during the war.
At its peak the Commission had an $11 million a month budget with 78% provided by government grants. Over 10 million people were fed daily at the height of the effort.
Only when the U.S. entered the war did Hoover’s relief effort end. Germany would not allow an American behind German lines after that point.
Blocking Out the Noise
Hoover’s ability to focus when distractions were everywhere is legendary. Most people have a hard time reading a book unless there is silence! Hoover could concentrate in any environment.
The ability to focus during chaos will determine a large part of your success. If minor distractions, such as the stock market, can derail your financial plans you are in big trouble.
Marriage, or any relationship for that matter, will have distractions. Successful marriages don’t require all parties involved to never notice other people they find attractive. There will be attractive people! There will be kind, caring, attractive people willing to weasel into your relationship when you are under duress. Especially when you are at your weakest! The marriages that survive a lifetime find focus on the commitment to the relationship. It’s a team sport even when the night is darkest.
Business is the same. Do you really think owning a business is all fun with loads of money pouring in? Heck no! There are good days and bad days. Then a recession comes along and tests your grit. Fewer businesses survive than marriages. In my years as an accountant serving business owners I can attest most issues business owners face involve the lack of focus. Business owners want to do everything until they wear out and fail. Everybody thinks they can be Elon Musk, running 78 ½ different Fortune 500 companies. You’re not Elon Musk! And for the record, the jury is still out on Elon. The boy is amazing, but he has a full plate with no guarantees.
Happiness at the Focal Point
You and I don’t have to be Herbert Hoover. We can have Hoover’s focusing talent by following one simple rule:
- Define your goal in its simplest form.
Hoover’s goal was simple: Feed the Belgium people.
My 30 year marriage is based on a similar simple rule: Remain faithful to Mrs. Accountant. All too often we try to focus and several things at once and fail. In my marriage I always focused on Mrs. Accountant. I would always try to take the path that would cause her the least anguish. Of course I failed at times! Focus isn’t about never failing. But my failures were relatively minor. I never cheated and never felt tempted. I know where I have it good because I focused there. Stupid mistakes happened, but faithful to my relationship with Mrs. Accountant I always was.
You need a focal point. I hear people with the financial goal of financial independence (FI) all the time. Well, what exactly is that? FI is a simple enough goal, but it’s not a defining goal!
A simple goal presented correctly will cover all the “how’s” later. FI is not clear so it misses the focal point. Define FI. Does this mean freedom to travel, retire to the country or run your own business? Focus when you set your most basic of goals.
A better simple goal: To attain a liquid net worth large enough to live off investment income without worry so I can pursue my dream of (travel/running my dream business/pursuing philosophical studies).
The how-to automatically fills in as you focus on the goal. The 4% Rule comes into play without mentioning it in your goal. Saving and investing are automatic in your financial goal.
Focus is a learned trait. Herbert Hoover was in London for business when the world called his name. No other man alive was in the right place at the right time to do what he did. Once tragedy arose there was no time to practice; you’d better be prepared for the unexpected.
You may never face the challenges of Hoover during the Great War. Then again, Hoover never realized his number was about to be called the day before hostilities broke out.
Your eyes must be trained to the focal point at all times.
You never know when they’ll call your name.
Cryptocurrencies are all the rage with bitcoin (BTC) leading the pack. As I write, BTC blew past a 1,000% return year to date and posted its first trade above $10,000. Experts claim BTC could increase another 400% between now and the end of next year to $40,000 or more! If that doesn’t make your eyes water, remember BTC traded at a $1 in early 2011. I don’t know about you, but this is nosebleed territory.
Bitcoin will continue growing until 21,000,000 BTC exist. Actually, the programming to mine BTC stops 3 bitcents shy of the 21 million mark, which at the current growth rate could be worth a few million dollars. It will take until 2140 to complete the BTC mining process. On June 1st, 2017 there were 16,366,275 BTC in existence, if that is the right word to use. (It isn’t.) More BTC has been mined since June 1st.
This means the total value of BTC is approaching $200 billion in value. If BTC climbs 400% in the next year, as some suggest, the total value of BTC will approach $800 billion and the market cap of Apple!* When all 21 million BTC are mined, if the price is $40,000 to 1 BTC the total value of all BTC will reach $840 billion. Then it gets absurd.
The Insane Logic
If you bought BTC seven years ago (early 2011) for $1 per BTC I salute you; you are a genius. Unfortunately, schmucks buying today will never see those kinds on return in seven years or a thousand! The starry-eyed fools jumping in today looking for similar returns will need BTC to climb another 10,000 times. Okay. Let’s add all the zeros. BTC is at 10,000. Add four more zeros and you get $100,000,000 per BTC!
Well, it could happen!
Of course when you multiple $100 million by 21 million BTC you get, well, more money than currently exists by a very large margin! ($2.1 quadrillion if I calculated it right. You have to forgive any errors. Other than my own investment account, I’m not used to playing with such large numbers.)
I can hear you already. It doesn’t have to climb another 10,000 times to turn a tidy profit. I agree. However, name anything that rose so far so fast without ending in tears?
I’ve seen this stunt several times in my short lifetime. As a child I watched the Nifty Fifty crash and burn in the 1970s. The dotcom bloodbath at the turn of the millennium should have provided lessons for today’s investors. The housing and banking collapse of 2008-9 should be fresh in everyone’s mind as it happened less than a decade ago. But memories are short when stupidity runs rampant, I guess.
This Time is Different
As with every bubble, this time is different. The tulip bulb mania of the early 17th Century (1636-7) was different. In all honesty, tulip bulbs always had value and best I can tell are still around. I can pick up a large bag at my local garden center for a few dollars. Tulip bulb prices ended up where they started. There was always value, just not the insane valuations. This is our first lesson. There is a grain (or bulb) of truth in every bubble.
The U.S stock market of the late 1920s is another example of value turning into a buying frenzy at any price.
Tears. Remember it ended in tears.
The stock market is a favorite vehicle for bubble creation. The Nifty Fifty of the late 1960s and early 1970s were stocks people felt could be bought at any price and held forever without worry. By 1974 there was worry. The only stock I can image did well was Kimberly-Clark, the maker of Kleenex tissues.
The stock market pump was over-primed in the mid-1980s ending in the biggest percentage loss for one day in market history on a fateful October day in 1987.
But this time is different.
Once again as the millennium raced toward the finish line stocks went insane. Dotcom stocks traded for hundreds of times revenue (not profits!) if they had any revenue at all. But many stocks (companies) did have real value so this time is different.
Then came housing in 2008. Fed Chair, Ben Bernanke, said housing prices would continue climbing only at a slower pace. Good call, Ben. And he was an expert.
For some reason people never learn. They go from one hot stock to another. People get killed in a bubble collapse, take a decade to rebuild reserves and go at it again with their battle cry, “THIS TIME IS DIFFERENT!” No it’s not.
Where is the Value?
In most bubbles of the past there was underlying value. Tulip bulbs were worth something. Not much, but something. Stocks (publicly traded “businesses”) certainly have value.
Today we have several expanding bubbles due to the massive money creation of central banks around the globe. Bonds are arguably overpriced. How else can you explain bond yields less than inflation?
We can go into other possible bubbles, but BTC is turning out to be a doozy by historical standards. Boys and girls, you might live through a bubble spike bigger than any other in recorded human history on an item worth absolutely nothing!
Stocks, bonds, real estate and even tulip bulbs have some intrinsic value. But what about BTC? Does BTC really have any value? Let’s examine.
What is a bitcoin? Some call it a pyramid scheme, but it really doesn’t resemble one. Is it a currency? Economists say a currency has three characteristics: a medium of exchange, a store of value and a unit of account. BTC doesn’t exhibit any of these features to any large extent. Yes, BTC is used in a small percentage of transactions, mostly involving nefarious transfers. The massive price fluctuations make BTC more a speculative investment than a store of value or unit of account.
Think about it this way. Why would anyone buy something with BTC? To do so when BTC prices are climbing triple digits or more each year is industrial strength stupid. Only a fool would do that! Using dollars to buy stuff and pay for services because your BTC will be worth more tomorrow seems the smart move when BTC is such an awesome investment. Just read the news, they’ll tell you.
Compare BTC to dollars. Yes, dollars are fiat money, backed by nothing more than faith in the government and the economy to give you value. No physical commodity supports fiat currencies. The U.S. government can tax more to pay back its debts if necessary. And currency IS debt. It says so right on paper currency: Federal Reserve Note. A note is a loan! (Ie. you have a mortgage note.)
BTC has no government or economy supporting it. BTC is fiat money**! No physical commodity backs its value. Scarcity doesn’t imply value as many buying BTC today contend. There might be a limited supply (intentionally) of plaid shirts. That doesn’t mean plaid shirts are worth more and more every day due to this limited supply!
BTC is supported by nothing and is fiat money. When BTC collapses who will want to accept BTC as payment for goods and services? When the price rises who in their right mind would use BTC to buy something; that’s a de facto sale.
There is no government or economy supporting BTC. BTC has value because people say it has value. Just like gold has value because people say it has value. (And because it’s pretty, useful in art and industry.)
When someone decides there is nothing but air underneath BTC the rush for the door will not be pretty. Most will not get out as the building burns. If you think the rush to buy is tremendous, just wait until fear sets in.
This is BTC’s Achilles heel.
Signs of a Bubble
I don’t want to dissuade anyone from investing in BTC if that is their heart’s desire. All I urge is caution.
Here are a few indications the party may be nearing its end. Over the preceding long Thanksgiving weekend here in the States over 300,000 new accounts were opened to buy BTC. BTC jumped over 10% during the long weekend. People are buying BTC with credit cards they are so desperate to get in.
Hedge funds are starting to invest in BTC, not use it as a currency. ETFs and futures contracts are ready to debut in the BTC arena. On December 10th when futures begin trading on BTC it could actually hurt BTC pricing! With a futures market you can play BTC without actually buying BTC. With such an easy vehicle to trade BTC without owning it could be a catalyst for problems. I’m not making a prediction, only offering insight. Like program trading in the 1980s, it might take a few years before BTC has its October 19, 1987. Or it could happen much, much sooner.
Taxes on BTC
This part of the discussion is for U.S. readers and those subject to U.S. taxes.
The IRS has clarified the tax treatment of bitcoin and other cryptocurrencies in Notice 2014-21.
Under tax law, BTC is NOT considered a currency! It is considered property. If you pay employees with BTC you still include the amount of U.S. dollar equivalent on their W-2. If a merchant accepts BTC as payment, the amount received at fair market value on the date of receipt is income. A miner of BTC includes BTC received as income and may be subject to self-employment tax.
Here is where it can get ugly. Most people are buying BTC to hold as an investment. If you buy something with BTC you may have a gain or loss on the transaction, technically a sale of BTC to buy said product or service. If you sell BTC at a gain you get either long- or short-term capital gain consideration.
If you sell BTC at a loss you can only claim the loss against other capital gains, plus $3,000 per year against other income. People buying into the hype could face serious losses and those losses may not be deductible for a very long time, if ever. You can carry unused losses forward. However, when you die, the capital loss carry forwards die with you. Ouch!
I’ve been in this business for a very long time. (The first one to leave a comment on my age gets one in the puss.) I remember the mess caused by stock options when the dotcom bubble burst. The Alternative Minimum Tax (AMT) issues were incredible. It took special action by Congress to offer relief to some of the victims. They suffered years before help arrived.
The good news is that this accountant sees no AMT issues (other than normal AMT issues) with BTC. The real issue with BTC is that losses could be strung out on tax returns for decades or longer. People who borrowed money will need to earn money, pay tax on the earned money and use the remainder to pay off debt lost trading BTC.
I am unqualified to call the future price of BTC. I could be wrong and this time could be different. Amazon was caught in the dotcom mess and did pretty darn well if I don’t say so myself. However, BTC is not Amazon. It’s not even a currency technically.
BTC has no real value. BTCs entire value is built on faith and faith has a habit of letting people down when they need help the most. At best BTC is fiat money; at worst it’s a fool’s game.
For BTC to continue climbing in price, more buyers willing to pay a higher price, need to step forward. The day will come when nobody wants to pay a higher price. That is the day we find out if BTC is for real or another chapter in the history book of insane bubbles. With no intrinsic value I have a bad feeling where this is going to end.
* Remember, more BTC are created every day so the supply keeps going up. If BTC continues to rocket higher, the total value of all BTC will climb faster as more BTC are available at the higher price.
** This isn’t really true. Fiat money is technically “from decree”. In this instance I use fiat as meaning a currency without the backing of any commodity or government taxing authority.
Thirty plus years in the tax field has exposed me to the good, bad and downright vulgar. In the early 1990s I was a top producer at a broker/dealer for several years before refocusing on the accounting end of my practice. Before I left the industry changes were underway. Fee-based asset management was gaining adherents.
The old model of commissions was experiencing the first crack in its armor. Leaving the industry didn’t leave a void in my knowledge as clients consulted with me when considering investments and reviewing their investment advisor.
Fee-based is all the rage today. Many of the original selling points from the 90s are still used today with the exception most reporting is now done digitally online. In a nutshell, people are doing all the fee-based work while still paying a fee.
Rather than call out firms selling fee-based products, I want to focus on how wealthy clients work with their fee-based advisor or firm if they handle investments themselves.
Less wealthy clients seek my advice, too. This allows me an inside look on how wealthy and pre-wealthy (is that politically correct enough?) deal with their investments and the people advising them.
There are remarkable differences. Readers will probably see some of these actions in their own behavior. The wealthy already know this stuff; they have people who have helped them accumulate wealth. The less than wealthy will see where they can change to improve their odds of achieving significant wealth.
Before we start we need to review what I mean by wealthy and non-wealthy. For this study I consider wealthy someone with $10 million or more in liquid net worth. The non-wealthy have a net worth of $500,000 or less in liquid assets.
The examples I use are from my office. I have many more examples of people working with advisors from the lower end of the spectrum. Still, with decades at my post I’ve noticed the speed at which people increase their net worth. Those who act like the wealthy tend to get there faster; those who don’t usually never get there or barely break into the seven figures.
One caveat: The market has been on a tear for nearly a decade now without as much as a meaningful pause. Everybody is smart right now! It’s easy to be smart when you’re winning. Mistakes are easily glossed over in a rabid bull market. Too many people will fail when they are challenged for the first time. Good habits and appropriate demands on your financial professionals will be your anchor in the storm.
5.) No churning! This goes without saying, except it needs to be said. Investment advisors are not immune to the pipe dream of trading your way out of a problem or to success.
You would be surprised how many investment professionals churn an account legally. Churning can be illegal, but my definition of churning is far broader and includes legal activities.
What I’m talking about here is not the typical churning of mutual funds or stocks to generate additional commissions. I’m talking about all the new fangled computer algorithms trading to generate tax-loss harvesting or asset allocation models.
Clients bring me these beautiful folders of color graphs and charts they received from their advisor. It’s junk! Yes, the folder has great information, but swaddled in plenty of BS. I think it’s done that way intentionally to cover for the times results are subpar. You can see the same thing online.
Wealthy people are less impressed with color charts and tax-loss harvesting. Tax-loss harvesting is a zero sum game most of the time with the only value deferred taxes. If you don’t have a large capital gains to offset you are limited to a $3,000 deduction against other income. The rest gets carried over. Tax-loss harvesting has its place, but is overused with several (we will leave unnamed) companies hawking these services.
What impresses the wealthy is intelligent asset allocation. Intelligent asset allocation needs rebalancing once per year. That’s it! No more playing with the money! Leave your fingers off it.
Instead of churning the wealthy avoid investment gains all together with the host of retirement and quasi-retirement options available. Another neat trick to not pay capital gains tax is to not sell a stock with a gain or, in some cases, gifting it to charity and getting massive tax breaks while avoiding capital gains taxes to boot.
Rebalancing your portfolio quarterly only gives the illusion the investment advisor is doing something to earn his keep. With rare exception, rebalancing the account is needed once per year max!
The wealthy know you can’t beat the market with a simple computer program. Moving money around causes tax issues, trading costs and potential missteps in handling the portfolio, leading to loss.
4.) Matching the market is not a bad outcome. When the stock market was crushing it back in the mid and late 1990s I had a client who was considering moving his portfolio to me. I interviewed him (Yes, I interviewed him! Every warm body walking through the door is not client material.) to find his objectives and to see if we had a similar philosophy. Early in the conversation he said he expected me to do better than 20% per year since anybody could produce those types of returns. I showed him the door.
Good times (like today) give people a false understanding of long-term gains in the broader market. If a potential client has an unrealistic expectation it didn’t pay to begin a relationship; he would be unhappy in a short period of time anyway.
I’ve never had a wealthy client ever spew such garbage. Wealthy people think matching the market is a good baseline to start from. If you drop everything into index funds you should expect to have index results minus fees.
Non-wealthy people always want to take a flyer with the next greatest thing, currently bitcoin. Wealthy people also realize some hot investments today could really be a long-term quality investment. Amazon and Apple are two examples proving their worth and Tesla and Netflix are felt by many to have promise.
Hot stocks are not intrinsically bad! Wealthy people know this. Less wealthy people over-weight the risk of their portfolio. For a few it means immense wealth and encourages other less wealthy people to try to emulate the lucky.
The wealthy allocate a small percentage of their funds to non-traditional investments or high flyers. A typical wealthy client will have the bulk, say 80%, in investments expected to match the underlying market*. The remaining 20% in invested in increasingly risky investments.
A typical example is the wealthy client with most of her money in broad-based market index funds with the remainder in quality individual stocks and a few speculative issues.
Non-wealthy investors complain to their investment advisor of market matching performance. Over the long run this is an enviable track record and the wealthy know it and hence, don’t complain about their good fortune. Even a small outperformance over long periods of time is a cause to celebrate. The difficulty in beating the market before fees is long.
3.) Consider taxes when presenting investment ideas. Taxes can take an awesome investment down to mediocre in three seconds flat! Non-wealthy investors are impressed by before tax results. Wealthy investors want to know what they keep after taxes.
Many times a great performing asset can find a home in a retirement fund to preserve before tax gains. Of course, the investment needs to be made from inside the retirement account.
Buying an investment with a long time horizon is better than short-term results! Non-wealthy people love the quick score, but lose when the tax man begs his share. Wealthy people know a long-term investment with years of upside means taxes will not be due for a decade or longer, allowing for more growth without taxes slicing out a major portion of the gain.
Taxes are not #1 on this list, but are the most talked about issue wealthy clients have once a new investment is introduced. I can count on one hand with fingers left over how many non-wealthy clients asked me about their expected returns after taxes. The non-wealthy who do ask are not non-wealthy for long.
2.) Research. Pretty booklets and brochures don’t cut it with the wealthy! The wealthy don’t like short cuts. They want detailed research with solid numbers and ratios. When is the last time a non-wealthy client asked me about an investment’s cash flow? I can’t remember it ever happening. The wealthy ask EVERY time. Cash flow is how investors are paid and how a company generates capital to invest. The wealthy are nervous when capital requirements are met with borrowed funds. It’s also why Warren Buffett likes Apple now, but didn’t bite twenty years ago.
Research comes in many forms. The most obvious is the lack of research. Investment professionals working with the wealthy know better than to bring an idea to the client without adequately vetting the investment. Wealthy clients ask a lot of questions before investing!
Less wealthy clients are more likely to say, “Cool!” at pretty baubles and trinkets. An S&P index funds doesn’t need a lot of research. Individual stocks and bonds do. Less broad asset classes also need extra research to verify it meets investment objectives. Alternative investments need continual research, even after the investment is made.
1.) Straight talk. If anything drives wealthy people crazy it is double talk. Wealthy people are wealthy for a reason! Most are self-made and don’t appreciate a condescending attitude. Technical jargon will nix a deal faster with the wealthy than anything else. Less wealthy are frequently impressed by such 47 letter words. The wealthy are not!
I’ve noticed wealthy people can sniff out BS from a mile away. That’s why they are wealthy! Investment advisors looking to pocket a quick commission of generate some easy fees are advised to seek out the less wealthy. The relationship between advisor and wealthy client will wither fast when the technical jargon and BS flies.
Honest answers, even bad news, are expected by the wealthy. They don’t have time dancing around an uncomfortable situation. They want straight answers now.
The less wealthy cling to every ounce of hope the losing investment will turn around. It never does. The wealthy lick their wounds and move one; the non-wealthy cling to hope when all hope is gone.
The wealthy are wealthy because they know when to move on. Honesty up front is the only way the wealthy want it.
The wealthy are a big mystery to non-wealthy people. It shouldn’t be that way. There is no big secret the wealthy possess! In a nutshell, the wealthy hate games: talk straight, do your research before contacting them and consuming their time, consider taxes when researching an investment, matching the market is not a crime and most of all, don’t churn their money for a quick fee or to hopefully score big.
When handling your own money expect the same! It’s what the wealthy do.
And that is why you read to the end of this post.
* Each investment has an underlying market. Some wealthy investors keep a lot of their net worth in bonds. Some like equities. The goal of the wealthy is for their investment objectives to match broad market returns they’re invested in. Example: a wealthy client with a risk tolerance for bonds only might have 80% of her funds in Treasuries or high rated corporate and municipal bonds, with the remainder in lower rated bonds and a few percent in junk bonds or junk bond mutual funds/ETFs.