Here are the best things I read and thought about today –
- Bloomberg carries this nice piece (Tip: If your Bloomberg free articles limit is over, you may try opening this article in an incognito browser) from Nir Kaissar and Barry Ritholtz, where the authors write to answer this question – How do you get rich? By earning a lot or saving a lot?
Here is Barry’s point of view on the subject of “frugality” –
I am not, nor have I ever been, a fan of “sustained and disciplined frugality.” With that said, here’s what to keep in mind:
1. Focus on the big things; the little things will take care of themselves
2. We all only have so much internal discipline, a consequence of limited mental bandwidth. Don’t fritter it away on things that don’t matter very much.
3. Spending should always be a function of what you can afford, not a slavish devotion to some puritan ideal.
4. Money can bring security, comfort and happiness, but beyond a certain point returns on having more of it diminish rapidly.
5. Experiences tend to beat material goods in terms of money well spent.
First, the big things: Your education, your career choice, your work ethic, who you marry, who you work with, your skill set, your compensation, your health, your outlook, how you think about the world and the commitment you make to yourself about continually learning and improving. Get those right, and those $5 lattes become pretty irrelevant.
Basically, the advice is this – avoid the hedonic treadmill and you will be much better off in your financial life. “Hedonic treadmill” is basically a theory positing that people repeatedly return to their baseline level of happiness, regardless of what happens to them. It is an important concept to grasp when it comes to understanding happiness, which we often lose in forever chasing rainbows.
By the way, here is a quadrant I drew recently on how to get rich without being on the hedonic treadmill (for long) –
- Continuing with the subject of personal financial planning, here is a Morningstar post titled It’s Time to Think Big where the author suggests using this quiet period to introspect and improve our financial plans in a big-picture way.
On the question of defining how much money is “enough” for us, she writes –
Many of us are operating with an incredibly vague notion of how much we really need to save in order to achieve our financial goals and find security. And even financial planners might rely on rules of thumb when setting your retirement-savings target–for example, they might assume that you’ll need 80% of your working income in retirement and extrapolate the rest of your plan from there.
As humans, we often have a natural tendency to reach for more more more, regardless of whether that “more” is actually bringing more happiness and security. Trying to keep up with the people around us, in terms of possessions and outward signs of success, can get exhausting and may not get us any closer to our life’s goals. That’s why, in this period of limited activity, spending, and social contact, it’s so worthwhile to think through your own definition of enough–both now and for the future. Jack Bogle wrote a wonderful book called Enough that I would recommend; the genesis for the book was a memorable commencement address that he delivered in 2007. (If you haven’t heard the Joseph Heller/Kurt Vonnegut story that serves as the title of the book and speech, I guarantee that you’ll be repeating it to someone soon.)
Well, I had talked about Joseph Heller’s story in my lecture at IIM Lucknow in December 2018.
And here is the transcript of my talk to a group of friends in Silicon Valley in early 2018, where I tried to answer my version of the “how much is enough” question.
- Mental Models For a Pandemic is wonderful post published on Farnam Street. One of the models talked about is “antifragile,” a concept that Nassim Taleb described thus –
Some things benefit from shocks; they thrive and grow when exposed to volatility, randomness, disorder, and stressors and love adventure, risk, and uncertainty. Yet, in spite of the ubiquity of the phenomenon, there is no word for the exact opposite of fragile. Let us call it antifragile. Antifragility is beyond resilience or robustness. The resilient resists shocks and stays the same; the antifragile gets better. This property is behind everything that has changed with time: evolution, culture, ideas, revolutions, political systems, technological innovation, cultural and economic success, corporate survival, good recipes (say, chicken soup or steak tartare with a drop of cognac), the rise of cities, cultures, legal systems, equatorial forests, bacterial resistance … even our own existence as a species on this planet.
Here is the point about antifragility in Farnam Street’s post –
…we need to ask ourselves how we can improve our antifragility. How can we get to a place where we grow stronger through change and challenge? It’s not about getting “back to normal.” The normal that was our world in 2019 has proven to be fragile. We shouldn’t want to get back to a time when we were unprepared and vulnerable.
And here is Safal Niveshak’s version of this very important mental model of antifragility.
- The Atlantic carries a biweekly column by Arthur Brooks titled “How to Build a Life,” wherein he tackles questions of meaning and happiness. His latest post talks about four rules for identifying your life’s work, and it’s really good.
Brooks’ rule number one reads “the work has to be the reward” –
One of the biggest mistakes people make in their careers is to treat work primarily as a means to an end. Whether that end is money, power, or prestige, this instrumentalization of work leads to unhappiness. The psychologist Elliott Jaques — famous for inventing the term midlife crisis — once quoted a middle-aged patient as saying, “Up till now, life has seemed an endless upward slope, with nothing but the distant horizon in view. Now suddenly I seem to have reached the crest of the hill, and there stretching ahead is the downward slope with the end of the road in sight.” Later, he admitted that he himself was this “patient,” and this was his own lament. He had worked away for years in his career to get some fabulous reward, and then realized that there wasn’t much reward ahead at all, just aging and death.
When your career is just a means to an end, the payoff, even if you get it, will be unsatisfying. Don’t make that mistake. Your work won’t give you joy and fulfillment every day, of course. Some days it will feel pretty unsatisfying. But with the right goals — earning your success and serving others — you can make the work itself your reward.
What a fine advice this is!
- Forbes carries an insightful investigative piece on the $2.5 trillion debt binge that has taken some of America’s leading companies including Boeing and AT&T from blue chips to near junk –
According to a Forbes investigation, which analyzed 455 companies in the S&P 500 Index — excluding banks and cash-rich tech giants like Apple, Amazon, Google and Microsoft — on average, businesses in the index nearly tripled their net debt over the past decade, adding some $2.5 trillion in leverage to their balance sheets. The analysis shows that for every dollar of revenue growth over the past decade, the companies added almost a dollar of debt. Most S&P 500 firms entered the bull market with just 20 cents in net debt per dollar of annual revenue; today that figure has climbed to 38 cents.
But as the coronavirus pandemic cripples commerce worldwide, American corporations face a grim reality: Revenues have evaporated, but their crushing debt isn’t going anywhere.
As Prof. Sanjay Bakshi wrote in his tweet sharing this post, these are “useful case studies on distortions in capital structure caused by many factors including artificially low interest rates, perverse incentives for senior management, and a myopic market fixated on cash flow returns to stockholders instead of long term strength of businesses.”
Indian companies are yet to test such level of madness, at such a large scale, but many are almost there (plus we have ample experience from the past) with their bulging balance sheets and run by managers that do not know of anything but instant gratification at the cost of long term business growth, stability, and value creation. Beware of them!
- An old tweet from James Clear, where he suggests what we can do with 5 good minutes –
5 good minutes of:
-pushups is a solid workout
-sprints will leave you winded
-writing can deliver 1 good page
-reading can finish an insightful article
-meditation can reset your mood
You don’t need more time — just a little focused action.
That’s about it from me for today.
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Stay safe. Stay focused.
Mohan Lal Tejwani says
A very good article 👍. Insightful. It forces to think. And definitely gives clear direction. Thanks for sharing.
Stay safe and healthy 😊
With best wishes and regards 😊
Prakash Upasani says
The bigger framework should be good and the small pieces will fall in place. Corona pandemic is good for the savers and bad for debtors. I have all my money in post office MIS, PPFs, Bank FDs (done when interest rates were 9.5%). Now I am laughing heartily and my friends have lost 60% of their wealth in stock markets.