Are you really free? If you’re like most middle-aged people, you’re probably living a life to serve the system.
Everyone starts with 24 hours:
- 8 hours for sleep
- 1 hour for showering, breakfast, etc. in the morning
- 1 hour commute
- 8-9 hours at work
- 1 hour commute
- 1 hour meal prep, eating, cleaning
- 1 hour of exercise
- 1 hour kids homework
What does that leave you? 1-2 hours of ‘freedom’. Yeah, your best hours to invest in yourself can begin after you’ve fully drained all your mental and physical energy.
Do you have hopes and dreams? Save them for between the hours of 10:00pm and 11:00pm.
You’ll notice I’m leaving out laundry, groceries, repairing the back stairs, mowing the lawn, dry-cleaning, picking up pencil crayons for your kid’s art project, and so on. That’s where your weekends go. And if you’re like many people, those obligatory social gatherings – after work drinks, in-law’s birthday party – might as well be minor forms of work too.
The time each of us have to actually do what we want is minimal. If you’re like me, you have to find enjoyment in the daily chores.
The funny thing is, most jobs don’t require 8-9 hours. How much of your day is wasted? This has become especially apparent when we started working from home. This new setup is amazing! I can get my work and daily errands done much faster than before.
But the system doesn’t like it. The system wants us indebted with minimal free time. This keeps us dependent on our employers for money. Moreover, with little spare time we blindly purchase short-lived dopamine hits – retail therapy, objects of desire – benefiting our employers. The house always wins.
Yeah, that’s it…your pusher wants you to happily return every penny he provides you so you’re totally dependent. It keeps you coming back for more, despite hating every minute of it.
Ever have a boss suggest you buy a bigger house or upgrade to a new car? Perhaps after they just gave you a raise? They certainly don’t want you using that extra money to pay down your debts to achieve financial freedom. If they’re to shape your behaviour they need you financially subservient. Highly mortgaged people with families to care for make the best
indentured servants employees.
God forbid you smoke a little ganga when not on the clock and your employer tests. That stuff stays in your system for a while – doesn’t matter how good you are at your job. Even your free time is co-opted by the system.
In the end, you’re just an anonymous cog in a machine. Those people at work that call each other family will fall off the face of the earth as soon as they retire/quit/fired/die. Although turnover is a pain in the ass, in the long run everyone is replaceable. We’re all just worker drones.
So don’t give your life to work. Because work will happily take it. Break free by striving to become debt free while owning income-producing assets. Only then can you live life on your terms.
For most of my life I’ve relied on the ‘system’ for my basic needs, food being the most fundamental. Going to the grocery store is convenient, fast and easy. The selection is enormous and for most people living in developed countries grocery store food is quite affordable.
The system works and has worked for decades. So why would anyone go through the time and effort to grow their own food?
Spring 2021 I made my third attempt (my first serious attempt, however) to grow vegetables in my small urban backyard. I am growing tomatoes, peppers, squash, basil, jalapenos and ‘the happy plant’ from seed. So far, things are going much better than I expected. In fact, I think I might end up with more than I can handle. I’ll probably need to learn how to preserve food, but I’ll cross that bridge later.
I’m not the only one who started taking gardening seriously this year. Working at home has turned us all into renovators, decorators, gardeners, etc. as we focus on the homestead in which we are spending more time. Moreover, the pandemic has opened our eyes to the vulnerabilities of the ‘system’ upon which we rely.
There are 5 main reasons why I believe it is important that all of us should start growing our own vegetables:
Increase Self Sufficiency and Food Security
Although we rarely give it a second thought, it’s flabbergasting that we completely outsource our most essential need to others. Considering society is only 3 missed meals from anarchy, it only makes sense to reduce dependence on others for our food.
For most urban (and even rural) gardeners, it’s unlikely you can grow 100% of your own food requirements. However, replacing some portion of groceey purchases with home-grown vegetables helps increase self sufficiency in the event of a disruption to the industrial food supply chain.
Learning to grow food takes time, and it’s not something you want to figure out during a crisis. So developing the skills now (when you don’t need them to survive) is good practice for any future failures.
This goes beyond the individual household. If everyone in a community had the skill to grow some of their own food, it would alleviate pressure on the industrial food system. Some say that this community skill helped people survive the collapse of the Soviet Union 30 years ago.
Immigrant families in Canada and the United States have carried the tradition of growing food because of what they and their ancestors have witnessed in their home countries. Gardening is an essential skill.
Reduce Consumption of Pesticides and Herbicides
Industrial-scale food production isn’t possible without massive use of chemicals to kill bugs, eradicate weeds and feed plants. While the food we buy from the grocery store is generally safe, it’s still exposed to unwanted residues.
When you grow your own vegetables, you can cut out unwanted inputs. At a household scale, it’s far easier to manage pests and weeds by hand or other less harmful methods. (For example, many use a mixture of dish-soap and water as a safer alternative to pesticides.) You’re never going to win 100% of the battles, but once you accept that a portion of your crop will inevitably be lost to pests you can enjoy the remainder with less worry about what you’re ingesting.
Quality and Taste
Most varieties of vegetables grown on industrial-scale farms are bred to survive mass production, as opposed to taste. They are picked before ripening and shipped over long distances, often stored in fridges or freezers. As a result, many vegetables bought in the grocery store are of mediocre quality. Sure, they look nice (because that’s what ultimately sells the produce) but they lack flavor.
When you grow your own vegetables, you can go from farm-to-table within minutes. This means you can pick your vegetables when they are ready for eating, as opposed to when they are ready for transport and storage. Also, because your vegetables don’t need to be bred to survive the food distribution supply chain, you can use varieties that are bred for flavor.
Mental and Physical Health
Aside from the nutritional and security benefits, gardening can help improve your mental and physical health. Getting outside, moving, lifting and so on beats watching Netflix on the couch. Moreover, research has shown that being in nature can help people de-stress.
I particularly find gardening fulfilling. It is the most fulfilling activity I do. It is a rare opportunity to see something go from nothing to something valuable, entirely dependent on my effort. I have full control (mostly) and the more I put in the more I get out. You simply don’t get that from most day jobs, where your efforts are often lost in bureaucratic noise.
Gardening is the antidote to corporate life.
Most successful harvests result in an overabundance of food. While it’s important to learn how to store a harvest over long periods (e.g. canning, drying), donating a surplus of vegetables is a great way to connect with others in your community.
Give baskets of tomatoes to your friends, family and neighbors. It might encourage others to start their own gardens or find other ways to become more self-sufficient.
This benefits everyone.
I’ve been doing some housekeeping. I’ve moved the website to a new host because my previous host was jacking up prices.
I’ve done my best to keep the same look and feel. It’s amazing how much time it takes to do what appears like nothing to the outside world.
To do the move, I had to import all archived posts to the new host. For the most part it worked. Except many images imploded. I’d love to source and re-upload the missing images, but am I realistically going to do that?
I’ll pick away at it over time, but I’d rather produce new content. It’s a shame, but I suppose it’s better than losing everything.
I still have to plug in the subscription feature and a few other widgets. But the core is up and running.
You’ll also notice I’ve changed the tagline to “where money meets late stage capitalism”. I’ll still write about wealth accumulation, passive income and careers, but I think I’d be doing a disservice if I didn’t dive into the intersection of money and late stage capitalism.
What is late stage capitalism?
At it’s extreme, late stage capitalism characterized by collapse. Many things are culminating that will affect our ability to build and keep wealth – climate change, resource scarcity, massive debts, slowing rate of technological progress, polarization of ideologies, wealth disparities, military overreach and so on. In such a world wealth goes far beyond just money. So expect to see articles on permaculture, urban farming, community and useful skills.
Aswath Damodaran (born 23 September 1957), is a Professor of Finance at the Stern School of Business at New York University (Kerschner Family Chair in Finance Education), where he teaches corporate finance and equity valuation.
Known as “Dean of Valuation” due to his expertise in that subject, Damodaran is best known as author of several widely used academic and practitioner texts on Valuation, Corporate Finance and Investment Management; he is widely quoted on the subject of valuation, with “a great reputation as a teacher and authority”. He has written several books on equity valuation, as well as on corporate finance and investments. He is widely published in leading journals of finance, including The Journal of Financial and Quantitative Analysis, The Journal of Finance, The Journal of Financial Economics and the Review of Financial Studies. He is also known as being a resource on valuation and analysis to investment banks on Wall Street.
People have had it and they’re dropping their jobs like a bad habit. 18 months of downsizing, ill treatment and growing workloads have finally tipped the scale. 18 months of working from home and people have learned there’s a better life to be had. 18 months of watching your coworkers get sick and die because Scrooge McDuck didn’t provide paid sick days.
The chart below shows the huge increase in the level of quits in the worst hit sectors in the United States: manufacturing, leisure & hospitality and accommodation & food services. I’d expect to see a similar trend in Canada. These were the front-line workers. The war heroes who were cheered as they put their families’ health on the line, only to get shit on in the end.
People have realized it’s not worth staying loyal to an employer that pays garbage, doesn’t care and treats staff as disposable.
Moreover, people built cash piles over the past year as they sat home twiddling their thumbs. Now that the economy is roaring, people are confident enough to make moves.
Of course, now that people are quitting suddenly companies are scrambling. Positions are unfillable.
Just over the past week alone I’ve witnessed 2 top employees quit and 2 offers fall apart. Companies are getting more short-staffed by the day.
Still, I think the brunt of the departures are in the sectors shown in the chart above. While the business services sector is turning over quicker than normal, many of these workers were well supported (and still are) during the pandemic. Many white-collar employers are baking work-life flexibility into their DNA. For example, Sun Life Financial just announced a permanent flex work arrangement (i.e. WFH if you want to). Manulife has been flexible for years. Other big Canadian employers are doing the same.
Nevertheless, white collar employers are feeling the pressure. They’re just doing a better job at proactively mitigating their risk. Despite how hard they’re trying, these companies are still facing new competition. This is particularly true for companies with head offices in Toronto, as big tech firms open offices in the city adding new competition for talent.
Bottom line: it’s an employees market. Regardless of where you work, now might be a good time to ask for a raise.
Charles Thomas Munger is an American billionaire investor, businessman, former real estate attorney, architectural designer, and philanthropist. He is vice chairman of Berkshire Hathaway, the conglomerate controlled by Warren Buffett; Buffett has described Munger as his closest partner and right-hand man.
The following is audio of the often referred to speech by Charlie Munger on the psychology of human misjudgement given to an audience at Harvard University circa Jun 1995. Mr. Munger speaks about the framework for decision making and the factors contributing to misjudgements.
As the ravages of climate change become increasingly apparent, investor interest in sustainable investing (aka ESG – Environmental, Social, Governance) is growing at an exponential rate. Seeing this trend, asset managers are launching a ton of ESG products.
The problem is that “ESG” is becoming a catch-all for “doing good”, and this is a big mistake. Investors see brochures with pretty pictures of trees, windmills and solar panels and assume that their investment in ESG products will help save the planet.
I hate to say it, but greenwashing in the investing business is rampant.
The twist is that a lot of it is unintentional.
You see, there are very few people within the asset management industry that truly understand the mechanics of what they’re building and selling. Many industry participants might have an above-average (i.e. more than the general population) understanding, but not deep enough to really get the nuances.
Consequently, product features and benefits can be misrepresented and many investors buying these products don’t have a complete understanding of what they’re buying.
Of those who are more knowledgeable about investing, many appear quite skeptical of the real value of ESG products. A recent informal survey shows this:
The goal of this article isn’t to rip anyone a new one (I’ll save that for other articles). Most people – asset managers and investors – have the best intentions. So instead, I’d like to provide a quick summary of major types of ESG investment products.
Values-Based ESG Funds
Most ESG investment funds use a set of screens to filter out sin stocks, like tobacco, energy and gambling companies. Some use a sweeping approach that removes entire sectors. Others look at revenue sources for individual companies to determine exposure. Regardless of the stringency of the filter, the general idea is to eliminate exposure to companies and industries that don’t align with an investor’s values.
These strategies were originally created to service religions endowments and foundations with strict values-based rules. The purpose is to avoid values conflicts and the effects are largely superficial.
Risk-Based ESG Funds
Similar to Values-Based ESG funds, these funds exclude certain companies or industries based on a set of pre-determined factors. The types of companies or sectors that are excluded might closely resemble those of values-based ESG funds. The main difference is the intent of the fund. While values-based funds seek to align with a set of morals, risk-based ESG funds seek to reduce exposure to risk.
Companies with poor ESG practices may theoretically be exposed to greater regulation, litigation or reputation risk. These potential challenges affect the ongoing profitability and financial position of certain companies, negatively changing their risk-return profiles. A devastating announcement, for example, could push a the stock of one of these companies down 5, 10, 20% or more. Many ESG funds seek to avoid exposure to these risks.
Conceptually, this is something all fund managers have been doing regardless of whether or not their funds are labeled ‘ESG’. Risk management is part of the investing DNA and ESG risks are simply one of many that are evaluated. Given this, drawing particular attention to ESG risks is more-or-less a outward manifestation of what was already taking place, but perhaps to a more explicit degree.
Values-based and Risk-based ESG funds generally avoid exposure but don’t create change. This is because the market is not heterogeneous. There are investors that care about ESG considerations and others solely focused on profitability. Therefore, there will always be a class of investors willing to invest in companies with profitable business models, regardless of their ESG practices.
With that said, if a large enough cohort of investors avoids an ESG-offending company its cost of capital could rise. This may prompt company executives to alter business practices (if possible) if company stock trades at a persistent discount. However, avoiding prime offenders like oil producers might only create a market where energy companies trade at a discount, but with little fundamental change to the underlying business. After all, an oil producer exists to produce oil. As long as it has access to capital – which has been proven the case with both the energy and tobacco industries – business will go on with little change (or worse, corporate window dressing).
It is important to understand cause and effect. Cigarette smoking has declined significantly over the decades, but not because Altria’s cost of capital has risen. Altria hasn’t changed its primary business model because many investors have avoided tobacco stocks since the 1990s. Rather, regulation, taxation, education and litigation forced dramatic change to both supply and demand, reduced smoking rates in the developed world.
Impact ESG Funds
The vast majority of ESG funds provide some combination of values-based and risk-based filtering. However, what many ESG investors believe they are actually getting (and what many asset management companies believe they are providing) are Impact ESG Funds.
Most ESG fund investors want to make a difference, but most ESG funds don’t make any difference at all.
Contrary to popular belief, investment funds that seek to make change must actually buy shares of ESG offenders. The recent proxy challenge started by activist investor Engine No. 1 is a perfect example of an investment manager actually making change. Via an activist approach, Engine No. 1 was able to secure 3 seats on Exxon’s board. This could only be done because Engine No. 1 owned Exxon shares, made a shareholder proposal and rallied other shareholders around its cause. These directors will help push Exxon to transform its business to address the risks of climate change. Engine No. 1 recently launched an ETF (VOTE) that will continue with these types of challenges.
How to Choose an ESG Fund?
Before you invest in an ESG fund you must first know what you’re trying to achieve. A good starting point is determining whether you want to align with personal values, mitigate specific risks or create positive change.
From there, look at the company that manages the fund. Who are the portfolio managers and what is their history with respect to environmental, social and governance issues?
What is the company’s historical environmental practices, beyond specific product offerings? Do executives fly in private jets, for example? Does the company have other business lines (e.g. investment banking) that services clients with opposing interests and how will the company overcome these conflicts?
Perhaps most importantly, use of ESG funds doesn’t absolve one of personal responsibility, nor does it replace government regulation and policy. To reduce carbon emissions, communities – individuals, businesses, governments – must work together to achieve common goals.
If you look up Professor Jeremy Siegel’s work you’ll find one thing: He firmly believes that stocks are the best long-term asset class.
In 1994, Seigel published a classic book that helped shape his investing view and asset allocation decisions for millions investors around the world. “Stocks for the Long Run: The Definitive Guide to Financial Market Returns and Long-Term Investment Strategies” continues to be a top-selling investment book. His conclusions are based on stock market data going back about 200 years.
New research has compiled stock market data going back to 1793, adjusts for some erroneous methodologies and reaches a different conclusion – one that contradicts Siegel’s long-standing belief that stocks are the preferred asset class over the long run.
Edward F. McQuarrie, Professor Emeritus, Santa Clara University, presents these findings in a recent paper called “New Lessons from Market History: Sometimes Bonds Win“.
McQuarrie summarizes his findings as follows:
When Jeremy Siegel published his Stocks for the Long Run thesis, little information was available on stocks before 1871 or bonds before 1926. But today, digital archives have made it possible to compute real totalSource: New Lessons from Market History: Sometimes Bonds Win, Edward McQuarrie
return on stock and bond indexes back to 1793. This paper presents that new market history and compares it to Siegel’s narrative. The new historical record shows that over multi-decade periods, sometimes stocks outperformed bonds, sometimes bonds outperformed stocks, and sometimes they performed about the same. More generally, the pattern of asset returns in the modern era, as seen in the Ibbotson SBBI and other datasets that begin in 1926, emerges as distinctly different from what came before. Contrary to Siegel, the pattern of asset returns seen in the 20th century does not generalize to the 19th century. A regime perspective is introduced to make sense of the augmented historical record. It argues that both common stocks and long bonds are risk assets, capable of outperforming or underperforming over any human time horizon.
For most investors, it’s not news that bonds sometimes outperform stocks. Indeed, this is why we hold bonds within a portfolio – to diversify sources of risk and return. However, for most that’s as deep as the asset allocation decision goes, and bonds – particularly Treasury bonds – are simply viewed as a safety mechanism for short periods of risk asset downside. It remains that, over the long-run, the common view is one that aligns with Siegel’s thesis that equities is the better asset class over long periods of time.
McQuarrie disagrees: Simply, he finds that there are long periods of time during which bonds outperform stocks. The particularly troubling finding is that bonds can outperform for the duration of a human lifespan. It is therefore financially dangerous to adhere to the ideology that stocks are always the better choice.
History is an important guide, but it cannot predict the future. The purpose of this research is not to identify what will outperform over the next decade. Rather, it is to shift portfolio construction from a monolithic to multi-faceted choice.
The crux of Siegel’s case for stocks is exhibited by the following chart. Looking at this alone, it is understandable that someone might conclude that stocks are the better investment. McQuarrie, however, argues that Siegel’s methodology was misleading and the reality is that stocks and bonds performed in parallel until the post-war period (second chart below). Moreover, much of the final stocks-bonds cumulative performance variance is explained by a single time period from post WWII to around 1982, with bonds subsequently resuming parallel performance. (I.e. if you re-started the chart from 1983, the stocks and bonds lines would follow a similar path.) The difference flips the investing paradigm on its head.
It is critical to understand why the results are so different.
McQuarrie’s explanation for the superiority of his bond data is as follows:
Explanation: I observe municipal bond prices from 1857 to 1897 as compiled by the Boston stockbroker, Joseph G. Martin. Siegel relied on a tertiary source, the summary table in Sidney Homer’s History of Interest Rates. Homer does not state there that the municipal bond index he had tabled represents a theoretical construction erected by Macaulay upon Martin’s compilation rather than an observed portfolio. I also adjust for the greenback price of interest paid in gold coin—a distinguishing feature of Federal and some municipal bonds between 1862 and Finally, I use an aggregate bond portfolio up to 1897, and corporate bonds after that point. Corporate bonds returned more than the government bonds used by Siegel, especially when government bond yields were depressed by tax and other privileges.
Essentially, McQuarrie used actual bond portfolio data, whereas Siegel used computed theoretical data.
McQuarrie’s data also adjusts for the striking survivorship bias found within Siegel’s stock market data:
Here most of the variation comes before the Civil War, and this deviation is readily explained: Siegel’s sources omitted the largest single stock that traded before the Panic of 1837, the 2nd Bank of the United States. At the peak before the Panic hit, the 2nd BUS accounted for almost 30% of total market capitalization. It failed spectacularly as the Panic proceeded, with shares dropping in price from $120 to $1.50, and never recovered. To duplicate this omission in the contemporary stock market, it would be necessary to drop Microsoft, Apple, Amazon, Alphabet/Google, and Facebook from the S&P 500; and even these five would not account for as high a percentage of S&P 500 capitalization as did the 2nd BUS at its peak. Omission of the BUS is the single most glaring error I found in Siegel’s stock market sources. More generally, I found and corrected survivorship bias. Banks failed during panics, turnpikes and canals succumbed to railroads, and struggling railroads went bust in the 1840s and 1850s to an extent not previously understood. In short, Siegel’s sources had left out the bad parts, producing an overly rosy picture of antebellum stock returns.
Few probably realize that Siegel’s data contains such biases – especially when it’s standard practice to adjust accordingly. For example, modern fund performance evaluation, like Morningstar’s SPIVA reports, always account for survivorship bias. To read that Siegel excluded failed companies in his analysis is material. To be fair, however, this survivorship bias exists in many historical analyses as it is an embedded feature within index data.
Let’s not make hasty conclusions and throw out all of Siegel’s conclusions. Stocks do outperform bonds during a meaningful range of time periods and scenarios. Stocks are still a core component to an investing portfolio. McQuarrie’s analysis simply illustrates that the probabilities have shifted away from stocks’ favour. This is an important consideration for professional asset allocators and Joe Smith saving for retirement.
Using McQuarrie’s new data, the table below shows the odds of stocks outperforming bonds across a range of rolling 1, 5, 10, 20, 30 and 50 year periods. The odds remain in stocks’ favour across all rolling periods between 1793-2019, and those odds increase with the length of period. However, it is critical to observe that these results are time-period sensitive. The pre-war experience is markedly different, especially prior to the US Civil War.
Modern-day assurances that stocks always outperform over the long run are based on post-war data (1943-2019). In contrast, the full history shows there’s a 32% chance that someone investing in stocks over 30 years – a lifetime of investing – would underperform bonds.
Why did stocks outperform during the post-war years?
During that period, the US dominated the world with military and economic hegemony acting as the global arbiter and enforcer of transnational trade and globalization, creating a ‘peace dividend’ for risk assets around the world. As that power fades, it’s quite possible the structural forces that created that environment will someday no longer exist.
The following chart shows something similar to the table above, focusing on rolling 10yr performance differentials between stocks and bonds. Again, it is apparent that stocks can underperform for life-altering periods of time.
How bad can stock market returns get?
If one asset goes up by 20% and the other by 10%, the second asset underperformed but still provided a decent return. Unfortunately, history shows that the stock market can provide dismal returns for very long periods of time.
The table below shows the worst 20, 30 and 50 year real total returns for stocks. The results show that stocks can perform poorly in both relative and absolute terms over investing lifetimes.
The standardization of time periods in the previous chart, however, doesn’t show the true extent of weak stock market performance potential over long periods of time. One only has to go back to the 13 year period ending 2013 to have witnessed one of the worst periods ever for US stocks. The table below shows the worst six periods for US stocks.
The implications for asset allocation decisions are immense, yet intuitive: Don’t rely on history alone to guide asset allocation decisions.
Investors must look at the prevailing environment to determine how to construct portfolios, understanding that long-term performance characteristics can change. Perhaps the most challenging part of this effort is understanding the relative variability of stocks and bonds, as illustrated by long-run correlations. Correlations change markedly over time, so the idea that one simply dumps a portion of a wealth into bonds with the purpose of creating a portfolio ballast is wrong. Stocks don’t always outperform and bonds don’t always move opposite to stocks. This is strikingly apparent (but shockingly rarely discussed) during the recent Covid-19 market crash, when US Treasuries (using TLT as a proxy) declined by almost 10% from March 1st to March 8th, while US stocks simultaneously declined by 8.8%. US Treasuries soon recovered and rallied as stocks continued to plunge, but this relative performance aberration – when the correlation between stocks and risk-free assets moved to 1 – is an example of how historical relationships can and do change. It is a critically important example of how expectations based on long histories can be false.
Will bonds outperform stocks? Are bonds still a good tool for diversifying portfolios?
Without spending considerable amounts of time and effort deciphering the current economic regime and its implications on forward asset prices, a more pragmatic approach to asset allocation might be to ensure broad representation across assets that have fundamentally different risk exposures. Stocks are probably still good to hold for the long run. Probably so are bonds (both corporate and a variety of sovereign). But it’s entirely possible that neither will perform as you expect.