Saturday, February 23, 2019

Enough wealth

I was recently thinking about the comments made around my family budget, savings. While having an aspiration to get a higher salary is admirable and needs to be one of the focus areas. It is not within immediate reach, not a guaranteed outcome.

Efficiency and savings rate is largely in my current control today. Things that are in your control and have the highest likelihood of working can make the biggest difference over time. 

This reminds me of Jeff Bezos’ interview:
“…I very frequently get the question: “What’s going to change in the next 10 years?” That’s a very interesting question.
I almost never get the question: “What’s not going to change in the next 10 years?” And I submit to you that that second question is actually the more important of the two.
You can build a business strategy around the things that are stable in time. In our retail business, we know that customers want low prices, and I know that’s going to be true 10 years from now. They want fast delivery; they want vast selection. It’s impossible to imagine a future 10 years from now where a customer comes up and says, “Jeff I love Amazon, I just wish the prices were a little higher.” Or, “I love Amazon, I just wish you’d deliver a little slower.” Impossible.
So we know the energy we put into these things today will still be paying off dividends for our customers 10 years from now. When you have something that you know is true, even over the long term, you can afford to put a lot of energy into it.” 

The importance of every deed is its promise multiplied by the likelihood of success and the duration.  Efficiency does not rank very high in the first part but they do so strongly in the likelihood and duration (lifetime).  This makes some more impactful enabling successful outcome.

Investment returns have a lot of potential to make you rich and achieve your goals. But whether a strategy will work, and how long it will work for, and whether markets will cooperate, is always a question.
I can earn 7% returns while some people can achieve 12% but if I need half as much money to be happy, while your assets compound as fast as your as assets. I am better off than you are.

I noted that to achieve the top performance requires a lot of time. People are burning a lot of additional hours to get 0.1% increase in investment performance.   

I do not aspire to live like a monk in an extreme retirement, hampered by frugality.  If Bill Gates woke up with my nest egg, he would jump out a skyscraper window.  George Carlin used to say: “Drop some of your needs”. Reducing needs is more certain and within my control. Warren Buffett, living in the same house he bought in his 20s, is the best example.

What is the challenge for me is to get satisfied while spending less. It is not going to be easy.  When my salary dropped by more than 50% life style did not change (savings rate did) but I still cannot psychologically adjust to it two years later.

It’s a behavioral trait, not analytical skill, and investing attracts more of the latter. Some are better at it than others, but virtually everyone is primed to at least assume they’ll be happier if they spent more.

Vanguard founder Jack Bogle, who passed away last week, began his book Enough with the following paragraphs. From an investor who improved the financial wellbeing of tens of millions of people through cost efficiency, not outperformance, this is invaluable:
At a party given by a billionaire on Shelter Island, Kurt Vonnegut informs his pal, Joseph Heller, that their host, a hedge fund manager, had made more money in a single day than Heller had earned from his wildly popular novel Catch-22 over its whole history. Heller responds, “Yes, but I have something he will never have . . . enough.”
Enough. I was stunned by the simple eloquence of that word—stunned for two reasons: first, because I have been given so much in my own life and, second, because Joseph Heller couldn’t have been more accurate. For a critical element of our society, including many of the wealthiest and most powerful among us, there seems to be no limit today on what enough entails …
We chase the false rabbits of success; we too often bow down at the altar of the transitory and finally meaningless and fail to cherish what is beyond calculation, indeed eternal. That message, I think, is what Joseph Heller captured in that powerful single word, enough”.

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