Category: Opinion

Just wanted to let you know there will be no post on Friday. I’ve been out of town and very busy and I haven’t gotten my post ready.

Monday I’ll have my last post for baby items – then a few posts on other baby related costs like wills, insurance, resp etc.

I wanted to leave you with one thought for the weekend – I’ve spent a fair bit of time in the last few days visiting in a hospital which I found quite depressing because of all the sick people there. It made me realize that while there is nothing wrong with sedentary activities like blogging, surfing, reading & watching tv, it’s important to take advantage of your physical abilities while you still have them. There will come a time when all you will be able to do is watch tv, so I think it’s worthwhile to make the time for walking, hiking, gardening – whatever physical activities you like to do, because someday those options won’t be there for you.

On that upbeat note – have a great weekend!

I couldn’t find an explaination of competitive advantage that I liked, so I quickly wrote this up myself. If anyone has a link to a good on-line description of this, please post it as a comment below.

Say there are two companies (or countries, or people) producing red widgets and blue widgets. Lazy company makes red widgets for $20 each and blue widgets for $10 each. Productive company makes both types of widgets for $8 each. Assuming the two companies can trade with each other in order to maximize their numbers of both widgets, what is the best widget for each to produce?

One argument would be that Productive company shouldn’t trade at all and just produce all its own widgets (since it can produce both cheaper than Lazy company). This is a mistake.

Say Lazy company produces 10 blue widgets (costing it $100) and Productive company produces 10 red widgets (costing it $80). If lazy company then trades Productive company 5 blue widgets for 4 red widgets both are now better off. Lazy company has 5 blue widgets and 4 red widgets (which would have cost it $130 to make itself, but instead it got them for $100) and Productive company now has 6 blue widgets and 5 red widgets (which would have cost it $88 to produce, but instead it got them for $80).

Both companies are better off after the trade (otherwise why would they have made the deal?) and have more widgets for a lower cost. Lazy company, in spite of have greater productions costs, has a COMPETITIVE ADVANTAGE producing blue widgets.

Socialists would say that Productive company is taking advantage of lazy company (because it has more widgets for lower cost), and since it has more efficient production methods it should give widgets to Lazy company (and this is at the core of why I hate socialists).

Any time there is a difference in production abilities, a competitive advantage will occur which allows everyone to be better off if they focus on what they have an advantage producing then trade with the other producers (and this is why trade isolation is silly and destructive).

“You can’t lose money on real estate”.

“The stock market increases over time.”

“Build a better mouse trap and the world will beat a path to your door.”

“All rich people made their money with leverage.”

“It’s more lucrative to be self-employed then an employee.”

The world is a confusing place. Apparently the last person who was felt to “understand all human knowledge” was Francis Bacon (I couldn’t find a source for this – if I have the wrong guy please correct me). During his lifetime (he died in 1626) he was able to stay current on advances of all the sciences and follow every new discovery. Since his time, the amount of knowledge in the world has exploded (apparently doubling every 16 years or so) to the point where it would be impossible for any one person to follow all the discoveries in one large field, let alone multiple (which has pushed for ever increasing specialization). This bothers people.

A few days ago I got some comments from a Rich Dad, Poor Dad follower who took exception to my Rich Dad, Poor Dad review of “the bible”. I tried to answer his question, but quickly gave up as I could tell he was stuck in that candy-sweet intellectual quagmire that is absolutism.

I did a science fair presentation when I was a kid, and my project was on insulation. I’d blown up a plastic bag, labeled it “Air” and had put it up on a board (air is a fairly decent insulator). Another kid walked by and asked how I’d filled the bag. “I blew in it” I responded, to which he sneered “then it’s not air, it’s carbon dioxide” and walked away. Clearly our young Darwin had learned that we consume oxygen when we respire and produce carbon dioxide (as a waste product). He took this as an absolute (so air must be 100% oxygen when I inhale, and 100% CO2 when I exhale) and proceeded to share his insights with those around him. The nuance to this concept is that we’re not perfectly efficient (by any means) and air is not a homogeneous gas (if you want to experience a different type of air, go to a Chili cook-off in an enclosed space). In grade 3 we learn “people breathe in oxygen and breathe out carbon dioxide”. In grade 7 we learn “people breathe in air, and breath out air with a lower proportion of oxygen and a high proportion of carbon dioxide”. Further on we learn the process in ever increasing detail including a related (and basically opposite) process in plants, how this relates to metabolism as a whole, and other biological waste products. You can go as far down this rabbit hole as you want.

I’ve always remembered this experience for two cliches. “A little knowledge is dangerous” and “blindly following information can be dangerous”.

A case could be made for any of the lead-in statements that began this post. Cases could be just as easily made against each of them. Where does this leave us? Is it impossible to know anything? How does one learn or make decisions?

My approach to acquiring new knowledge is to accept generalities for what they are, but to be open to understanding clarifications. My understanding of the stock market has evolved from “It goes up over time” to “It goes up over time, with cyclical fluctuations” to “It goes up over time, with cyclical fluctuations, but its very hard to predict where we are in a cycle”, to “It goes up over time, with cyclical fluctuations, but it’s very hard to predict where we are in a cycle, but the woman who wrote Juggling Dynamite thinks she can predict where we are in cycles, but a lot of people seem to disagree with her, so I should really look into this further before I base any important decisions on timing market fluctuations”. It’d sure be a lot easier to just live life (and invest!) according to the idea “it goes up over time”, eh?

Obviously if you accept that you never have complete knowledge on any subject (and you don’t. Accept this) you have three choices: 1) Become paralyzed and do nothing, 2) Do the best you can with the level of understanding you have and 3) Try to learn more.

Numerical analysis of stock seems quite complicated, and a good case has been made that prices already reflect this (and other valuation criteria) so I’m in position #1 with regards to this. I don’t even try to determine a “fair price” for a stock and whether or not its selling at a premium. I’d like to be able to go bargain hunting, finding undervalued stocks and buying them, then selling them once they’re over valued and laugh all the way to the bank but I don’t see how to get from where I am currently to this point (if it is even possible). I’ve therefore given up on trying to personally appraise stocks.

When I bought my condo, MANY people had a FAR greater understanding of real estate investing and the Toronto market then I did (and MANY still do). I was in position #2 when I made the purchase and still am as I make other decisions concerning it. If I had waited to achieve “perfect knowledge” I never would have bought, but if I’d bought without investigating the subject at all, I would have been putting BIG money into something I was very ignorant about (not a good scenario).

I’m quite interested in buying an apartment building at some point in the future, but am nervous about acquiring such an expensive piece of property with my current level of knowledge. Therefore I’m trying to pump Q from one million to my name for any information about his experience buying a building, talking to my real estate friend about his experience, and keeping my eyes open for good books on the subject (position #3).

Some people get stuck in position #2. Rather then trying to learn more about the subject, they attack people who disagree with them. The fallacy with this approach is that the universe doesn’t change how it operates because you won an argument (unless you believe that we have a subjective universe based on a consensus perspective, in which case this might be a good approach to life). Running around brow-beating people into agreeing with you that your approach is without flaw and guaranteed to make you rich, successful and attractive to the opposite sex isn’t productive or effective. The joke is that it makes position #3 harder to achieve as the people who might have been willing to enlighten you probably won’t want to talk to you any more.

Thank you to all my readers (and especially those who leave comments or write me e-mails). My every interaction with you puts me into position #3 and makes me a better person. Those who challenge me and get me to look at things from a new perspective (like Mike and Q’s responses to my income post that didn’t include taxes, Money Gardner and Mike’s clarifications of my living expenses in my about section, Jason’s inspiration of this post and Quietrose’s off-line challenge that I was spending more on food then I needed to): Thank you, thank you, thank you! You’re my own chorus of personal Jesus Christs!

Those poor Christians who only get one!

Telling people you want to retire soon when you’re in your early 30’s really bugs people.

I’ve been spending a fair bit of time these days getting my financial house in order and making plans for the future. One of the ideas I’m investigating is to “retire” in 3 years. The most common reaction when I’ve tried to talk to people about this is outrage (“how dare a guy in his early 30’s even THINK about retirement!!!”).

Part of this comes, I think, from our society’s protestant work ethic and the idea that its just plain wrong for someone not to want to toil for 40 hours a week to secure the necessities of life. Working hard is placed on a pedestal in Western society, with near universal contempt for those who inherit wealth and decide not to work (or that super-small, ultra-minute, potentially-imaginary subset of homeless people who just decide not to work without having an inheritance).

Another part of it probably comes from jealousy (“Why should I have to work hard when you don’t?”) and part of it comes from the expectation that you follow the proscribed path through life in a Western country (high school in your teens, university in your early 20’s, crappy jobs as you start working leading to ever higher quality/paying jobs and eventual retirement at 65). Shaving a few years off of any one of these stages is noble, but forging your own path is viewed with great suspicion.

A while ago a woman called in to Suze Orman and said that her parents had retired young (at around 40), blown through all their savings, and at 65 were basically impoverished. They then told their daughter that she had to support them in their golden years (since they’d raised her). The woman asked Suze what she owed her parents. Suze’s response, which I agree with, is that the parents behaved quite foolishly, and the daughter has ever right to tell them they have to get by on social security if they don’t want to get part-time jobs.

The unfortunate aspect of all this hostility is that I think people misunderstand what I’m after. I’m not planning to spend the next 70 years wearing a wife beater and watching Matlock (which is what, I’m lead to believe, retirement mostly entails). My goal is basically to escape wage slavery (I’m a capitalist who believes in wage slavery – go figure!) and to be able to live life on my own terms without having to feel dependent on anyone else for the necessities of life (or for a large enough pay-check to purchase the necessities of life). I hate to feel beholden to anyone (I’d make an awful trophy wife) and most 9-5 jobs and contract work makes me feel exactly this way (“if I upset this person they may fire me and make my life unpleasant”). Basically I want to have a “welfare-eque safety net” of monthly cash payments that will cover the necessities of life that I’ve provided for myself rather than relying on that provided by society.

If I get to the point that I can cover my cost-of-living from passive investments, my first action would probably be to put on a wife beater and spend the next 2 months watching every episode of every Star Trek series, in order (see, I’m not going to waste my life!!!). After that I’ll probably spend another 2 months drinking coffee and reading. Once I’m bored of that, I expect I’ll spend the rest of my life alternating between three things:

1) Working short-term, interesting work (this could be doing things like preparing tax returns, working as a barista and letting hot women pick me up, becoming a grad student again, etc) in order to purchase luxuries (travel, a nicer place to live, materials for some hobby, etc) or increase my standard of living by increasing my passive income

2) Pursuing knowledge for its own sake and enjoying the process (go get a PhD, spend 6 months in Buenos Aires learning Spanish and how to surf, etc)

& 3) Starting new businesses (probably with low capital requirements) and get them running such that they can operate with minimal over-site (such as rental properties, a franchise with a more active partner, writing a book, selling copies of software that I’ve written, etc) or selling them outright (same as any of the earlier ideas but with no ongoing commitment or royalties)

Not the worst way that I can imagine spending the rest of my life, but (almost) everyone else seems to disagree.

In case you haven’t seen the movie (or read the book) “The Secret” I’ll give you the condensed version: positive thinking improves your life, negative thinking worsens your life. For example, Bill Gates is the richest man in the world because he believed he would be (his business instincts and impeccable timing were trivial details) and everyone who has ever been the victim of a crime deserved it (for thinking negative thoughts that caused their victimization).

Yes, I agree its trash but I’m going somewhere with this.

In “The Dilbert Principle” Scott Adams’ discusses how he wrote “I am a world famous cartoonist” 5 times per day until he was a world famous cartoonist. He also played monopoly for an entire summer with a bunch of Irish kids and never won once (because the lousy potato eaters were convinced of their “Irish Luck”). He writes about an objective reality (where things happen because they happen) and a subjective reality (where things happen because we expect them to happen).

He’s a smart guy and I like him, but still kinda wonky reasoning.

Positive thinking actually works though. How it works is based on psychology rather than mysticism. We all have limited resources (time, money, energy, etc) and competing internal needs and desires. As much as economists believe we’re purely rational beings, often we make poorly considered decisions because of resource constraints (salesmen would be unnecessary in a purely rational world). Thinking about something (positive or negatively) increases its “priority” during the limited resource consideration cycle our tiny brains go through, and increase the chance that we’ll take action towards that goal.

For example, every day Mr. Adams wrote out the 5 lines. Later, when he was debating whether he should practice drawing, have a nap or take his girlfriend out for lunch 2 hours later, it was easier for him to practice drawing, because he’d recently put a priority on that activity. If you have a goal (say becoming famous or being rich) that you don’t think about very often, the chance of taking actions that will lead towards it are very small. Any action that gets you thinking about it (writing lines, talking to friends about it, dreaming about it before bed or in the shower) will increase you commitment to the goal and the chance that the next time you have a decision to make, you’ll work towards this goal (instead of a competing goals – such as watching the next episode of “Hell’s Kitchen”).

Recently I was told I’m consumed by money (ouch!). While I don’t agree with this 100%, in part I think it means I’m on the right track to sorting out my finances since I’m spending time thinking about them (to the point that other people are aware of it and thinking I’ve gone too far).

Our society loves experts.

We love investing experts, real estate gurus, all-knowing professors, benevolent leaders and kung-fu masters. We like to think there are people out there, such as the Professor on Gilligan’s island, who can take our problem and devise a masterful solution. Almost every story in our culture glorifies this concept.

Jack Baur on 24 is pretty well super-human. Why he isn’t running the world from a mountain lair is beyond me. Maybe because everyone else on the show is super-human too. Each crew member on each of the starship enterprises routinely performs miracles. It seems to be part of the recruiting requirements at starfleet academy. All the way back to Odysseus we like to read / hear about people who are pretty darn remarkable.

In reality, there isn’t a single soldier in the world who is anywhere near Jack’s level. No engineer is anywhere near as good as Scotty or La Forge and most sailors would have a hard time dealing with a single cyclops (let along a bunch of them).

Certain professions tap into this desire to believe in heroes. Lawyers, doctors and real estate agents continually try to convince society that they have abilities and knowledge that are unattainable (and incomprehensible) to us and we need to just turn our lives (and our money) over to them.

Robert Heinlein wrote:

A human being should be able to change a diaper, plan an invasion, butcher a hog, conn a ship, design a building, write a sonnet, balance accounts, build a wall, set a bone, comfort the dying, take orders, give orders, cooperate, act alone, solve equations, analyze a new problem, pitch manure, program a computer, cook a tasty meal, fight efficiently, die gallantly. Specialization is for insects.

As Heinlein encourages us, we can defend ourselves in a court of law, help someone who is sick or sell a property ourselves. Of course there would be extreme situations where it would be worth seeking help (performing brain surgery on your wife might not be the best idea, although it might give you a chance to defend yourself in court), but anyone with a brain in their head can (and should) handle routine matters in these areas on their own.

Clearly the reason why these professions want to scare us into putting them up on a pedestal is to ensure their own economic well being. Its bloody hard to create a monopoly on a profession, but a few of them have managed it. As I, and others, have wrote before, no one will care more about your well-being than you, so you owe it to yourself to put the best person on the job (and usually that’ll be you).

Some time ago I pulled some of my thoughts together about real estate agents. An agent showed up and offered to “explain how a buyers agreement benefits the buyer”. It is insulting that someone would have the gall to pretend that an legal agreement that binds us to them as an exclusive supplier benefits *US*. Any agent who would try to feed you that bull clearly thinks you’re an idiot (and why do business with someone who has such a low perception of you?).

If you’ve read this far, you’re clearly in the group of people with brains in their head. If you’re already doing things for yourself, I commend you on your courage and intelligence. If you’re not, I encourage you to learn and try more. You have the capability to do it. I believe in you!

First off, a big thanks to Mr. Cheap at Financial Security Quest for helping me get the Canadian flag into the header, as well as Canadian Capitalist for providing the .gif file.

On with the post!

This article from the Globe & Mail talks about a recently released Bank of Canada study recommends getting rid of the lowly penny which I couldn’t agree with more. The study determined that the penny isn’t necessary when the average day’s net pay reached $100 which is in accordance with a model created in Britain based on the relationship between the average day’s net pay and a currency’s denomination structure.

Interestingly enough the Department of Finance said there is still significant demand for pennies but an internal memo indicates that this “demand” is really the effect of people hoarding the pennies and fewer are recirculated.

Personally I can’t stand using pennies because they are so useless and time consuming. I always end up with jars and jars of them and have to spend all kinds of time rolling them. Does anybody really care if milk cost $4.99 vs $5.00? Also a report by Desjardins Group says that pennies are costing Canada at least $130 million per year.

Australia, New Zealand, France, Norway and Britain have all eliminated their lowest denomination coins so it can be done. I’m sure there are people who want to keep the penny around for sentimental reasons or possibly because they like holding up the grocery store line while they search around their giant purse for that last penny, but I think it should go. And while we’re cleaning house, maybe the nickel can be tossed out as well.

Two years ago today I was reading Kevin Smith’s “Silent Bob Speaks” and in one passage he wrote about always feeling like his weight was something “he’d deal with later when it got really serious”. This startled me a little, as I felt exactly the same way (although I didn’t see myself as being quite as big as Mr. Smith).

I decided it might be time to get an objective measure, so I weighed myself, looked up the weight categories for my height and age, and found out I had passed through the “overweight” category and was now considered “obese”.

Being obese shocked me enough that I figured it was time to stop fooling around and to start dealing with my weight. I was visiting a friend at the time, and she was quite knowledgable about nutrition and weight loss, and was very helpful in figuring out the changes I had to make to start living a healthier life (thanks quietrose, you rock!!!). I read John Walker’s “The Hacker’s Diet“, followed his advice of weighing myself daily (and using a 10 day moving average to remove the jitter), then constantly made adjustments whenever my weight loss started to plateau.

Initially I cut out fast-food and non-diet soft drinks and that was enough to lose 2.5 pounds / week. As this rate of loss slowed down, I started measuring the caloric content of what I was eating and making healthier choices. I kept cutting things out until what I was eating was all quite healthy. At this point when my weight started plateauing again I started forcing myself to drink more water and eat smaller portions.

Over 7 months, I slimmed down to the point where I’m at the lower end of my recommended weight, and I basically bouncing around withing a 5 lbs range (when I start getting towards the upper end of the range I eat less, when I get close to the lower end I eat more). 1.5 years later (2 years since I started losing weight) I’m still maintaining my new weight. Its gotten so easy (especially since I’ve moved in with my girlfriend and am eating healthier food) that I don’t even really think about it anymore (or I think about it every time I eat, but its such a habit it doesn’t take any work).

Weight loss may not seem like it has a lot to do with personal finance, but I think there’s actually similarities here that people don’t notice: Things like the value to knowing as much as possible about your weight (or networth) and the true quality of the food you’re eating (or your investments). There are different ways to make changes, such as exercise (or earning more income) and diet (spending less money). If you only make one type of change, its very easy to sabotage yourself by the other (e.g. exercising and eating more or getting a raise and increasing your lifestyle spending). Both processes benefit from measuring your on-going process and making improvements as you see the opportunity to do so. Both are also hardest when you first start them (the first 3 days of a diet or a budget are going to be the hardest, they both get easier as you go).

I hope to post further about the value of measurement, which I really feel is key to enacting changes. But for today, give me a virtual pat on the back – I’ve earned it! 🙂