On a recent trip, I downloaded the book It to my Kindle. Light reading, right? The book quickly drew me in. I hadn’t read fiction in a long, long time. The most recent issues of The Economist gathered dust while I plowed through Stephen King’s novel.
This was a change. For the past couple of decades, I’ve considered all of these activities to be a sub-optimal use of my time:
- sitting still
- reading fiction
- long walks
- TV
- movies
The thought I had was this:
What good is going to come out of any those activities? I should be studying, exercising, or doing something that will result in improvement for myself, family, or our nest egg.
-Misguided Me
The nest egg part is what I’ve been thinking about lately.
Charlie Munger
I enthusiastically subscribe to Charlie Munger’s philosophies. Charlie Munger is Warren Buffett’s investing partner. Everyone knows Buffett, but Charlie is the big brain behind the operation.
Buffett even gave Munger credit for Berkshire Hathaway’s success in the 2014 shareholder letter:
What most of you do not know about Charlie is that architecture is among his passions. Though he began his career as a practicing lawyer (with his time billed at $15 per hour), Charlie made his first real money in his 30s by designing and building five apartment projects near Los Angeles. Concurrently, he designed the house that he lives in today – some 55 years later. (Like me, Charlie can’t be budged if he is happy in his surroundings.) In recent years, Charlie has designed large dorm complexes at Stanford and the University of Michigan and today, at age 91, is working on another major project.
From my perspective, though, Charlie’s most important architectural feat was the design of today’s Berkshire. The blueprint he gave me was simple: Forget what you know about buying fair businesses at wonderful prices; instead, buy wonderful businesses at fair prices.
How do you figure out which businesses are wonderful and which ones aren’t? It’s complicated. Munger likes to look at deep trends, figure out where the world is going, and then consider which businesses will benefit. See Munger’s famous Coke thought experiment.
You must also be able to apply mental models to the world. Perhaps most importantly, you also have to read. A lot.
Wayne Gretzky famously said something like this:
I don’t skate to where the puck is, I skate to where it’s going.
Same thing with growth investing. You figure out where the world is going and put your money there.
What’s Next?
For most of my adult life, I’ve enjoyed thinking about the future and how to profit from it. There will be a lot of money thrown at:
- Augmented Reality: Watch Apple.
- Electric vehicles: An internal combustion engine is a Rube Goldberg machine compare to the elegant simplicity of an electric motor. The inflection point on the bottom part of the S-Curve is already here.
- Heat pumps: Transportation isn’t the only thing going electric.
- Small modular reactors: Something has to provide the power for all of the EVs and heat pumps. Nuclear power doesn’t have to be scary.
- Transportation as a service: I thought autonomous cars would be widespread by now. It turns out that the problem is a very hard nut to crack, but I’ll bet the technology is common by 2030. Waymo may not be far away now…
Also, consider some of the base technologies that are fueling the future:
- Lithim-ion batteries: There would be no smart phone, drones, or Teslas without this battery technology. eVOTLs are next.
- Rocket reusability: SpaceX is reusing its first stages and every other rocket company is trying to duplicate its success. Reusability will bring down the cost to access space. What new businesses will be created as a result?
- Artificial intelligence: I don’t even know where to start with this one, so I won’t. I’ll only say that Google is pretty good at it…
So, if you think about this stuff long enough, it gives you investing ideas. It’s not easy though. Just because Technology X is going to rule the world doesn’t mean you can figure out which company is going to make the most of it. And even if you do pick the winner, no empire lasts forever. Today’s world beater is tomorrow’s afterthought.
Investing From Here On Out
For the longest time, I enjoyed reading about the future and I still do, but now I feel it waning a little. Reading fiction is a lot of fun. So are long, mindless (and mindful) walks. Most movies and TV shows still suck, so I’m OK without that screen in my life. I stilll find it difficult to sit still.
So, I’m changing things up a bit. I’m not looking for any more syndication deals. I probably won’t put any more money into individual stocks or exotic private companies. Index funds, which you don’t have to think about at all, will get most of our new money.
Other random thoughts:
- No bonds: I don’t think we’ll ever own a bond. This is a luxury Mindy and I can afford since we oversaved. Additional reading over at Go Curry Cracker.
- I’m not going to sell for the sake of selling: We have large investments in Tesla, Alphabet (Google), and Amazon. (See our portfolio here) I still believe in the long-term prospects of these companies, so I’m holding on. Also, capital gains.
- Unintentional dividend investor: I’ve always preferred growth investing over dividends. However, (and again because we oversaved), I’m not sure we’ll ever have to sell any shares. The dividends may be enough to fund our existence from here on out.
- I still think I’m living a dream: When I was a kid, I thought that $1,000,000 was an insane amount of money. “I’ll never have that!” Before the world went bonkers, we were over $5,000,000 and are now approaching it again. It doesn’t feel real. Life is good.
- Money will never change me: I’ll always mow my lawn, clean my toilets, and change the cars’ oil (at least until I get an EV). One of the greatest luxuries is having a healthy body that allows you to get through most of life without relying on others. I’m going to stay Active AF until I can’t.
You?
I’d be curious to hear from others. Have your investments or philosphies around investing changed over time? Does more money mean that you get a little crazier or do you tighten up? How will your portfolio change as you get older?
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What has changed is realising that lots of investments, trends and products are based on which country you’re living in . Do you think that there are new companies/ trends that are missing if you only focus on home / USA? I live in a smaller country so it’s more clear to look at both east and west…
Good point! I’m sure there are lots of things I’m missing. For example, Europe and Japan are ahead of America in heat pump tech.
Reading fiction is a lot of fun, and according to this NYT article from last month, it may also help with memory loss prevention:
https://www.nytimes.com/2022/07/06/well/mind/memory-loss-prevention.html
“One early indicator of memory issues, according to Dr. Restak, is giving up on fiction. “People, when they begin to have memory difficulties, tend to switch to reading nonfiction,” he said.
Over his decades of treating patients, Dr. Restak has noticed that fiction requires active engagement with the text, starting at the beginning and working through to the end. “You have to remember what the character did on Page 3 by the time you get to Page 11,” he said.”
I used to only read non-fiction so I didn’t “waste my time” as well. Now I alternate between fiction and non-fiction. I also get in some good stretching while reading (Asian squats, 90/90s, butterflies, simply sitting cross-legged on the floor, etc).
Whoah, that’s so interesting. Thank you for this. I’m gonna check out another Stephen King book today! In the interest of brain health! 🙂
Good post Carl! I don’t expect our portfolio to change much as I get older. Roughly half our funds were indexed, and the other half was put into individual companies with superior economics and competitive advantages that make them very long term holds.
And I mean *really long term*. I’ve held shares in some of these companies for over 20 years already.
Due to the superior returns in our individual holdings, that part of our portfolio has grown faster than the index funds. So far I have resisted the temptation to cut the flowers and water the weeds, but I can imagine a day when those superior companies are no longer superior.
Will I rebalance then? Not sure!
Cut the flowers and water the weeds! I haven’t heard that one before!
Nice work on your holdings! Keep killing it!
I have very much enjoyed and still enjoy reading your content and following your journey (when I first discovered your blog a few years ago, I started reading from the beginning and including all of the comments). Sadly, I made some of the same mistakes you did (working well past the point where I could have quit full-time work, trying to juggle family/work/house rebuild, and underestimating the amount of post-work income that “hobbies” would produce), but reading your thoughts on how you have dealt with them has been super helpful for me. I might have avoided some of the mistakes had I found your blog earlier, but following along has still allowed me to see another perspective on the value of some of these “mistakes”.
It has also allowed me to make the decision to move from the low cost of living area where I’ve been the last 20-ish years to be close my aging parents (who are in much higher cost of living area) without having to stress too much about the money side of things. The only real “stress” there is that I’m having to jump through a few hoops because something like 80% of my investments are in tax-advantaged retirement accounts. One piece of advice I have started giving younger people on the FI path when I can is to not be afraid about saving in a regular brokerage account. Yes, it might not be quite as optimal from a tax perspective as a 401(k) or similar, but it is much easier to access the money for that spur of the moment “I want to move across the country and boy would it be easier if just had $500k I could get out without jumping through a bunch of hoops” sort of thing.
I’ve heard Doug comment on the podcast that he has favored taxable brokerage investing over tax-advantaged and I wish I’d heard that advice 10 years ago. It certainly saves on the mental bandwidth when you don’t have the added step of calculating the tax impact and possible penalties for access tax-advantaged savings early.
Two other things:
The FIRE acronym you discussed on the podcast episode that was released today. I’ve long not been a big fan of the “RE” part for all the reasons you cited. A while back I saw in a comment to a ChooseFI YouTube video that someone broke it out as “Financially Independent, Recreationally Employed”. I thought that was a good rebranding that lets us use the same acronym.
On heat pumps. I currently live up north and when I bought my home it had no central HVAC, only electric radiant heat in the ceilings and a wood burning stove. I hated the electric radiant heat because the attic was not adequately insulated, so as part of a whole house remodel, I removed all the electric heat coils (plus all the insulation and drywall and replaced it with R-38 in the attic, R-15 in the walls, and new drywall) and then also installed an electric heat pump/electric furnace central HVAC system (this was back in 2012). The heat pump works very well down to around 15-20F. Below that, I really have to supplement with the wood burning stove (which is actually powerful enough to mostly heat the house) or use the electric furnace. However, the main issue I have with the heat pump is that at lower temperatures the temperature loss gradient between the center of the house and the exterior seems to be steeper than what the heat pump can keep up with (this is after the full remodel, which included the stuff described above plus all new double-paned low-e windows and all new doors). Granted, I like to keep my house warm (thermostat stays set around 83-85F in the summer so the AC rarely kicks on, and I can tolerate 68F in the winter), which means that the system has to work harder than perhaps might be ideal. But all of that to say that there is a need to make sure that homes in norther climates are insulated well enough to make the heat pump stay closer to the optimal part of the efficiency curve. I’m still trying to figure out how to improve mine, since I’m not sure there’s much I can do since I’m at the max I can put in the attic and the exterior walls are 2×4 framing with brick exterior (50-ish year old home).
Thanks for the long and thoughtful comment. I’ll start at the end!
Heat pumps: What kind do you have? The technology seems to be improving rapidly. I’m going to hold off for another couple of years before I get one because I think there is still room to improve.
I’ve read that the attic is the most important place to insulate. If I were you, I’d blow in some more cellulose or fiberglass into the attic. It’s an easy afternoon job with 2 people.
Post-tax investments: I agree that they are underrated. For a married couple, capital gains are only taxed after $80,000. If you live frugally and don’t need to sell a whole lot in a year, you may never have to pay taxes. Crazy good and kinda similar to a Roth!
Thanks so much for the kind comments. Next time you’re in Colorado, send me a note! It would be fun to chat in person.
I have a Trane XL16i. Granted, I would expect a 2022 model to perform better and more efficiently than the 2012 model I have. It works well, but I just notice when the outside temperature gets in the teens and lower that it struggles a bit. That said, my electric bill is usually <$80 in summer (less than $50 this past June!) and usually barely touches $200 in the coldest month of winter (my high this past winter was actually $145). I know people with electric bills regularly in the $300-$400 range, so I don't think I can complain too much. As far as additional insulation, I read somewhere that going past R-50 in total insulated value in the attic was not recommended. I'll have to take a look to see if that is still the case. Going from what I have now (R-38) to R-50 with a bit of blown insulation might be something I could manage. It wouldn't likely save me enough on utilities to make financial sense, but it could help with keeping the temperature in the house at a more even and comfortable/consistent level.
With after-tax investing, the fact that it's capital gains is super helpful. As it is, my hobbies pull in six-figures so I'm paying capital gains no matter what. But paying 15% tax on the gain only is vastly preferred to paying 24% or 32% on the entire withdrawal from a retirement account and then the 10% penalty on top of that for the early withdrawal. In my own case, I was hoping to buy a new house in cash without having to first sell my current place. But I don't have enough in the taxable brokerage to make that happen. If I liquidate everything in that account then I only get about 50%-60% of the way there. The tax hit to make it to 100% of what I need from retirement accounts is too much for me to stomach. I decided to just get a mortgage (even with rates where they are today and transaction costs its way better than taking a 34%-42% tax/penalty hit), get into a new house in the new location, and then later after I sell the current house use the proceeds to wipe out the mortgage on the new place (which should work since I'm downsizing quite a bit).
I'll definitely let you know when I'm heading through those parts next. I'd love to sit down and chat. I'm not much of a beer drinker, but I think that Colorado has some of the best craft brews around, so I'll definitely look forward to some of that.
Hi Robert,
I am not sure what your Trane heat pump is rated for on temperature, it might not be an ultra cold weather one. We put in a Mitsubishi hyper heat system here in New Hampshire, and it is rated to operate at 100% down to 5 deg. F and 75% down to -15 F. I can vouch for it, we heated our house exclusively last winter, even the week it went to -17 F!
Wow, that’s great! Does it have resistive backup?
No resistive backup, but we do have a wood stove in the basement to warm things up if things get too crazy!
This is one of the best post I have read recent times. There will be many new technologies, new ways to invest. But index funds are the best in my (our) world.
I have added IT to my reading list. I have not read lot of fiction lately. Local library is a great place to borrow books or even free online audiobooks. Recently I re-read “ A Man Called Ove (Swedish: En man som heter Ove”. I would definitely recommend for anyone to read.
I have not achieved Fi but just in the journey of Fi in last 3 years changed a lot.
1. Everything is automated for me. Investing, rent pay, credit card pay etc. I keep $10k in my checking so that I don’t worry about seeing my account balance. There will be new ways to invest like Crypto, NFTs, AI, artwork but I am not having FOMO. Also I do not have FOBO (fear of best option). As long as I am sure of what I invested (but index funds), I am good and will not change.
2. I spend on experience now, not things. There is finite place in my 2 bed 2 bath apartment. My son is about to be 9. So he can do plenty of things that I love. Recently we started running together. We did zip lining and peddle boats. It’s lot of fun. So less materialistic things, and more experience.
3. Traveling: last couple of years, we were struck at home most of the time. I am looking forward to coming years to travel more.
Really good point of view, enjoyed reading it. But I think there is room for different points of view on these topics. No right or wrong, just different.
As someone who has been FIRE / retired for close to 25 years, reading, long walks and movies have been great! All things hard to do when working. Attention to health … ok. But study and improvement should be for those things you WANT to do not because you need to. Including your nest egg. The joy of FIRE is only doing what you want to do.
At your level of net worth, you should only do the tasks you want and you should get others to do the rest. You have nothing else to prove and you should concentrate on shedding ‘work’. I cannot believe you really like to clean toilets!
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In one sentence you talk about focusing investments in VTSAX and another “figure where the world is going and put your money there”. VTSAX is mostly fine for those who are not interested in investing and for long term investments. Others like and can do investing and it brings their future closer by many years. Where would you be without Amazon, Alphabet and Tesla? Active investing done right can get you to your goal sooner or reduce volatility.
For me, active portfolio management is more peaceful than VTSAX. In my retirement, most of my public equity investments are dividend related. The result is my equity losses this year are less than half VTSAX and the dividends far exceed these losses. Simple review and adjustments a couple times a year is it. With a high cash reserve, I don’t have to react to any market ‘crash’ for many years. Plus, I believe that a balanced financial plan is a multi leg strategy … public equity investments are only 40% of my retirement income (half equity gains and half dividends most years).
I also get concerned about too much in one bucket … I have very few investments above 1% to 1.5% of my net worth (excluding homes). VTSAX worries me a bit as a form of concentration. But better than any other alternative if you don’t have the skill or interest in investing.
Sorry to hear syndication deals aren’t working out. It’s the right decision if it doesn’t work for you. In my case, I’ve been doing this for a very long time and returns have been consistently in the 15% to 25% range. per year.
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Some comments on what’s next:
[1] Agree on autonomous vehicles. Impact way more than TAAS, huge societal impact and huge impact on many industry sectors. Real estate, recreational travel, restaurants are but three of many industries that will hugely change.
[2] EVs and Augmented Reality will take longer than you think. But agree, going to be big.
[3] Heat pumps are improving (very effective here in the south) but the combination of solar and battery storage will change suburbia … electricity will be close to free. SMRs will happen but everything nuclear takes forever. At this point, fusion might make it over the finish line before SMRs.
[4] Lithium-ion is important but I’ll bet that most EVs in this decade will be LFP (Lithium Iron Phosphate). Already in half of Tesla production.
[5] Rocket reusability will eventually change long distance transportation but don’t be surprised if the biggest unexpected ‘benefit’ is in national defense: communications, sensors and ‘rods from God’.
[6] And Artificial Intelligence will dwarf all the rest. In the first world, expect everyone to have a lot more free time. AI is going to devastate blue and white collar work. And the worst of times in the third world … no products to make, no money to buy. Not a happy thing for more than half the world. But inevitable.
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Thanks again for the enjoyable post.
Bob, thanks for the long and thoughtful comment!
“Active investing done right can get you to your goal sooner or reduce volatility.”
Of course this is true, but I think very few folks can do this. They either lack the time, temperament, or desire.
“At this point, fusion might make it over the finish line before SMRs.”
I hope so! As long as it’s in my lifetime. Fusion would be one helluva step forward for humanity!
“Lithium-ion is important but I’ll bet that most EVs in this decade will be LFP.”
Agreed. And have you read about the manganese LFPs?: https://www.licarco.com/news/catl-will-start-producing-lfp-batteries-with-15-percent-more-energy-thanks-to-manganese
Aren’t you in Florida? I’ll be there soon. If time (and distance allows), it would be fun to talk in person.
The real.future city should be sustainable with an excellent sense of community. Electric cars, even if self navigating, doesn’t fix that. You still have the fundamental size problem of a car. You still have neighbourhoods cut up by a mass of roads. You still need massive amounts of resources and infrastructure.
Trains, walking, bikes/e-bikes and e-scooters, with lots of trees, would fix a lot of this. A high speed train needs 1 driver to carry way more passengers than cars ever can, with all the benefits of self driving cars.
Sorry, I like your blog, just disagree with your love of self driving EVs. It’s not a dream outcome for the planet.
Oh, you have me wrong here! I really dislike getting in a car. My favorite towns to visit are ones that I can plop down and never get in or on any kind of motorized vehicle. Salida here in Colorado is like that.
I love your vision, but I don’t see it happening at least here in America any time soon. Maybe small pockets, but that’s it.
Trains are my favorite way to travel, but SOOOO expensive to build. And you still have the last-mile problem.
I will be super interested to hear any thoughts you have on SMRs (fun fact, SMRs are also steam methane reformers, which are the primary vehicle for hydrogen production). I’ve been involved with developing utility scale wind and solar projects for 15 years, and the way those technologies have scaled has frankly surprised me and many people way smarter than me in this industry. Battery storage, primarily LI-based technology, is following a similar deployment-cost pattern. The hope for the nuclear industry is that small modular reactors are capable of the same learning curve and scale-up performance. In reality, SMRs were being talked about when I started doing wind farms and were still being talked about 15 years later, when we have solar being added to the grid by the gigawatt along with battery storage, zero SMRs have been built and California is having a food fight over keeping their last nuke online while already having more utility scale battery storage capacity online than they would lose if Diablo Canyon gets shut down. Nuscale was the great SMR hope then and it’s one of the great SMR hopes now, and I just don’t see it matching, let alone beating, gas CCGTs or solar+storage hybrid power plants on economics or speed to market. Another tool in the zero carbon box would be cool, but not if it soaks up vast numbers of dollars that could be deployed to greater effect in other technologies.
Mike! You know far more about all of this than me. I’ve only casually studied SMRs, so I bring nothing to the table.
Nuclear power has interested me because it seems like a technology that could help with the climate crisis until renewables/battery storage scale up. I always think of this when I think of nuclear power: https://xkcd.com/1162/ And this: https://en.wikipedia.org/wiki/Energy_density_Extended_Reference_Table
…and California is having a food fight over keeping their last nuke online while already having more utility-scale battery storage capacity online than they would lose if Diablo Canyon gets shut down.
Now that is amazing. Surely we’ll need sh*t-tons more batteries to fully transition to renewables, but I had no idea there was this much already.
What do you think about what Tesla is doing with VPPs?
Great, thoughtful article. I read it while riding the light rail (which my employer covers) home from the farmer’s market, and while I’m nowhere near 5M, I had the same thought: life is good. The FI route really doesn’t have to feel like a sacrifice.
All of these highly unoriginal thoughts are just a pretext for me to say: props on the Towelie reference.
LOL, thanks!
I started my investing journey with cryptocurrencies and are now looking into some classics – index funds, and ETFs. Luckily, I was never that interested into NFTs, but I know how they’re “supposed” to give returns. On the other hand, I find these tech investment options fun as well:
– TaaS Stocks, Transportation as a Service, think rideshare and food deliveries
– VR/AR/MR
– Internet of Things, seems to be forgotten in the last few months, or I’m not around much
– Distributed Cloud,
– Metaverse, but still want to keep track how it develops
Other ideas include chip stocks and conductive silicone. I still have to wrap my head around how those work and which companies are good to invest into. Plus, I also have to think about how capital gains are calculated for a highly diversified portfolio.
Calculating and tracking seems challenging (I read this post https://www.navexa.io/blog/how-to-calculate-and-report-capital-gains) so I’m thinking about some portfolio tracking tools as well.