ETFs (Exchange Traded Funds) are like mutual funds, but can be traded like stocks throughout the day. They each track an index - for example, tracks the S&P 500. However, many investment firms simply create their own index to reflect their investing style and then create an ETF to track that custom index.

With these ETFs we can generate endless combinations and weightings in search of the Perfect Portfolio.

With that said, here are my favorite ETFs that I personally use.

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Global Asset Allocation (GAA) -

Meb Faber’s podcast was my primary gateway into learning about investing. His book “Global Asset Allocation” introduced me to a variety of portfolio designs, while also explaining how to evaluate them beyond simply looking at a portfolio’s average returns.

Back to the ETF. The Global Asset Allocation ETF is actually an “ETF of ETFs” composed of ~29 underlying ETFs. Most of these are funds from Cambria and Vanguard.

It’s a one-click diversified portfolio actively managed by Cambria. The goal is to “reflect the global universe of assets consisting of domestic and foreign stocks, bonds, real estate, commodities and currencies.” The target weightings are: 45% equities, 45% fixed income, 10% other assets (commodities, currencies, real estate, alternative).

A great “set it and forget it” approach for investors. I used this fund primarily early in my investing journey. Now I prefer to design my own portfolio of ETFs, but I still hold this in my accounts and reference it frequently.

JPMorgan Ultra-Short Income -

The JPST actively managed fund invests in US treasuries, corporate bonds, and more, that are maturing within one year. This “ultra-short“ focus limits the interest rate sensitivity that longer-term fixed income options experience.

This is my cash-like “savings account” fund.

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Avantis US Small Cap Value -

Avantis is an investment firm spun up by former Dimensional Fund Advisors executives and reflects many of Dimensional’s same investing approaches - in particular, an affinity for Small Cap Value.

What is Small Cap Value?

‘Small Cap’ refers to the size of a company as measured by its market capitalization. Typically, market capitalization is broken down into mega, large, mid, small, and micro cap categories.

There is no single definition of ‘Value’ investing, but the general goal is identifying companies trading at less than their ‘intrinsic’ value. In other words, the companies are underpriced, at least according to traditional metrics such as price-to-earnings and book value.

Avantis describes their Value approach as “low valuations with higher profitability ratios.” This “higher profitability” helps screen out junk companies - in other words, companies that are obviously cheap for a reason!

Will Small Cap Value prove to outperform in the years ahead? Who knows, but I’m along for the ride.

Global Upstream Natural Resources Index Fund -

This unique fund invests in “global companies that operate, manage or produce natural resources in energy, agriculture, metals, timber or water.”1 It’s one avenue to gaining exposure to commodities that tend to correlate with inflation, as opposed to investing in the physical commodities or related futures contracts.

This is a small (and very likely unnecessary) portion of my own portfolio, but I conceptually like the idea of getting commodities exposure while maintaining the higher upside of owning stocks.

iMGP DBi Managed Futures Strategy ETF -

If you’re still here after learning about the GUNR ETF, let’s keep this party going with managed futures.

This is an asset class most traditional retail investors ignore, but it can provide an extremely valuable uncorrelated return stream to pair with stocks and bonds. Until the past few years, it was also a difficult asset to access. With the launch of funds like DBMF that’s changing.

What exactly are managed futures?

Investopedia: “A futures contract is a legal agreement to buy or sell a particular commodity asset, or security at a predetermined price at a specified time in the future. Futures contracts are standardized for quality and quantity to facilitate trading on a futures exchange.”

DBMF trades in these futures contracts in equity, bond, currency, and commodities markets. And they can go long or short on these contracts - “long” means you gain if the asset’s price appreciates, while “short” means you gain if the asset’s price declines.

While most traditional investing approaches use a combination of stocks and bonds, managed futures provides values as a third, uncorrelated asset - this can reduce the volatility of a portfolio and allow for smoother compounding.

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Portfolio design is a creative endeavor - an art and a science - that rewards curiosity.

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"Practice any art, music, singing, dancing, acting, drawing, painting, sculpting, poetry, fiction, essays, reportage, no matter how well or badly, not to get money and fame, but to experience becoming, to find out what's inside you, to make your soul grow.” - Kurt Vonnegut

A common theme through the books and podcasts I’ve consumed centers on how to live a more purposeful life. I love learning - it’s the application that trips me up constantly.

I hear something inspiring in a podcast, tell a friend about it, spend my next few days applying it, only for it to flame out once the next thing comes along or I get distracted.

Thus, a lot of thinking about the how this year.

I’ve previously shared Patrick O’Shaughnessy’s “Growth without Goals” mindset. The rare blog post that truly stuck with me! I won’t rehash it here, other than to say he paints a compelling vision of a more dynamic, enduring how to living a purposeful life than I’ve encountered elsewhere.

Traditional goal-setting is unsatisfying to me for many reasons. James Clear, author of Atomic Habits, summarizes it succinctly1 while advocating for a focus on principled systems:

1. Winners and losers have the same goals.

2. Achieving a goal is only a momentary change. (See: Matt Damon’s Oscar)

3. Goals restrict your happiness.

4. Goals are at odds with long-term progress.

With these in mind, I recently listened to Patrick’s interview with Kenneth Stanley, an episode aptly named “Greatness without Goals.” Their discussion focused on computer science and evolutionary systems - while a fascinating topic, it was their ‘lessons learned’ that resonated with me.

Podcast Link

Essentially, for the big questions in life, principled thinking and curiosity allow us to gather “stepping stones.” We don’t necessarily know where they’re leading. If we accept the uncertainty inherent with that, we can find meaning. More meaning than if we had set out with a fixed destination.

I’ve included an edited excerpt below.

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Podcast Interview

[00:50:08] Patrick: … What you would want is to promote low cost and fast experimentation, and all these things I think have their proponents. What do you think this means about living an interesting life? It seems as though the anxiety associated with goals, at least from my personal experience, is that you said something you want, even if it's naïve like, "I want more money," or whatever it is, "I want the perfect spouse," all the things that I think we all say we have as objectives that you're just living this state of anxiety, horrible anxiety because you don't yet have the thing you want. Whereas I think you're proposing an alternative, which is literally every day you could say, "I'm just going to compare my reference class, all my experience to the stuff I find today, optimize for novelty, try to proliferate that novelty or combine available stepping stones in interesting new ways, maybe I'm happy all the time." What do you think this means for our lives and our happiness even larger?

[00:51:20] Ken: … When I think about it, we do run our individual lives this way. I did agree with you. It's toxic, psychologically toxic, which is really interesting, isn't it? It does feel like something about society, something about all these goals, percolating through life.

[00:51:51] Patrick: We're attached to them, right?

[00:51:52] Ken: Yeah. It's just stifling over time. It seems to grip you from a really early age… You're just in this constant objective vice and you can't get out of it. It makes you sweat. I think it must be satisfying to hear an argument against that… So many objectives pervading everything. We somehow, I think, at some deep instinctual level realize this is insane. It doesn't make any sense, and it's actually true. It's insane. It's not principled, whatsoever. Again, we have to concede that in some cases you want to lose weight or something. It can make sense to have the objectives. You don't want to eliminate all objective thinking from everything. In this self-discovery or "What am I going to do with my life?" type of stuff, I think that's analogous to blue sky discovery at a society level. You're trying to discover something that's meaningful to you. That includes even love or cliché things like that… How am I going to find that thing, that thing that makes me satisfied? Is it even possible? What does it even mean to be like truly satisfied for your entire life? That's very blue sky. I think the stepping stones are totally unclear… You can look at this as we just do things that are interesting, collect those stepping stones for yourself now. Those are individual stepping stones.

You give yourself multiple opportunities and you use those as jumping off points to find what makes you satisfied, interested, rich, whatever it is that you're worried about, but there's a big caveat… which is that there's risk involved… It's like having a portfolio, having a repertoire, having an archive of things. Some won't pay off, and it's very important at the individual level I think to understand. If this advice is appealing, you have to understand that what you're getting into is a system of taking risks. I mean, you're taking informed risks. So you understand the risks you're taking, but it's obviously true that if you follow a path because it's interesting, there's no guarantees of anything, whatsoever, and it could end up failing. You're doing this, hopefully, with the awareness that it might not pay off in the end and you think it's worth it. That's why you would do it. Not all interesting things turn out to work or to work out. That's why it's good to have a portfolio investment perspective, and some things will pay off, not all things. So it's good to have your own little portfolio of things you're pursuing, but even then, we should acknowledge that there's a legitimate approach to life, which is just to have modest aims, which is less risky. You should choose things for your life that make sense for you, and you're not obligated to take risks. If you do want to have a process of self-discovery or just discovery in general, do things that are really remarkable from your point of view, then you'll have to take risks. There's no choice. The whole idea of our interestingness, repertoire, stepping stones, it's all about risk. So you have to take risks in order to have amazing ends.

“We have two ears and one mouth.” - Epictetus

A few months back, I heard a podcast with Kevin Kelly, an author and co-founder of Wired magazine. One quote has stuck with me:

“The more you are interested in others, the more interesting they find you.

To be interesting, be interested.”

Such a simple concept.

There’s a very strong correlation between people I like to talk to and people that ask good questions. They generally bring two characteristics: 1) active listening skills and 2) insightful questions.

For me, these both require genuine curiosity to be sustainable. A stance of humility that acknowledges how little we know and how much we have to gain from keeping an open mind and asking the right questions.

Speaking of which, here’s a great question to pull out at the next dinner party: “What do you know better than anyone else in this room?” That can unlock a fascinating conversation!

For a few more ideas, here’s a list of other questions to consider.

At a very basic level, they help patients decrease appetite, reduce blood sugar levels, and promote weight loss.1 In addition, they’ve shown early signs of reducing risk of cardiovascular disease.2 It’s a potentially revolutionary development with far-reaching implications.

On a recent Bloomberg Odd Lots episode, hosts Tracy Alloway and Joe Weisenthal interviewed an analyst to learn about these potential impacts on patients, the healthcare industry, the economy.. I highly recommend checking it out.

[Podcast links at end of this post]

I particularly enjoyed hearing the guest’s research about specific companies or industry sectors that will be affected. For example, will all-you-can-eat buffets benefit with some patrons now eating less or will demand for these buffets drop in general, right alongside the appetites of their former patrons?

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Medifast

Produces weight loss-friendly snacks and meals, along with a network of weight loss coaches. Could current customers opt for new weight loss drugs and, with their reduced appetite, simply eat less of the foods they’d prefer to eat?

Teleflex

The Titan SGS is a medical device for performing laparoscopic sleeve gastrectomies, which removes a portion of the stomach. It’s a common bariatric procedure that could face competition now - will patients opt for a surgery or weight loss drug injections?

Resmed

Obstructive sleep apnea (OSA) is very commonly linked to excess weight.3

• Excess fat around the abdomen can compress a person’s chest wall, decreasing lung volume and thus airflow

• A 10% weight gain is associated with a six-fold increase in OSA

Weight loss isn’t a clear cut “cure” for OSA, but it is likely to reduce demand for Resmed’s CPAP machines.

Match.com / Bumble

Weight loss drugs could bring increased demand to dating platforms, as patients experience improved health and, likely, a related increase in self-confidence.

Match.com owns a portfolio of these dating platforms (Match.com, Tinder, OkCupid, etc), whereas Bumble caters to women (“Make the first move”), which the Odd Lots guest suggests could see more of an impact.

Podcast links for Apple Podcast and Spotify below:

With that, here’s a vivid example of how goals can lead us astray, according to Matt Damon.

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Is that…it?

Matt Damon won the Oscar for Best Screenplay at just 27 years old. The highest honor for an actor, before he even turned 30!

But after winning, he went home and had a realization…

“I remember very clearly looking at that award and thinking,

‘Imagine chasing that, not getting it, and then getting it finally in your 80s or your 90s with all of life behind you and realizing what an unbelievable waste of your life.’

It can't fill you up. If that's a hole that you have, that won't fill it.

My heart broke. I imagined another one of me [not getting that award until I was] an old man, and going like, ‘oh my god, Where did my life go? What have I done?’ And then it's over.”

Every profession has a similar pinnacle of achievement - reaching the C-Suite, winning MVP - it’s easy to adopt these as our own goals by default. Or perhaps it’s a financial net worth target - I’m a big fan of some FIRE (financial independence, retire early) practices, but you don’t have to look hard to find people sharing the utter disappointment and emptiness they feel after finally reaching their FIRE target. Everything was centered on achieving that outcome, but just as with Matt Damon, the eventual realization was the misplaced goal all along.

None of these goals are inherently bad - it’s how we use them. The expectations we place on them.

A disciplined approach to following our principles in the day-to-day might just be the answer. That executive role, ideal weight, or financial situation might be a wonderful byproduct of a values-based ‘growth without goals’ philosophy.

Thanks to Billy Oppenheimer for sharing the video.

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In the meantime, I jotted down a few thoughts on why I find this approach meaningful.

Summary of “Growth without Goals”

“Man lives by time. Inventing the future has been his favorite game of escape. We think that changes in ourselves can come about in time, that order in ourselves can be built up little by little, added to day by day. But time doesn’t bring order or peace, so we must stop thinking in terms of gradualness. This means that there is no tomorrow for us to be peaceful in. We have to be orderly on the instant.”

- Jiddu Krishnamurti

When we set goals we are “inventing the future” and living outside of the present moment. Success commonly gets defined as accomplishing goals - but accomplishment is a trap, which exists only in the past and future (and is closely related to pride).

Instead, Patrick defines success as “building a set of daily practices… continuous, habitual practice(s) trumps achievement-based success.”

Define your values and a corresponding set of daily practices. Follow these practices and you “may produce things that look like end points, like achievements, but those things are just byproducts.”

Consider Jeff Bezos’s approach at Amazon: “relentless focus on customers.” This is a continuous goal which will never be ‘accomplished.’ It’s a mindset that influences all decision-making. Viewed this way, Amazon’s success is a “byproduct, a side-effect of a process driven, flexible, in-the-moment way of being.”

After outlining his own daily practices, Patrick notes “these things are their own reward. I did not back into these things from some other goal. They are continuous goals themselves. They make daily life quite wonderful, and I bet they will continue to lead to things that look like achievements from the outside.”

Some Thoughts

A few aspects of “growth without goals” that I really appreciate…

Values-based vs outcome-dependent

What can you control? Your values and daily practices.

Defining success by outcomes fails to account for the role of luck/chance/fate - everything outside of our control. This is very similar to Annie Duke’s concept of “Resulting,” a flawed way of thinking where we assess the quality of a decision based solely on its outcome. (see Thinking in Bets)

As investor and author Jim O’Shaughnessy regularly says,

“We are deterministic thinkers living in a probabilistic world, and hilarity often ensues.”

Shift focus from future to present

Rather than setting your mind on a future ideal or event signifying ‘success,’ you focus on today and what you can do to live according to your values.

You’re not ignoring the future. The focus is on matching your principles to the options available, based on current circumstances and information. It’s a flexible, more adaptable approach to life.

Byproducts

The Roman Stoics sought to live a virtuous life by striving towards wisdom, courage, justice, and self-control. As a byproduct, they believed this philosophy of life led to tranquility. Tranquility was not the goal - it happened as a result of living according to these principles.

Focus on your principles. Good outcomes will likely result from this diligence - a promotion at work, losing weight, running a half-marathon… But at the end of the day, adherence to your principles is true success.

Bottom-up

Our core principles are the foundation of who we are. We move from this to deciding on corresponding daily practices. And these daily practices generate positive outcomes as a byproduct.

I’m reminded of a Stephen Denning quote about innovation:

“Innovation that happens from the top down tends to be orderly but dumb. Innovation that happens from the bottom up tends to be chaotic but smart.”

Defining success on the occurrence of pre-defined outcomes is a top-down approach. A principled, bottom-up approach is more chaotic and fluid, but ultimately more fulfilling.

Courage

Shunning traditional definitions of success requires the courage to think differently. Traditional measures of success no longer apply - that’s freeing, but also removes a default, external source of validation.

“How much time he gains who does not look to see what his neighbor says or does or thinks, but only at what he does himself, to make it just and holy.”

- Marcus Aurelius

The Growing Process

Embracing a ‘growth without goals’ mindset runs counter to many of the leadership and personal development resources I’ve encountered. But I can’t quite shake the idea that’s it’s a more fulfilling way to go about life.

Patrick’s post ends with a great analogy to trees:

“I love trees that grow sideways out of rocks and hills. They start small and survive because of some available sunshine. They grow whatever direction they must to reach more light. Their slow growth allows them to ultimately reach a form that looks tenuous or even impossible, but they are firmly rooted. I like to imagine the early days, the tree’s roots tinkering in the soil, quickly abandoning failed paths, building deep systems along better paths. These bizarre and beautiful trees end up this way because of a simple process. They operate according to a continuous goal, from the bottom up.”

What are your thoughts on “growth without goals”?

“Superior investing doesn’t come from buying high-quality assets, but from buying when the deal is good, the price is low, the potential return is substantial, and the risk is limited.”

While reading Fundrise’s most recent shareholder letter - in which they outline their defensive positioning in the current market environment - I couldn’t help but think of Howard Marks, a renowned value investor at Oaktree Capital. He’s perhaps most famous for his memos, which are all available on Oaktree’s website. Collectively they represent decades of investing experience.

Today, I’d like to introduce you to Howard Marks, in case your unfamiliar. Then with the next post, we’ll take a look at Fundrise’s shareholder letter - I think it would make Howard Marks proud.

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Who is Howard Marks?

As co-chairman of Oaktree Capital Management, Howard Marks has racked up an impressive record and along the way has shared invaluable insights in his numerous memos and books. In particular, his book Mastering the Market Cycle provides a great summation of the frameworks he’s developed over his long career. His deep understanding of these market cycles and humble perspective are at the core of his wisdom - I’ve found his memos to be both fascinating and informative.

Marks views credit cycles as a fundamental reality of the financial markets, driven by economic conditions, investor psychology, and institutional behaviors. He emphasizes that these cycles are, by their nature, unpredictable in terms of exact timing and magnitude, yet they follow a rhythmic pattern of expansion and contraction.

To emphasize: he doesn’t claim to know the timing of market bubbles and crashes. His focus is simply on identifying the stage of the cycle.

Market Cycles

“'Rule number one: Most things will prove to be cyclical. Rule number two: Some of the greatest opportunities for gain and loss come when other people forget rule number one.'“

During expansionary (growth) periods, credit is cheap and readily available. Optimism runs high and risk-taking is encouraged… but it tends to go too far.

In contrast, during contractionary periods, such as a recession, credit becomes expensive and scarce. Pessimism takes over, and most market participants want to avoid or can’t afford to take on any risk. But Marks notes that these periods of contraction, when the market is fearful and pessimistic, often provide the greatest investment opportunities.

He consistently advises against being swayed by the prevailing sentiment of the moment. Instead, he advocates for counter-cyclical investing, favoring caution when others are euphoric and finding courage when others are fearful.

“Skepticism and pessimism aren’t synonyms. Skepticism calls for pessimism when optimism is excessive. But it also calls for optimism when pessimism is excessive.”

When the market is awash with credit and optimism is too strong, it's time for smart investors to tighten their belts and become more selective. Resist the allure of easy profits and instead prioritize safe assets. When the cycle turns and credit tightens, leading to widespread fear, that's the time to look for undervalued assets and invest aggressively. It’s a contrarian approach.

“When the market is high in its cycle, investors should emphasize limiting the potential for losing money, and when the market is low in its cycle, they should emphasize reducing the risk of missing opportunity.”

Framework for Investing

So how do savvy investors implement this?

Marks identifies six components to his “formula for investing success.”

• Cycle positioning—the process of deciding on the risk posture of your portfolio in response to your judgments regarding the principal cycles

• Asset selection—the process of deciding which markets, market niches and specific securities or assets to overweight and underweight

If you have conviction about what stage of the market cycle you are in, it’s time to structure your portfolio accordingly. And given that the “market” is actually made up of many different markets - debt, equity, foreign, real estate, etc - this assessment informs your asset selection.

Importantly, while Marks advocates a counter-cyclical, contrarian approach, this doesn’t mean you should always do the opposite of everyone else. That almost certainly will go poorly! On this point, Marks once quoted Joel Greenblatt as saying:

“...just because no one else will jump in front of a Mack truck barreling down the highway doesn’t mean that you should.”

Instead, he advises figuring out:

• what the herd is doing;

• why it’s doing it;

• what’s wrong, if anything, with what it’s doing; and

• what you should do about it.

This process requires deep knowledge and experience with markets. And it’s good to note, most investors probably don’t have enough of either to implement this effectively.

Next, your risk posture should translate to either Aggressive or Defensive:

• Aggressiveness—the assumption of increased risk: risking more of your capital; holding lower-quality assets; making investments that are more reliant on favorable macro outcomes; and/or employing financial leverage or high-beta (market-sensitive) assets and strategies

• Defensiveness—the reduction of risk: investing less capital and holding cash instead; emphasizing safer assets; buying things that can do relatively well even in the absence of prosperity; and/or shunning leverage and beta

Notice it’s a spectrum, not binary. He’s not advocating moving to all cash or all gold for a defensive posture, for example. It’s about adjusting your risk tolerance.

In Mastering the Market Cycle, I loved charts illustrating this.

Below is a probability distribution curve for a market’s behavior. It’s biased towards a positive return (more of the curve is to the right of 0), as markets tend to go up in the long term.

When an investor chooses to take a defensive posture, they are narrowing their probability distribution - the dashed line curve gets steeper. They are limiting their downside, as a smaller probability for loss is created. However, the upside also is also lower.

This defensive investor outperforms if the broader market suffers.

And conversely, being defensive during a market growth phase will lead to underperformance.

The final two components are Skill and Luck:

• Without Skill on an investor’s part, decisions shouldn’t be expected to produce success. In fact, there’s something called negative skill, and for people who are saddled with it, flipping a coin or abstaining from decisions would lead to better results.

• And Luck is the wildcard; it can make good decisions fail and bad ones succeed, but mostly in the short run. In the long run, it’s reasonable to expect skill to win out.

Acknowledging the role of skill and luck in decision-making is key. As tempting as it is, we can’t judge a decision solely based on its outcome.

Conclusion

Howard Marks' insights on market cycles and investment positioning advocate for a disciplined, counter-cyclical approach. This strategy recognizes the discernible patterns of these cycles and the pivotal role of investor sentiment.

There’s far more to learn from Marks, but we’ve at least covered a few basics.

Next post, we’ll look at the parallels with Fundrise’s current strategy.

Thanks for reading!

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Resources:

Howard Marks memos

Mastering the Market Cycle

Fundrise (referral link)

“Nothing great is created suddenly, any more than a bunch of grapes or a fig. If you tell me that you desire a fig. I answer you that there must be time. Let it first blossom, then bear fruit, then ripen.”

- Epictetus

Deep friendships, parenthood, your reputation… Creation of something great takes time and patience - it is a process that needs to be allowed to develop in its own time in order for the desired outcome to be achieved.

But it’s not idle time. There are necessary inputs to achieve greatness in these domains.

And fig trees are no different.

They require space to spread deep roots. Regular watering, especially when young. Pruning of dead or weak branches during the dormant season.

In a harsh winter, some fig trees survive in their roots, with the above ground tree dying off. New growth emerges above ground in the spring.

The metaphors basically write themselves. But I’ll highlight a few.

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The Long View

Much of modern life centers on instant gratification. Progress is often about getting exactly what we want and more quickly than before.

In that context, taking the long view can be a differentiator, whether in your career, investing, parenting, etc.

Perhaps the job across the street pays a bit more or carries more prestige, but your current role offers intangibles and more opportunities for growth. Those can pay dividends longer than any immediate financial difference.

In investing, taking a decades-long view allows you to calmly navigate the euphorias and crashes in the market, while others react irrationally.

And in parenting… let’s just say a long-term view of my job as a father adds a dash of patience and perspective in the midst of tantrums!

What We Choose

Fig trees need rain and sunshine. No, really, I looked it up.

But those aren’t variables we get to control. We work with the cards we’re dealt and can choose how we play them.

As I read my way through the Lord of the Rings trilogy again recently, I was struck by this relevant lesson from Gandalf:

“It is not our part to master all the tides of the world, but to do what is in us for the succour of those years wherein we are set, uprooting the evil in the fields that we know, so that those who live after may have clean earth to till. What weather they shall have is not ours to rule.”

- Gandalf

That’s a freeing, clarifying perspective I need to be reminded of.

By The Way

On a recent trip to Washington DC, I was able to spend half an hour with Ben Miller, CEO of Fundrise. If you’re not familiar with Fundrise, here’s a great overview from Fortune last year.

In addition to building a great platform, Ben’s relatively new podcast and his quarterly shareholder letters have been helpful investing education resources for me.

Link to Onward podcast.

Link to Fundrise shareholder letters.

Thanks for reading.

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“We live in a world where there is more and more information, and less and less meaning.”

- Jean Baudrillard

Research enough famous investors and you’ll find a common theme: a love of reading.

William Greene’s book Richer, Wiser, Happier provides many excellent examples, with Warren Buffet and Charlie Munger the most recognizable.

And as Warren Buffet eloquently stated: “I just sit in my office and read all day.” No wonder he manages to read at least 500 pages every day!

What an awesome job.

What these investors realize, and science backs up, is that reading strengthens integrative thinking, builds patience and ability to focus, and expands their minds in new directions. Importantly, what you read is only part of the equation. The act of reading itself provides many of these benefits.

And it’s not the kind of reading that happens from skimming your phone. In a warning on the dangers of our digital and constant-distraction world, Maryanne Wolf stresses the importance of “deep reading”:

“To skim to inform” is the new norm for reading. What goes missing are deep reading processes which require a quality of attention increasingly at risk in a culture and on a medium in which constant distraction bifurcates our attention. These processes include connecting background knowledge to new information, making analogies, drawing inferences, examining truth value, passing over into the perspectives of others (expanding empathy and knowledge), and integrating everything into critical analysis. Deep reading is our species’ bridge to insight and novel thought.

A long session reading on my phone rarely feels as satisfying or lasting as time focused on one of my books. It’s one of those ideas that, while somewhat intuitive, still resonates and motivates me to aggressively swap digital time for book time.

And as a dad, it’s a reminder of what’s at stake with my kids. Maryanne continues:

Today’s crises exacerbate threats to full literacy. This is because no human was born to read. Literacy requires a new, plastic brain circuit. Plasticity allows the circuit to adapt to any writing system and any medium. The catch is that circuits reflect the medium’s characteristics, whatever they are.

The medium of print advantages slower, more attention- and time-requiring processes. The digital medium advantages fast processes and multitasking, both well-suited for skimming information’s daily bombardments.

“No human was born to read..” That’s an eye-opener! I hope to demonstrate for my kids an enthusiasm for “slower, more attention- and time-requiring processes”, in a world increasingly dominated by “information’s daily bombardments.” It requires discipline to resist the default.

And note that Maryanne Wolf never limits these benefits to a certain genre of literature. Those famous investors don’t stick to finance - they pull from history, economics, philosophy, and more.

So go find a good book and put the phone down for a bit.

By the way

Cal Newport, author of Digital Minimalism and Deep Work, has excellent resources for approaching life more thoughtfully. In particular, he challenges many of the assumptions we have about how technology’s role in our work and personal lives.

Check out this episode of The Tim Ferris Show if you want to learn more.

A few highlights from their discussion:

1. “Slow productivity” - Most of us currently operate in “fast productivity” contexts, where we measure outputs in hours, days, and maybe weeks. The idea of “slow productivity” is orienting work around projects that take months and years to accomplish - those tend to be the more fulfilling kind.

2. A review of Cal’s 30-day digital minimalism declutter to reset the role of various technologies in your day-to-day.

3. Shutdown rituals for calming your mind at the end of a workday.

Thanks for reading.

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My interest in investing and finance was, ironically, sparked after I completed my MBA. The stock market, bonds, real estate.. these were topics I occasionally read about. Investing was limited to setting my 401k contributions - which defaulted to a target date fund. As long as I paid off my credit cards and put money in my savings account, personal finance was taken care of.

My journey into finance began with a simple book on saving for retirement. It raised numerous questions that I didn't have answers to:

1. Were there options besides a 401k for retirement investing?

2. How do I determine how much to invest in non-retirement accounts?

3. How do I design a portfolio(s) that can accommodate a mix of short, medium, and long term goals?

4. Can I “time the market”?

5. Should I use a financial adviser or try to figure this out myself?

I quickly realized how much I didn’t know!

That kicked off my hobby - sifting through various finance podcasts, studying investment portfolios, trying different investment platforms, reading books about market crashes… I started with the assumption that I’d find my answers here.

I still enjoy doing all of those activities. But the best resources I’ve found actually redirected me to behavioral psychology, economics, statistics, history, and philosophy. It turns out that knowing your own biases and habits, thinking in probabilities, defining your values, and developing a life philosophy are far more valuable than any personal finance hacks and complicated approaches to investing.

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Rabbit trails

My choose-your-own-adventure approach to these topics has been far more engaging than any school curriculum I encountered. As a hobby, I’m following my own curiosity, setting my own questions, and searching for the best materials.

For example: listening to a discussion about famous investors loving odds-based games like poker led to a primer on probabilistic thinking. This emphasis on the interplay of your decisions and randomness naturally flowed into an exploration of Stoicism’s focus on understanding what is and is not in your control.

Every book and podcast along the way introduces new concepts and people to learn about. One of the common themes of these authors and podcasts is their eagerness to explore seemingly unrelated fields in order to derive new insights.

“Intuition is the use of patterns they’ve already learned, whereas insight is the discovery of new patterns… We can increase insights by exposing ourselves to lots of different ideas that might help us form new connections….”

- Gary Klein

I believe that this ability to make connections across different domains - to be a generalist - will grow in importance. Two great books - Range: Why Generalists Triumph in a Specialized World and Futureproof: 9 Rules for Humans in the Age of Automation - explore this idea in depth.

It’s relatively simple to identify new technologies, such as AI, already mastering narrow domains. The ability to coordinate these tools and people across domains in the midst of constant upheaval is the lofty superpower I’m aspiring towards.

“A jack of all trades is a master of none, but oftentimes better than a master of one”

- Shakespeare

Curators

I really admire writers like Derek Thompson, Morgan Housel, and Packy McCormick, who regularly publish new ideas and analysis. They are great creators.

In an era of information overload, curators are also valuable. They can promote creators and identify the relationships between ideas.

With that in mind, here’s some timeless wisdom from Seneca.

Life is Long Enough

Seneca is considered one of the most influential Stoic philosophers whose writings include numerous letters, essays, and dialogues that explore topics such as ethics, virtue, and the nature of the universe. Two prominent works are "Letters from a Stoic" and "On the Shortness of Life."

Note his use of wealth management to illustrate a larger life lesson.

“It is not that we have short space of time, but that we waste much of it.

Life is long enough, and it has been given in sufficiently generous measure to allow the accomplishment of the very greatest things if the whole of it is well invested.

But when it is squandered in luxury and carelessness, when it is devoted to no good end, forced at last by the ultimate necessity we perceive that it has passed away before we were aware that it was passing.

So it is - the life we receive is not short, but we make it so, nor do we have any lack of it, but are wasteful of it.

Just as great and princely wealth is scattered in a moment when it comes into the hands of a bad owner, while wealth however limited, if it is entrusted to a good guardian, increases by use, so our life is amply long for him who orders it properly.”

- Seneca “On the Shortness of Life”

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“We won’t experience 100 years of progress in the 21st century — it will be more like 20,000 years of progress (at today’s rate)” - Ray Kurzweil

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While change is nothing new, the pace of today’s change can be disorienting.

Ray Kurzweil famously captured this idea back in 2001 with his Law of Accelerating Returns. When we forecast future developments, we assume the same pace of change we’ve recently experienced - but this is flawed because the pace of change itself is accelerating.

How do I stay grounded in the midst of rapid change? How do I stay competitive professionally as software and AI replace previously sought after technical skills? How do I prepare my kids for a radically different world?

As I looked back on my favorite books from the past year, I realized each book had relevant messages.

Meditations introduced Stoic approaches to crafting a life philosophy that hinges on what we do and do not control - from the personal diary of one of the greatest Roman emperors.

Deep Work outlined a professional philosophy for thriving in a world of distractions and change. Incorporating deep work could foster a more thoughtful, impactful, and resilient career.

Futureproof highlighted the dangers of our increasingly digital environments. Without careful consideration, we can all too easily succumb to “machine drift”, allowing software algorithms to shape what we do and who we are.

The End of the World is Just the Beginning forecasted a world where deglobalization puts the global economy on a radically different course.

Range provided a framework for operating in a world of increasingly “wicked” learning environments.

Meditations

It’s incredible to read the personal diary of one of Rome’s great emperors - the most powerful person in the world sharing his frustrations and admitting his faults, yet also reminding himself of his life’s purpose and crafting a philosophy to achieve it.

A few relevant lessons from Marcus Aurelius:

“You have power over your mind — not outside events. Realize this, and you will find strength.”

Marcus Aurelius understood that his thoughts were not controlled by outside events. Of course we cannot control the forces driving immense change around us - but through mindfulness, we can control our response. This is a core tenet of Stoicism.

“Remind yourself at frequent intervals how quickly things and events are carried past and swept away. Reality is like an endlessly flowing river, its activities constantly changing, its causes variable beyond counting. It's hardly an exaggeration to say that nothing is stable, even what is close to us in time. Past time is infinite and the future a yawning gulf in which everything is swallowed up. In these circumstances, isn't it just sheer stupidity for man to get angry, agitated, or aggrieved, as though anything lasted any amount of time and could irritate him for long?”

Quite a perspective! Change is inevitable. How will we choose to react?

”If someone can prove me wrong and show me that something I thought or did was mistaken, I'll gladly change, because my goal is the truth and the truth has never harmed anyone. The man who's harmed is the one who persists in his own self-deception and ignorance.”

The moment we decide we know everything, we lose our capacity to adapt.

How do we hold true to our principles, while remaining open-minded to new ways of thinking?

Deep Work

Cal Newport identifies two core abilities we need to thrive in the new economy:

1. The ability to quickly master hard things

2. The ability to produce at an elite level, in terms of both quality and speed

As the rate of change increases, technical skills that were relevant yesterday might be outdated tomorrow. I see this in the analytics space - the explosion in new tools for extract-transform-load (ETL), data visualization, machine learning, etc. can replace previously time-consuming workflows and dramatically simplify certain technical challenges. Perhaps you specialized in those projects before - now a less experienced analyst can accomplish the same task in less time.

As Alvin Toffler noted, “The illiterate of the 21st century will not be those who cannot read and write, but those who cannot learn, unlearn, and relearn.”

In order to produce, we need distraction-free chunks of time to pursue deep work. Cal Newport’s basic formula is:

High-Quality Work Produced = (Time Spent) x (Intensity of Focus)

Yet, we’re surrounded by devices pinging us, work meetings filling our calendars, and social media to fill in the gaps. We also default into a “culture of connectivity” where we’re available to our colleagues via email, chat, phone, etc. at all times.

“Many knowledge workers spend most of their working day interacting with these types of shallow concerns. Even when they're required to complete something more involved, the habit of frequently checking inboxes ensures that these issues remain at the forefront of their attention. Gallagher teaches us that this is a foolhardy way to go about your day, as it ensures that your mind will construct an understanding of your working life that's dominated by stress, irritation, frustration, and triviality. The world represented by your inbox, in other words, isn't a pleasant world to inhabit.”

Escaping this takes a thoughtful, counter-culture response.

One tactical approach I’ve taken in my work is ending the day with a ‘shutdown ritual’ to identify outstanding tasks and my plans for achieving then. The goal is to ‘leave work at work’ as much as possible. This counters the Zeigarnik effect, which “describes the ability of incomplete tasks to dominate our attention.”

Futureproof

What makes humans valuable and unique in an increasingly digital, AI-infused world?

Similar to Deep Work, Futureproof asks us to take a step back and question whether our day-to-day activities are aligned with our purpose in life. If we don’t question this, we will be swept away by the conveniences of today’s machines.

Author Kevin Roose describes this as “machine drift”:

For years, I mostly went with the algorithmic flow ordering the stuff Amazon suggested for me, playing autogenerated Spotify playlists, and watching the shows Netflix recommended.

For a long time, all of this lifestyle automation seemed harmless. But eventually, I began feeling that surrendering my daily decisions to machines wasn't making me happier or more productive. Instead, it was turning me into a different person-a shallower one, with more fixed routines and patterns of thought, and an almost robotic predictability in my daily life.

I started calling this feeling "machine drift," and I first noticed it happening to me a few years ago.

There are so many applications here: what algorithms drive the content I consume? The products I buy? The opinions I hold? The people I interact with?

As Roose notes, “the world runs on recommendation engines” and is incorporated into nearly every facet of our modern lives - to the point where “it’s hard not to think that a historic, species-level transformation is taking place.”

How many people are aware of their own “machine drift”?

The philosophy that gives rise to machine drift is, fundamentally, nihilism. It's an attempt to persuade us that there is nothing important about us that cannot be quantified or reduced to a series of data points, or any inner life worth protecting from machine influence. Recommendation engines and frictionless products offer us their help, but their ultimate goal is surrender: a swimmer caught in a riptide, who gets tired of fighting the current and simply decides to float.

At times a bit depressing, Futureproof challenges us to rethink our current engagement with the digital world and consider what characteristics will gain importance in an increasingly digital future.

The End of the World is Just the Beginning

For the past ~80 years, multiple factors aligned to create the interconnected, global economy as we know it today, including US naval dominance, working age population booms, overlapping industrialization phases, and more.

According to Peter Zeihan, these factors explain the globalization of the past and the degobalization of the present.

“Geography does not change. Demographics do not lie.”

In a globally-optimized economy, nations will focus internal resources to develop the exports that generate the best return, while relying on cheap imports to satisfy certain needs (energy, food, etc.). This is an efficient arrangement… until the underlying assumptions are challenged.

For example, the world has relied on US naval power to maintain safe trade routes since WWII. With the US increasingly energy-independent and inward-focused, this guarantee will fade and trade routes will become more dangerous. Unsafe and unreliable trade routes lead to higher shipping and insurance costs. Even marginal disruption and increased expenses can produce outsized results. Countries that rely on imports for basic necessities are optimized for the current system’s low-friction trade… they would then face the daunting, in many cases impossible, task of 1) paying higher prices or 2) producing these necessities domestically. According to Peter Zeihan, this transition will not be pretty.

The United States is actually poised to renew it’s global superpower status in this new world, according to Zeihan. He also paints optimistic futures for New Zealand, Argentina, and France.

It’s a fascinating read and hilarious - the humor is needed when discussing a few scary outcomes!

I read Zeihan’s book immediately after finishing Ray Dalio’s more conventionally-named “The Changing World Order.” Their contrasting approaches produce divergent forecasts.

Dalio’s worldview revolves around debt cycles and historical patterns in the rise and fall of empires, leaving him pessimistic about the United States’ current trajectory and identifying China as the next great world power.

Regardless of who ends up with the more accurate prediction, it’s a great reminder of all the dynamic, global forces at play.

Range

The best summarization of Range is actually a Shakespeare quote:

A jack of all trades is a master of none, but oftentimes better than a master of one.

Most people have only heard the first part of that quote… We’ve likely been encouraged to specialize so that we have defined, hopefully somewhat unique, skills to separate us from our competition.

In Range, David Epstein makes the argument that the world will increasingly reward those with broad experience and skills - generalists.

The more constrained and repetitive a challenge, the more likely it will be automated, while great rewards will accrue to those who can take conceptual knowledge from one problem or domain and apply it in an entirely new one.

He also introduced me to kind vs wicked learning environments.

Kind learning environments are filled with patterns and provide quick, accurate feedback to your decisions, thus rewarding repetition and deliberate practice. A common example is chess. There are defined rules and experienced players can recognize familiar chess piece combinations.

For most of human history, we could rely on operating in largely kind learning environments.

“premodern villagers relied on things being the same tomorrow as they were yesterday. They were extremely well prepared for what they had experienced before, and extremely poorly equipped for everything else.”

And this is the world we all want to believe we still live in. It’s simple - the type of environment that lends itself to the widely popular 10,000 Hour Rule.

That is increasingly not the world we live in, though.

Rapidly advancing technologies, global connectivity, and more are ratcheting up the complexity we confront every day.

The wicked environments these forces generate don’t have clearly defined rules and the feedback can be non-existent or useless. In fact, you can actually be penalized for having experience, as you attempt to force pattern recognition where this is no true pattern. Flexible thinking and conceptual reasoning across domains will be the keys to success.

“The more constrained and repetitive a challenge, the more likely it will be automated, while great rewards will accrue to those who can take conceptual knowledge from one problem or domain and apply it in an entirely new one.”

Desirable difficulties, match quality, cult of the head start, end of history illusion… David Epstein provides a useful framework for operating in a wicked world.

Moving forward…

“What are you reading?” is one of my favorite conversation starters. You can learn so much about a person’s interests and beliefs.

Looking at my past year of reading, the ‘dealing with change’ theme was very apparent. I’m ready to find out what the next year holds…

“A bargain ain’t a bargain unless it’s something you need” - Sidney Carroll

Reducing Friction ⤵️

It’s never been easier to spend money.

With just a few taps on our phone, we can buy nearly anything. With tools Apple Pay and Face ID you don’t even have to tap - just look at your phone to transmit your credit card information and shipping address to a seller… that’s completely normal and still absolutely crazy when you step back for a minute.

Much of the innovation in the Fintech and payments space is focused on reducing the friction between your desires and your purchases.

The goal is to provide payment options so convenient and fast that you move from want to transaction seamlessly. Whether you’re in Amazon’s app, scrolling through Instagram, or watching a Hulu ad, you can make a purchase within a few moments of experiencing that want.

Buy Now, Regret Later? ⏳

One of the more recent waves of innovation is Buy Now Pay Later (BNPL), which offers sleek apps, minimal or no usage of standard credit reports, and interest free installment plans. And it’s a wave that is building quickly.

“In 2020, $97 billion worth of global e-commerce transactions used BNPL schemes. This accounted for just over 2% of all e-commerce purchases… By 2024, an expected 4.2% of e-commerce transactions will use BNPL.”

Certainly, there are potential benefits - for example, populations with no/low credit due to systemic issues have the same access to BNPL as everyone else. And there are legitimate cash flow-related use cases that could make financial sense.

However, I’ve given this a lot of thought and I actually don’t think that’s the motivation for BNPL companies. Call me crazy, but this is simply the latest innovation to separate you from your money.

And it looks like the government agrees:

“A survey by the Federal Reserve Bank of Philadelphia found that contrary to popular belief, convenience, not lack of credit access, was the primary reason people chose BNPL as a payment option.”

Many of the previous payment innovations have been about getting you quicker access to your money. Way way back, you had to carry around cash. Then we had checks. Then credit cards and debit cards. Then PayPal and other online wallets like Apply Pay. And then Bitcoin solved everything - just kidding, that’s a work in progress.

Where BNPL doubles down is behavioral science.

Can you afford those sweet $160 sneakers? Nah, that seems a bit much.

But wait!

How about 4 payments of $40 spread over the next two months? Oh that’s much better.

Chalk it up to present bias.

“By offering goods immediately and delaying the pain of parting with any money, buy-now-pay-later lenders exploit the human tendency to undervalue future losses and overvalue present satisfaction...”

It’s highly unlikely, especially for discretionary purchases, that a few weeks makes a difference in affordability. But in the moment, our brains don’t have to work logically. That’s our System 1 thinking at work, as Daniel Kahneman outlined. And that quick thinking is very susceptible to biases.

So what should we do to counter this?

Reintroducing Friction ⤴️

If our goal is to build wealth, we need to take active steps to reintroduce friction to our buying process. We have to sacrifice some convenience to give our System 2 thinking a chance to intervene.

Here are a few tactical ideas to consider.

Write it down ✍️

For discretionary purchases over a pre-determined dollar limit, write it down in a journal or note app on your phone. Add a comment on why you want it. Then, revisit it in a few days.

I routinely eliminate items in my list once I’ve had more time to consider them. And sometimes I find a better option or a sale which changes my thinking.

Move the apps 📲

Your phone’s home screen holds a lot of influence on our decision making. Move the relevant apps to a back page, hide them in folders… anything to get them out of sight.

Or delete the apps 📵

The more extreme option here is to remove the apps from your phone. For example, only make certain types of purchases on a laptop or tablet - the goal is to avoid the always accessible shopping cart in your pocket.

As technology advances and we gain access to ever more convenient payment options, it’s important to evaluate whether that convenience truly benefits us. Easy doesn’t mean optimal!

Have any strategies you’d recommend? I’d love to hear them!

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Looking back on this time, I see clear lessons from each stage of my career here.

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Stage 1: Choosing PAA

My undergraduate program had a lot of high achievers. I was surrounded by driven, smart classmates everyday. Many of them were receiving offers from consulting firms, graduate programs, etc. well before graduation.

I wasn’t so lucky… instead I spent the last few months of school freaking out about my lack of a job offer.

Finally, in the last weeks of the semester, I received an offer from Epic (large EHR company). It was a solid job at a solid company. Relief!

Then I received a call out of nowhere from a high school friend’s dad at PAA. He had an idea for an entry level role focusing on basic data collection and analysis. I would be a department of one. And I’d report to the physicians, not a traditional manager in the office. Sounded interesting but… risky.

I interviewed in the president’s living room and was asked how I’d improve upon PAA’s data collection and reporting, which was paper-based and rarely tallied in a centralized database. So, on the spot, I quickly built a rough “app” based on a Google form, an app icon on the iPhone home screen, and reporting based off the Google Sheet results.

This was a key moment for me. I had always loved to tinker with different web platforms, work with data, etc. But in this interview, I’d found a unique situation where my curiosity could be leveraged and fuel my creativity for problem solving.

Lesson: Don't always opt for the safe route. Look for high-upside opportunities.

Certainly, the PAA opportunity could have been a bust. However, the upside was undeniably higher than Epic’s. A similar level of “success” at either company would go much farther in the unstructured, merit-based environment at PAA.

I’m glad I made that bet.

Stage 2: New Kid

I joined PAA as a 22 year old and reported/collaborated with physician partners decades older than me. They had vastly more clinical knowledge, business acumen, and “real world” experience.

So what was I going to contribute?

They had the self-awareness to recognize a gap in their own knowledge and skillset. Working with data collection platforms, becoming Excel wizards, putting together reporting packets… that simply was not a good use of time for most physicians.

Lesson: Recognize your own limitations.

"A single arrow is easily broken; a bundle of ten is not" - Japanese Proverb

Could the physicians have solved their data collection and analytics needs without me? Of course! But at a cost of their already limited time and effort for non-clinical endeavors.

As a manager today, this is something I’m continually learning. I love to get in the weeds, learn new technical skills, tinker with data tools.. But my responsibilities have shifted. Now, it’s my job to focus on objectives and communicate them to my team.

Stage 3: Off to MBA

After two years at PAA, I headed off to Emory’s Goizueta Business School for the two year, full-time MBA program in Atlanta. It wasn’t an easy decision to leave PAA.

I had nagging thoughts: Was I challenging myself enough in my current role? Would I be ready for a management level role when the opportunity arrived? Did I want to work in healthcare?

Lesson: Put yourself in new situations and challenges to determine “match quality”. The earlier, the better.

I recently came across this term in Range: Why Generalists Triumph in a Specialized World by author David Epstein.

"Match quality is... the degree of fit between the work someone does and who they are - their abilities and proclivities.”

Pursuing my MBA allowed me to try out different skills, learn about other industries, experience other company cultures. In my case, it eventually affirmed the “match quality” I had at PAA.

Stage 4: Choosing PAA… Again

While at Emory, I worked at a few different companies - SunTrust, Anthem’s Digital Innovation Studio, and a non-profit health research team. These were incredibly valuable experiences, as I learned what did and didn’t work for me.

I really don’t like bureaucracy. It slows everything down, complicates things, and frequently creates power struggles between teams. No thanks!

I thrive in environments where creativity is king. I love to build things, whether it’s an automated process, a financial model, a slide deck…

Lesson: Trying new things → More self-awareness

I learned which strengths to double down on and the work environments to seek out.

Stage 5: What do you do here?

When I returned to PAA, the company had expanded the administrative team. Previously outsourced departments were brought in-house. New departments were created.

My new title - Manager of Strategic Initiatives - was quite… broad. Where I fit in at this new stage wasn’t totally clear Day 1.

As the resident “utility player” I found my way into a wide range of projects and interacted with nearly every corner of PAA. Clinical quality data, automation processes, data analytics, financial pro formas, managing our interventional pain clinic… Once I eventually ended up managing our Data Analytics team, this breadth put me in a better position to understand the data I was working with.

I wasn’t just responding to specific data requests - I could contribute my own insights.

Lesson: Generalists can “connect the dots”

Again, from Range:

“Breadth of training predicts breadth of transfer. That is, the more contexts in which something is learned, the more the learner creates abstract models, and the less they rely on any particular example. Learners become better at applying their knowledge to a situation they’ve never seen before, which is the essence of creativity.”

At a bigger company, in a different role, I could have doubled down on one type of assignment, such as building out pro formas. But then my pro forma work would not have benefited from my experience managing a pain clinic, generating medical billing productivity metrics, and more.

Stage 6: Director of Finance

For so long, I operated solo.

I generated ideas for projects, scoped them, worked through multiple iterations, implemented them, and maintained them. I personally worked the project from A to Z.

Eventually, I ended up just maintaining a lot of projects! That’s where I found myself when I started managing our Data Analytics department. With three awesome analysts on my team, the way I approached work had to change.

Lesson: Successfully managing a team means letting go of that day to day control.

"If you want to go fast, go alone. If you want to go far, go together" - African Proverb

It hasn’t been an easy mental switch for me. My framework is shifting from “complete the project” to “achieve the objective”.

In the short term, that has lead to some delays or simple mistakes as projects are transitioned - it would be easier to just do it myself sometimes! But with a longer term perspective, those processes are getting more robust and impactful. And I’m freed up to organize our efforts towards larger objectives.

Concluding Thoughts

The next stage at PAA is shaping up to be all about SCALING. We're growing consistently every year and need teams, processes, and platforms that can keep up. Should be fun!

Thanks for reading!

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Back in January, I wrote about my investment portfolio and explained some of my methodology. It’s been… an interesting six months since then?

Inflation, rising interest rates, Russia’s invasion of Ukraine, an energy crunch, China’s “zero Covid” policy shutdowns, supply chain chaos - everywhere you look there seems to be an “unprecedented” confluence of events. Bloomberg’s Joe Weisenthal and Tracy Alloway - co-hosts of one of my favorite podcasts: Odd Lots -  even outlined thirteen “perfect storms” resulting from all the upheaval.

As we move into the second half of 2022, it’s a great time to reflect on investment decisions and lessons learned so far this year. 

It’s Going Down

Let’s start with reviewing what’s happened in the markets. It’s pretty tough to find many asset classes performing well… 

Stocks

The S&P 500 is down over 19% year to date. And this was the worst start to a year for the Nasdaq Composite since 1985 (mainly technology companies).

Treasuries

Normally, if someone told you the S&P 500 and Nasdaq had performed so poorly, you’d assume US treasuries had served as a safe haven. That’s been a pretty safe bet for decades now - stocks and bonds balance your portfolio… Welp, it turns out the 10yr Treasury hasn’t dropped this much to start a year since 1788!

60/40 Portfolio

Put this all together and you get a nasty start to the year for the traditional 60/40 Portfolio, consisting of 60% stocks and 40% bonds. 

Commodities

But hey, maybe you were one of the rare investors with exposure to commodities like oil, wheat, natural gas, or nickel? Bloomberg’s commodity index (BCOM) had jumped 36% by early June - though by mid-July that had fallen back a still respectable +12% for the year.

Lesson 1: Crypto Giveth and Taketh Away

And taketh some more.

First, a clarification. The term “crypto” encompasses thousands (hundreds of thousands?) of tokens and coins, 99.9% of which can be easily placed in the joke bin (at best) or classified as a pure Ponzi scheme. Within that remaining 0.1%, I perhaps naively believe there are blockchains with legitimate use cases and potential - Bitcoin, Ethereum, Solana. Time will tell if they turn out to be really cool solutions without a problem to solve. 

Those three are down between 58% and 81% YTD. Yikes! They are essentially high beta tech stocks at this point in time. Bitcoin’s thesis as an inflation hedge or as digital gold hasn’t worked out like expected so far… 

I continue to hold through this crypto winter. Great practice for riding through extreme volatility!

Lesson 2: Boomer Rocks

Back in January and February I started incorporating Boomer Rocks (you may know this as “gold”) into my non-retirement portfolio. I had some minimal exposure via the Global Asset Allocations ($GAA), but decided it would be a good diversifier.

For now, let’s just say I have a healthy skepticism about global debt levels and think it’s reasonable to assume gold could be a more valuable asset in the coming years as a result. (Thanks Ray Dalio and Peter Zeihan)

If you had told me inflation would be consistently hitting 7-9%, I would have assumed gold had done well. But no, using the iShares Gold Trust ($IAU) as a proxy, gold is down almost -6%. Which leads me to my next lesson.

Lesson 3: Different Types of Inflation

Inflation = prices go up. Right, got it. But why did prices go up? 

Harbor Capital launched a (timely) new ETF - Harbor All Weather Inflation Focus $HGER - in February aiming to solve this for investors. As they explained on this Animal Spirits podcast there are different types of inflation, such as commodity scarcity and currency debasement.

To counter this, within their ETF they actively massage the underlying holdings across commodities and precious metals based on the type of inflation they anticipate. It’s a more efficient approach for retail investors - for example, instead of allocating 5% to commodities and 5% to precious metals in your portfolio, you could allocate 7% to $HGER and let Harbor Capital actively manage the holdings. That frees up 3% of your portfolio for a different asset class. And you can’t stop trying to predict the future!

Lesson 4: Hooray Fundrise

Real estate has been on a wild ride. Home builders and mortgage origination companies have had a hard time, not to mention real estate technology companies like Zillow and Redfin.

And yet, Fundrise is actually up 6.2% this year (at least for my ’aggressive’ allocation). Their bread and butter is “build to rent” single family home communities in the Sunbelt, which the CEO has emphasized are two megatrends fueled by the work from anywhere revolution. 

On a recent Animal Spirits podcast, he pointed to record flows into Fundrise as a recognition that investors are looking for ‘real assets’ during this time of high inflation. But whereas home builders are heavily impacted by rising mortgage rates, expensive/reduced labor supply, and higher materials costs, Fundrise’s existing rental communities are minimally impacted by those three headwinds. It’s a more sustainable and less cyclical business model.

One important characteristic (advantage?) of private markets is that they only mark-to-market periodically, usually quarterly. Whereas stock prices and crypto are updated constantly throughout a single day, an investment like Fundrise is much less frequent. This disguises its volatility, since you only find out the price every few months, which can make it easier to hold on to. 

Lesson 5: Automation is my Friend

Having the majority of my investments on autopilot protects me from impulsive decisions. M1, Fundrise, I-Bonds - with automatic withdrawals, I’m following my plan regardless of the swings in the market. I know myself well enough to recognize I’d probably deviate from this if I had to click ‘buy’ regularly. 

Quote

“The quicker you want something, the easier you are to manipulate” - Shane Parrish 

Stay patient out there!

Do you like owning stocks that pay a dividend? I certainly do - it’s pretty great getting cash deposited in your account. You can see your investment at work. It’s tangible. 

Less well known is an equally beneficial method for companies to reward shareholders - stock buybacks. 

But first, some background. 

Style Factors

So how do we identify these companies?

Style factors, also known as systematic factors, allow investors to categorize companies based on select traits. These traits can be valuation metrics, stock price volatility, earnings growth, etc. These style factors can be be helpful in constructing a diversified, balanced portfolio.

Morningstar (an investment research firm) provides lot of free tools for investors. One of these tools is the matrix below, which provides a quick assessment of a fund’s underlying stocks. For example, here’s the $SYLD Cambria Shareholder Yield ETF. Relative to similar funds, it is weighted more towards Value and Small companies.

The two most common factors referenced in the news are Value and Growth. While the exact definition of each can vary, in general Value seeks to identify companies with lower stock prices than what their “fundamental value” would suggest - calculated by the company’s cash flow, net profit, book value, and/or other metrics. Growth investing seeks to identify companies with lower stock prices than what their future earnings suggest they should be. At a basic level, Value identifies companies undervalued based on their current state whereas Growth assess companies on their potential future state.

This distinction is especially relevant as higher inflation makes future dollars less valuable. Among other reasons, such as rising interest rates increasing cost of capital, this is why Value has outperformed Growth in 2022 so far.

A few other popular factors include:

1. Low Volatility - Smaller stock price swings based on historical data. This is typically determined using the standard deviation of the stock’s price movements. This is the slow and steady turtle in the race.

2. Quality - Strong balance sheet, indicated by low debt, healthy cash flows, stability of earnings, and more.

3. Momentum - Stocks that have recently gained in price are likely to continue rising. Goal is to “ride the wave” until the momentum fades, at which point you find the next wave.

4. Dividend Yield - Higher dividend rate relative to peer companies. 

For now, let’s focus on Dividend Yield, a very popular factor since it selects for the companies that pay you for owning them - again, what’s not to like? 

Dividends

Dividends are distributions from a company to its investors, usually in the form of cash, but it can also be additional stock. It’s one of the primary ways a company can directly reward investors. The typical companies that issue dividends are mature businesses with more limited growth opportunities. Giving investors a portion of their profits is a better use of the cash than reinvesting internally. This last point also explains why Dividend-focused strategies tend to have fairly significant overlap with Value strategies. 

An investing strategy focused on dividends is popular among retirees, as the cash distributions from the portfolio can help replace paycheck income, and there are tax advantages for those in lower taxable income brackets. Furthermore, the types of companies in a typical Dividend portfolio typically have lower volatility than the overall market - extra peace of mind when your investing goal has shifted from growth to preservation.

Some countries do not tax dividend income - this becomes a key investing decision since selling stocks generates capital gains taxes. Dividends are clearly preferred in that context. Sadly, the US is not that context. Dividends are taxed in the US at a rate based on your taxable income (15% for most investors). For this reason, the typical investor would prefer to receive Dividends in a tax-advantaged account (401k, IRA, HSA, etc.) rather than a taxable brokerage account.

Still, dividends are pretty great. Just don’t forget about that other popular method for companies to return value to shareholders…

Stock Buybacks

“A stock buyback, or share repurchase, is when a company repurchases its own stock, reducing the total number of shares outstanding. In effect, buybacks “re-slice the pie” of profits into fewer slices, giving more to remaining investors.” (Bankrate)

Instead of paying investors dividends, companies can use those same funds to repurchase their own shares. It’s essentially the same net benefit to shareholders as paying a dividend, with the important note that there are no tax consequences for shareholders. 

Think of it this way - Company A wants to give shareholders $100. They can pay $100 in dividends and investors will collectively owe $15 in taxes (depending on investor’s tax bracket and account type), for a net benefit of $85. Or Company A can use the $100 to repurchase its own stock, increasing each remaining shareholder‘s ownership. 

You’ve likely heard about stock buybacks from politicians. They accuse different companies of buying their own shares simply to enrich the company’s own executives, who are generally compensated via shares in the company. It’s also contrasted with the minimum wage at the company - if a company has enough cash to buy its own shares, why not pay its employees more?

It’s important context, but for our purposes, stock buybacks are just another tool for rewarding shareholders. As someone looking to invest for the long-term, I actually prefer stock buybacks to dividends. I get the same amount of reward as a dividend, but pay no taxes until I decide to sell the stock (in my taxable brokerage account). 

Shareholder Yield

The concept of Total Shareholder Yield helpfully incorporates both dividends and stock buybacks to reflect a company’s net return of capital to shareholders. Morningstar even produced an index to track this. 

The idea is that focusing narrowly on Dividends as a strategy misses out on great companies with the same goal of rewarding shareholders - they just happen to use stock buybacks. So take a step back and use Shareholder Yield instead. 

Quick plug for a Meb Faber podcast on this topic.

One popular ETF for this is the $DIVB U.S. Dividend and Buyback ETF from iShares. The top 5 holdings are all household names - Apple, Microsoft, Meta (Facebook), Alphabet (Google), and Berkshire Hathaway. You won’t find these names at the top of any Dividend Yield strategies, since most of them use stock buybacks, but they hold some of the top spots in the S&P 500.

I’ve previously highlighted Cambria’s Global Asset Allocation ETF $GAA. Cambria also manages the $SYLD Cambria Shareholder Yield ETF, which takes the strongest shareholder yield companies in the US. They also manage the similar $FYLD and $EYLD ETFs for Developed markets (excluding US) and Emerging markets, respectively. These three ETFs are the primary equity funds used in $GAA.

Unlike iShares, Cambria incorporates additional style factors as you can see from the funnel below.

As a result, the iShares $DIVB ends up looking much more like a “vanilla” S&P 500 fund, whereas Cambria’s top holding, as of July 9, 2022, is… *drumroll*… Dillard’s!

That’s why it’s always important to take a deeper look into a fund’s holdings. Both of these funds emphasize Shareholder Yield, but take very different approaches.

Quote

“Diversification is a concrete nod to the luck and uncertainty inherent in money management and an admission the future is unknowable.”

- Daniel Crosby

Is a recession coming? Are we already in a recession? Is this a Vibecession?

No one knows.

And I’m a firm believer in constructing a portfolio where you don’t need to know the answer to those questions. My investing journey is young and I’m admittedly still tweaking my portfolio on the margins. But I’m resisting the urge to make any drastic changes simply because of all the scary headlines.

In a future post, we’ll cover some great tools and resources for designing your own portfolio, which I hope will pay… dividends.

Lock In Some I-Bonds

Did you get a tax refund or have some money you’re ready to invest? Now’s a great time to evaluate I-Bonds! 

A quick refresher on I-Bonds: these US government bonds provide a base rate (recently it’s been ~0%) with an additional inflation-linked rate via the Consumer Price Index (CPI) that is adjusted every 6 months. As a result of recent elevated inflation, right now these bonds offer a 7.12% yield for the first six months you own them. There are some limitations to keep in mind, such as a 1 year lock on accessing your deposit and a $10k/year cap on the amount of I-Bonds you can purchase.

The next rate to be offered on these I-Bonds is ~9.62% - try finding a better risk-adjusted investment opportunity out there right now. 

Any I-Bonds you buy in April 2022 will have the 7.12% annual rate until October 2022, at which point they would transition into the 9.62% annual rate for the following six months. So buying I-Bonds before May 1, 2022 effectively locks in an 8%+ guaranteed return for the next 12 months. Sign me up for that, please.

Podcasts to Check Out

Over the past few years, I’ve listened to dozens of different finance podcasts. Here are a few of my favorite podcasts that consistently produce interesting and valuable insights…

Meb Faber Show

This was definitely my entry point into the world of personal finance and investing. Along with some great resources on his website, Meb has produced 400+ podcast episodes with investment professionals, startup founders, personal finance gurus, and more. I appreciate his systematic approach to investing, long term focus, and focus on educational content. My wife even got me a signed copy of his book for my birthday - yes I’m a nerd.

Try out this episode: Crisis Investing: How To Maximize Return During Market Panics

Odd Lots

An awesome Bloomberg podcast with Joe Weisenthal and Tracy Alloway. Really thoughtful analysis and fascinating discussions on a broad range of topics. One episode you may learn about how bathtub manufacturing bottlenecks are slowing new home construction, while on the next episode they’ll discuss how a shortage of wooden pallets may be hindering Russia’s progress in its war in Ukraine. 

Try out this episode: This Is What 5% Mortgage Rates Mean Now For The Housing Market

What Goes Up

Another Bloomberg production, with this one focusing on big picture, global investment stories. Will Russia’s war in Ukraine and the subsequent sanctions by the West reverse the trend of globalization? How are large investment institutions around the world approaching the crypto space? Along with these macro discussions, they also end each episode with “the craziest thing that happened in the market this week” where the hosts and guest each share something bizarre they learned about. 

Try out this episode: The Great Wormhole Robbery

Animal Spirits

The name comes from the economist John Maynard Keynes “describe the instincts, proclivities and emotions that ostensibly influence and guide human behavior, and which can be measured in terms of, for example, consumer confidence.” The hosts - Ben Carlson and Michael Batnick - have a laid back but thoughtful approach to discussing the markets. They strike a balance between entertaining and educational. One of those shows where the more you listen, the more you appreciate the humor and topics. 

They also have “Talk your Book” episodes where guests join to promote their platforms or investment opportunities. My first introduction to Fundrise was via one of these guest interviews.

Try out this episode: Tighten Until Something Breaks

The Choices We Make

Ending on a non-finance note… I recently came across this visual and it really stuck with me. All of our past choices and experiences take us down a unique path to bring us to who we are today. That part of our story is complete and set in stone. But right now as we look at this visual, we have decisions to make about who we want to be, with each decision compounding on the one before it, taking us further down that unique path.

I’m reminded of Robin Williams in Dead Poets Society as he addresses his class..

Bitcoin, Ethereum, blockchain, Web3, and one of my favorite terms: Ponzicoins… fans and critics tend to be pretty passionate about these topics! We’ve experienced close to two years of explosive growth in this space, along with ludicrous volatility in prices, and I don’t foresee the industry’s growth slowing anytime soon (note: growth doesn’t necessarily mean the price goes up). 

Is all of this excitement building towards a revolution in the foundations of the web? Perhaps. Honestly, I’m far from an expert in this space - I do enjoy learning about all the new ideas and products being developed with these new blockchain-based tools. This industry could boom and integrate into each of our lives within a few years or it could crash and retain only very niche use cases. That’s part of the fun!

One post can’t possibly cover all relevant angles in a single post. Consider this a surface-level introduction based primarily on public companies, with extra attention to crypto mining.

Popular ETFs

One of the best ways to quickly learn about an industry or investing niche, as well as identify the key public companies, is through ETFs (exchange traded funds). 

For example: want to learn about clean energy companies? With a quick Google search I found SMOG, TAN, ERTH, and CNRG. In addition to having awesome tickers, the websites for these ETFs provide some great information about the industry and how the funds weigh different company characteristics. 

After listening to a Bloomberg Trillions podcast about RIGZ, a crypto mining ETF, I decided to do my own research into the public equities behind the blockchain/crypto/Web3 revolution. While I had heard of a few companies in passing, I was pretty amazed at the breadth of services and strategies at play.

The ETFs I focused on:

1. RIGZ - Viridi Cleaner Energy Crypto-Mining & Semiconductor

2. GFOF - Grayscale Future of Finance

3. WGMI - Valkyrie Bitcoin Miners 

4. DAM - VanEck Digital Assets Mining

There’s plenty of overlap in the companies included within each of these funds. I focused on the companies that are mostly/entirely crypto-oriented, and grouped them into three categories: mining, financial infrastructure, exchanges.

I’ll also note that ETFs are a much, much easier way to invest in the crypto industry. You don’t have to pay ~2% transaction fees and more importantly you don’t have to deal with the taxes - which can get really messy. 

Here we go…

Crypto Mining

What is it?

“Solving the proof-of-work puzzle requires miners to exhaust all possible options until a random number — called a nonce in technical jargon — is found that meets the network difficulty target. Rather than guessing numbers manually, miners use special hardware equipment to quickly generate potential solutions.” Source

“Mining is the process by which new units of cryptocurrency are created. Miners use specialized computer chips in conjunction with software to solve complex math problems. In solving the problems, transactions that exist in the current block are verified by multiple participants. As the problems are solved, miners are rewarded with newly issued cryptocurrency.” Source

“Bitcoin mining is an incredibly important part of the integrity of Bitcoin - it is the act of appending new blocks to the Bitcoin blockchain for financial reward (”block reward”).” Source

For simplicity's sake, you can think of crypto miners as the data centers powering various blockchains, much like Amazon Web Services (AWS), Google Cloud, and Microsoft Azure provide the underlying infrastructure for most of the websites we utilize everyday. 

Here’s an infographic from a sustainable energy, Bitcoin-focused crypto miner - Iris Energy. They use renewable energy sources to power their computing infrastructure. The computing power they provide to the blockchain contributes to the network’s security and they are periodically rewarded for this in the form of bitcoin. They then sell the bitcoin at market price for cash to fund their operations.

There are layers of complexity beyond what I’ve outlined here. And we’re specifically focused on Bitcoin in this section, which operates via Proof of Work (PoW) consensus mechanism, as opposed to other popular blockchains that use Proof of Stake (PoS), for example. Proof of Work requires computing power (“work”) to validate transactions. Ethereum, the second largest cryptocurrency, is also a Proof of Work blockchain, although the plan is to transition to Proof of Stake in the near future. I’ll include some links at the end for deeper dives. 

According to Wes Fulford, CEO of Viridi Funds, there are around 50 public companies involved with crypto mining, with each one providing unique strategies around their balance sheets, vertical integration, use of sustainable energy sources, and more. What may seem like a fairly straightforward industry - turn on some computers and start mining - is actually quite fascinating.

Crypto Mining Economics

According to Hive Blockchain Technologies, there are 5 variables which determine a miner’s profitability:

1. Energy Prices

2. Hardware Prices

3. Crypto Prices

4. Hashing Difficulty

5. Lease Expense

A mining company’s management team must consider each of these as they craft their strategy. 

Energy

These companies can build their data centers in cold climates to reduce cooling costs - for example, Hive operates in Canada, Sweden, and Iceland. Iris Energy chooses “regions where we can access abundant and/or under-utilised renewable energy…” Miners can prioritize renewable energy sources and/or prioritize access to cheap energy sources. 

Hardware

Application-specific integrated circuits (ASIC) are used for blockchain mining. Each blockchain’s computational requirements are unique, so these ASICs are designed to mine one specific blockchain rather than being general purpose. The ASICs manufacturers continue delivering faster and more efficient hardware each year. As a result, miners must continually assess their current hardware’s performance and determine optimal upgrade cycles.

Crypto Prices

The price of cryptocurrencies is obviously outside of the mining companies’ control. At a certain price point, mining a given blockchain is simply not profitable after considering the energy and operational requirements. Bloomberg reported Marathon Digital Holding’s breakeven price for mining Bitcoin at $6,500, for example. If the price drops below $6,500, Marathon would be spending more on operations expenses than they would be earning in Bitcoin.

Hashing Difficulty

The blockchain algorithm’s hashing difficulty - the amount of computing power required to solve a block - generally corresponds to the increase/decrease in the number of miners at a given time. For example, if the price of Bitcoin increases, more people will be attracted to mining Bitcoin; however, the hashing difficulty adapts to this increase in miners in order to maintain an equilibrium.

It takes time to set up a mining operation. If the price of Bitcoin rises quickly, the established miners will enjoy higher profit margins in the meantime, before more mining competition joins and drives the hashing difficulty up.

This adaptive feature is a creative way to address supply vs demand.

Lease Expense

Some mining companies choose to lease their ASICs rather than purchase them. There’s no need for large capital outlays and it provides increased flexibility as they monitor market dynamics. Other mining companies actually outsource all of the ASICs procurement and maintenance - they purely focus on capital allocation decisions.

These decisions affect whether your hardware is a fixed or variable expense. 

Balance Sheets of Miners

Bitcoin is often called ‘digital gold’. Building on this description, when we look at the majority of gold mining companies, they seek to convert their gold to cash quickly. The production cycle keeps humming and gold is sold at market price at the time it is ‘produced’. Given that their revenue is already reliant on gold’s price at the time of sale, keeping gold on their balance sheet ramps up the volatility since they’re making a bet on the direction of gold. For longevity, they want to avoid this. 

There are two camps within crypto mining. 

The first approach seeks to replicate the gold miners - Bitcoin is sold at market price as soon as it’s acquired. These miners, such as Iris, tend to be more resilient in a bear market where the price of Bitcoin is falling. They don’t hold Bitcoin on their balance sheet, so the drop in Bitcoin’s price only affects current and future output. 

The second camp, with companies such as Marathon, Hut8, and Bitfarms, intentionally hold Bitcoin on their balance sheets as a directional bet on the price of Bitcoin continuing to increase moving forward - in their perspective, why sell an asset you expect to exponentially grow in value? These miners are thus ‘momentum’ plays in the Bitcoin space - the price of Bitcoin directly affects both their current and future output, as well as the Bitcoin on their balance sheet. In January 2022, Hut8 reported holding 5,826 self-mined Bitcoin, equivalent to $233M at $40k/Bitcoin.

Mining Pools

Earning rewards for mining is all about probabilities. You only get rewarded when you solve a block - it’s all or nothing. The result is earnings which can fluctuate wildly.

One way to eliminate some of this uncertainty is to join a mining pool. Think of this similar to an office pool for a lottery. You and your coworkers each contribute some money to the pool, you collectively buy some lottery tickets, and if you win the reward is split amongst the pool based on the percentage you contributed. It’s a way to increase your odds of winning, while lowering the potential reward. These mining pools smooth out the revenue for mining companies. 

There are also mining pool arrangements which pay miners based on the ‘expected earnings’ their mining should generate. For example, based on the current price of Bitcoin, hashing difficulty, etc. I might expect to earn $100 per day. To ensure a steady cash flow for my company, I might choose to simply take $98 from another entity and let them capture any earnings I generate from mining, which are expected to be $100 but could be lower or higher.

More about Mining

Web3 Breakdowns podcast: An Overview of Crypto Mining

Cambridge FAQ on Bitcoin mining: Article  

Mining luck and pools: Article

Real-time mining stats: Dashboard

Meb Faber Show": Interview with Wes Fulford, RIGZ

Financial Infrastructure

Banking

Many crypto ETFs include Silvergate Capital, which is a traditional bank built for a digital currency world. Among their range of services, they:

• Provide financial infrastructure and banking services for companies building in the fintech space. This includes significant compliance and regulatory assistance. 

• Operate the Silvergate Exchange Network, which facilitates US dollar transactions between digital currency exchanges (ie Coinbase) and institutional investors (hedge funds, private equity, etc)

Silvergate Capital’s focus on catering to the digital currency industry makes them an attractive entry point for large institutions seeking exposure to this space without the hassle of internally addressing all the compliance and technological hurdles. These institutional investors can rely on Silvergate Capital for their crypto asset management. 

Additionally, as an experienced provider of infrastructure for many fintech and crypto-focused companies, they are well positioned to capitalize on future growth in crypto by solving these headaches for their clients. 

Asset Managers

While there aren’t many public asset managers focused on the crypto space, they’re worth mentioning due to the crucial role they will likely play in onboarding large institutions. Galaxy Digital, based in Canada, is primarily a crypto asset manager with $2.4B in assets under management, but also runs its own mining operations, venture capital fund, and blockchain projects. As a result, they provide broad exposure to various sub-industries in the crypto space. 

Exchanges

Exchanges are the entry point for converting fiat currency (i.e. US dollars) into various cryptocurrencies, as well as for trading between cryptocurrencies. 

Decentralized exchanges (DEX) such as SushiSwap and Uniswap are simply algorithm-driven marketplaces that facilitate these trades. All you need is your crypto wallet address. This allows for trading between two parties without a third party to facilitate.

While one of the core benefits of blockchain technology is its decentralization, many centralized exchanges (CEX) have also gained in popularity due to ease of use and more familiar interfaces for beginners. Of the top 10 exchanges by volume on CoinMarketCap, only Coinbase is a publicly listed company in the US, with a market cap of over $36B as of 3/10/2022 (it reached $70B in late 2021). However, many other fintech companies have begun offering centralized exchanges as well, including Block (formerly Square), PayPal, Robinhood, and others. 

Their primary revenue source is the transaction fees generated by users buying and selling crypto. On that note, Coinbase’s transaction fees range from 0.5%-4.5% - that’s a lot! There aren’t many good options for pure crypto exposure via your brokerage currently (at least not in the US), which is another reason I think it’s worthwhile to consider the public equity and ETF options mentioned in this post.

For more about Exchanges: Article

Conclusion

Welcome to crypto! It’s not for the faint of heart and it’s far from a guarantee that it will meet the enormous expectations placed on it by enthusiasts. None of this post is intended to be investment advice.

Thanks for reading! Now we end with a few fun memes…

I just finished reading “The Psychology of Money” by Morgan Housel - it’s definitely one of the first books I’d recommend for anyone trying to get a handle on their finances, reassess their approach to investing, or simply learn more about common money biases we all exhibit.

There are no equations, discussions of Traditional vs Roth 401ks, rent vs buy recommendations. Instead, it addresses how we think about money, pursue wealth, evaluate risk… foundational topics. The author weaves all 20 chapters together into a consistent framework for approaching personal finance and life more generally.

Here are a few of my top takeaways.

Luck and Risk

“Luck and risk are siblings. They are both the reality that every outcome in life is guided by forces other than individual effort.”

This is key to how we view both ourselves and others. Two people with the same skill level and level of effort can end up in very different outcomes for reasons totally uncontrollable by each individual. This is not to say skill and effort don’t matter - they’re just not the only inputs in the formula for success.

I’m proud of my career success. It took a lot of hard work, sacrifices, and persistence to get to this point. But I also acknowledge there are many factors beyond my control that put me in a position to succeed - many factors that I take for granted.

In addition, when other people experience failure we naturally tend to view it due to bad decisions. If we make the same mistake, it is due to being unlucky or falling on the wrong side of the risk equation.

Takeaway: Practice humility with success and grace with failure.

Never Enough

“The hardest financial skill is getting the goalpost to stop moving.”

“Past a certain level of income, what you need is just what sits below your ego… Think of it like this, and one of the most powerful ways to increase your savings isn’t to raise your income. It’s to raise your humility.”

The more success we experience, the more money we make, the higher up the career ladder we climb… it all tends to push contentment further and further away. Always just out of reach.  It’s critical to define this problem and recognize it in ourselves. I certainly haven’t figured it out yet.

I recently came across the following illustrations of this concept on Twitter:

It’s not often that you find a personal finance book advocating “raise your humility” as a solution. Not easy to implement, but something I aspire to.

Takeaway: Discontentment is our natural tendency and the solution is not more stuff, more $, more success… These things aren’t ‘wrong’, but they won’t satisfy.

Compounding 

“But good investing isn’t necessarily about earning the highest returns, because the highest returns tend to be one-off hits that can’t be repeated. It’s about earning pretty good returns that you can stick with and which can be repeated for the longest period of time. That’s when compounding runs wild.”

Our natural tendency is to think in a linear fashion. But our world is full of examples where ideas spread and technological developments grow exponentially. 

We’re also surrounded by articles like “I invested in Dogecoin and I’m now a millionaire!” or “If you’d invested in X tech stock you’d have a 10x return.” Those feed into narratives where people all around us must be hitting investing home runs. 

But you don’t have to hit home runs to build wealth. Consistently hitting singles and doubles over a long period of time allows compounding to do its thing. (Did I just use a baseball analogy? Who am I?)

Takeaway: Trust in the magical math of compounding. Consistent, steady investing over a long period of time can produce amazing results.

Room for Error and Survival

“The trick when dealing with failure is arranging your financial life in a way that a bad investment here and a missed financial goal there won’t wipe you out so you can keep playing until the odds fall in your favor.”

“The idea is that you have to take risks to get ahead, but no risk that can wipe you out is ever worth taking. The odds are in your favor when playing Russian roulette. But the downside is not worth the potential upside. There is no margin of safety that can compensate for the risk.”

Sometimes we think we’ve identified investment options that have enormous upside. And maybe we did! The allure of becoming an overnight millionaire is strong. Unfortunately, these options tend to have enormous downsides too. We get impatient and overlook the wipeout potential. These are big setbacks that interrupt the magical math of compounding.

Of course we have to take risks in our investments. But we must maintain this “room for error” so we can survive for the long term.

Takeaway: Be patient and cautiously optimistic with a focus on the long term.

Flexibility

“A hyper-connected world means the talent pool you compete in has gone from hundreds or thousands spanning your town to millions or billions spanning the globe… Intelligence is not a reliable advantage in a world that’s become as connected as our has… competitive advantages tilt toward nuanced and soft skills - like communication, empathy, and, perhaps, most of all, flexibility.”

Wow. You could write a book on just this one concept.

The internet, remote work, increasingly digitized jobs… all of it is opening up who can fill these jobs. I find this amazing and encouraging from a global progress perspective. But personally? Let’s just say it's a big, healthy dose of paranoia - how do I retain a competitive edge?

I like to think I’m a pretty decent data analyst. A great way to cast doubt on that is to recruit for another data analyst and see the competition from around the world! In my opinion, it’s only a matter of time until this global workforce becomes more commonplace in the very roles I’ve filled in my career.

Financially, the idea is that savings don’t have to be for a specific item - for example, a house, car, vacation. That’s fine to do, of course. More importantly, we should be saving simply for the flexibility it provides in an ever-changing world.

Takeaway:  Flexibility can be my competitive edge. Save today to increase my options for tomorrow.

Final thoughts

Every chapter of this book deserves attention, but at some point it will be more efficient for you to read the book! Link below.

Reading through this book, taking notes, and writing down my takeaways has given me more clarity around the “why” behind personal finance. I learning about different investment ideas, listening to finance podcasts, etc. Having read this book, I next plan to take a step back and establish my own guiding principles

Enjoy! The Psychology of Money

“Good investing isn’t necessarily about earning the highest returns, because the highest returns tend to be one-off hits that can’t be repeated. It’s about earning pretty good returns that you can stick with and which can be repeated for the longest period of time. That’s when compounding runs wild.” - Morgan Housel, The Psychology of Money

Portfolio Snapshot

To start off 2022, I decided to assess my current investment portfolio and explain my thinking behind each allocation. I’m sharing this publicly for a few reasons: 

1) I don’t know how most of my peers invest their money, so maybe someone might find my approach interesting.

2) I want to document my thought process now so I can look back at this in the future… perhaps to laugh at the cryptocurrency section. (But would I laugh because I put too much or too little in it?)

I’m always in learning mode and know that my investing philosophy will continue evolving. Part of my learning mode has led me to try out a variety of investments to the point where I might be too diversified. But I’m OK with that. Better to experiment early and find what works for me while I have a long time horizon to figure it out. 

Introduction to the Portfolio

This is my entire non-retirement investment portfolio - no 401ks or IRAs. Some of these investments are in tax-advantaged accounts, such as HSAs and 529 plans. I did not include my checking or savings accounts for this analysis.

I do not use leverage. That’s always been a bad word from my perspective. I am researching strategies which use leverage for investment efficiency purposes rather than concentrated bets, but that’s a newsletter for another day!

I would score my current portfolio risk level as moderate. Probably a 6 out of 10. Although, when I heard an acquaintance was moving their savings into crypto, I began to wonder if my scale was broken… 

My Portfolio Overview

I narrowed down the investments into five categories: Public Equity, Real Estate, Alternatives, Bonds, and Cash. 

Side Note: I recently read Phil Huber’s The Allocator’s Edge: A Modern Guide to Alternative Investment and the Future of Diversification and was pleased to realize my portfolio, if you squint hard enough, had some of the characteristics of his adapted 60/40 portfolio. But I’ll save that for yet another post.. 

Public Equity: 32.2%

Global Asset Allocation (GAA) and Avantis ETFs

Why: Investing in the stock market is one of the purest, most traditional ways to build wealth. My goal is to ride the ever-growing global economy through the ups and downs.

What’s in here: I utilize ETFs rather than picking individual stocks. My ‘core’ allocation is to the Global Asset Allocation (GAA) ETF, which I wrote about previously. This ETF is about 60% equity, most of which is via a global ‘Shareholder Yield’ factor tilt. Shareholder yield looks at how much a company pays in dividends plus net share repurchases (aka “buybacks”). At a high level, this tends to favor companies which screen for Value and Quality factors.

“As an example, if a company spent $3 billion on dividends and $4 billion on share repurchases, but issued $1 billion worth of shares, then the total amount spent on dividends and net share repurchases was $6 billion. If the market capitalization of the company is $100 billion, then the shareholder yield is 6%.” (link)

To increase the equity exposure beyond what GAA provides, I use Avantis ETFs such as AVUS (US) and AVDE (developed markets ex-US). These are broadly diversified across different company sizes and industries, with a slight tilt to Value. The top holdings in the AVUS (US) fund are Apple, Microsoft, Amazon, Meta, and Alphabet - similar to what an S&P 500 fund would hold, but with these companies at a lower percentage allocation.

Real Estate: 28.4%

Fundrise, Groundfloor, Steward, Public REITs

Why: We all interact with real estate daily - for me, there’s added confidence in investing in such a ubiquitous and necessary asset class. With real estate, you get a consistent winner historically, along with diversification benefits relative to equities - a nice combo.

“There is a tangibility and realness that accompanies it—the homes we reside in, the office buildings we work in, the hotels we stay in and the stores we shop in.” - Phil Huber, The Allocator’s Edge

What’s in here: The majority of this bucket is allocated to Fundrise, one of the premier real estate crowdfunding platforms. Within Fundrise, I’ve chosen the most aggressive strategy, called “Opportunistic”, which has a risk/return profile more similar to equities than other income-oriented real estate strategies (see below). Check out this podcast interview with Fundrise CEO Ben Miller for more info on their Sunbelt / build-to-rent residential real estate strategy.

Groundfloor allows investors to “fund short-term, high-yield loans to "flippers" -- borrowers who use short-term debt to buy a distressed property, fix it up, and either refinance it as a rental or resell it for a profit” (Link). It’s a combination of peer-to-peer lending and real estate finance. Groundfloor is constantly adding new deals and you can invest in $10 increments, which allows you to diversify across a range of options. I’ve enjoyed following some of the projects I invested in and would score them as moderate to high risk.

Farmland is a big asset class getting more attention these days as a potential inflation hedge. It’s hard for non-accredited investors to get decent exposure here, but I’ve opted for a small allocation to Steward. They provide crowdfunded loans to private farms across the US. Investors get regular updates from the farmers about the renovations and upgrades enabled by the loan.

And finally, I have exposure to a few public REITs, mostly via the Global Asset Allocation (GAA) ETF covered in my previous post.

Bonds: 17.8%

Diversified Bond ETFs via GAA, I-Bonds

Why: While bonds are offering very low yields today, they historically tend to have low to negative correlation with stocks. That relationship has been called into question in recent years, but for now I’m comfortable with a diversified bond allocation. (The Allocator’s Edge is all about the need for Alternative Assets to supplement/replace the traditional role of bonds). Beyond this, I-Bonds in particular are a great option given inflation concerns.

What’s in here: A very broad array of bonds ETFs primarily sourced through the Global Asset Allocation (GAA) ETF, which includes US treasuries, emerging markets high yield bonds, corporate bonds, and more. 

In 2021, I also began purchasing I-Bonds. These US government bonds provide a base rate (currently 0%) with an additional inflation-linked rate via the Consumer Price Index (CPI) that is adjusted every 6 months. As a result of recent elevated inflation, right now these bonds offer a 7.12% yield for the first six months you own them. There are some limitations to keep in mind, such as a 1 year lock on accessing your deposit and a $10k/year cap on the amount of I-Bonds you can purchase. It’s a pretty great deal for now! (TreasuryDirect)

Alternatives: 15.1%

Crypto, Eco, Wine

Why: As outlined in my previous post on alternative investments, this broad range of assets can provide great diversification for a portfolio. This is also a fun category, in my opinion, and one I plan to continue expanding given the right opportunities. 

What’s in here: Riding the cryptocurrency rollercoaster is quite the experience! I also think it’s important to note the incredible breadth of this category. First, you have the blue-chip assets, such as Bitcoin and Ethereum. Then, your altcoins like Solana, Cosmos, The Graph, etc. And finally, your meme/joke coins, of which there is a never ending supply - this is purely gambling from my perspective.

I’m most interested in DeFi (Decentralized Finance) and blockchain infrastructure, so my top 5 holdings are Ethereum, Solana, Chainlink, The Graph, and Cosmos. There are some interesting crypto indexing products launching soon which I’ll also consider - I don’t plan to invest the time and effort in becoming anything close to a blockchain expert, but I want exposure to this space. I primarily use Coinbase, but have a few wallets as well.

Eco is “one simple balance that lets you spend, send, save and make money at the same time.” (referral link) I’m currently earning 3% APY on my account and get 5% cashback on all Amazon purchases. They invest your money in stablecoins which provide liquidity to cryptocurrency markets - it’s not without risk. They are also not FDIC-insured, as they do not want the associated regulations with being a bank. So why do I bother? It’s a small allocation for my portfolio and I am not naïve regarding the risks; however, as an early user I’m earning lots of Eco points (think of them as credit card points) which have upside if Eco becomes successful. It’s fun to be early and see where this goes.

Beyond crypto, I also have a small allocation to fine wine via Vinovest. They purchased a case of Chateau Rauzan-segla 2eme Cru Classe on my behalf, which I’m hoping ages beautifully despite my inability to pronounce it.

Cash: 6.6%

Why: This is primarily for maintaining flexibility as opportunities arise, as well as reducing volatility. In addition, I can use cash to rebalance my portfolio (buying under-performing assets) instead of having to sell high-performing assets and potentially creating a taxable event. 

What’s in here: $$$. It’s just cash.

There’s my personal portfolio. What do you think? Any suggestions? Let me know via email or the comment section.

I’m currently developing a formal investing plan - up to this point, it has all lived in my head. But for plenty of behavioral science reasons, I know officially documenting my values, goals, and strategy will help protect me from myself.

Thanks for reading!

What are Alternative Investments?

When most people think of investing, they think of a brokerage account for buying and selling stocks and bonds. Certainly, that’s the most common approach to investing.

However, there is a rapidly growing number of ways to invest in private sector asset classes which can complement your overall portfolio. These “alternative investments” include a broad range of financial assets, such as:

• Real estate

• Venture capital (equity in private companies)

• Cryptocurrency

• Farmland

• Art

• Spirits (the alcoholic kind, not Casper)

• Collectibles (trading cards, coins, stamps, etc)

Note: Private equity and hedge funds would also be considered alternative investments, but are typically restricted to institutional and accredited investors.

Historically, many of these alternative investments were only available to wealthy investors. Now, the internet, rise of crowdfunding, and the 2012 JOBS Act have combined to open up these asset classes for investment by a much wider range of people and at a lower entry cost. 

Want to collect wine? No wine cellar needed! Just open an account with Vinovest.

Want to invest in residential and commercial real estate across the Sunbelt? No need to purchase entire homes or malls! Just open an account with Fundrise.

There’s an ever-growing list of these platforms bringing new opportunities to the market.

Why invest in Alternatives?

The diverse asset classes within “alternative investments” cover the full spectrum of risk and return profiles. So what are you looking for? Real estate, peer-to-peer lending, and small business loans are great for generating income, while startup investing, collectibles, and wine are focused on long-term growth, for example. Riding the volatility in cryptocurrency is vastly different from watching the generally stable returns of farmland. Once you define your goals, you can begin to narrow down the list of options. 

I currently allocate 25% of my portfolio to alternative investments, including real estate equity, real estate loans, wine, and crypto. I’m looking for:

1. Returns relatively uncorrelated to the stock market. This diversification can help smooth your returns over time.

2. Compelling investments. Does it make sense to me? If yes, I’ll have more confidence in it and stick to my plan over the long term.

3. Engaging platforms that provide education and transparency about where my money is being used. (Fundrise is particularly great on this point)

Be selective

Whereas public companies are subject to lots of regulation and regular sharing of financial information, you aren’t likely to find as much for these types of platforms. For that reason, I tend to stick with more mainstream options and only open an account once I’ve found sufficient data and third party/user reviews to guide my decision. 

How to get started

In future posts, I’ll highlight various investing platforms by asset class that I’ve either used or believe to be high quality. Here are two platforms you can check out in the meantime...

Fundrise - Commercial and residential real estate. I opened a Fundrise account early in 2021. They have a great user experience and show you the exact properties where they’ve invested your dollars, along with providing regular updates on them. They offer a variety of strategies (i.e. income vs growth).

Yieldstreet Prism Fund - Multi-asset fund for broad exposure to alternative investments. I have not used Yieldstreet, but they are a large player in the alternatives space. If you’re looking for an “easy” button, consider their Prism Fund, which invests in 5+ asset classes. 

For more options, check out MoneyMade.io.

And finally, here’s an Invest Like a Boss podcast where they review their listeners’ favorite platforms.