The Quantified Life: Days 0-60

Authors note: Anything you see in any of my blog posts that is underlined is either a cool external link to help you learn more or internal links to my own related content.

New Project: The Quantified Life

*Note: The Google Sheet link to John’s Quantified Life data can be found HERE.

In my last blog post, I described how I’ve designed my life around a few carefully chosen, interdependent goals. I also described, at a high level, my strategy and tactics for making progress towards those goals.

However, having inspiring goals is worthless if you don’t actually do the day-to-day hard work required to make real progress towards your goals. If last blog post was akin to “talking the talk”, this post is about actually “walking the walk.” After I wrote the True Goals vs Fuel Goals blog post, I realized that merely having goals was NOT going to be enough to ensure success. To continuously improve, I realized that I need constant monitoring and daily, objective feedback.

Legendary management consultant Peter Drucker famously said, “What gets measured, gets improved.” I largely agree with this statement and so, as of October 1, 2018, I have embarked a new project that I’m calling Quantified Life. The goal of Quantified Life is to collect data on my own personal Key Performance Indicators (KPIs) related to my goals, analyze the data, and use the insights to improve my rate of personal growth.

Richard Feynman said “The first principle is that you must not fool yourself — and you are the easiest person to fool.” When it comes to making progress towards your goals, the best way to ensure that you’re not fooling yourself is to have good data on your own progress (or lack of progress). Knowledge really is power in this case, and today’s modern technology - namely smartphones and wearables - make collecting and analyzing your personal data something that anyone can do.

The Quantified Self movement

This project was directly inspired by the Quantified Self movement. You can think of Quantified Self as the marriage between personal data and self-improvement. Here’s the description from the Quantified Self Wiki page:

“Quantified self, also known as lifelogging, is a specific movement by Gary Wolf and Kevin Kelly from Wired magazine, which began in 2007 and tries to incorporate technology into data acquisition on aspects of a person's daily life. People collect data in terms of food consumed, quality of surrounding air, mood, skin conductance as a proxy for arousal, pulse oximetry for blood oxygen level, and performance, whether mental or physical. Wolf has described quantified self as "self-knowledge through self-tracking with technology".[1]

My first step in this new project was to convert my goals into measurable data points and start tracking them daily. Below is a diagram from my last blog post that I created to visualize my goals. These are the essential goals/tasks that I’m trying to convert to measurable data points for this Quantified Life project.

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Here are some apps I’m using to collect/track this data: Fitbit, MyFitnessPal, Goodreads, Insight Timer, and Google Sheets.

The Key Metrics

What makes this project particularly interesting to me is trying to come up with ways to quantify goals that don’t typically lend themselves to easy quantification, especially personal relationships. As of right now, I’m currently tracking myself on over 30 metrics. This was my first attempt at converting my goals to quantifiable metrics and I’m certain that these goals will need to be tweaked over time. Most of the health goals are based on common health indicators and most of the non-health metrics are frequency-based. Below is a break down of many of those key metrics by goal type:

Great relationships

-Fatherhood: spend at least 60 minutes/day bonding/playing with our new baby boy

-Marriage: Have monthly date nights with my wife and do surprise “extra” chores (that she typically does) for my wife twice per week

-Son: Visit my parents every 2 weeks, on average

-Brother: Do 3 “sibling-only” meals per year with my brother and sister. No kids, spouses, or parents allowed.

-Others: Do 1 random act of kindness per week

-Network: Add 1 new, quality relationship to my network every month.

-Also, I am currently experimenting with 3 different personal CRM apps (Ryze, Cultivate, and Garden) which set up automatic, customized reminders for me to keep in touch (texting, calling, or in-person) with my family, friends, and other people in my network. Cultivate seems to be the best one so far.

Improving the World

-Donate annually to Effective Altruism-type charities. Currently, I am partial to de-worming and anti-malarial charities: Deworm the World, Schistosomiasis Control Initiative, and the Against Malaria foundation.

-Keep up with news/debates within the Effective Altruism community via the EA Facebook Group and EA community forums. (Not currently tracked)

Skills/Knowledge/Platform

-Read a book per week, on average.

-Release 1 podcast episode per month

-Publish 1 blog post per quarter

Wealth

-Maintain a specific personal savings rate %. (The rate itself is private, but I will include this as a monthly pass/fail goal as part of my Quantified Life)

-Achieve longer term salary/cash flow, investing returns, and net worth goals. (Private, and tracked outside of this project)

Physical & Mental Health

-Drink 1 gallon of water per day

-Meditate daily, for at least 10 minutes per day

-Do my 5 minute Journal daily

-Lose 40-50 ish pounds to achieve goal weight of 150lb

-Track a variety of diet metrics (net calories, net carbs, sugar, etc)

-Track running and fitness metrics (running, push ups, pull ups, etc)

-Track steps, heart rate, and blood pressure

Going Public With My Data

Am I crazy for making this data public? Maybe, but I actually don’t think so. All things considered, these data points I’m making public are pretty benign. I’m confident that the added benefits of making my commitment to improving these metrics public and of sharing that journey with all of you outweigh the risks of personal harm from making this data public. So, here you go internet…my Quantified Life database for the first 60 days. Enjoy!

Early Observations and Takeaways

After 60 days of tracking, here are some things I’ve learned:

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  1. Doing extra chores, meeting new people, and doing random acts of kindness are WAY harder than spending quality time with my family and friends. It’s not exactly surprising that I unperformed on those goals because I thoroughly enjoy spending quality time with my family & friends, but I find chores and meeting new peoples deeply unpleasant. However, it was nice to see the data confirm this weakness of mine. I will have to double down on my efforts on these particular goals.

  2. I was surprised how much sleep I’m actually getting with an infant to take care of (6.5 hours on avg). This probably means either our son is sleeping pretty well, or possibly that I’m not exactly doing my fair share of late-night baby duty.

  3. Although I’ve been very inconsistent on my diet, it was nice to see that I did lose about 7 pounds or so during the first 60 days. However, almost all of that weight loss occurred in the first few weeks, and I haven’t lost any weight in the past month or so. That is a trend I must break.

  4. My daily ritual of inputting new data points every morning and watching the graphs update really has a gamification effect that makes me much more motivated to keep striving than I otherwise would.

Goddart’s Law

One important concept that I’m a bit weary of is Goddart’s Law:

"When a measure becomes a target, it ceases to be a good measure." “Any observed statistical regularity will tend to collapse once pressure is placed upon it for control purposes”

While it is certainly true that linking rewards/punishments to any metric increases the risk of unintended consequences resulting from the incentive to meet that goal, I think the benefits of self-monitoring outweigh those concerns. I’ll have to be careful that I don’t cheat my own incentive system!

Future Updates

I plan on releasing an updated version of this data every 3 months or so and sharing whatever insights I gain through this blog. I expect this will be a fun project, that will reveal my own strengths and weaknesses, and help me on the path towards self-mastery.

“If you can master yourself, you will find yourself in control of a great empire.” - Publius Syrus

Thanks for reading,

John


True Goals vs Fuel Goals

Authors note: Anything you see in any of my blog posts that is underlined is either a cool external link to help you learn more or internal links to my own related content.

 

I’ve spent the better part of the past 6 years trying to examine my life goals, my motivations, and the “WHY?” behind each of them. After reading of hundreds of great books, spending many hours per week in states of self-reflection and meditation, and having deep conversations with some amazing people...I’ve developed some principles that work for me. While, my own personal life design framework certainly isn’t guaranteed to work for everyone, I think some of the ideas I've gathered can help people and are therefore worth sharing on this blog.

One of the key insights that I’ve gained from all this introspection is the difference between what I call “True Goals” and “Fuel Goals”

Defining True Goals vs Fuel Goals

True Goals (aka deathbed goals) are the things what truly matter the most in life, they are the things that you will actually care about on your deathbed. These are also the things that, should you fail to accomplish, you would probably consider your own life to have been a failure.

Fuel goals, while very important, are not goals you’re likely to care about at the end of your life. Examples of common fuel goals are money, fitness, and education. You will not give a shit about your retirement fund, your personal best 5K time, or your number of advanced degrees on your deathbed. However, without some level of wealth, health, and skills, it will be damn near impossible to accomplish your true goals.

Fuel goals are the means to an end, but are NOT ends in of themselves. True goals ARE the true ends. In the end, the goal is to optimize your life for the True Goals. It is critically important not to confuse your True Goals with your Fuel Goals. 

True Goals may vary greatly by individual and can take years or even decades to fully discover. They should be very few in number, and you should have the utmost conviction in them. Fuel goals tend to shift more frequently as changing life circumstances alter the way to best optimize for your True Goals.

Designing a Life

Below is a diagram that shows the relationships between my actual personal life goals. A critical feature of this life design is the complex inter-dependencies of each of these goals. Growth in one goal area (skills for example) tend to enable more growth in other goal areas (wealth for example) which tends to enable even MORE growth in more areas (Improving the World for example). This virtuous cycle is similar to the Matthew effect. 

I am posting my goals and the thought process behind them publicly not for you to copy my goals, but for you to consider how they relate to your own goals and their inter-dependencies. Develop your own unique goals that make sense for YOU!

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The diagram above shows my two core True Goals (Great Relationships and Improving the World) and my three core Fuel Goals (Skills/Knowledge, Wealth, and Health). Within each box are the key sub-components of each Goal. This particular diagram focuses on the strategy, without going into the tactics to achieve those goals.

The diagram below is similar to the above, but replaces those sub-components (strategy) with the actual day-to-day activities and projects (high-level tactics) that actually lead to improved outcomes in working towards my Goals.

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Now that you've seen how I've designed my life, here are my very brief explanations for my thought process and some sources that influenced this design.

TRUE GOAL #1 - Cultivating meaningful relationships is very broad but generally is about being the best spouse, parent, child/sibling, friend, neighbor, collaborator, and citizen you can be. You do this by adding value to those people’s lives and helping them flourish. This is simple, but not easy. Quality time, acts of service, words of affirmation, and the sharing of skills/knowledge/resources are the best means of accomplishing this. Relationship quality is devilishly hard to quantify, but critically important. Your primary goal in any key relationships should be to help the OTHER person achieve their own life goals in whatever way you're best capable of. The two books that most influenced by thinking on relationships are The Five Love Languages by Gary Chapman and Never Eat Alone by Keith Ferrazzi.

TRUE GOAL #2 - Improving the world is also hard to quantify but Effective Altruism is by far the best framework I’ve found. Breakthrough innovation and social change can be also be very effective, but only for the most talented and influential 1/10th if 1% of us. The rest of us, myself included, are probably most useful Earning to Give (EtG).

Although far less effective than the top EA charities (deworming and anti-malarial bed nets), local volunteering and community service does have a place. The latter should be the focus for donating your time and talents, and the former the focus for donating your money. The book Doing Good Better by William MacAskill had a tremendous impact on my views in this domain. I did an entire podcast on this book which you can listen to here.

FUEL GOAL #1 - Skills/Knowledge - Quite simply, the more valuable you can make yourself > the more people will pay you > the faster you can accumulate capital > the wealthier you’ll become (Fuel Goal #2) > the more you can donate/help other’s flourish > the more you can improve the world.(True Goal #2) Being skilled/knowledgeable helps you know how to add value to the lives of those key relationships that make up True Goal #1. So go read some great books like these and learn some valuable skill like programming.

FUEL GOAL #2 - Wealth is a potent form of power. It's the most impact way to contribute towards Improving the World (True Goal #2), it gives you the resources to assist your family, friends, and collaborators achieve their goals (True Goal #1), it can pay for high-quality food, athletic trainers, and even free time for leisure and rest. (Fuel Goal #3). Once you’re financially independent, getting much richer doesn’t do much for your happiness, but giving it away actually does. Of course, getting to that critical level of wealth in the first place can be quite difficult. If you don’t own a business, it really comes down to whether you can acquire valuable skills/credentials that people are willing to pay big $$$ for AND then also living far below your means. (Fuel Goal #1) Then you use that high rate of savings/investment to gradually transition from wage laborer to owner of assets.

FUEL GOAL #3 - Health - Of course, if you’re sick, unable to function, or dead...you lose the ability to keep that virtuous cycle moving, and therefore lose the ability to improve your relationships and/or improve the world (True Goals 1 & 2). So you must keep your mental, physical, and emotional health at a decent minimum level. Some may disagree, but I strongly believe there are diminishing returns to increased health. The goal is to optimize the true goals, not the fuel goals. So ultra-marathons and 400lb bench presses are overkill in my view. The huge time and energy required to train for an ultra-marathon could probably have been better invested in relationships, skill building, or wealth generation. A simple, moderate exercise/diet/sleep/leisure/meditation regimen seems likely to produce about 80% of the benefits of good health with about 20% of the time/energy should keep your body and mind at a level where you can perform well when it comes to your relationships and wealth accumulation.  So be healthy enough to live long, have high energy, and be emotionally positive, but do be weary of overkill. 

Opportunity Costs and Trade-Offs

Whatever YOUR goals are, bear in mind that life is one big series of opportunity costs. There will always be trade-offs between career, friends/family, leisure, charity, health, skill development, etc. Whenever possible, always remember to make the decisions that optimize for the True Goals over the long-term.

Also remember to steer clear of activities that don't contribute to your goals at all. For most people, TV and video games are probably the biggest unnecessary wastes of time. If you can replace screen time with active leisure like reading, exercising, or honing skills, you'll put yourself at a HUGE advantage over most people. As Warren Buffett once said, "The difference between successful people and really successful people is that really successful people say no to almost everything.” You must learn to say NO to the non-important things in life.

In the End

Someday when you are lying on your future deathbed, as the cancer (or whatever you have) is eating your body away, you’ll look back and ask yourself whether or not you lived your brief life the right way. If you optimized for your True Goals, employed your Fuel Goals as a means to those ends, and generally said NO to the unimportant things...I can’t imagine you would have any regrets about your life.

In the end, you will look back at those True Goals you accomplished, and be able to die truly satisfied...and if you are lucky, maybe even die with a smile on your face.


 

Bad News for People Who Love Bad News

Authors note: Anything you see in any of my blog posts that is underlined is either a cool external link to help you learn more or internal links to my own related content.

 

Every day, it seems, we are informed of another mass shooting, terrorist attack, or other horrible act of violence on the news. That awful story will then be followed by another story about how our inept government is, how unequal our society is, or about how destructive social media is for our mental health. The news is basically a list of the worst things happening in the world on any given day..  We face a never-ending bombardment of bad news all day, every day, on every type of media. It really does feel like our world is getting worse and worse every day. Many people really believe our society is going off a cliff. But is our world actually getting worse? Or are we making progress?

Whether or not the human project is making progress or not is a very BIG, very IMPORTANT question. And it’s not a question for the faint of heart. This is the primary question at the core of Steven Pinker’s last two books The Better Angels of Our Nature: Why Violence Has Declined (2011) and Enlightenment Now: The Case for Reason, Science, Humanism, and Progress (2018). How does Pinker attempt to answer such a sweeping, broad question? What do we mean by progress, anyway?

The definition of progress is highly debatable, highly politicized, and prone to subjective interpretation. However, there are a few things that almost everyone can agree on: Longer and healthier lives, more literacy/education, less poverty, and less violence are indicators of progress. Pinker attempts to connect these near-universal indicators of progress with other data points to form a cohesive argument that the world is actually, on balance, getting better. 

Part I - Have we actually made progress?

In The Better Angels of Our Nature, Pinker’s argues, rather convincingly, that rates of physical violence in virtually all forms (war, homicide, genocide, rape, assault, slavery, etc) have declined precipitously over the past 100-1000 years of human history, but especially in the last 50-100 years. Pinker argues the decline in violence may be the most important and under appreciated development in human history. Pinker backs up this bold claim with data. Lots and lots and LOTS of data. 

Pinker's favorite data source appears to be Max Roser’s Our World in Data project, which he cites frequently throughout both books. And it’s easy to see why: Roser’s data is compelling, well cited, and beautifully visualized. Let's have a look at some data sets cited both directly and indirectly in the book:

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Global deaths in military conflicts are near all-time lows.

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Homicide rates have plummeted in Europe over the past 700 years.

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This data is often very surprising to people who are conditioned by news and social media to think that the world is awful and only getting worse. It's extremely easy to forget just how violent humans were up until the very recent past. Through an 800 page odyssey, featuring over 75 graphs like the ones you just saw, Pinker makes a really convincing case that violence has declined. 

But the decline in violence, is just the start. Enlightenment Now (again, with help from Roser) picks up where Better Angels left off and presents equally stunning data on how much progress humans have made in other key areas of human well-being. We humans have become much more educated, significantly longer living, more likely to live in a democratic-style government, spend LESS time working and doing chores, MORE time spent traveling and enjoying leisure., and have almost limitless access to information via the internet. Pinker argues very effectively that humans are making rapid progress, not just on violence, but progress in pretty much every quantifiable category that contributes to human well-being. 

 We've gone from mostly illiterate to mostly literate in just the past 50-75 years.

We've gone from mostly illiterate to mostly literate in just the past 50-75 years.

 Global life expectancy has doubled in the past 100 years.

Global life expectancy has doubled in the past 100 years.

 The proportion of humans living in extreme poverty has fallen precipitously from about 75% to about 15% in the past 100 years.

The proportion of humans living in extreme poverty has fallen precipitously from about 75% to about 15% in the past 100 years.

 Despite rapid population growth, even the absolute number of people in extreme poverty has been cut in half in the past 50 years.

Despite rapid population growth, even the absolute number of people in extreme poverty has been cut in half in the past 50 years.

 The proportion of humans living in democracies vs colonies/autocracies/anocracies continues to grow.

The proportion of humans living in democracies vs colonies/autocracies/anocracies continues to grow.

 Healthcare is being seen more and more as a right (vs a luxury) especially more developed countries.

Healthcare is being seen more and more as a right (vs a luxury) especially more developed countries.

 We're working less and less. allowing for more and more leisure time.

We're working less and less. allowing for more and more leisure time.

 We're increasingly freeing ourselves from the burden of housework.

We're increasingly freeing ourselves from the burden of housework.

 And among the houseowrk that remains, more and more men are doing their share.

And among the houseowrk that remains, more and more men are doing their share.

 Oh, and half of humanity now has access to a vast sea of information. Almost no one had that 20 years ago.

Oh, and half of humanity now has access to a vast sea of information. Almost no one had that 20 years ago.

 And with all that free time and information, more and more and more humans are able to travel and explore the world.

And with all that free time and information, more and more and more humans are able to travel and explore the world.

As you can see, the average human living today lives much longer than their grandparents, in a more peaceful world, with far less poverty, greater literacy and education, much better access to healthcare, more democracy and human rights, and more leisure time to spend however they wish. These facts, Pinker claims, are evidence of PROGRESS.* 

Note: About the only major non-partisan issue I could find that has trended in the WRONG direction over the past few decades is opiate addiction. If anyone reading post this can find more important things that have trended badly over the past couple decades, PLEASE email me directly at: booksandboozepodcast@gmail.com. Assuming it's a valid criticism, I'll happily add it to the blog as an update to this post.

 Here's the only thing I can find truly getting worse over the last 25 or so years.

Here's the only thing I can find truly getting worse over the last 25 or so years.

*Now, for an important reminder: Pinker reminds the reader repetitively throughout both books, that violence, poverty, and other bad things have NOT been fully eradicated from our civilization (duh), and that the remarkably good trends society has enjoyed are NOT necessarily guaranteed to continue indefinitely. Pinker is not claiming the world is all rainbows and unicorns, nor is he suggesting we "rest on our laurels" and ease up fighting hard for future progress yet to be made.

Part II - WHY have we made progress?

Pinker's secondary claims as to WHY humans have made progress are likely to be much more controversial than Part I, and indeed are less conclusive. Nevertheless, I will attempt to sum up three key pillars of progress that Pinker focuses on in both books:

Reason #1 - The emergence of the Nation-State, its monopoly on the legitimate use of violence.

According to Pinker, the gradual rise of the consolidated nation-state (from approx. the 1600s through the 1900s) dramatically shrank the number of tiny fragmented kingdoms, principalities, and tribes that each handled local justice in their own "Wild West" sort of way. As the Nation-State rose to prominence, the State typically demanded the sole-authority to inflict deadly force. This monopoly on violence drastically reduced the incentive to commit "vigilante justice" and rates of violence declined rapidly as a result. By acting as a (semi)-disinterested 3rd party to mediate disputes, the Nation-State could, in theory, avoid the normal human desires for vengeance and escalation of hostility. The State, with its laws, police forces, and jail cells, acts like a big referee to settle disputes, issue punishments, and prevent what would otherwise be Hatfield-McCoy style violence and anarchy. This clever bit of Game Theory made non-violent cooperation the rational choice by introducing severe punishment as a disincentive for settling disputes with unsanctioned violence. Cooperation 1, violence 0.

p.s. The few places on earth with weak or non-existent States, like majorly impoverished slums and remote rural communities, are much more prone to violence than places with effective Rule of Law.

Reason #2 - The emergence of trade and commerce (positive-sum cooperation) compared to war/conquest of territory (zero sum/negative-sum coercion/violence) as a superior means of getting what you want.

The first or second lesson in any Economics 101 class is that there are major gains from trade. The great non-economic insight of gains from trade is that it makes strangers worth more to you alive than dead. Once humans realized (possibly subconsciously at first) that advanced commerce was almost always a better long-term strategy for amassing wealth than pillaging/conquest, the incentives to commit acts of violence became drastically reduced. For example, if your neighboring tribe makes great beaver pelts and trades them for your excess fishing hooks, you mutually benefit from the exchange. Killing your neighbor ends that benefit, so instead of killing you decide to be nice to your neighbor out of rational self-interest. Click here for an awesome, interactive illustration of this concept.

Looking towards the future, it's critically important to remember that the inverse is also true. Diminished trade reduces the incentive to be peaceful. This is one (often overlooked) benefit of globalized trade networks. If global trade ever gets truly fucked up, (say due to protectionist trade wars, reckless Wall Street speculation, or anti-capitalist revolution) you could logically expect a big increase in violence. This double whammy of increased poverty and violence would be very bad for human well-being.

Reason #3 - The emergence of "Enlightenment values" of freethought, reason, science, and humanism over religion, superstition, tradition, tribalism, and authoritarianism.

The increase in literacy in the post-printing press world led to the free exchange of ideas between regular working-class people, and in doing so, dealt a crushing blow to the moral authority of church and tradition. Growing economies and declining faith in superstition fueled revolutions in science, technology, and moral philosophy, which in turned allowed individual human rights to flourish in a way that was not previously possible. Pinker suggests (and I wholeheartedly agree) that this (continuing) shift from religio-traditional authority to secular humanism/liberal democracy is a key component in the radical improvement of the human condition over the past 300 years.

Open, scientific, secular democracies tend to treat their citizens much better (in terms of killing and/or intentionally harming their own people) compared to closed, theocratic, authoritarian type states. Additionally, open, secular societies have the capacity to be self-correcting after making socio-political mistakes. Closed, authoritarian societies, without free and open debate, are much less likely to self-correct when they make mistakes. 

Part III - Why progress doesn't feel like progress 

In the opening paragraph of this post, I referenced the phenomenon of the world feeling like it's getting worse. The reason for this seems to be that humans have evolved to respond more strongly to stimuli that elicit emotions of fear and danger than to those that elicit happiness and security. This is why bad news gets rewarded with better ratings (and more $) than good news, and why negative people on social media tend to be rewarded as well. So, likely due to these psychological quirks that helped our ancestors survive on the African Savannah, we are now subject to a 24 Hour News Cycle and globalized social media that both bombard us with extremely negatively biased content. Violence, scandal, outrage - that is what sells - that is what the consumer demands.

For example, between the year 2000 and 2015, over 1 billion humans (net) were lifted out of extreme poverty. During that time, the NY Times could have posted the following headline "Approximately 175,000 Humans Lifted Out of Extreme Poverty Today"  and they could have kept that headline EVERY SINGLE DAY and been essentially correct. However, as we know, progress doesn't sell many newspapers.

 Can't sell ads with this headline!

Can't sell ads with this headline!

 

Part IV - Why it's so important that we acknowledge the progress we're making as a species

So far we've discussed progress, potential reasons for progress, and the fact that progress doesn't seem to feel like progress. That's all fine and dandy, but WHY should you care? What's the harm if no one realizes we're making progress?

The reasons this is important (and the reason I wrote this post) is because believing the world is getting worse (when it's not actually getting worse) can be really, really, really dangerous.

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Extreme ideologies HATE the idea of progress because it undermines the urgency for radical change that extreme groups tend to advocate for. Therefore, extreme groups rely heavily on a dogmatic belief that society is awful, completely broken, and only getting worse. While there ARE real issues to be resolved, and there IS justifiable reason to be angry, rampant, fatalistic, pessimism is fertile ground for increased violence and extremism. 

When people harbor the false notion that the world is getting worse everyday, when they believe, falsely, that our current system of peace, globalized trade, and multicultural liberal democracy are utter failures, they become open to the option of burning the entire system to the ground. 

Like your frustrated sibling during family game night, if people believe all hope of a successful outcome for our country/world is lost, they are prone to "flip the monopoly board." The problem with flipping the global monopoly board, of course, is that many millions would die and virtually everyone would become worse off financially, intellectually, and health-wise. Plain and simple, life would suck. Don't flip the monopoly board.

 

Despite its many, MANY flaws, the current system of globalized trade and multicultural liberal democracy IS moving humanity in the right direction. This is not merely Whig history, this is a factual recognition that life has gotten better for the vast majority of humans on Earth over the past few hundred years. While we'll obviously need to make significant tweaks to continue to create a better world, we should not welcome sudden, violent revolutions that would significantly risk the gains we've made in peace, life expectancy, wealth, democracy, and overall quality of life over the last few decades. Nothing crushes human well-being so much as tyranny, poverty, and violence. We must preserve the key pillars that keep civilization civilized: the free exchange of ideas, globalized trade, and most importantly global peace and cooperation between all countries. We can continue to make rapid gains in human well-being from within the current system through improved laws, regulations, and norms. Burning the system down would almost certainly make life much worse for the vast majority of humans.

This is why Pinker's books Better Angels and Enlightenment Now are so important. If people on all ends of the political spectrum can acknowledge the real progress our species has made in the last 100 years, rather than fall prey to rampant pessimism, it would greatly help diffuse the growing political powder keg that continues to build in today's popular culture.  Pinker's work is the antidote to the rising extremism in the USA and Europe. 

 

The Power of Moonshot Thinking

Authors note: Anything you see in any of my blog posts that is underlined is either a cool external link to help you learn more or internal links to my own related content.

 

Last year, I read a fascinating book called How Google Works (2014) co-written by Google's Executive Chairman and ex-CEO Eric Schmidt and former SVP of Products Jonathan Rosenberg. While the book credited many factors to Google's unbelievable success, the one big idea that stood out to me was their concept of Moonshot Thinking.

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Moonshot Thinking is about ideas that aren't merely 10% better than what already exists, but 10X better than what already exists. Rather than small incremental improvement, Moonshots are about massive improvement.

The best Moonshots tend to also be what I call Positive Asymmetric Bets - bets where the potential payoff if the idea/project succeeds is magnitudes greater than the cost if the idea/project fails. Imagine rolling a dice with six sides. Every time you roll the dice and roll 1-5 you'll be charged $10, but every time you roll a 6, you'll get $80. Even though 5/6 individual throws will lose money, if you roll the dice enough times, you'll eventually average $5 in winnings per dice throw. Throw the die long enough, and you'll be richer than Bill Gates. That's powerful.

If you keep your eyes and mind open, you'll start to see that life is full of these happily lopsided opportunities. Finding and attempting your own Moonshots is a fantastic way to improve your life.

Here are five quick, real-world examples to get our mental juices flowing:

1) Emailing a famous person and asking for advice

2) Applying for a job way above your current pay grade

3) Starting your own podcast, blog, or other "side hustle"

4) Asking out a guy/girl who is "way out of your league"

5) Applying to an Ivy League school when you don't exactly have the grades or pedigree.

These five ideas/projects, individually, all are more likely to fail than to succeed. However, like the dice example, the payoff is so high compared to the relatively minimal downside if the idea/project fails that it still makes sense to take a chance on the idea/project because the expected value is still positive.

The secret to making moonshots work for you in the long run is making sure you're able to roll that moonshot dice with relatively high frequency. Because most moonshots will fail, it's generally pretty stupid to put most or all of your "eggs" into a single Moonshot bet. The trick is to carefully consider both the magnitude of the asymmetry and the proportion of your overall resources (time and money) that you are willing to allocate to each of your Moonshots bets. I've found that allocating 1-3 years worth of time and money to each moonshot seems to work quite well. That gives you about 12-30 good moonshots over your working life, and maybe even 50-100 moonshots over the course of a long, full life.

Famous investor Mohnish Pabrai (author of the Dhando Investor) has summed up the entire Moonshot concept in one pithy sentence: 

"Heads I win big; Tails I don't lose much."

You can watch Pabrai's great talk regarding this concept (at Google, ironically) here:

Although I didn't realize it until after I read How Google Works, I've actually been using Moonshot Thinking to vastly improve my life over the past 5-7 years. Here are some personal examples from my own experience:

MOONSHOT #1 - Applying to better Grad Schools after already being rejected by a "worse" grad school.

Low Downside: I was likely to lose $200 (and an afternoon) filling out applications. 

Huge Upside: Potentially vastly improving my career prospects, if accepted.

  • In 2013, I was getting tired of working in a call center, so I began considering my options. I worked out the upside/downside of going to business school and getting an MBA. Despite already having over $70,000 in undergraduate student debt, I applied to two business schools. School A, which was traditionally much less prestigious and easier to get into than school B, rejected me. I knew that the odds were very low that someone rejected from School A could get into the more prestigious and selective School B. However, the Moonshot reward here was vastly improved career prospects and the cost was a $200 application fee and a day spent filling out an application. I took the unlikely bet, applied to School B, and got accepted. This one moonshot seriously improved my life.

MOONSHOT #2 - Volunteering in my local community

Low Downside: I'd be "giving up" a few hours a month to do whatever volunteer work my local community needed.

Huge Upside: I could potentially connect with and befriend many of my neighbors and maybe even improving the community a tiny bit.

  • In late 2016, after 4 years of working intensely, and almost exclusively, on improving my career trajectory, I decided it was time to start spending more of my time and energy on other people. I sent an email to my local government asking if they had any volunteer opportunities available. I told them, quite literally, i'd do anything that would get me involved and contributing to the community. Like my previous Moonshots, I saw local community service as an opportunity to get to know my neighbors and maybe do some good in the process (high potential reward) for the price of just a few hours of my time per month (low potential risk). I expected to be planting flowers, or helping with the historical society, or something boring like that. Instead, I was appointed to a seat on the Board of Directors of my local library! Holy cow, what an awesome opportunity for a bibliophile like myself. I eventually was elevated to Treasurer in 2018 where I now combine 1) my love of books/libraries 2) my love of finance and 3) my goal/duty to give back to my community. That is some serious Ikigai right there! And it all started with one tiny email that took 30 seconds to write.

MOONSHOT #3 - Launching my own podcast in 2017, and blog in 2018.

Low Downside: Spending $250 on microphones and a website, and having awesome conversations about books and big ideas over delicious alcoholic beverages with my friends, but having zero listeners. (Talk about a worst case scenario!)

Huge Upside: Possibly having a successful podcast/blog that are both fun, allows me to meet and interact with cool new people, and possibly even build a small platform for myself.

  • In 2017, I started a Podcast. The podcast/blog has acted as a force multiplier for me because it gives me an excuse to have deep, 1-on-1 conversations with people that otherwise wouldn't wouldn't occur. This is both super-fun for me, but also helps me be more social. (Which is something I really struggled with growing up)
  • Inspired by the success of my podcast, I launched this blog in 2018. (Yes, the one you're reading right now!) Again, a similar asymmetry: I was already going to read constantly, take a lot of notes, collect and big ideas just for myself. Why not SHARE those good books and big ideas with the world? I have virtually nothing to lose, and potentially a TON of people on line who might gain something from my blog ideas or books reviews and vice versa.

My life has been vastly improved by consciously (and unconsciously) Moonshot Thinking and pursuing positive asymmetric opportunities, especially over the past 6 years. Moonshots are a key feature of Google's incredible success, and this mental model can REALLY help YOU in your own life. 

So keep you eyes and your mind open for Moonshots in your career, your community, and among your relationships. Say yes to Positive Asymmetries whenever you can, and good things will happen to you. 

Good luck with your Moonshots!

-John

space-station-moon-landing-apollo-15-james-irwin-39896.jpeg

Buddhism vs Stoicism: Two Surprisingly Similar Philosophies

Despite arising independently in two very different places and times. Buddhism (founded in ancient India in the 4th-6th centuries BCE) and Stoicism (developed in Rome and Greece in the between the 3rd century BCE and 3rd century CE ) have some very similar core tenets and practices. 

I created an original info-graphic (my first ever) to summarize some of these key similarities. I am a big fan of these two philosophies and try to utilize them as much as I can in my own life. 

For books on Buddhism I recommend either the actual (challenging) ancient texts or, if you're looking for something easier to digest, Seeing Yourself As You Really Are by Dalai Lama XIV . For more on Stoicism I recommend The Obstacle is the Way by Ryan Holiday and Meditations by Marcus Aurelius. I have tried three different meditation apps (Insight Timer, Simple Habit, and 10% Happier) and rank them in that order with Insight Timer being by far my favorite. Thanks to my good friend Dr. Liz Rosenthal for turning me on to Insight Timer.

Worldly Wisdom, Sit-On-Your-Ass Investing, and more from Poor Charlie’s Almanack

Authors note: Anything you see in any of my blog posts that is underlined is either a cool external link to help you learn more or internal links to my own related content.

 

A detailed review by John Leven

Question: Who is Charlie Munger? Why should you care? Why should you take the time to read this really long blog post about him?

Answer: Charlie Munger is a 94 year old self-made billionaire and investing legend who is known for his polymath-like ability to translate mental models from non-business academic disciplines into extreme business success. (And for being a business hero of mine) Whether you're a serious investor, or don't care about investing at all, literally everyone can learn a lot from the way Mr. Munger thinks and operates. For the past 40 years, Munger has been the Vice Chairman of Berkshire Hathaway, the "right-hand-man" of Warren Buffett, and one of least acknowledged factors behind Buffett's wildly successful 53 year run as CEO of Berkshire Hathaway. 

 By Nick - Charlie Munger, CC BY 2.0, https://commons.wikimedia.org/w/index.php?curid=10343010

By Nick - Charlie Munger, CC BY 2.0, https://commons.wikimedia.org/w/index.php?curid=10343010

This blog post is a review of the expanded 3rd addition of Poor Charlie’s Almanack: The Wit and Wisdom of Charles T. Munger. The 532 page biography and collection of Munger's writings is a bit pricey ($55 used on Amazon, and up to $150 new) so hopefully this blog post will save you both time and money.

My review is organized by topic as follows:

1.       The Early Years

2.       A Multidisciplinary Approach to Business Analysis

3.       Keys to Investing Success

4.       Sit-On-Your-Ass Investing

5.       The Willingness to Change Your Own Mind

6.       On Life

7.       More Investing Advice

8.       Examples of Mental Models

9.       Charlie Munger’s suggested Reading List

Poor Charlie’s Almanack : The Wit and Wisdom of Charles T. Munger

“Success is obtained via a combination of concentration, curiosity, perseverance, and self-criticism, applied through a prism of multidisciplinary mental models.”
“Acquire worldly wisdom and adjust your behavior accordingly. If your new behavior gives you a little temporary unpopularity with your peer group…then to hell with them!”

1. The Early Years:

As a boy, in Omaha, Charles Munger got his first job working at the Buffett & Son Grocery store, owned by Ernest Buffett, Warren’s grandfather. Charlie, like the other Buffett & Son employees, worked 12 hr shifts with no meals or breaks. Warren, six year younger than Charlie would later go to work at that same store a few years after Charlie had moved on.

Young Charlie was very smart, but didn’t work very hard. He used a family connection to get into Harvard Law without a bachelors degree. However, he actually did very well at Harvard Law and afterward got a decent job at a reputable law firm. (keep in mind that lawyers today, make A LOT more money, relative to other career paths, than they did in the 1960s when Charlie started out.)

Despite a good start, Charlie faced significant emotional challenges. By age 29 he had already married, divorced, and lost his young son to leukemia. During this time of his life, people recall often seeing Munger walking through the streets of Pasadena, CA, crying his eyes out, for hours at a time.

Munger eventually remarried and had A LOT of kids. (some acquired by marriage) Though a successful lawyer, Munger wanted much more money than a 1960s lawyer was bringing in. His quest for wealth was fueled, not by a desire for material possessions, but (Like his hero Ben Franklin) by a desire for independence. He turned to outside ventures and real estate investments to generate more income. In the mid-1950s and 60s, Munger started buying stocks, as well as equity in the private businesses of some of his clients. In 1961, he got into property development and developed condominiums and turned a large profit. From there, he took on other construction projects in the Pasadena area. Next, he started his own law firm, Munger, Tolles & Hills. Still not satisfied, Munger then opened a small investment partnership soon thereafter. By 1964, Munger's various ventures had swelled into a nest egg of about $1.4 million. (Equivalent to about $11 million in 2018 dollars)

While returning to Omaha, to visit family, Munger attended a dinner that included a fellow named Warren Buffett. Charlie, remembering the surname from his boyhood job at the Buffett & Son grocery store, hit it off with Warren right away. Warren tried to persuade Charlie to quit his Law Firm as soon as possible to focus on investing full time. Munger eventually took young Buffett's advice and did just that.

Over the next 14 years, the Munger Investment Partnership returned an astonishing compounded annual rate of return of 19.8% vs the Dow Jone’s return of just 5%. Though Munger and Buffett were partners in some investments, and traded ideas by phone almost daily, they both had distinctly separate partnerships. Eventually, their investments became so ridiculously intertwined that it made more sense for them to formally merge. Munger was chairman of Wesco and when Buffett’s Berkshire Hathaway bought 80% of Wesco Charlie became Vice-Chairman of Berkshire. The rest, as they say, is history.

2. A Multidisciplinary Approach to Business Analysis:

According to Munger, many people suffer from “man with a hammer syndrome.” “To the man with only a hammer, every problem looks like a nail.” To avoid this common problem, Munger says we must develop a diverse mental “tool box”, by utilizing a multidisciplinary approach to investing (and life.)

“If you want to go through life like a one legged man in an ass-kicking contest, be my guest. But if you want to succeed like a strong man with two legs, you have to pick up these methods.”
“You must know the big ideas in the big disciplines and use them routinely – all of them, not just a few. Most people are trained in one model, economics, for example - and try to solve all problems in one way”. You know the old saying, “To the man with a hammer, the world looks like a nail.” This is a dumb was of handling problems.”

True to his words, Munger built his career on incorporating history, psychology, mathematics, biology, and other academic disciplines into his mental toolbox for evaluating businesses and investment ideas. He refers this combined latticework of knowledge as “worldly wisdom.”

“Worldly wisdom is mostly very, very simple. And what I’m urging you to do is not that hard if you have the will to plow through and do it. And the rewards are awesome – absolutely awesome.” Munger says.
“I consistently see people rise in life who are not the smartest, and sometimes not even the most diligent. But they are learning machines. They go to bed at night a little wiser than they were that morning. And boy, does that habit help, particularly when you have a long run ahead of you.”

3. Keys to Investing Success:

“The number one idea”, Munger claims, “is to view a stock as an ownership of the business, and to judge the staying power of the business in terms of its durable competitive advantage. Look for more value in terms of discounted free cash flow than you are paying for. Move only when you have an advantage. It’s very basic. You have to understand the odds and have the discipline to bet only when the odds are in your favor. “

He also stresses the importance of staying within your “circle of competence.” "Knowing what you don't know is more useful than being brilliant", is an oft-cited Munger quote.

When it comes to competitive advantage, Munger stresses that what matters is not how strong the advantage is today, but how strong it will be in 5, 10, even 20 or more year from now. Munger asserts:

“Anything less [than a long-term competitive advantage] is too risky.”

Competitive destruction results in few businesses being able to survive over multiple generations. Munger cites a 1911 Buffalo Evening News clipping showing the 50 most important stocks on the NYSE. Of those 50, only GE survives to this day as a large independent business. He suggests that the best business to own would be “a simple, easy to understand, dominant business franchise, that can succeed in all types of economies.” He asserts that people overestimate the importance of quantitative methods of analysis and valuation, because they are easy to understand, and conversely, underestimates the importance of the durable competitive advantage and other qualitative aspects of a business, which are more difficult to understand.

4. Sit-On-Your-Ass Investing:

"If you buy a business just because it's undervalued, than you have to worry about selling it when it reaches its intrinsic value. That's hard. But if you can buy a few great companies, then you can sit on your ass. That's a good thing.”
“When Warren lectures at business schools, he says, “I could improve your ultimate financial welfare by giving you a ticket with only 20 slots in it so you had twenty punches – representing all the investments that you get to make in a lifetime. And once you’ve punched through the card, you couldn’t make any more investments at all. Under those rules, you’d really think carefully about what you did, and you’d be forced to load up on what you’d really thought about. So you’d do much better.”

He advises, “You’re paying less to brokers, listening to less nonsense, and if it works, the tax system gives you an extra 1, 2 or 3 percentage points per annum.” In his view, a portfolio of three companies is plenty of diversification.

“The idea of excessive diversification is madness.” “Our experience tends to confirm a long held notion that being prepared, on a few occasions in a lifetime, [and] to act promptly in scale,…will often dramatically improve the financial results of that lifetime.”  “…All that is required is a willingness to bet heavily when the odds are extremely favorable, using resources available, as a result of prudence and patience in the past.”
“It takes character to sit there with cash and do nothing. I didn’t get where I am today, by going after mediocre opportunities. "If you say no to 90% of investing ideas, you're not missing much.

He echos a famous Buffett quote, “Few people ever get rich on their 7th best idea.”

5. The Willingness to Change Your Own Mind:

Charlie hates dogma. He bears not only a willingness, but an eagerness to find his own mistakes and learn from them.

“If Berkshire has made a modest progress, a good deal of it is because Warren and I are very good at destroying our own best-loved ideas. Any year that you don’t destroy one of your best-loved ideas is probably a wasted year.”
"Keynes said “It’s not bringing in the new ideas that’d hard. It’s getting rid of the old ones.” And Einstein said it better, attributing his mental success to “curiosity, concentration, perseverance, and self-criticism.” By self- criticism he meant becoming good at destroying your own best loved and hardest-won ideas. If you can get really good at destroying your own wrong idea, that is a great gift."

Ask yourself, how am I fooling myself? Why is this company cheap? Is it for a good reason or for a superficial reason? Play devil’s advocate with yourself. Constant self-criticism is key to success in investing as well as life.

“The best defense is that of the best physicists, who systematically criticize themselves to an extreme degree.” Munger says. Then he quotes Nobel laureate Richard Feynman, “The first principle is not to fool yourself, and you are the easiest person to fool.

6. On Life:

“Get out of debt, and have a want for very few material possessions. Also, be a very reliable person, learn from your experiences, don’t envy or resent others, and NEVER give up.”
“The way to win is to work, work, work, and hope to have a few insights.”
“The safest way to get what you want is to try and deserve what you want. It’s such a simple idea. It’s the golden rule. You want to deliver to the world what you would buy if you were at the other end.”

7. More Investing Advice:

“I should concede, at the outset, that I have never taken a single course in economics, nor tried to make a single dollar, ever, from foreseeing macroeconomic changes.” Be a business analyst, not a market analyst or macroeconomic analyst.

Munger believes that aggressive accounting is rampant in corporate America. "I think that, every time you see the word EBITDA, you should substitute the words, "bulls*** earnings."

“It's remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent."

Munger advocates create your own investing checklist and utilizing it every time you consider making an investment. "How can smart people so often be wrong? They don't do what I’m telling you to do: use a checklist to be sure you get all the main models and use them together in a multi-modular way." Guru investor Monish Pabrai, a Buffett/Munger fanboy in his own right, takes this advice literally.

8. Examples of Mental Models Mentioned in the Book:

Invert, always invert (Trying to solve problems backwards)

Redundancy/backup system model (engineering)

Compound interest (math)

Combinations/permutations (math)

Decision Tree Theory

Accounting

Gaussian distribution (aka Normal Distribution)

Break point/tipping point/auto-catalysis models (physics/chemistry)

Darwinian Evolution (biology)  and specifically how it relates to competitive destruction in capitalism.

Cognitive misjudgment (psychology)

Cost benefit analysis (economics)

Advantages of scale (economics) 

Social Proof (psychology)

Classical conditioning and Operant conditioning (biology)

Pari-mutuel betting (horse racing)

The power of incentives (psychology) 

Incentive-caused bias (Psychology)

Agency problems

Diminishing Marginal Utility

Consistency/Commitment

Per Munger, when multiple mental models combine in your favor, the “lollapalooza effect” kicks in, and the power of each individual model increases exponentially

9. Munger's Reading Recommendations:

Charlie quotes his famous partner,

“In my whole life, I have known no wise people who didn’t read all the time – none, zero.” "I read everything. 10-K's and 10-Q's, biographies, histories, and 5 newspapers a day. Reading is key. Reading has made me rich over time."

I've personally read about 1/3 of the books Munger has recommended below, and 3 of them (Guns, Influence, and Selfish Gene) are among the very BEST books i've ever read, and so I bumped them from the top of the list. 

Here is the full list of Munger's reading recommendations from the book:

Guns, Germs, and Steel: The Fates of Human Societies by Jared M. Diamond

Influence: The Psychology of Persuasion by Robert B. Cialdini

The Selfish Gene by Richard Dawkins

Autobiography by Benjamin Franklin

Titan: The Life of John D. Rockefeller, Sr. by Ron Chernow

Deep Simplicity: Bringing Order to Chaos and Complexity by John Gribbin

F.I.A.S.C.O.: The Inside Story of a Wall Street Trader by Frank Partnoy

Ice Age by John and Mary Gribbn

How the Scots Invested the Modern World: The True Story of How Western Europe’s Poorest Nation Created Our World and Everything in It by Arthur Herman

Models of My Life by Herbert A. Simon

A Matter of Degrees: What Temperature Reveals About the Past and Future of Our Species, Planet, and Universe by Gino Segre

Andrew Carnegie by Joseph Frazier Wall

Living Within Limits: Ecology, Economics, and Population Taboos by Garrett Hardin

The Wealth and Poverty of Nations: Why Some Are So Rich and Some So Poor by David S. Landes

The Wealth of Nations by Adam Smith

The Warren Buffett Portfolio: Mastering the Power of the Focus Investment Strategy by Robert G. Hagstrom

Genome: The Autobiography of a Species in 23 Chapters by Matt Ridley

Getting to Yes: Negotiating Agreement Without Giving In by Roger Fisher, William Ury, and Bruce Patton

Three Scientists and Their Gods: Looking for Meaning in an Age of Information by Roger Wright

Only the Paranoid Survive by Andy Grove

Also Munger suggests your read: The Wall Street Journal, Forbes, Fortune, and Value Line.

The End.

If you've made it this far, thanks for reading this long blog post. I know you're time is valuable and I hope you found it worthwhile.

Please leave some comments, questions, or general feedback. But most importantly please SHARE this, if you enjoyed it.

Thanks for reading,

-John

p.s. If you like these mental models, there's a truly amazing blog you should check out that has 113 of them, also inspired by Charlie Munger.

Winter Olympic Medals per Capita since 2002

The 2018 Winter Games kicked off last night, and in celebration, here's a Tableau visualization that I put together showing which countries have won the most Winter Olympic Medals PER CITIZEN since the 2002 games.

I have medals per capita metric on the Y-axis and GDP per capita on the X-axis. The countries are sized by the absolute number of medals won. Also, if you hover your cursor above a country, some additional data is displayed.

A fine example is the good ole' USA, which has the MOST medals overall since 2002 (hence the biggest circle) but is actually near the BOTTOM of this chart. Despite the impressive number of medals the USA has won, we have vastly under performed most countries on a per capita basis. The USA averaged 31 medals per Winter Games since 2012, but with about 325M citizens, that comes out to just under 1 medal per 10M citizens per games. I'd be willing to bet that obesity in the United States has something to do with that.

The undisputed per capita champion is Norway with about 44 medals per winter games per 10 million citizens, more than double the runner-up Austria (21). Norway, with a population of just 5.3 million, has averaged 23 medals per games.

When you work out the math, you see that the average Norwegian is about 46X as likely as the average America to win a Winter Olympic medal. Most of Norway's disproportionate dominance comes from their strength in the skiing events, especially cross-country skiing.

Check out the data for yourself, there are tons of interesting surprises between the various countries!

If the embedded link doesn't work, I believe the link below show work. If neither work, please let me know ASAP.

https://public.tableau.com/profile/john.leven#!/vizhome/WinterOlympics_10/Sheet1

Be prepared for awful stock returns over the next 5 years.

Authors note: Anything you see in any of my blog posts that is underlined is either a cool external link to help you learn more or internal links to my own related content.

 

I'll try to keep this post short, sweet, and accessible for both finance nerds and n00bs alike.

The last few years sure have been good for stocks...like REALLY REALLY good. We hit 2,872 on the S&P 500 index on January! The stock market's primary index has more or less doubled from where it were just before the 2008/09 financial crisis, and has more than quadrupled from where they were at the 2009 crisis bottom. The past few years have been abnormally good, relative to the economic performance of the 500 businesses whose earnings are the foundation of the S&P 500. But you don't care, because them dolla dolla bills just keep adding up!

While trying to wrap my mind around the recent stock market run-up, I created a pretty cool chart that attempts to take the last 80 years of stock market history and smooooooth it out. I wanted to take the highs and lows of the business cycle and the extremes of investor sentiment and make them less noisy.

So I took data on the index going back 80 years to 1938 and had some fun with it:

1) I took the real (inflation-adjusted) earnings of the S&P 500 and smoothed them out.

2) I took 9 year average PE ratios (valuation) and ranges within a standard deviation by year and smoothed that out as well.

3) I then multiplied together those (normalized earnings X normalized valuation) to get a normalized range of stock market prices by year. Finally, I overlaid the actual real (inflation-adjusted) S&P 500 prices from 1938-today, AND projected the trend data forward 10 years to 2028.

The resulting graph attempts to show the S&P 500 compared to what I call "normal-normal" range. Again, "normal-normal" to me basically means "Where the S&P 500 should be after smoothing out the wild swings in business cycles AND investor sentiment."

And here's my result and a link to the spreadsheet: 

I don't think i've seen the market visualized quite like this before

chart.png

Here's the same data viewed another way:

chart (1).png

I think my little charts do a pretty good job of summing up the gist of today's market conditions: the past few years of amazing stock returns have put us well above the "historically normal" zone. 

So what should our central expectation be for future stock returns over the next 0-5 years? In general, we should be fairly pessimistic. Investing today at these high prices only makes sense if you think historically normal business fundamentals and historically normal interest rates aren't coming back anytime soon.

These sentiments are echoed in a recent memo by famous investor Howard Marks:

"Most valuation parameters are either the richest ever (Buffett ratio of stock market capitalization to GDP, price-to-sales ratio, the VIX, bond yields, private equity transaction multiples, real estate capitalization ratios) or among the highest in history (p/e ratios, Shiller cycle-adjusted p/e ratio).  In the past, levels like these were followed by downturns.  Thus a decision to invest today has to rely on the belief that “it’s different this time.”

Here are links to some of those valuation metrics cited by Marks:

Buffett Indicator: Market cap to GDP

Price to Sales

Shiller PE Ratio

In addition to the valuation metrics and earnings data already shown, no musing on stock market valuations would be complete without a quick comment on interest rates. All else equal, lower interest rates increase asset prices and higher interest rates lower asset prices. The reason is because higher interest rates lower the equity risk premium and therefore make stocks relatively less attractive compared to bonds, but that's beyond the scope of this post. The bottom line is that after decades of falling, interest rates are starting to rise again.  If rates continue to go up, as they are expected to, this will put much greater pressure on stock valuations, and likely result in a significant drop in stock prices. Also, the yield curve is flattening  and that is a classic sign of that an economic expansion is moving towards a recession.

You know the cliche, "When something seems to good to be true, it probably is." As good as the recent gains have felt, the intelligent investor should be aware of the significant probability that much of the recent gains will turn out to be transient. Otherwise, you risk getting caught with your pants down like investors did in the Dot.Com bubble.

If my analysis is correct, what is the best course of action? Should you panic and sell your stocks? No! But, here are some things you may want to consider:

1) If you're highly leveraged, or have bought stocks on margin, consider reducing that risk.

2) If you have any other high interest debt (credit cards, etc), consider paying it off now (while you presumably have cash) before the next market downturn.

3) Possibly selling any stocks you own that appear to have appreciated way beyond their intrinsic value.

4) Being very conservative in making new investments, and possibly consider building up your cash percentage so that you will be prepared for the next crash or recession.

Otherwise, a correction or crash in stocks may leave you feeling like this kid....

Thanks for reading!

 

*The above references an opinion and is for information purposes only.  It is not intended to be investment advice.  Seek a duly licensed professional for investment advice.

I read 100 books in 2017. Here are my Top 4 recommendations.

Authors note: Anything you see in any of my blog posts that is underlined is either a cool external link to help you learn more or internal links to my own related content.

 

I read 100 books in 2017, which is more than double the 46 books I read in 2016. My breakdown was 90% non-fiction, 10% fiction in 2017 vs 100% non-fiction, 0% fiction in 2016. If you're curious, you can view them all HERE.

The two factors that helped to double my reading volume were: 1) I started a podcast that combines books, booze, and interesting conversations and 2) I began using Goodreads, which I highly recommend because it enables you to easily track books you've already read and books you want to read in the future.

Here are the 4 books I recommend everyone should check out:

1) Sapiens: A Brief History of Humankind

by Yuval Noah Harari

sapiens.PNG

Of the 288 books I’ve logged over the past 6-7 years…THIS is the best book I’ve read. Sapiens is a mind-blowing, ambitious, and deep reflection on the past, present, and future of Homo Sapiens. I am literally going to force my family and friends to read this book.

The book breaks human history into 4 parts: 1) The Cognitive Revolution, 2) The Agricultural Revolution, 3) The Unification of Humankind and 4) The Scientific Revolution. From our humble beginnings as insignificant primates to our takeover of planet earth, Yuval Noah Harari takes you on a mind bending journey that explores human evolution, inter-subjective realities, expanded definitions of religion (including referring to human rights and money as religions), and sapiens unquenchable desire to innovate and conquer. Harari masterfully weaves it all together into one of the most remarkable single volumes of history ever produced.

Harari is not shy about confronting some of the big questions and dark realities of our human nature including genocide, environmental destruction, and the fact that, despite incredible innovations and global domination…sapiens STILL don’t seem to be any happier than they were in previous points in history

He ends the book by musing on his predictions for the future of humanity, which includes sapiens turning themselves into gods via AI, genetic engineering, and nanotech. Technology resulting in a “useless class” of people, the collapse of liberalism, humanism, and capitalism, and the rise of religions that worship technology.

He ends this masterpiece with an incredible quote that sums up humanities future:

“Is there anything more dangerous than dissatisfied and irresponsible gods who don’t know what they want?”
 

2) Tribe: On Homecoming and Belonging

by Sebastian Junger

This short, thought-provoking work focuses on community. What is community? How do groups of humans typically interact, both historically, and today? 

Junger argues that human community is more or less defined as a small band (approx 50-150) of humans who, in the face of existential threats (war, famine, natural disaster) depend on each other for their collective survival. Tribes are "the people you would share the last of your food with." Imagine a tight-knit band of hunter-gathers killing a saber-toothed tiger to protect their tribe. That image, per Junger, is essentially how humans evolved to interact with each other. This is why so many humans find deep meaning and sense of purpose fighting for and defending their tribe or community against dangers and disasters. 

During times of crisis, like 9/11 or the Fukushima nuclear disaster, people are at their VERY BEST. In times of crisis, suicide rates, crime rates, and substance abuse rates drop dramatically, and feelings of unity, community, and self-esteem reach otherwise unheard of levels.

The thing is, according to Junger, humans don't mind hardship, in fact they thrive on it; what they mind is not feeling necessary. Modern society, however, has perfected the art of making people feel unnecessary.

In today's affluent, safe, stable Western nations, much of society has been liberated from the common day-to-day dangers that our ancestors faced, such as extreme violence, famine, and disease. While all these advances are great achievements, it's also true that we pay something of a price for our affluence and safety - namely - that you no longer DEPEND on the people around you for your day-to-day survival. Without that dependence true community essentially vanishes. What we end up with is a hyper-individualized society with increased anxiety, alienation, and depression. 

If Junger's thesis is even partially true, this may help explain why Western countries seem less happy than less developed countries. It may help explain why many veterans consider their experience in war zones to be highlight of their lives. 

We should not, of course, forget that tribalism, in-group-out-group bias, and dehumanization of the "other," are root causes of some of the most vile human atrocities. Nor should we forget that individualist thinking has liberated billions from the shackles of monarchy, state religion, and collective punishment. We should, however, acknowledge that with our modern society we experience very real trade-offs between: individualism and community, between solidarity and alienation, and between affluence/safety and meaning. 

Junger, admittedly, doesn't have an easy solution to the negatives of this apparent trade-off between the liberation of the individual vs the destruction of community, and between the precious gifts of affluence, abundance, and safety vs the truest of human bonds that can only be formed when people truly depend on each other for their day-to-day survival. Perhaps the best we can do is, carefully, try to create small "tribe-like" special interest communities like running clubs, professional organizations, or Ben Franklin-style Juntos that include as much of the positive aspects of the tribal community, and as little of the group-think and out-group bias as we can.

3) War is a Force That Gives Us Meaning

by Chris Hedges

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An amazing, powerful book on how humans are seemingly drawn to the narcotic of war and the horror that results. Everyone should read this book.

The central idea that war is a very potent drug – the biggest high you can get – often peddled by historians, reporters, and other myth makers as exciting, glorious, and heroic. In reality, war exposes the evil that lurks not far below the surface in all of us. Despite its horrors, humans seem to find great meaning and purpose in war, and of killing the evil “other” for the “greater good.” Humans are very often seduced by the power to destroy lives.

Self-worshipping national/cultural myths that cast “us” as the victim, and “them” as the evil aggressor, tend to suspend critical thought, lead to dehumanization of “the other,” and violence naturally follows.

However, once the war actually arrives, those who experience the terror of battle and death firsthand realize how awful and regrettable it is. They realize that our national myths are almost always false or exaggerated, and the pain of killing others and/or losing friends/relatives never heals.

In war, morality turns upside down: indiscriminate slaughter becomes a virtue, and honest inquiry becomes vice. The chaos of war almost always leads to the executing of women and children, rape and torture, and people displaying other people they’ve killed as trophies. You are often forced to commit atrocities or risk having your allegiance questionedwhich could possibly put your own life at risk.

Hedges tries to recommend compassion, humility, communication, and love as the possible solutions, however it must be acknowledged that while humans have little problem being compassionate, humble, loving, and communicating with those they view as part of their "tribe", humans are remarkably UNSUCCESSFUL at maintaining those virtues around "other" people/groups that they disagree with or have labeled as the enemy. Until that changes, it is doubtful that we can eliminate war and violence from the human experience.

4) Doing Good Better: Effective Altruism and How You Can Make a Difference

by William MacAskill

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For much more drunken jabbering on this book and the topic of effective altruism, check out the podcast episode on it that I did with my good friend Billy Ray Taylor HERE.

If there's a common thread between Tribe, War is a Force That Gives Us Meaning, and Doing Good Better, it is this: human happiness, well-being, meaning in life - or whatever you want to call it - comes almost exclusively from contributing to a group or cause that is bigger than yourself. 

The big, perhaps controversial, idea of Doing Good Better is effective altruism, a philosophy and movement that advocates using science & data to analyze the effectiveness of charitable organizations, emphasizes cause neutrality, and recommends ONLY donating to the most effective charities in the world. As a corollary, you should NOT, as most people tend to do, donate to organizations based on your emotional connections or personal attachments. Your no local church? NO WAY! Your local food bank? NEVER! Your alma mater? SCREW THAT! Most of the data suggests that causes like intestinal deworming, malarial bed nets, vitamin supplementation, and direct cash transfers in the poorest parts of Africa and India are 10-100x more effective per $ donated than whatever local charity you're emotionally attached to. Given such a stark difference in effectiveness, many effective altruists would consider knowingly allocating your charity dollars to ineffective charities instead of uber-effective charities morally unconscionable. Some would argue you even have a moral obligation to choose to donate to the more effective charities over less effective alternatives, even if they make you feel less "warm and fuzzy" inside.

What makes this whole ideology both awesome and daunting is the extreme difficulty in objectively quantifying  "good" or "well-being." Measurements like Quality-Adjusted Life Years (QALYs) are probably the best we have right now, but our ability to collect and interpret the data is constantly improving. Despite the difficulty, it is absolutely possible to approximately compare and contrast the effectiveness of various charitable causes. I think we, as a society, need to invest serious time and energy into improving our ability to quantify the effectiveness of charitable organizations and quantifying human suffering in general. 

After much research, my wife and I (married just over a year) made our first annual effective altruism donation in December 2017. It made us feel REALLY good that for the rough equivalent of one month's mortgage payment, approximately 1,900 children in Africa and India won't get intestinal worms in 2018. NINETEEN-HUNDRED!!! That fact alone gives my life added meaning and added motivation to excel in my career and to be frugal so that suffering that would have otherwise happened will never occur. 

You don't have to go far down the Effective Altruism rabbit hole before things start to get pretty crazy and philosophical. Layering additional, potentially effective causes, such as social justice, animal suffering, and controlling future artificial intelligence, to the effective altruism framework can be seriously overwhelming and mentally frustrating. However, there is certainly an intellectual joy that comes from undertaking the challenge of attempting to quantify "doing good", and a deep satisfaction in going to bed each night knowing that you've given some of your hard-earned money to the most effective charities in the world. That hundreds or even thousands of children per year, may live better and suffer less, because you have existed, and to translate your otherwise unremarkable career, your unremarkable talents, your unremarkable life, into a truly remarkable amount of good, is truly the opportunity of a lifetime. If that's not something worth living for, then what the hell is?  

- john

p.s. Special thanks to Ron McIntire for doing a quick proofread of my first blog post. His expertise prevented me from committing what could only be described as an "atrocity against commas" of biblical propotions. Also thanks to Elliott Killian for inspiring me to start my own personal website. 

If you want to listen to, essentially, an audio version of this blog post, which includes my 2 least favorite books of the year, check out the podcast episode below: