Some people are born into families that encourage education; others are against it.
Some are born into flourishing economies encouraging of entrepreneurship;
others are born into war and destitution.
I want you to be successful, and I want you to earn it.
But realize that not all success is due to hard work, and not all poverty is due to laziness.
Keep this in mind when judging people, including yourself."
It is worth reflecting that, if Grace happened to be have a world outlook that was a smidge more venal and materialist, she wouldn't have been able to do what she did. This is because dying with $7 million in savings means that she could have spent about $7 million more on enjoying herself in life.
I completely agree with her apparent outlook, and would rather have security and the pride of knowing I'd given a lot more to my fellows than I've taken back. And if everyone thought this way then society would be a lot better about preserving and growing what we have.
However, I've met countless people who behave like the executive in the opening paragraph not because they have 'bad behaviors', but precisely because they are clever and in practice wanted to maximise money spent/personal resources consumed. I doubt they would word that as harshly as I have, but the implicit meaning behind the behavior is very clear.
Now, if you start with a value proposition that the purpose of the economy is to maximise the resources available for individual consumption, it is actually quite hard to argue for dying with savings. The families who try to maintain inter-generational family wealth actually cop a fair bit of flack socially (in times of stress, they seem to near inevitably get branded 'hoarders', and times of extreme stress they have their wealth confiscated).
Basically, I like the argument and the value structure it comes from - but there are other views of the situation that are reasonable and deserve mention.
EDIT Fun fact, apparently $7 million gets you very close to the top 1% by wealth [1]. So technically, the sort of people who want "the 1%" to do more have people like Grace in their sights. We all know they don't want that, but it shows the normal attitude to wealth and savings imo.
Consider the role of luck and risk. If you go to Vegas and gamble, your returns are pretty much luck. But for the casino, the quantity of bets makes their profits a virtual mathematical certainty, even though the outcome of each bet is luck.
Transferring this idea to the stock market, outcomes from an individual stock have a high degree of luck, but an investment in an index of stocks reduce the luck factor by quite a bit and move towards mathematical inevitability.
Are you sure about that? The stock market is not a mathematically defined process in the long run. It is still a gamble.
Let's say you are investing in T-bonds that generates a guaranteed 5% + inflation for 50 years. The lifetime of the US is, say, 500 years. After the lifetime of the US, the value of the USD drops by 100%.
So, yes, it is a good deal as long as it works. Some people are going to live 95 years and experience the stability and rewards of the T-bonds. Some people are going to invest for 10 years and lose it all. Some people are going to invest for 50 years and lose it all. Worse, if they don't diversify they'll be at an age where they can't generate wealth again (old).
You'll need a model of the USA lifetime to be able to determine the real returns + risks of the stable mutual funds.
There is no such thing as "compounding interest". Wealth doesn't compound like an e function. You are making money off someone else either "legitimately" by getting their work in exchange for your capital/risk. Or you are making money on a big, very long "ponzi scheme" known as "most world governments".
Imagine you invested all of your retirement savings into "the index" a week before black Friday and then describe how the results are mathematically inevitable.
> because dying with $7 million in savings means that she could have spent about $7 million more on enjoying herself in life
The point of much of the article is that dying with $7 million in savings means that she could have instead spent about $7 million more on enjoying herself, not in life, but on the day before she died. She probably couldn't have even enjoyed children and a car "in life".
And if everyone thought this way then society would be a lot better about preserving and growing what we have.
The Paradox of Thrift says that the economy would actually shrink if everyone saved to such an extent, and people would have less overall with time. Even Hayek remarked that individuals can save, not an entire country.
Well, sure the economy would shrink, but that is the point. There would be less demand for consumer goods, because preservation implies less consumption.
Imagine a pretend happyland where everyone owned their own home and had a stockpile of 30 years of food. They change their usual work week to take Mondays off and sit comfortably at home. 20% of the economy literally disappears overnight. It isn't obvious that the anyone would be suffering.
The reason the economy shrinking is so terrible is because people generally live hand-to-mouth. If you have enough resources stockpiled to last you the rest of your lifetime, you technically no longer need an economy. It is still nice to have and some resources can't actually be stockpiled (eg, a doctor's time) so I wouldn't advise doing without it, but the economy is mostly important because people don't stockpile resources.
There seems to be a feeling that we should not stockpile resources because the economy is important. That line of thinking is very popular, but imo precisely backwards. Links the right things in the wrong order. Bit of a non-sequiter, but that thinking is why governments and central banks keep printing money.
All this is an interesting but philosophical point. People, in the main, consume everything they have available to them and then work to earn more.
EDIT It is notable that if no-one borrows then by definition no-one can make money by lending money. Again, although this is radical compared to what we do now, it isn't actually obvious what the problem would be. Again, it isn't advised because borrowing money for the purpose of investment is a source of fantastic economic efficiencies. The issue is we all know there is borrowing going on to fund consumption. That isn't a good idea, although the cost is carried by the people responsible so I have no beef with it happening.
I don't know - I can imagine that instead of consuming people spend money on investment - i.e. buying machinery etc. - companies produce machinery instead of consumer goods and the economy works as if nothing happened.
I agree, yet have a slightly different angle on this. I doubt she had any great need to enjoy herself more and I don't see her not spending her savings on herself as a terrible waste. I do think it was likely a waste though. She was uniquely positioned to steward her own capital having worked and saved her entire life to gain it. By giving it away to charity by bequest she's really just throwing that money to the wind in the hopes that whoever finds it will have the motviation to use it better than she could. If you want to change the world, roll up your sleeves and change it. Throwing money at someone else and dropping the mic is not a great way to go about it.
> When you see someone driving a nice car, you rarely think, “Wow, the guy driving that car is cool.” Instead, you think, “Wow, if I had that car people would think I’m cool.” Subconscious or not, this is how people think.
Just realized that that is how I think... :facepalm:
When I see a rich car, I always think "heh I guess this guy likes to rub in our faces that he has more money than us... this is why I could never buy a nice car."
I'll probably drive a used corolla for my whole life just out of unwillingness to make people feel like I'm better than they are.
I have similar troubles flying business class. At least let business class be a separate plane >.>
Look at it this way: conspicuous displays of wealth are very cheap signals for the rational members of the human race to pick out what we call, in technical sociological language, "wankers".
Indeed, nice cars say to me: "there's a moron who lacks taste/perspective, and probably is really bad at managing their life and money. They probably have large amounts of debt and leverage.".
You can call me judgmental, but its an infinitely better attitude to take than anything approaching admiration/jealousy.
Depends on the intrinsic value of a flashy car, or what you think flashy is I guess.
A car with air con is clearly better than one without in many countries for example.
Same with business class - clearly having a bed to sleep in on a 10 hour flight is better than sitting up, how much better depends how much you value your sleep.
I disagree. I think BMW, at least, offer more than showing off for driving. Safety and comfort.
Also if I'm flying 12h, I'd really enjoy the business class. The reason I don't pay for it now is because, well, eh, it is expensive and I'm still young. But I can't imagine 10 years down the line flying economic class for work/tourism on a 10 hours flight. It's too much torture to be worth it.
I look at those cars and think that someone has a monthly payment and cant manage their money.
I rather give money to charity than have an expensive car to sit in traffic with. I find people around me similar, there seems less of a desire to chase luxury products.
And he/she would rather have the experience of owning the car they have always dreamt of, while still giving to charities. Or he could be a drug-dealer ruining peoples lives while rubbing it in your face that being a criminal and bad person pays of. We have no way of knowing.
When I see an expensive car the only thing I can think is "wow, what a good way to blow money on useless shit".
The best car I ever had cost 5000€, used it for almost 100Mm until I switched to public transport and ended up selling it.
Why would I pay 60k on a car if I can get to where I want just as fast with 5k? (my only requirement is "have radio, have A/C, pass inspection for the next 10 years")
> When I see an expensive car the only thing I can think is "wow, what a good way to blow money on useless shit".
I'm not alone in this then. I find it incredibly odd how much money people seem willing to sink into cars. Why would anyone take out a loan to purchase an asset that will depreciate rapidly and provides practically no extra value? Why do people buy pickup trucks when they don't need to haul things around all the time (and in fact would probably balk at the idea because it would damage the bed)? People are weird, man.
>> When you see someone driving a nice car, you rarely think, “Wow, the guy driving that car is cool.” Instead, you think, “Wow, if I had that car people would think I’m cool.” Subconscious or not, this is how people think.
> Just realized that that is how I think... :facepalm:
When I see someone spending too much money on unnecessary things (unnecessary according to my current view) I think: "If I get rich I should donate a lot of my money to people in need." But along with, I do also think: "Did this guy too would/did think the same if [s]he is in short of money?" or "Will I change my mind if I get too much money?"
We can do dream or think of our actions in many hypothetical situations. But we can't ever be sure what we would actually do if such a situation happen.
Some people have so much cashflow, that they need to spend it. Most banks are only FDIC insured up to 1 million bucks max. Most are only 250k actually.
If you make 1 million per year... you gotta spend that money some how. Even if you lived modestly in a middle class neighborhood, and saved/invested 600k per year, you could afford a new 100k car every year if you wanted.
The I think “maybe I should rent one on vacation sometime.” And after three days with a BMW Z4 convertible, I get that out of my system for well under $1k. I also resolved my interest in Jeep Wranglers this way.
I question the functionality of the car and the individuals decision making. Granted I live in a mountainous region with plenty of back/dirt roads in Idaho and usually drive around them because they are going to slow. I do see a lot of Range Rovers and usually wonder if they perform well in adverse conditions.
> One study I remember showed that young investors should use 2x leverage in the stock market, because – statistically – even if you get wiped out you’re still likely to earn superior returns over time.
And the linked paper says:
> The mistake in
translating this theory into practice is that young people invest only a fraction of their
current savings, not their discounted lifetime savings. For someone in their 30's,
investing even 100% of current savings is still likely to be less than 10% of their lifetime
savings
This makes a lot of sense to me and says what I haven't been able to about my own risk tolerance. What is OPs counter to this? That the paper's conclusions are flawed, or that no 20-something could execute it?
Someone actually tried to follow this advice starting in September 2007: https://www.bogleheads.org/forum/viewtopic.php?t=5934 . Needless to say, it did not work out well for them and they almost went bankrupt due to spiraling margin debt.
The difference between a mortgage and margin debt is that mortgages aren't constantly marked to market, and you can continue to own the house even if you're temporarily underwater on the mortgage. Whereas with margin, you can be forced to sell if the value of the assets you've bought underperforms.
The paper that was linked suggests using derivatives rather than directly taking out loans, which are financially convertible. Specifically it says buying deeply ITM call options for several years out strike date.
If I read it correctly, it means that 90% of a person's savings are made after their thirties. So if you invest all of it in your thirties, you've captured 10% of your lifetime savings in your investments.
> In what other field does someone with no education, no relevant experience, no resources, and no connections vastly outperform someone with the best education, the most relevant experiences, the best resources and the best connections?
It’s quite easy to outperform one of the worst performers in an industry. My own financial condition is unremarkably stable and I’m crushing Mr Fuscone.
I guess in this case you are measuring performance in money earned then, not in quality of work. In which case they’re not outperforming in the field of IT but field of finance.
Probably elsewhere too, especially where there are no artificial obstacles to limit the ingress of "external" people to a field.
IMHO the missing metric is "potential": the ability of an individual to thrive and get better over time despite possible previous misfortune, change of mind/hearth (or even just plain laziness) that might have made them score badly in the aforementioned metrics.
> and you cannot believe in risk without believing in luck, because they are two sides of the same coin.
Huhhh? Risk and luck are not at all obviously two sides of the same coin. How does this duality work at all??
Risk can be measured, modeled, etc. It may not be accurate, but at least it’s something you can define and attempt to model. Sure, sometimes you may behave risky and not even realize it, given that future events may be totally different from what you expected. But in reality risks are much more transparent than luck. You can’t go and plausibly seek out luck, but you can seek and easily find risk of any variety. Want some risk? Smoke a cigarette.
Unlike risk, luck is a far less tangible concept. How it occupies the same side of the coin as risk—I have no idea. Where do you go to get luck? Risk may yield reward, but why call that luck and not the “outcome”, which like all outcomes carries a certain probability. Luck is just a pseudo-religious moralization of outcome, mostly employed by people who are unlucky.
The way I read it is that they are using 'luck' and 'risk' in the colloquial sense, where 'risk' equates with 'danger' and 'luck' equates with 'good fortune'.
Basically they are saying that, in a probabilistic outcome, we are comfortable acknowledging that a venture may encounter somewhat random danger, but are uncomfortable acknowledging that they may encounter somewhat random fortunes.
Risk and luck can be two dies of the same coin. In your cigarette example, if you smoked 2 packs of cigarettes a day and you did not get lung cancer, that could be considered luck.
> Richard Fuscone, former vice chairman of Merrill Lynch’s Latin America division, declared personal bankruptcy, fighting off foreclosure on two homes
It's worth noting (and not mentioned in the article) that this was a Chapter 11 bankruptcy, which is a reorganization of debts, and Mr. Fuscone did not actually lose everything, and probably still has a lot of equity.
Readit News
I completely agree with her apparent outlook, and would rather have security and the pride of knowing I'd given a lot more to my fellows than I've taken back. And if everyone thought this way then society would be a lot better about preserving and growing what we have.
However, I've met countless people who behave like the executive in the opening paragraph not because they have 'bad behaviors', but precisely because they are clever and in practice wanted to maximise money spent/personal resources consumed. I doubt they would word that as harshly as I have, but the implicit meaning behind the behavior is very clear.
Now, if you start with a value proposition that the purpose of the economy is to maximise the resources available for individual consumption, it is actually quite hard to argue for dying with savings. The families who try to maintain inter-generational family wealth actually cop a fair bit of flack socially (in times of stress, they seem to near inevitably get branded 'hoarders', and times of extreme stress they have their wealth confiscated).
Basically, I like the argument and the value structure it comes from - but there are other views of the situation that are reasonable and deserve mention.
EDIT Fun fact, apparently $7 million gets you very close to the top 1% by wealth [1]. So technically, the sort of people who want "the 1%" to do more have people like Grace in their sights. We all know they don't want that, but it shows the normal attitude to wealth and savings imo.
[1] https://www.investopedia.com/articles/personal-finance/05061...
Transferring this idea to the stock market, outcomes from an individual stock have a high degree of luck, but an investment in an index of stocks reduce the luck factor by quite a bit and move towards mathematical inevitability.
Let's say you are investing in T-bonds that generates a guaranteed 5% + inflation for 50 years. The lifetime of the US is, say, 500 years. After the lifetime of the US, the value of the USD drops by 100%.
So, yes, it is a good deal as long as it works. Some people are going to live 95 years and experience the stability and rewards of the T-bonds. Some people are going to invest for 10 years and lose it all. Some people are going to invest for 50 years and lose it all. Worse, if they don't diversify they'll be at an age where they can't generate wealth again (old).
You'll need a model of the USA lifetime to be able to determine the real returns + risks of the stable mutual funds.
There is no such thing as "compounding interest". Wealth doesn't compound like an e function. You are making money off someone else either "legitimately" by getting their work in exchange for your capital/risk. Or you are making money on a big, very long "ponzi scheme" known as "most world governments".
The point of much of the article is that dying with $7 million in savings means that she could have instead spent about $7 million more on enjoying herself, not in life, but on the day before she died. She probably couldn't have even enjoyed children and a car "in life".
The Paradox of Thrift says that the economy would actually shrink if everyone saved to such an extent, and people would have less overall with time. Even Hayek remarked that individuals can save, not an entire country.
Imagine a pretend happyland where everyone owned their own home and had a stockpile of 30 years of food. They change their usual work week to take Mondays off and sit comfortably at home. 20% of the economy literally disappears overnight. It isn't obvious that the anyone would be suffering.
The reason the economy shrinking is so terrible is because people generally live hand-to-mouth. If you have enough resources stockpiled to last you the rest of your lifetime, you technically no longer need an economy. It is still nice to have and some resources can't actually be stockpiled (eg, a doctor's time) so I wouldn't advise doing without it, but the economy is mostly important because people don't stockpile resources.
There seems to be a feeling that we should not stockpile resources because the economy is important. That line of thinking is very popular, but imo precisely backwards. Links the right things in the wrong order. Bit of a non-sequiter, but that thinking is why governments and central banks keep printing money.
All this is an interesting but philosophical point. People, in the main, consume everything they have available to them and then work to earn more.
EDIT It is notable that if no-one borrows then by definition no-one can make money by lending money. Again, although this is radical compared to what we do now, it isn't actually obvious what the problem would be. Again, it isn't advised because borrowing money for the purpose of investment is a source of fantastic economic efficiencies. The issue is we all know there is borrowing going on to fund consumption. That isn't a good idea, although the cost is carried by the people responsible so I have no beef with it happening.
Further reading: https://www.ft.com/content/b66e3314-30fb-11e8-b5bf-23cb17fd1...
https://www.cnbc.com/2017/10/13/after-librarian-leaves-4-mil...
> When you see someone driving a nice car, you rarely think, “Wow, the guy driving that car is cool.” Instead, you think, “Wow, if I had that car people would think I’m cool.” Subconscious or not, this is how people think.
Just realized that that is how I think... :facepalm:
I'll probably drive a used corolla for my whole life just out of unwillingness to make people feel like I'm better than they are.
I have similar troubles flying business class. At least let business class be a separate plane >.>
Indeed, nice cars say to me: "there's a moron who lacks taste/perspective, and probably is really bad at managing their life and money. They probably have large amounts of debt and leverage.".
You can call me judgmental, but its an infinitely better attitude to take than anything approaching admiration/jealousy.
A car with air con is clearly better than one without in many countries for example.
Same with business class - clearly having a bed to sleep in on a 10 hour flight is better than sitting up, how much better depends how much you value your sleep.
Also if I'm flying 12h, I'd really enjoy the business class. The reason I don't pay for it now is because, well, eh, it is expensive and I'm still young. But I can't imagine 10 years down the line flying economic class for work/tourism on a 10 hours flight. It's too much torture to be worth it.
I rather give money to charity than have an expensive car to sit in traffic with. I find people around me similar, there seems less of a desire to chase luxury products.
The best car I ever had cost 5000€, used it for almost 100Mm until I switched to public transport and ended up selling it.
Why would I pay 60k on a car if I can get to where I want just as fast with 5k? (my only requirement is "have radio, have A/C, pass inspection for the next 10 years")
I'm not alone in this then. I find it incredibly odd how much money people seem willing to sink into cars. Why would anyone take out a loan to purchase an asset that will depreciate rapidly and provides practically no extra value? Why do people buy pickup trucks when they don't need to haul things around all the time (and in fact would probably balk at the idea because it would damage the bed)? People are weird, man.
Dead Comment
> Just realized that that is how I think... :facepalm:
When I see someone spending too much money on unnecessary things (unnecessary according to my current view) I think: "If I get rich I should donate a lot of my money to people in need." But along with, I do also think: "Did this guy too would/did think the same if [s]he is in short of money?" or "Will I change my mind if I get too much money?"
We can do dream or think of our actions in many hypothetical situations. But we can't ever be sure what we would actually do if such a situation happen.
If you make 1 million per year... you gotta spend that money some how. Even if you lived modestly in a middle class neighborhood, and saved/invested 600k per year, you could afford a new 100k car every year if you wanted.
> One study I remember showed that young investors should use 2x leverage in the stock market, because – statistically – even if you get wiped out you’re still likely to earn superior returns over time.
And the linked paper says:
> The mistake in translating this theory into practice is that young people invest only a fraction of their current savings, not their discounted lifetime savings. For someone in their 30's, investing even 100% of current savings is still likely to be less than 10% of their lifetime savings
This makes a lot of sense to me and says what I haven't been able to about my own risk tolerance. What is OPs counter to this? That the paper's conclusions are flawed, or that no 20-something could execute it?
The difference between a mortgage and margin debt is that mortgages aren't constantly marked to market, and you can continue to own the house even if you're temporarily underwater on the mortgage. Whereas with margin, you can be forced to sell if the value of the assets you've bought underperforms.
What does that mean? Isn't the point of compound interest such that the more you invest early on, the more you'll get back decades down the line?
Well no, because it got to that level through compounding.
I’ve seen it happen a bunch in the IT field.
IMHO the missing metric is "potential": the ability of an individual to thrive and get better over time despite possible previous misfortune, change of mind/hearth (or even just plain laziness) that might have made them score badly in the aforementioned metrics.
Dead Comment
Huhhh? Risk and luck are not at all obviously two sides of the same coin. How does this duality work at all??
Risk can be measured, modeled, etc. It may not be accurate, but at least it’s something you can define and attempt to model. Sure, sometimes you may behave risky and not even realize it, given that future events may be totally different from what you expected. But in reality risks are much more transparent than luck. You can’t go and plausibly seek out luck, but you can seek and easily find risk of any variety. Want some risk? Smoke a cigarette.
Unlike risk, luck is a far less tangible concept. How it occupies the same side of the coin as risk—I have no idea. Where do you go to get luck? Risk may yield reward, but why call that luck and not the “outcome”, which like all outcomes carries a certain probability. Luck is just a pseudo-religious moralization of outcome, mostly employed by people who are unlucky.
Basically they are saying that, in a probabilistic outcome, we are comfortable acknowledging that a venture may encounter somewhat random danger, but are uncomfortable acknowledging that they may encounter somewhat random fortunes.
Deleted Comment
It's worth noting (and not mentioned in the article) that this was a Chapter 11 bankruptcy, which is a reorganization of debts, and Mr. Fuscone did not actually lose everything, and probably still has a lot of equity.