On Long Term Investing and Indexes

This week’s learning is part 4 of a 5 part series on Personal Finance and Investing inspired by 3 books – The Investors Manifesto by William J Bernstein, I Will Teach You to Be Rich by Ramit Sethi, and The Millionaire Teacher by Andrew Hallam. (Part 12, 3)

The only known reliable long term investment strategy is investing in index funds.

What are index funds? Index funds are computer managed funds that are a representation of the whole market. If you own the index of the whole stock market for example and Apple’s value is 3% of the stock market, 3% of your index will contain Apple’s stocks.

The assumption behind indexes is that while individual stocks may go up and down, the whole market will grow in the long term (for the US stock market in the last century, growth has averaged around 8% per year and for the US bond market, this number is around 4-5% (subtract 2-3% inflation for real return))

How do you set up a portfolio? Your portfolio needs to have a collection of stock and bond indexes. Stocks are the source of long term growth but are volatile. Bonds have slower growth but will help you sleep peacefully at night.

– Your bond allocation % should be around your age (the older you are, the less risk you take)
– Keep your portfolio split VERY simple. Reduce overhead – aim to rebalance only once every few months

How do you keep investing and balance your portfolio?

– Make investing a purely mathematical exercise – decide your allocation and stick to it
– Imagine you have 30% bond, 70% stock allocation and your your stock allocation has gone up to 80% of the total in the past month/year – invest your money in bonds to bring the ratio back to 30-70
– Don’t worry about the markets. Just keep buying low and sell when you need to


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Derek Sivers, founder of CDBaby.com has followed Bernstein’s methods ever since he sold his company for $22 million. Derek’s advice is as follows – Think very very long term i.e. 20-40 years. Your labor and active businesses are the only way to get rich. Investing is so you will have enough when you retire.

Bill Bernstein’s Book recommendations –

– Psychology – Your money and your brain by Jason S
– Business – Common sense on Mutual funds by Jack Bogle

Next week, we round all of this up with the final learning of the series.

The Victim, the Fighter, and the Artist

“All the world’s a stage” – said Shakespeare. Perhaps he was among the few who realized how central acting is to our lives.. for we all play 3 roles in alternation throughout the course of our lives. We are either the victim, the fighter, or the artist.

The Victim I am what I experience.

We are all born victims. As babies, we are powerless to do anything but cry. As we grow up, however, the victim habit is either trained out by parenting, mentoring, and self reflection.. or not.

We play victim when we choose to have no emotional distance between us and our experiences. If something bad happened to us today, we must be bad or unlucky. Why else did this happen to me? Since we’re not strong enough to face reality, we choose to do one of two things as a victim – blame or hide. Blame is the easier option and we take it whenever we see an opportunity. And, if we see no way out, we choose to hide.

As victims, we try very hard to shape reality so we come out on top and are often willing to ignore right and wrong. The coward never discusses right or wrong. The coward doesn’t like logical arguments since he knows that’s not how he will get his way. He languishes in fundamentalism – attempting to propel a belief that things were best in the past. He faces the resistance (that toxic force that gets in the way of us doing anything good) and fails again and again and again.

The resistance is very powerful – which is why we see a Hitler and an Osama Bin Laden rise every generation. Adolf Hitler wanted to study to be an artist but he found it so hard to fight the resistance to discover the best of himself that he waged a world war instead. Hitler and Osama Bin Laden were cowards of the worst kind but it’s important to remember they weren’t different from us. They just succumbed to the resistance and got into the habit of playing victim all their lives.

The victim is like the potato in hot water – he appears strong as he jumps in and comes out in pieces.

The Fighter – I am what I achieve.

At some point, either thanks to tough parenting or self reflection, we realize that we have more power than we give ourselves credit for. We face the realization that “I need to face reality and I can shape it.”

We learn that we can get what we want if we stop crying and start fighting for it. The fighter is all about the “I.” She realizes that our education systems are designed the way they are for a reason – to remind us that it’s a dog-eat-dog world out there. It’s important to be fiercely independent, compete, and become the best she can possibly be.

For survival’s sake, she must become the craftsman and set out to achieve glory. It’s war and nobody remembers the loser. This war is about fame, glory, and the sweet taste of victory. She wins because she is incredibly good. And she will work harder, fight longer, and persist to get her way and win. If she’s lucky, she will play fair and not the let the victim cloud her judgment to fight unfair. She’s been trained to view the world with cynicism since she needs a shell to guard her strong exterior. A cynic, after all, is just an extremely passionate person who doesn’t want to get hurt.

The fighter does understand emotional distance from her experiences; while still affected by her experience, her hard cynical shell protects her from it. She realizes she has the power to choose and chooses to focus on what she does in the ‘here and now’.

The fighter is like the egg in hot water – she goes in soft but comes out harder and tougher.

The Artist – I am..well..me.

The artist appears the moment we come to a profound conclusion – “There is no reality, only perception. It’s all invented and I might as well spend my time inventing a reality that makes me happy.”

It’s all invented, isn’t it? Scores, grades, brands, and competitions are just human inventions. The artist realizes that, in her imagination, she has at her beckoning the most powerful ally of them all. She realizes that she needn’t view the world as a race with winners and losers. She can choose to view it as an infinite game where she has been given the privilege to play. There isn’t just one winner – there are as many winners as we like. The pie is abundant and fills up the moment someone takes a piece. It is a world of possibility and she is out to create meaningful art.

The artist believes that the best lies ahead. In fact, she spends her entire life trying to create this reality against all odds. Yes, the artist is a touch deluded. She is deluded enough to ignore the news broadcaster who focuses on all the negative events in the world but aware enough to understand the role she has to play to make this world a better place. To be an artist, she requires a level of wisdom to view the world as a collection of possibilities. The artist’s task is the hardest of the three – she has to succeed first where the victim fails by fighting the resistance and keeping it at bay. She has to then make it a habit to do so by simply being herself, by being vulnerable, and by putting herself out there without any shell to protect her as the artist can’t and won’t tolerate cynicism.

The artist “gets” emotional distance in a way that the fighter can’t really grasp. She realizes that she is not defined by what she does. What she does is a part of her but it’s why and how she does things that makes her unique. This realization comes with a responsibility to use her gifts well and it comes with a humility as she accepts her role in making this world better. And yet, she doesn’t let her grandiose dreams get in the way of singing, dancing, and having fun. She makes ‘being happy’ an art form.

The artist like a coffee bean in hot water – it not only accepts the need to adapt but also changes the nature of the water and adds a beautiful aroma to it. It’s all invented and it invents a possibility that never previously existed.

How does this apply to us?

Look back to the past six months and you will notice that you have been the victim, the fighter, and the artist in alternation. You will also know which one you have been for the majority of the time. There are 3 things we must understand.

1. No one can make this choice for us. Our parents, mentors, and friends and can talk to us about being proactive and happy but we will never get there if we don’t make the choice ourselves. The victim, the fighter, and the artist are parts of us. We must accept them as they are and choose who we want to be most of the time. After a severe setback or disappointment, the victim WILL naturally take over. It’ll just be up to us to choose how long we give ourselves time to “play victim.” It’s okay to blame, wail, and waft in self pity once in a while. We just need to make sure it isn’t habitual.

2. It is all invented. We might as well invent a possibility that makes us happy.

2. It is all invented. We might as well invent a possibility that makes us happy. Repeat this as many times as required.

We are all artists.. our best selves are, at least. And if we aren’t making choices that bring out our best selves, what the hell are we doing on this planet anyway?

2 hour rule after facing a disappointment

The 2 hours after facing a disappointment or setback are the worst. Emotions rule. Logic loses out pretty darn comprehensively.

I’ve made some really dumb decisions after disappointments that I’ve regretted almost immediately. So, here’s a suggestion for a simple fix – after you face a disappointment, don’t do ANYTHING for 2 hours. If it’s a really big disappointment, perhaps take 6 hours or even 12 hours if necessary so you have some time to sleep over it or speak to someone “safe” i.e. someone who won’t take offence if you say something stupid.

The other side of the coin is to apologize profusely, forgive yourself, and move on. I trust you will bad enough to give a proper apology. That’s the easy part, however. The difficult part is to forgive yourself and move on because you’ve now managed to worsen the emotions after the disappointment.

So, get out of your room, go listen to music, or go out for a run. No action for 2 hours please..

The Creator-Consumer Gap and the 4 question survey

I have lost count of the number of survey links I’ve clicked on from hotels/services that want my feedback. In general, if it is a service I care about, I do click as I’d generally love to help. But, the moment I see that the question I answered is part of page 1 of 21, I generally quit.

As far as surveys go, the biggest reason for crap surveys is the creator-consumer gap. Either the creator has forgotten what it is like to be a consumer or is too busy pleasing his boss.

How do we fix it? Keep it simple. I believe most “quality check” surveys require 4 questions in 1 page – the only button on the page should be a large “Submit” in the bottom.

1. How did we do? (1-10 rating with 10 being perfect and 1 being dismal)

2. If not a 10, how could we make it a 10?

3. What are things we did better that we need to do more of?

4. Any other specific comments/feedback/praise?

Thank you. Let’s move on.

And sure, you can add 20 other questions in 20 different pages – but just remember that you’re minimizing the chances that a consumer who cares will ever get through a survey and give you useful feedback.

Keep it simple.

The Rock Star Analyst Series

I’m excited about a new series idea that came to mind this week. I’ve been thinking about a work related series that I would have energy for. The “Work Hacks Wednesdays” series died an untimely death simply because I felt it was getting too generic and too forced.

This new series idea is called “The Rock Star Analyst” series. Thanks to the mountains of data flying around, every one of us needs to have an analytical hat that we can put on at will. Some make their livelihood doing just that while others (especially those more senior) need it every once a while.

This series is going to focus on a lot of practical tips to get the most out of Microsoft Excel and Microsoft PowerPoint for analytical purposes but will contain a few bonus topics on creating good presentations and using Microsoft OneNote – an excellent tool very few seem to be familiar with. I intend to approach it from the point of view of someone asking “why” questions on each of these features and will point you to the best resources I know for more advanced learning. Of course, each of these tools is incredibly powerful and there are whole websites and businesses dedicated to making the most out of them – my goal would be to cover the 80% with minimal effort.

The rough plan for the series as it sits on my head is as follows –

I. Excel Rock Star
1. Analysis 101 – Setting up an excel sheet for analysis (Clean up source data, use a control sheet, and understand named ranges)
2. Modeling 101 – Basics to build and work with financial models (Absolute and relative referencing 101, working with huge data sheets, and leveraging excel resources)
3. Shortcuts to excel success (shortcuts in the excel sense of the word :))
4. Pivot Table magic
5. Flexing the ‘Index + Match’ muscle
6. All about the Powerful IFs – SumIfs, AverageIfs, Countifs
7. More IF power – Nesting Ifs with ORs and ANDs
8. Exploring arrays formulae
9. Macros 101
10. Signing off on your excel sheets like Leonardo da Vinci
12. Other stuff I don’t know so well (Useful formulae like trends and offset-indirect, excel analysis tools like regression, and data tables)

II. PowerPoint Rock Star
1. PowerPoint shortcuts and setting up your quick access toolbar
2. Charting 101 and an introduction to powerful charting tools
3. Templates 101
4. Making awesome presentations (fonts, alignments, design, etc.)
III. OneNote Rock Star
1. OneNote awesomeness 101 (leveraging OneNote for research, information capture)
2. “To do” system idea on OneNote

And I would love to hear from you if there are any topics you’d like me to cover – please just leave a note in the comments or via email. Very happy to help!

Experiencing crap days

Crap days suck. They make you feel (hopefully only temporarily) small, insignificant, and unworthy. These become tougher to handle when they come one after another. A crap week can be a significant dent to your morale and a crap month can play havoc with self esteem.

That said, I always find that extended crap periods are tremendous sources of learning. They force us to slow down, reflect, and think about why we are doing what we are doing. They also encourage us to reflect on our recent choices and decisions. If it weren’t for them, we’d probably just be cocky, shallow, and confident without reason.

Life makes us earn our stripes. Crap days/weeks/months are a key part of paying our dues.

This might not help you feel better immediately (there are very few great quick fixes after all) but the next time you feel you’re going through a really bad day and finding it difficult to find reasons to smile, take a moment to ask yourself 2 questions –

1. What am I learning from this?

2. Is it really THAT bad? (Unless you recently a lost a limb or your ability to walk, the chances are you are doing just fine.)

What doesn’t kill us does make us stronger. Crap days are typically just days of great learning in disguise.

Interview with Jonathan Haidt, Author of “The Happiness Hypothesis”

Jonathan Haidt is the author of the much acclaimed book “The Happiness Hypothesis” and as a bit of a happiness geek, I had been attempting to reach him for a while.

Interviewing Jonathan was a real pleasure and it feels like one of the biggest takeaways from interviewing “real leaders” is that they are all incredibly nice.




My favorite excerpts –

Love and work, and the essence of love and work are about your degree of connection or embeddedness. 

Work isn’t just about achieving something. I came to understand that concept of vital engagement, of immersing yourself in something – you learn about it more and more and you become part of the community of people who are working at something. It seemed so similar to love that I realized that that’s really the key.

“Joy so lies in the doing.”  It’s not the achievement, it’s the doing, and there’s a lot of scientific support showing that our brains get more pleasure from making progress towards a goal than actually achieving the goal.

I still say stupid things, but now I’m really, really good at apologizing.  I know how self-righteousness works. 

Know your body, and your energy cycle.

What I’m coming to see is that balance is of value in life overall but one should not strive for balance in every point in his or her life.

Full transcript as always on RealLeaders.tv. Enjoy

On Investing Don’t Do’s

This week’s learning is part 3 of a 5 part series on Personal Finance and Investing inspired by 3 books – The Investors Manifesto by William J Bernstein, I Will Teach You to Be Rich by Ramit Sethi, and The Millionaire Teacher by Andrew Hallam. (Parts 1, 2)

After last week’s cautionary note on viewing houses as investments, we move on to investment “don’t dos”..

1. Avoid actively managed funds.
– Actively managed funds take a hefty portion of your returns in fees and claim to be able to time the market.
– At this point, repeat to yourself – NO ONE KNOWS THE FUTURE.
– At every point of time, you will have funds who will beat the market. But, past returns are not a guarantee of future returns and long term returns of actively managed mutual funds make for dismal reading.
– Bill Bernstein pro tip: Treat every mutual fund adviser as you would a con man and you will do just fine.

2. Avoid stocks and gold.
– Popular stocks aren’t the ones that make money. Remember that every time you trade a stock, you are competing against finance professionals who do this for a living.
– While individual stocks can give you high returns, remember that high returns can only be achieved with high risk.
– You are your worst enemy. You cannot time the market. Don’t try. And don’t look for patterns in the financial markets. There are none.
– While Gold captures the imagination of the media, gold’s return over the past century has been poor.
– A pre condition to being a successful investor is a firm grasp of financial history – even the experts at Long Term Capital Management neglected history.. at their peril.

Bill Bernstein pro tip: Remember Pascal’s Wager and it’s implication on investing – the goal of investing is not to get rich but to avoid dying poor.


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Related book recommendations –
– On Investment Theory – a random walk down Wall Street (how stocks, bonds, portfolios behave)
– On Financial History – Devil take the hindmost by Edward chancellor (on bubbles and panics)

So, what about the “do’s?” Coming up next week.

The Ticking Clock Experience

As I lay in bed to sleep last night, I heard the ticking of a clock. After a day of resisting the temptation to sleep to avoid jet lag after a long flight that got in in the morning, I was ready to crash. So, it was no surprise that I was asleep barely after I noticed a few ticks.

I woke up to a bright and sunny Saturday morning and suddenly, I heard the ticking of the clock again. A few seconds later, I went right back to sleep. No ticking sounds.

When I woke up again, the ticking of the clock resumed. I decided to do some reading while I was lying down. So, I picked up my phone and began scrolling through my feeds and reading some of the blogs I follow. I put my phone down a few minutes later and voila, the ticking sound resumed.

What just happened? The clock had always been ticking. It’s just that I’d shut it out completely when I was engrossed in my reading. What if it’s that way with all our little annoyances and life’s problems? When we actually get engrossed in something of value, perhaps we just shut all the inconsequential noise out..

I lay in absolute quiet for a few minutes. Well, quiet except for the ticking sound. I was completely conscious of it and found myself slowly getting irritated. Couldn’t the thing shut up when I wanted it to? What’s the point of the ticking anyway?

“Time!” – said a voice in my head that didn’t quite sound like me. “Time!” – I heard my voice shout as realization dawned. I finally realized the enormity of the one word that other voice had said.

I woke up ready to take the day on and do something worthwhile. I had learnt my lesson – whether I noticed it or not, the clock of life was going to continue ticking away…..

… and time, after all, is what we make it.

Making you want to come back for more

Out of all the brands and services I use, 80% are those I use out of a mixture of necessity, habit, and a preference for the default option. There is very less love and loyalty here.

The remaining 20% are a completely different matter. Half of these I love as an admirer of the good work they do. Apple and Amazon fall into this category. I listen to what they have to say, watch their promotional videos, and don’t mind their occasional unwanted email.

The other half are brands I love. These brands simply make me want to come back for more. Two that repeatedly wow me are Audible.com and Singapore Airlines. Audible.com’s customer service has been consistently impeccable. They’ve been so good that I once asked them if they could share their training material because their care comes through even on an email – every single time. They didn’t quite comply on that one but hey, I knew it was a long shot.

Singapore Airlines is a real anomaly in the airline world. Most simply suck. Others do a half hearted job of trying to make you feel comfortable. Singapore Airlines takes it to a whole new level. I would wager a bet that the Economy class on Singapore Airlines treats you better than Business class on most airlines. And the Business class, well, is just something else.. (I hear Qatar Airways matches up in most respects but I’m too much in love to even consider a switch)

I realize that part of the magic of Audible, Singapore Airlines, Apple, Amazon and the like is that they make you want to come back for more.

We live in a world where we are all, in effect, virtual brands. We float our wares online through our Facebook, Twitter, LinkedIn, and Google+ profiles and of course, have an important offline presence where we actually get the opportunity to touch people every day.

How do we do? Do we make our customers, clients, and colleagues want to come back to us for more?