Your house is not a spaceship: the whole world is your home

SA 95

For one hundred plus years, Americans have been told that owning a home embodies the ideal, an essential life goal. After the housing crash of 2008, that unquestioned ideal is no more. What precisely is wrong with renting? And what is wrong with renting something small?

My ideal home has two rooms: a bedroom to sleep in, and a kitchen to cook in. These days, I live in Atlanta, Georgia. A few days a week, my wife and I take our daughter to the park next door, which is in an upscale neighborhood. Occasionally we strike up conversations with the other parents there. Sooner or later, the question of where we live comes up, and we casually mention that we live in an apartment complex. I still remember the first reaction to my answer – I was instantly branded as a member of the lower-class. At this point, any chance of a play date or further social connection was permanently rejected.

 

Sophie in the parkThese days, I live in Atlanta, Georgia.  A few days a week, my wife and I take our daughter to the park next door, which is in an upscale neighborhood.  Occasionally we strike up conversations with the other parents there.  Sooner or later, the question of where we live comes up, and we casually mention that we live in an apartment complex.  I still remember the first reaction to my answer – I was instantly branded as a member of the lower-class.  At this point, any chance of a play date or further social connection was permanently rejected.

Home Ownership and Social Status

minimalism

It’s true – my family of three lives in a small one-bedroom apartment. It’s a pretty nice apartment, in a good neighborhood, but that’s irrelevant. The fact that I have not bought a house for my family makes us outcasts, poor, financially irresponsible, or otherwise unsuitable for social company. Wouldn’t any responsible parent get a home for their children?

Most Fridays, some friends of ours come over to our complex so our kids can play in the pool. Having a pool next door is one of the perks of living in an apartment complex. Living next to a big city park is another. Living next to my office, so I can get to work in less than five minutes is a third. I spend less of my life in traffic – and I spend it on my bike.

If the parents at the park bothered to ask, they would learn that living in a small apartment is a lifestyle choice, not something we do out of financial necessity. In fact, chances are good that our financial situation is betterthan theirs — and a big part of that is our decision not to buy a home. I’m won’t rehash the reasons for that here – read theseposts.

What I want to address is the American habit of treating the home as a spaceship — a self-contained ecosystem which is expected to provide for all their needs.

It Takes a Village

Summer 1985 LitinWhen I was a little boy growing up in Ukraine, from the age of six on, I would wander our village all day, coming in only for meals.  Often I would have to be found and dragged in.  I wandered around the stadium and construction sites, using the frames and air ducts of buildings as makeshift jungle gym, the piles of sand as targets for jumping from the second floor.  

When we moved to San Antonio, I spent entire days exploring the city by bike, even in the middle of summer.   I dared myself to go as far from our house as possible, limited only by my supply of water in the 100 degree heat, and the need to be back before dark (I was too poor for a bike light).  

From the time I was a small child to today, my home has always been a place to eat and sleep, and occasionally work.  However, when I want social company, entertainment, play, adventure, a place to concentrate on work, or relax, it is far lower on my list of options.  

A Different Ideal

My ideal home is just two rooms: a bedroom to sleep in, and a kitchen to cook in.   These are things which I have personal preferences about and am willing to maintain.  Everything else, I am quite willing to outsource for someone else to maintain.  Every extra square foot or possession is a liability – a square foot I have to spend time maintaining rather than enjoying life.

The other day, our three year old daughter was playing with her rocking horse.  She had flipped it over and was pretending that it was a kitchen stove.  She asked me if I wanted some eggs and then pantomimed in surprising detail the process of cracking eggs, washing hands, frying eggs over easy, and serving them to me.  I remarked to my wife that perhaps Sophie needs a play kitchen.  She said no – first, as I just saw, her imagination served her just fine, and second, she knows how to cook many foods because she has helped her mommy many times in a real kitchen.  She has her own kitchen utensils, including a sharp knife and a vegetable peeler, and helps out to the best of her physical and mental abilities.

The real world is her playground. When she needs to burn off energy, she goes to the park. When she wants to be creative, she plays with legos and paint. When she wants social company, she plays with us or friends. (We have a maximum of an hour of screen time per day.)

Sophie - Arabia Mountain, GeorgiaThe real world is my playground too. When I want to relax, I meditate in the park. When I want to exercise, I ride my bike around the city. If I want adventure – well, the Appalachian trail starts less than two hours North from here. When I want to concentrate, I go to the office next door. When I want social company, I go to the pool or cafe. When I want entertainment – well, usually I’m too busy living my own life to follow the stories Hollywood comes up with, but my laptop screen works just fine.

There are many examples I could give, but my point is: your house is not a spaceship lost in space. Whether your have a family or live alone, make the whole world your home. It’s far bigger and more wonderful than any poor imitation you could try to recreate on your own. I’m not saying that you should never buy a house. Just don’t make it your life ambition, much less try to fit your entire life inside it.

Originally posted at FEE.org

Six principles of successful investors

1: How you invest is far more important than what you invest in

Most investors believe that the job of a investment advisor (or a personal investment strategy)  is to look at the thousands of securities (stocks and bonds) and pick “winners” rather than “losers.”   The better an investor’s talent at picking “winners,” the faster his portfolio grows.  Other investors think the market or economy has predictable cycles, which one can take advantage of to earn superior returns.  

The reality is that the vast majority of both amateur and professional investors cannot pick stocks or time the market any better than random chance.  In fact, randomly picking stocks will usually provide a higher return than professional management.   

2: Amateur intuition is a terrible guide to investing

Most amateur investors who pick stocks significantly underperform the market.  90% of people who pick “winning” stocks do worse than if they picked them at random.  There are many reasons for this: (1) your emotions will work against you — you will be tempted to buy high and sell low,  (2) even if you correctly identify a good stock, it is much harder to evaluate if it is already priced too high and (3) unless your have exceptional talent, the collective wisdom of the market will be superior to your predictions.

It is possible to outperform the market, but it’s not a simple or quick process:

  1. Sort through thousands of companies to find securities that trade for less than their intrinsic value using fundamental analysis.
  2. Buy and hold those stocks for years (or decades) until you achieve a return in your investment
  3. Monitor those companies and sell stocks if their fundamentals change.
  4. Repeat the process with several dozen stocks so that you’re not overly exposed to any one company

This “buy and hold” strategy is more profitable than frequent “active” trading, but it requires hundreds of hours of study, more risk, and a lot of practice.  Even if you do everything right, you will only earn slightly more than picking stocks at random.  A “set it and forget it” strategy of investing in broad indexes is far easier.  

Furthermore, even if you think that you have a superior understanding of market fundamentals because of your economic theory or insider knowledge of your market, that’s no guarantee of superior returns:  

For example, if you follow Austrian economics, you might think that your understanding of why business cycles happen would lead to superior returns.  However, you may have noticed that most Austrian economists are not millionaires.  That’s because the results of most macroeconomic policies play out over decades, and simply staying out of the market because you think it may crash in the next 5, 10 or 20 years is worse than keeping your money in the market.  The timing and severity of crashes  is impossible to predict, and most are followed by a sharp recovery.  The best strategy is usually holding on for the long run.  

Likewise, even if you understand an industry well enough to pick winning technologies, there’s no guarantee that the first mover will execute them best.   It’s possible to be a great futurist at predicting future trends and yet completely fail at predicting the companies which will profit at exploiting them.

3: Expert stock-pickers won’t do better than you

There are at least four reasons why the average small-time amateur investor can get a better return than by delegating the job to a professional manager:

1: The more effort is spent on an actively managed portfolio, the more that manager has to be paid:  whether it is a mutual fund or a personal broker, the more work the manager has to do, the more he’s going to charge you for it.  Since he’s unlikely to do much better than the market, he’s just as likely to hurt your total returns as to help.

2: The more popular a fund becomes, the more difficult it is to outperform:

The more popular a fund, the larger its value.  For example, Fidelity Contrafund (FCNTX) has a net worth of $80 billion.  A manager of an $80B portfolio cannot bet on a few promising startups because investing billions into a small company will drive up the stock too much.  He’s forced to invest in large S&P 500 corporations and dilute his strategy investing in many companies.  The larger a fund becomes, the more its performance tracks the overall market.

3: A consequence of getting too popular is pressure to match the index: high returns require taking bigger risks.  A small fund can afford to do that, but an $100B fund is too big to fail — there will be too many angry investors when $20 billion of shareholder value is wiped out.  This forces fund managers to insure against underperforming their indexes and discourages risk taking.

4: Unlike hedge funds, mutual funds are required to disclose their holdings, so anyone can copy the strategy of a successful fund.  While some funds might be unusually successful because of innovative strategies, investors can’t be sure of that until they have a proven track record, by which time the market has copied and diluted their advantage.

Thus, a common pattern is:

  1. A managed fund outperforms the market
  2. More and more people buy into the fund and copy its strategy
  3. The fund becomes too big and stale to profit from its original values

Studies show that the overall effect after taking costs into account is that managed funds slightly underperform indexes.  By investing on your own in cheap index funds, you can keep your costs low and match your target asset class.

4: High-performing investment categories are not legal unless you are already rich

So far, I’ve presented a pretty pessimistic view on the notion “beating the market.”  If you can’t do better than the experts or actively trading on our own, is there any way to get superior returns?

There are investment vehicles which may outperform the market, but they are only available to accredited investors – those with over $1 million in assets or $200K in yearly income.  You must be an accredited investor to invest in venture capital, hedge funds, angel investments, and other alternative investments such as financial instruments based on loans, legal settlements, and crowdfunded real estate.  

Alternative investments might return above market returns and they can offset risks from investing in the market through because they are allowed to short the market, etc.   Unfortunately, most western countries have decided that non-accredited investors lack sufficient financial sophistication to understand and take on the risks.

Small-time investors seeking superior returns do have a way to seek superior returns: you can become an entrepreneur by starting your own business or buying property.  If that does not appeal to you, it’s best to resign yourself to buying in for the long run and getting rich slowly.

5: Sound investing is fundamentally about managing risks, not picking “hot stocks”

There is no particular stock, bond or industry which can predictably be counted on to return above-average returns.   In other words, you’re likely to make just as much money investing in high-tech startups as plain old boring utility companies.  However, if one looks at broad asset classes, one can see a certain pattern. (Asset classes are categories such as domestic vs international stocks, large vs. small companies, or value, growth, or income stocks.)   Research shows that over the long run, all stock-based asset classes earn similar rates of returns.

There is no free lunch in investing. Higher returns come with with higher risks (year by year variability).   Some asset classes (such as stocks) historically have higher returns than others (such as bonds), but usually with higher risk. An investment strategy should match your values and financial goals – not guarantee a particular rate of return.  Given a particular tolerance for risk, your portfolio should maximize returns while minimizing variability.  

A diversified portfolio (one which invests in securities of different kinds to minimize their correlation with each other) will give annual returns mostly consistent with the overall market, but with less variability.  As a rule of thumb, no single security should be worth more than 5% of your portfolio.

In short: don’t stress too much about what you invest in – just don’t put your eggs in any one basket: spread your investments over many securities in different asset classes.  

Blackrock - Diversification provided steady perfomance

Below: my portfolio is diversified by market sector, asset class, and capitalization (not shown).

allocation

portfolio US sectors

6: It doesn’t matter if you are up or down

Even experienced investors can get caught up in the emotional rollercoaster of markets: markets move up and down in unpredictable swings, and individual portfolios reflect that trend.  On average, the entire stock-market gains 5-7% per year – that’s what you would earn if you picked stocks at random.  When evaluating how your stock asset-class is performing, it is important to compare it to the stock-index rather than the absolute number.  If the market is up 15% in a year, a 10% return is not actually that great.  Vice versa, if you lost 10%, but the market crashed 15%, your portfolio might be OK. Similarly, other compare each of your other asset-classes to a relevant index.

Judge your performance by comparing it to the indexes of the asset classes that you are targeting: for example, a portfolio split between the S&P 500 and international equities should take the average of both when evaluating how well it performed.  If you are keeping up with your benchmark index, consider yourself lucky — most investments underperform.   If you are losing money when markets make a positive return, it may be time to change your strategy.   Only if you consistently out-perform your target index can you conclude that you’ve picked a superior strategy.

Conclusions

  1. Don’t try to pick “hot” stocks or time the market
  2. Build a diversified portfolio by investing in individual stocks in diverse asset classes, or index funds which track the market
  3. Minimize costs by avoiding managed funds, investing in low-cost ETFs, and trading infrequently
  4. Buy for the long term: don’t sell your investments until you need the money
  5. Live a frugal, minimalistic lifestyle so you have some money to invest!

Five ways to improve your communications skills

How good are your communication skills? How often do you feel that misunderstandings get in the way of your personal relationships or your career? Do you ever avoid talking to people because you don’t know how to express what you feel, or because you are afraid that you will be misunderstood?

What if you could dramatically improve the effectiveness of your spoken and written communication? Would it increase your confidence when speaking to coworkers, friends, and romantic interests? Would you take more chances if you could speak directly to someone’s mind, almost as if you had a telepathic connection with your listener?

The problem with most people’s communication skills is that they think that it is an innate talent. They think that if you’re not a smart, good-looking extrovert with a good voice, you can never be a great communicator. It’s true that these things help. But just because you’re tall and have strong legs doesn’t mean that you can win a gold medal at the olympics. And even if you are short and weak by nature, doesn’t mean that you can’t double or triple your performance. Of course, no workout will make you two feet taller. But unlike your body, your brain is very flexible.

You might think that speaking is something we learn automatically, and don’t have much control over. It’s true that we learn how to talk automatically and subconsciously, just like we learned to run automatically. But, just as a trained athlete can run faster and longer than an amateur, so can a conscious effort to improve your skills vastly improve your performance.

Here are five tips:

One: Less is more.

Paying attention is hard. It takes an effort to follow what someone is saying. Don’t make that effort any harder than it absolutely has to be. Keep it simple. Keep it short. Keep it focused.

Long and unusual words take longer to recognize than smaller and more familiar words. Many people use a stilted academic tone when they have something important to say. Don’t do it. Don’t say comprehend, say understand, or follow, or just get. Don’t go on an harangue, tirade, or diatribe, go on a rant.

Same goes for sentence and paragraph size. Ditto for analogies and figures of speech. They need an extra mental cross-reference. Just say it. Don’t give me a piece of your mind. Just say it. And whatever you do, cut it out with the likes and the umms, and the you know. You need to take mental breaks when speaking, but just practice making them silent. Your perceived competency will immediately go up 50%. Yes, I just made that number up. Here’s another made up rule: if your finished work is not 30% shorter than your first draft, it’s too long.

Two: Use relevant visual examples.

Your brain is just a big network of triggers made up of images, sounds, tastes, and sensations. If you want me to remember what you said, you need to tie some of those triggers to what you just said. Use examples I know. If you want us to go out for sushi, remind me of the smoked salmon we ate last week. Yes, examples are not just for English class. See? That’s another one.

Good examples are about important things your audience is already familiar with. Don’t talk to young people about how you applied conflict resolution to your mother in law. Talk about your parents. Talk about shiny, fast, loud, dangerous, smelly things if you want to create strong mental triggers to your message.

Three: No distractions.

“Cue words” are concepts that can trigger emotional responses that block rational analysis. For example, democracy, Obama, guns, abortion. Just by saying those words, I’ve triggered a whole cascade of mental activity. Regardless of your political orientation, your mind is now busy trying to classify me into friend, enemy, or maybe just trying to think of something intelligent to say about them. Don’t distract me by mentioning things that trigger distracting emotional responses, or words with a whole host of irrelevant connotations. I’m not saying that you should not talk about controversial topics – just don’t distract the reader with them unnecessarily, even if you think he sides with you.

Four: Repeat, repeat, repeat.

Repetition is crucial to forming long-term memory. You’ve heard this before: say what you’re going to say, say it, then say what you said. Here’s an advanced trick: you can improve memorization by using spaced repetition. Make your point then repeat it with increasing intervals of time between each repetition.

Five: Five or less.

Most people can only keep a limited number of ideas in their immediate memory at once. Once they exceed that number, they are going to forget some of the things they learned. For most people, that number is five. So regardless of the topic, organize your presentation or argument so that you never list more than five items for any given category.

The five tips are: less is more, use relevant examples, no distractions, repeat, repeat repeat, and five points or less.

Loving weird food: how I stopped being a picky eater

Like most Americans, I used to hold some self-evident beliefs about food:

The three dogmas of the food phobiac:

  1. There are foods I “like” and foods I “dislike” and I ought to stick to the things that I like.
  2. The better something tastes, the more unhealthy it must be and vice versa.  You must choose between a long life of disgusting food or indulge yourself and die early.
  3. There is a value hierarchy for all the edible parts of any animal. For example, top sirloin is the ideal for beef.  There’s a similar value hierarchy for animals themselves. Decisions about which animal and which part of the animal to eat are therefore a simple cost/benefit equation.

Two things completely changed by attitude on food: getting married, and moving to China.

The psychology of taste

Our perception of taste is closely associated with our memories of things such as the taste of past meals, our emotional states, and sensory associations with similar foods.  We come to associate foods with sensory reactions based on many factors such as familiarity, the quality of most meals, the people we were with, etc.  By dissociating taste as such from negative experiences we can learn to appreciate food for its inherent taste, without emotional baggage.  We can learn to prefer the taste of healthy foods by the same process.

Sensory integration therapy for food phobiacs

The first step to fixing food phobias is to recognize the problem: it’s not OK to exclude foods because of food sensitivities.  All the “most hated” American foods are delicious when prepared properly. Having recognized the problem, here is the program that worked for me:

The strategy is to gradually introduce foods in different settings, gradually building exposure and positive associations with certain foods.  For example, when my wife learned that I hated zucchini, she gradually introduced it into my diet starting with small amounts balanced by other flavors, and growing to having zucchini be the dominant ingredient.   Here is what she cooked:

  1. Stuffed peppers with zucchini and sausage
  2. Potato and zucchini frittata
  3. Roasted vegetable meatloaf with zucchini
  4. Grated zucchini topped with marinara
  5. Lasagna with zucchini noodles
  6. Zucchini gratin
  7. Zucchini latkes
  8. Zucchini fried in butter with onions
  9. Parmesan crusted fried zucchini

The same program was used for eggplant, brussel sprouts, avocados, cabbage, and okra.  Once I learned to appreciate food for its taste and texture of foods rather than negative associations and new textures, it was no longer necessary to disguise the ingredients.   When I have a negative reaction to something, I isolate the components of the food (source, flavor, smell, texture) and think about which aspect I reacted to. Oftentimes I react to negative memories and associations and not the food itself. Consciously understanding that a negative reaction has no rational basis is often enough to overcome it.

The importance of ceremony

The ceremonial aspect of dining is very important when learning to appreciate food.  If you merely try to inhale as many calories as quickly as possible, any unusual tastes will be an unpleasant distraction.  A proper sit-down meal is required to take the time to really analyze the taste of foods and form new positive sensory-conceptual associations to replace the old negative ones.

 A cosmopolitan attitude to dining

One of the main differences between the Chinese diet and the Western diet is that the entire animal is considered edible. Whereas Americans stuff everything other than “choice” cuts into burgers, sausages, and McNuggets, the Chinese proudly consume the head, claws, organs, and other miscellaneous parts of animals as delicacies. This is not because they’re poorer – the head and feet are the most expensive parts of the animal. Neither do they restrict themselves to a few “blessed” animals – the entire animal kingdom is on the menu.

The difference is that of the food elitist versus that of the food connoisseur. The elitist believes that only a narrow socially accepted list of foods is good enough for him. The connoisseur is an explorer, who uses his palate as the universe-expanding sensory organ it was meant to be.  The elitist lives within the small dietary-social circle he was born into. The connoisseur traverses the biological and cultural realms.

The approach I now take to eating new things now is exploratory one. Instead of responding with “like” or “dislike” I try to understand the flavor components and texture of food. I appreciate meals from many perspectives – sensory, anatomical, social, and historical, to fully integrate it with my worldview.

Note: I have found that  adopting a Paleo diet enhances flavor discrimination. For example, a carrot is actually quite sweet and delicious to eat raw, but a typical carb-addict wouldn’t know it.

None of this is to claim attitude alone will make everything taste good. Meals must be prepared skillfully to taste good. The notion I want to dispel is that taste is either genetic or set by undecipherable psychological factors we cannot affect. Human culture has a rich history of many culinary traditions and we ought to learn to appreciate them without emotional baggage or provincial bias.

Evolution and protein synthesis is the basis of biology

Biology has two aspects: the why and how. The why is evolution. The how is protein synthesis.

Evolution is best understood in terms of game theory. Protein synthesis is nanotechnology – self-replicating information systems.

The underlying theme of biology is information processing – the way systems interact, and the way simple systems create complex patterns. Combine the two and you can explain most everything about living beings.

You can learn the basic patterns of these elements in a few days. Everything you learn about biology afterwards will be filling in details.

Learning the game theory behind evolution will help you understand much more than biology. For example, human psychology and behavior, individual, social, economic, and political can be understood as a set of iterated game theory scenarios.

My point in saying this is not to reveal any deep truths, but to show how the essentials are missed for a flood of facts. (I refer to both biology curriculums in schools and popular nature documentaries.) No wonder half of Americans believe the world is 6000 years old.