Link Roundup: The Value of Hard Work

During times of plenty, when there are more interesting articles than I can do a feature review of, I will combine them into a single post called a link roundup. Here is one such event.

  1. The value of hard work. This reminds me of my time growing up in the crucible of competitiveness that is the Bay Area. Investments made in oneself through education and knowledge pays compound interest down the road, establishing a solid foundation for improved performance and confidence, that feed off each other in a virtuous cycle. Take for example a high school student taking summer classes to prepare for the next quarter’s math and reading classes. That person will get a leg up in results for the rest of his or her life, because of repeated exposure and increased familiarity, not to mention having an easier time in the class. Compared to someone like this, if you’re not working hard every day, you’re falling behind your peers. Just like in athletics, average is over. Every day you’re slacking or doing something else is a day falling behind your peer competitors.
  2. What do future jobs look like? The thinkers of yesterday and today have a vision for how the future looks, and it doesn’t bode well for some. Unskilled work will be replaced by robots. Technical and computer skills will become more valuable. Good future areas to specialize in include AI, robotics, and VR. At the same time, some jobs like in health care that deal with human emotions, where empathy is essential, will be relatively shielded from the effects of technology. But then again, you would know this from reading my book.
  3. As a corollary to the above, university students increasingly recognize the reality of a tough job market for graduates, and are tailoring their studies accordingly. This means fewer liberal arts graduates and more social science, business, engineering, and “trades” graduates. That’s probably a good thing for individual finances but a tragic loss for the country. After all, from their pen would have come art, literature, and poetry – the stuff that gives colour and meaning to life. That’s what separates us from somewhere like Singapore or India, which are
  4. If you have truly niche technical skills, you can make bank. Just look at blockchain developers. Btw, software is one of the fields where if you have the interest and the talent, you can teach yourself and get a great job without having a degree in the field. That’s the path my dad took.
  5. Here’s a great story of a self made web entrepreneur with the vision to establish a business reselling cheap Chinese toys from Alibaba to American consumers willing to pay more. Wait… why don’t Americans just buy directly from Alibaba? Doesn’t sound like a very sustainable business model but somehow it works.
  6. Concierge medicine is taking off, and whispers are that you can have a lucrative practice with low patient volume, if you cater to the rich and treat everyone like a VIP. It’s not my cup of tea, but I see disruptive potential in different delivery methods for health services. Target mini clinics are good, as is the underutilized format of telemedicine.
  7. I can’t harp on the concept of geographic arbitrage enough. By moving to a cheaper location, your dollars stretch so much further. Not only that, but your kids can grow up multicultural with foreign language skills, interesting life experiences, and a great prebuilt application essay for Ivy League schools telling them how unique you are.
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Secrets of Wealthy Millennials

Is it just me or does Business Insider seem to be sliding into a paparazzi version of the staid Forbes magazine? The articles being published these days seem more like a weird hybrid of Moneyish and Gawker, with more sensationalist titles than the Daily Mail and plastered with more inline Instagram posts than TMZ.

Still, despite the descent into frivolity, there are some nuggets of truth and wisdom to be gleaned from their latest series on wealthy millennials.

The first story from BI is that of Ebony Horton. To summarize, she was a newly minted graduate making $38,000 a year in DC. She then went back to get an MBA and racked up a total of $220,000 in loans from undergrad + MBA. She freaked out at the amount, and came up with a plan to pay it all off by moving back to rural Illinois, lowering her cost of living, saving like crazy alongside her husband, buying rental property, and getting some opportune gifts from her family. Now 31, she’s debt free and ready to share her story in a book and go on the speaker circuit to make boatloads of money.

What can we take away from this?

  1. It helps to have rich parents who can support you, either directly financially or indirectly by providing free/subsidized shelter
  2. Being dual income (however miserly), no kids dramatically accelerates your savings trajectory
  3. If you set your mind to it, saving 75%-95% of after-tax income is possible
  4. Control lifestyle inflation (let your standard of living appreciate slowly) or it will ruin you
  5. Investing in the property market uses leverage to enhance the growth rate of your wealth

One of the topics in my book on finance is that in the modern age, there are a few viable paths to success. However, this book focused purely on wealth and its accumulation, the pursuit of which is unsustainable in the long term. One of my upcoming books will instead deep dive into the human mind and explore how we become happy. With that in mind, when thinking of work-life balance, there are two ways to go about it. One is to “finish” a high-paying career, accumulate boatloads of savings, and retire early. In short, this abbreviates the traditional working time and prolongs retirement. It can be very effective, as legions of FIRE (financial independence, retire early) adherents can attest. However, it requires significant discipline to accumulate that much savings so quickly.

The next BI story is that of two 30 year old teachers who managed to save $1 million after 8 years, and are now retired and travel the world. Isn’t that the dream of every young millennial these days? They did it by doing much of the same that Ebony did, only they had the advantage of minimal education debt. Their lucky break was to pick up houses in Las Vegas on the cheap in the depths of the real estate collapse, converting them to rentals. Gradually, the market bounced back and they were able to make more rental profit from the houses, which they used to buy yet more houses. Now they make $10000 per month on average from rent, balanced out against only $2000 per month in mortgage, letting them retire to pursue their passions.

The take away bullet points?

  1. Paying down debt is good, but it’s a lot better to not have debt and to divert savings into investment vehicles
  2. Being lucky (getting into real estate at the bottom, even before hedge funds) is better than being good
  3. Sometimes living in a lower cost of living area beats moving to a high cost area (Bay Area, London) to earn a high salary
  4. Buy a property and rent it out to others, letting them cover the cost of the mortgage (see my analysis of yield on equity here)

The other reasonable approach is to maintain the frugality but to intermix one’s working years with “fun” activities traditionally associated with retirement. This can come from working on cruise lines, at vacation resorts, as an English teacher abroad, etc (more examples of ways to do this are in my book). These jobs may not be high paying, but the cost of living is either low or completely subsidized such that significant savings are possible. Experiencing fun stuff as a tourist is expensive, because you duplicate costs such as housing by having to pay for a hotel and the mortgage back home, and other costs are more expensive (such as having to eat out every day). It’s a lot easier to see the same sights and go to events as a local, relying on cheaper longer term housing, cheaper grocery options, and public transportation.

On this point, BI ran not one but two (oh my how they like to recycle stories) articles about the same girl – Nina Ragusa. She took the fun road, working hard initially in multiple jobs to save up enough money to launch her career as a travel blogger. She gets to roam the world, doing the typical things on the well-trod road of teaching English in Thailand and working in the tourism sector in Australia (the working holiday visa for young people is a great boon). In essence, instead of slaving away at a desk job, she gets to live in vacation paradises, work freelance in a bunch of industries that aren’t that intense, and save a bit to boot. There are two possibilities for how she will end up. If she does well with her travel blog, she can spin that into a brand and partner with tour agencies as a promoter. The worst case scenario is that she returns to the US at some point having had a decade of amazing experiences and a small amount of savings.

You may wonder how young people can spend so much time and money on travel and not exhaust all their income or savings. For one, cost of living is so much lower for most places outside of the US, and low end wages (especially for the service sector in Australia, NZ) can be higher. Finally, many fun activities aren’t that costly. By working at a resort, you’re afforded the privilege of taking the kayak or surfboard out when you aren’t leading a tour, and sometimes can even use the company’s van for personal excursions. In a tropical paradise, many of the most fun activities are free. It’s so easy to get sucked into complacency living in these places.

Take home points for this case:

  1. For young people who want to have fun now and mix in a bit of the retired life with their youth, it’s hard to beat adventure travel and freelance work
  2. Geographic arbitrage wins again
  3. There’s an outside shot that you can create a sustainable brand/blog based around travel and never have to work again
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Why Angular Beats Well-Rounded

It’s appropriate, especially given that this is the time of the year when high school seniors are opening acceptance packets and rejection letters from universities all around the world, to discuss the age old dilemma that many college applicants face: whether to be angular or well-rounded. Certainly it was the raging debate my high school classmates had when trying to sell themselves to colleges. They competed with each other for the most extracurricular activities (speech and debate, business club, sports, volunteering, music, arts, etc.) It became an arms race so ridiculous that we joked that to get into Stanford or the Ivy League, one had to be the captain of multiple sports teams, in student government, get > 4.0 GPA, have perfect SATs, and possess a “major” life accomplishment such as curing a major disease, starting a philanthropic organization, or winning one of the math/science Olympiads.

While being a modern Renaissance man (or woman) can be great for getting into these schools, and it certainly does make for a more interesting person, it’s not a guarantee for finding employment. Employers are looking more for an expert in a particular area, or at most someone with two related and complementary skills.

Just think of it from this approach. If you’re an employer looking at a candidate who has decent skills in finance, accounting, foreign affairs/diplomacy, programming, and photography, you may actually not want to hire that person. One worry is that by spreading him/her self out too thinly, the applicant may not truly be an “expert” in one particular area. Most jobs are defined by boundaries, specificity, and depth (you’re *just* going to crunch numbers), and while breadth is helpful in the upper echelons of management and for insightful business strategists, very rarely do companies recognize that and actually try to hire for those spots. More likely they luck onto a candidate with that vision from hires for other positions. Furthermore, companies like cheap worker drones that fit into narrow holes. A candidate with a diverse skill set is more likely to get bored, leave, or demand higher pay.

Therefore, it’s ok to have side dalliances and hobbies, but if you want to be a top worker bee and advance in a career, you’d better have a profession. Take for example the story of Urs Holzle. He was a pure computer scientist, and as such was able to push the boundaries of his own field, get hired at Google in a senior scientist position, and make bucketloads of money. If he had spent less time in his craft and more in say learning the violin to become “well-rounded” he may not have been as successful as he was.

As a last counterpoint, for those already on the well-rounded pathway, while you may not be the ideal workers, you are excellent entrepreneurs, possessing as you do the strategic thinking capabilities to integrate multiple fields and sense opportunities. Also important in the early days of a startup with limited manpower is the ability to fill and manage multiple business roles.

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Advice for a Young Investor

Warren Buffett says that today’s crop of babies are the luckiest ever. This may be true in some respects – technological advancements have certainly improved the quality of life. Today’s commoners live a life undreamed of by previous monarchs. However, in other respects, young people today have it harder than ever.

Take for instance public comments Morningstar’s advice to a young investor:

Check out the vesting options on your match in the 401K before you let that match influence what you do. My own Millennial daughter has worked at 3 places now with generous matches on paper. She has yet to get any of her matches to vest because they all have 3 year cliff vesting. She got laid off (in one case just before 3 years) before any of her matches vested.

and

That should be a wake-up call to today’s 20/30-somethings. Were those terminations part of some evil, greedy attempt to cut corporate costs? Just the fact there was a long “cliff” should say something: corporate America is desperate to wash its hands of any responsibility for their employees’ retirement.

That means: save, save, save your money. Retirement is in your hands, more than ever! Each dollar wasted on alcohol, pot, tattoos, new cell phones every year, data plans, new cars, bar tabs, trips to Mexico, music festivals, is actually ***two or three*** dollars you won’t have for retirement.

That’s the time value of money. Blowing money on toys and “experiences” early on in life, is what’s killing the retirements of many a baby-boomer today. Forcing older boomers to reverse-mortgage their homes for money to live on.
Don’t repeat your parents’ mistakes.

With how perilously insecure jobs are today, it’s more important than ever for young people to have multiple income streams. This means side gigs (e.g. Uber, independent tutoring, Etsy), monetizing resources (e.g. Airbnb), investment income (rental, stocks, bonds), and entrepreneurship (low cost digital startups). Without a diversified stream such as the above, we will fall prey to the whims of an unscrupulous employer who can can us at a moment’s notice in the name of cost savings.

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The Trend Towards Minimalism

Feels good to be vindicated, yet again, or perhaps my own behaviour is not so uncommon but merely representative of the prevailing attitude of my generation. After all, it’s “widely known” that Millennials value experiences over things.

As for retail, owners have to adapt or die. Innovative retail stores are experimenting with ways to blend a more experiential type of shopping with brands and goods. As the article recognizes:

“Shoppers are reaching a tipping point around American consumption,” it read. “Feelings of angst about acquiring too much ‘stuff’ is driving a shift toward purchasing experiences rather than things.”

Those of us who are involved in entrepreneurship recognize this. As the older generation dies out, Millennial preferences will increasingly drive profitable product lines. We see this in the traditional media, which initially resisted the move to digital (Napster was merely early) before eventually acquiescing (see: Hulu) to the tidal shift. Those that continue to resist (ESPN, Comcast) face declining revenues from cord cutters.

In general, being “light”, mobile, portable, flexible, and catering to the customer’s preferences for when, where, and how to consume something is the new name of the game. Amazon recognizes this. Old retail still tries to force someone to come into a brick and mortar store and be assailed by rude and unhelpful sales representatives. That’s not a winning approach.

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