Making Sense of Life Sun, 02 Apr 2017 03:58:12 +0000 en-US hourly 1 32 32 Is Real Estate A Good Hedge for Inflation? Meh. Sun, 02 Apr 2017 03:58:12 +0000 Everyone knows that real estate is a great hedge for inflation.

Any time I hear that “everyone knows” anything, I immediately question the statement. Our collective wisdom and “common sense” is prone to major blind spots. So when I have the data to test such common knowledge, I do so.

The conventional wisdom explaining why real estate is an inflationary hedge goes something like this: as inflation increases, the value of properties is supposed to increase along with the amount charged for rent.

The graph below was compiled using data from the Bureau of Labor statistics and a national property price index (United States). The plot points represent year-on-year inflation (x-axis) and property price appreciation (y-axis) measured quarterly from the end of 1978 through Q3 2016.


                                                                                    Property Appreciation and Inflation


What does the data tell us? There’s very little correlation between inflation and real estate property appreciation. The correlation for all the data is fairly weak at less than 0.4.

However, something curious happens during periods of high inflation: the correlation increases to almost 0.9.

Real estate is a fantastic hedge for inflation when inflation is high.

During periods of low inflation and deflation like we’ve experienced for over three decades, the data is hardly convincing. The rabbit hole gets deeper…different types of real estate behave differently in relation to inflation. The best inflation hedges to the worst are as follows:

  1. Multifamily Apartments
  2. Office
  3. Industrial
  4. Retail

Notice that “single-family house” is noticeably absent. When I plotted the price appreciation of houses, there was no discernible relationship to inflation.

The health of the underlying property markets matters a lot to the relationship with inflation. If physical construction costs, labor costs, and land are all expensive, owners of already existing property are protected from rising prices. They already have a building, but the profit of potential competition is continuously being squeezed. That new apartment building has to charge much more for the same quality of property to make the same margins as the older building.

The relationship between property appreciation and inflation generally increases as the value of the property does. Basically, that inflation hedge is mostly only available to institutional investors or Ultra High Net Worth individuals.

How does this information help you, how is this even remotely relevant to you? 

When you make the decision to invest or not invest in real estate, take the “fact” that it’s a hedge against inflation off of the table unless you’re in the position to comfortably own and rent out an apartment building. Invest in the asset because of the cash flows it will provide and the potential increase in value that you can add.

Think of your home that you live in as a forced savings program that could lose money as equally likely as it could make you money. Don’t count on price appreciation to make it a great investment. Don’t count on it to protect you against inflation, because it won’t.





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The Bills Are Bigger with an Emotional Trigger Wed, 22 Mar 2017 04:53:47 +0000 Capitalism.

Whether or not it’s your favorite “ism”, if you’re reading this blog, it likely drives the society around you. 

I have the firm belief that our society is designed to separate you from as much of your money as possible. We must, as responsible adults, constantly combat the ever-present bombardment of advertising that we absorb during most of our waking hours, often times without even noticing it. 

Marketing and advertising are weaponized psychology. 

The seemingly trivial sums of our habits and preferences are significant (check out your Money Multiple). 

While hemming in your budget is a noble pursuit, there are other areas of life that people often overlook. These are the sporadic but all important events that surround birth, matrimony, and death. Because of the often-times overwhelming emotions that accompany these events, our brains short-circuit and we willingly shell over far more dough than we would normally.

My wife and I had a baby a little over a year ago. Did we waste money with gadgets and toys we never used? Yes, and other people, though well-intentioned, also forked over more than they should have. 

Weddings are parties with a 100% or higher premium. Put the word “wedding” in front of anything and it’s like a 100% on coupon. Use my special code “wedding” and I guarantee you’ll be poorer. Throw a party for 50 people and compare the costs to a wedding with 50 people. Sure, there are costs that don’t overlap, but spec out how much each meal costs or an open bar goes for.

Funeral homes often upsell services and items like urns and caskets. A corpse does not need the casket to be decked out like Elvis’ Cadillac. Purple velvet and plush pillows, while a nice thought, serve no purpose. However, because people are in shock and mother deserves the best, they get duped into spending thousands of dollars on a purely palliative (for themselves) purchase. The mark-ups on these items are only made possible by the world-shattering chaos created by a loved one passing away.

Other examples of emotional arbitrage are also driven by  distress. Former couples, during a divorce, often sell homes hastily in order to put the deal behind them or to sabotage their partner. When the stock market dives, people run to sell their stocks and protect their nest egg. 

When you feel yourself getting emotional (positive or negative), train yourself to also be vigilant about your finances. Ask someone you trust to help keep you in check if you begin to lose reason. 

Always remember that the bills are bigger with an emotional trigger!

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Should You Invest in Individual Stocks? Probably Not. Thu, 16 Mar 2017 03:43:24 +0000 I first started investing in stocks when I was 18. Like a lot of young men, I thought I was smarter than “the Street”. What were my investment decisions based on? Hunches. Sometimes I was right, often I was wrong, but I did not become a millionaire overnight as I sometimes daydreamed.*

The following flowchart is something put together to help you decide whether or not you should invest in individual company stocks. Index funds, ETFs, mutual funds…I’m not including any of these in the decision tree because I heavily advocate using them to help you retire early and become financially independent. The truth of the matter, however, is that most people fail miserably when it comes to investing in the stocks of single companies.

In order to fit nicely into a graphic, I’ve parsed down the thought process to make it simplistic. Life is not black and white and decisions like these are almost exclusively always in the ambivalent gray areas. This lack of certainty can lead to analysis paralysis. While I try to cover some common exceptions below the chart, leave a comment if there’s something you think I overlooked.



Do you have debt?

If you have debt, you have no business investing in individual stocks. If your company lets you purchase stocks through an Employee Stock Purchase Program (ESPP) with a substantial discount…I don’t care, pay off your damn debt. If your debt has a very low interest rate (mortgage, for example) then you could be an exception to this. Your debt is generating a guaranteed loss. There is no such thing as guaranteed return.

Do you have other sources of liquidity?

Liquidity basically means cash you can readily access. As often happened to me when I was young and stupid, I’d make a great investment and then be forced to sell at the worst time because I didn’t have an adequate emergency fund for things like my car’s engine catching on fire (actually happened) or 5 friends all getting married within a few weeks of each other in different cities. If you can’t weather a large surprise expense, you’ll be forced to sell your stocks instead of selling them exactly when you want to. This rule doesn’t have any exceptions.

Are you maxing out your tax-advantaged accounts?

The government, in the hedge fund world, is known as “everyone’s silent partner”. They offer no input but take a substantial amount of your profits. If you can goose your gains by deferring the taxes on them or avoiding taxes altogether (legally, of course), you’d be silly not to. Get that annual gross income number down and keep more of your money. If alpha is gain above a benchmark, taxes and fees are zeta…alpha killers. Minimize zeta, max alpha.

Can you handle losing the entire portfolio value?

Not just literally (as a Millenial, I love using this word), but emotionally? If you don’t have the temperament to watch your portfolio decline in value by 20% or more without freaking out and selling, you don’t need to be investing in single stocks. This emotional panicked selling or FOMO (fear of missing out) driven buying is the reason most people can’t beat the S&P 500. Don’t be a sucker. Additionally, don’t put your entire life savings into a portfolio of single name stocks. Don’t invest your rent money in a hot stock tip.

Are you comfortable with a concentrated portfolio?

I personally think that a portfolio composed of single-company stocks should not number more than 10 positions. Why? You need to put in a LOT of time researching each individual company before investing in it. If you don’t fully comprehend what the company does, or things like what distinguish it from competitors, you will find it much harder to sit tight if/when your company starts taking a beating. You want to sell because there’s good business reason to. A full time hedge fund analyst has a difficult time knowing the ins and outs of 20 companies. More than likely, your full time job isn’t managing your portfolio. So 10 is the max number of companies I feel comfortable investing in because between the demands of my job and family, I don’t have time to keep up with more companies than that. Many times, I simply can’t find that many good deals in the market so I pass and have fewer than 10.

“What about diversification?”

Diversification is for people who have already retired. If you’re young, contribute to your 401k (those mutual funds should already be diverse), and have a long runway ahead of you, you shouldn’t be looking to diversify. You need to generate portfolio growth and make your nut. Wealthy people rarely become wealthy through diversification. They excel at one thing or one area. Once you’ve made enough money to retire, then diversify.

No reputable business school teaches a full course on technical analysis.


Can you read financial statements & value companies?

If you don’t know basic accounting and know at least the basics of valuing companies, DO NOT invest in individual stocks. I don’t care what Cramer says or if the stock chart is showing a “cock and balls pattern” or what the Bollinger bands are saying. No reputable business school teaches technical analysis. It’s like reading tea leaves. Remember the SATs? Try this….astrology : astronomy, alchemy : chemistry, medicinal: medicine, metaphysics: physics, technical analysis : investing.

LBO, discounted cash flow, sum-of-the-parts analysis, liquidation analysis, comparables…if this is gibberish to you, do not invest in individual stocks. These methods all have flaws (mostly based around projected assumptions) but being able to execute these methods implies a certain level of competence with the financial statements of a company.


Am I trying to be a buzzkill? No, of course not. I’m trying to keep you from making the same mistakes I made and losing money.

So what, that’s it, you can never invest in individual companies?

No. Be proactive. Take an accounting course online (there are plenty of free ones), read books on value investing (can’t go wrong with Ben Graham), and invest in your own knowledge. Once you’re in a financially desirable place and know what you’re doing, invest in stocks. The more you know about investing, the more you realize there is so much to know that you’re lucky to get it right more than half the time.


Keep checking this blog. In the next few weeks, I’ll be putting together a comprehensive list of the resources you need to get the same knowledge >this dude< paid over $100k to get at business school (and that’s with a full tuition fellowship!). 


*Fun Fact: I slept on the floor for six months because I invested all my “mattress money” in Google’s IPO.


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You Don’t Deserve It, or, How Not to be a Creampuff Fri, 10 Mar 2017 05:59:28 +0000  

As I alluded in my previous post, a sense of entitlement is one of the attitudes that can set you back the most financially. Beyond finances, a sense of entitlement will make you soft, both mentally and physically.

“I deserve it” is something that you think to yourself AFTER you have done what you are supposed to be doing. “I lost 10 pounds, I deserve this pizza as a reward to myself.” Go ahead and reward yourself and, surprise surprise, you will gain the weight back a month later after treating yourself more and more frequently.

One lapse in discipline leads to another, which leads to three more. Weakness follows the pattern of the Fibonacci numbers: 0, 1, 1, 2, 3, 5, 8…stay at zero.

Discipline is a skill that is built through a lifetime of deferring immediate rewards to benefit yourself later. Much like money invested wisely, the benefits of discipline compound over time. Caving in to your weak, creampuffy self now is a big “fuck you” to your future self. There is more future Moose left than there is present Moose, so future Moose takes priority.

Let’s look at my own life for a moment and see how entitlement has affected me.

I have been lifting weights on a regular basis since I was 16. After leaving the military, I had the innate sense to be lazy. I’d been grinding and “embracing the suck” for my entire adult life and I wanted a break. I slept in until 8 am every day, when I once woke up at 5 am. I stopped exercising as frequently. When I started gaining weight, I convinced myself it was all muscle and that I was bulking up. I never stopped bulking up and 5 years later, I found myself considerably heavier than I was comfortable being. Thankfully I never stopped lifting heavy weights so I looked more like a powerlifter than a complete pud, but being even slightly overweight is uncomfortable.

I’ve course-corrected and dropped 30 pounds since then, but guess what? I’m right back to doing what I should have been doing all along. THIS is what entitlement or thinking you deserve things does to you. It robs you of time and progress you could have been making. Instead of being at +10, you’re at -10 and you have to claw yourself back to zero. Why not instead keep yourself in check and use that same effort, which you eventually put in anyway, to get ahead instead of barely hanging on? Imagine how far you can progress if you’re not constantly taking a step backward.

The most amount of time I ever spent “homeless” was 2 months. It was military training and I didn’t have a chance to shower once during that time or sleep in a bed. Our resupply was intercepted (yeah, sure) and we didn’t eat for five days. On the third day, my stomach was cramping so badly I could barely stand. We slept in the woods and constantly had to fight off ticks and other annoying critters. After that experience, a bed to sleep in, a warm shower, and the ability to choose when and what you eat seem like the ultimate luxuries to me. That experience taught me that the human body can survive on very little and thrive on basics.

Get by on only what you need and divert extra resources to your future. In doing so, you remove the Creampuff habit of blaming everything and everyone else for your failures. You realize that you largely control your fate and you’re not at the mercy of some imaginary enemy.

Next time you start to think “I deserve it”, I want you to instead think “I don’t deserve shit” and refocus on moving forward. Put down your Funyuns, pass over on buying that stupid object that you think will make you more attractive and/or improve your life, and do the right damn thing.

Entitlement is a root cause of unhappiness in life. Rid yourself of this and learn to be happy with what you have now. You’ll know you deserve it when you stop wanting it.



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What’s Your Money Multiple? Sun, 05 Mar 2017 01:06:25 +0000 You’ve earned this. You deserve it.

There are few thoughts more dangerous than this one in the world of personal finance (or anything else, for that matter). I’ve fallen victim to it myself many times in my younger years, and each time I regretted not saving the money instead.

I created this post to short-circuit your brain next time you have this self-destructive thought. When you get the urge to splurge, you’re going to picture your Money Multiple and then weigh that against the thing you’re trying to buy.

What is the Money Multiple? Simply stated, it is the value of $1 dollar today from this moment until you retire and eventually die. As morbid as that is, framing your finances with the Money Multiple in mind is powerful.

Let’s say this thing you deserve is a nice purse or the parts to custom build your own PC. This item, this trinket you adore, this object of your affection that will make your life that much better and validate your hard work costs $2000 today. Using my personal Money Multiple of 7.8x, these PC parts are taking a total of $15,611 out of my pocket!

I designed a spreadsheet to calculate your Money Multiple. You don’t need to download anything or input any information.

The assumptions for this example are below. The calculation is driven by the future value formula:

FV= PV*(1+r)^n.

Future Value = Present Value x (1+rate of return)^number of periods (years)




The table below adjusts the Money Multiple. Are you retiring in 10 years, not 30? You’re covered. Think you can get an inflation-adjusted return of 10% per annum because you’re just that good? I got you too. The vertical figures on the left margin indicate the number of years between now and retirement. The horizontal axis represents the real (inflation-adjusted) growth rate of your money had you invested it instead of spent it.

I made you live to 100 because, for the younger readers here, that isn’t too far fetched. I’ve adjusted for inflation because I don’t want you to give yourself the excuse that “a bazillion dollars when I’m old is like $5 today”. Inflation is very low now but upping it to 3% is a safer bet, given that it’s hard to trust the monkey math on inflation today.

So, what’s your Money Multiple? 

Many times when I see similar material online, it calculates how much your cash would have grown up to the point of retirement. This, however, only tells half the story. Your investments grew in value and now provide you with the cash flow you need to live on until you pass away. Buying that Gucci purse not only screws with the size of your retirement “nut”, but it also steals income that additional nut would have provided.

When I run the calculation, I get a Money Multiple of 7.8x. Those sweet PC parts cost me a total of $15,610!

Frame everything into this context: your daily Red Bull addiction, blowing your tax refund on a huge TV or vacation…you get the point.

The Money Multiple is both a serious downer and awe-inspiring. All the dumb purchases you have made will haunt you. However, it will also inspire you to sock away every last dollar you possibly can because, at least in my case, it’s not $1 but $8!


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