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Musings Report #37 9-13-15 What Is Wisdom? A Short List by an Unwise Guy
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What Is Wisdom? A Short List by an Unwise Guy
When I ask myself what I've learned in 40 years of adulthood since graduating from university, my answer is a sobering "nothing." I honestly don't feel any wiser at 61 than than I was at 21.
When asked, "what have you learned in those 40 years?", I am not sure the answers qualify as wisdom, but they're pretty much all I have in the way of wisdom. That is, I am an unwise guy.
1. Don't get enmeshed with dysfunctional people, families or businesses. When we're young, we're adept at making excuses for people in dysfunctional families and enterprises. We expect them to work their way out of their dysfunctions. We think we can help in this process.
Alas, we can't. People usually can't rid themselves of dysfunction without an extraordinary effort. Getting enmeshed with a dysfunctional person/family/business can only drag you down. The only way to avoid the mess is to avoid the dysfunctional person/family/business in the first place.
Easy to say, hard to do. Who would listen to such cynical "advice"?
2. Be fanatical about reducing fixed costs. This sounds so obvious, but it's really the key to surviving hard times and building wealth, at least in the limited view of this peon.
Remarkably, people may acknowledge this in an abstract fashion but few actually live by it. The vast majority let their fixed costs rise with their income. Businesses move to pricier digs once they start feeling flush, and people move up to costlier vehicles, homes, clothing, vacations, etc.
The ideal business has been stripped of fixed costs. For example: rent on home office: zero. Labor overhead: zero, if you hire only other free-lancers-contractors.
Management guru Peter Drucker made the point about reducing fixed costs another way. He famously noted that "businesses don't have profits, they only have costs." (a paraphrase)
In other words, there's no guarantee of additional revenues/sales or profits; all we know for sure is our fixed costs, i.e. what we have to pay monthly even if our revenues are zero.
Some fixed costs rise despite our fanatic focus. Healthcare costs rise until we qualify for Medicare. That's a given. Our only way to reduce healthcare costs is be fanatical about being healthy.
Servicing debt is a fixed cost. You have to service the debt whether you're making money or not. So eliminating debt is one critical way tor educe fixed costs.
Frugality is useful, but frugality is not quite the same as being fanatical about reducing fixed costs. Maybe understanding the difference is wisdom.
3. Learn how to manage risk. Risk is the ultimate yin/yang. If you don't take any risks, you're limited to a salary: the employer takes the risk and rewards, you get the salary and no upside.
But if you take a risk, you can lose the gamble: the investment, the job, the house, the enterprise.
You want to score a ten-bagger (ten-fold increase) in the stock market? Well, belly up to the roulette wheel, because most of the bets that pay off that big are extraordinarily risky.
There is no way to eliminate risk. Life is risk. Doing great things requires taking risks. The "safe way" offloads risk and reward to others. You want the big reward, you have to take the big risk.
When the tide is raising all boats, it's remarkably easy to rank yourself as a genius who manages risk effortlessly. Rising tides are not a good test. Its the ebb tide, when every investment is crashing in value, that tests risk management.
So what's the wisdom? perhaps it's simply to really know the risks you're taking and set limits on the risks you're taking.
Those drawing a public-sector pension are typically quite confident that there is no risk their promised pension could be vaporized. With systemic risk rising throughout the economy, I am not so sure there's anything truly "safe."
It seems there is a genetic component in risk appetite. My brother is also a serial entrepreneur, i.e. a risk-taker. He has taken risks in skiing and motorcycling that I wouldn't take unless my life depended on it.
But in general it doesn't seem to bother us too much to put all our chips on the table. There doesn't seem any other way to go at it.
Is that wise? I have no idea. But I think it's a good idea to seek the limits of your risk appetite and set some limits on losses/downside. In general, the potential reward should be considerably larger than the cost/risk.
Knowing one's appetite for risk is a critical form of self-knowledge.
No risk, no gain. Anything else is illusion. I also think this will become evident to all within the next decade, when all the "sure things" melt into thin air, along with the global financial system.
Is any of this wisdom? I doubt it. It's more like things we've learned the hard way and mistakes we don't want to repeat.
Summary of the Blog This Past Week
The Decline of Oil: Head-Fake or New Normal? 9/9/15
Why the Market Could Soar From Here 9/8/15
Syria: Imperial Responsibility, Imperial Conscience (Yes, We Have a Syrian Friend) 9/7/15
The essay on Imperial responsibilities and Syrian refugees triggered quite a few negative emails. The response made it very clear that immigration/refugees are hot-button emotional issues that don't lend themselves to moderation, and many are unable or unwilling to recognize America's role in the wars that generate refugees.
Best Thing That Happened To Me This Week
Thank you to everyone who inquired about my whereabouts/health this week as the blog ground to a halt. We took a 4-day camping trip to Lassen National Park and Humboldt State Park, home to the largest remaining stand of old-growth coast redwoods.
The highlights were two hikes--one in Lassen Nat'l Park from Kings Creek picnic area to Bumpass Hell, a mini-Yellowstone of sulfur-tinged boiling fumeroles at around 8,200 feet in elevation, and another series of walks in the Humboldt redwoods.
The trail up to Bumpass Hell climbs 1,200 feet over 4 miles--at an altitude of 7,000 to 8,200 feet, the narrow rocky path clinging to steep slopes is not recommended for those accustomed to flat paved walkways at near-zero elevations. It reminded us of the Grinnell Glacier trail we took in 2013 in Glacier National Park, an 11-mile trek with a gain of 1,840 feet at altitude. Both offer spectacular views and multiple rewards.
You sleep really well after an 8-mile hike at altitude, where the descent of 1,200 feet on narrow rocky trails is in some ways more difficult than the ascent.
Market Musings: Weekly Charts Suggest Bullish Reversal Likely (but not a new Bull market)
Here is a weekly chart of the S&P 500. I wanted a longer view of the recent mini-crash, and this chart enables us to compare the recent spike down with the panic decline last October.
The big difference is the volume that accompanied the panic drop. Last October, the spike down triggered massive selling. The recent cliff-dive triggered a massive spike of buying. Hmm.
Last year, the rally was impressive price-wise, but volume slipped as the SPX shot higher--not impressive technically.
So let's keep an eye on volume this week. Low volume either up or down is unimpressive.
The stochastics have registered a multi-year low and a bullish cross, so a sharp rally if the Federal Reserve does not raise rates is quite possible.
As for MACD, by the time MACD crossed bullishly after last year's swoon, price had already recovered. A sharp recovery this week could leave MACD flat while price roars up.
As noted last week, I doubt the first panic drop will erase 6 years of "buy the dip" habits. Should the Fed hold its fire, a rally of some magnitude looks likely.
From Left Field
Presenting Five Channels Of Contagion From China's Hard Landing -- what happens in China won't stay in China...
I called this place ‘America’s worst place to live.’ Then I went there. -- Nice portrait of rural America...
The subtext to that Amazon story: We're afraid our work is killing us, and we are right
The end of walking (via Brad L.) In Orwellian fashion, Americans have been stripped of the right to walk, challenging their humanity, freedom and health
Steve Cutts' Illustrations of the Modern World -- mobile phone zombies and more...
The New Conspicuous Consumption -- fueling the next revolution....
The Myth of the Middle Class: Have Most Americans Always Been Poor? -- overstating it, but solidly contrarian...
How a toxic workplace could, literally, destroy your health -- file under Obvious But Still Remarkable...
RSA Animate - Re-Imagining Work (9:05 video)
China's workers abandon the city as Beijing faces an economic storm -- worth a read -- between the lines...
Health Care Slavery and Overwork -- very insightful-- clinging to healthcare coverage is the new Serfdom
These Are All The Manual Transmission Cars Available Today -- I need a manual tranny, will soon be a costly add-on...
"What is tolerance? It is the consequence of humanity. We are all formed of frailty and error; let us pardon reciprocally each other's folly - that is the first law of nature." Voltaire
Thanks for reading--
charles |
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