Review – The Richest Man In Babylon

The Richest Man In Babylon

by George S. Clason, published 1926, 1988

The Richest Man in Babylon

Do you want to know the secret to wealth? Do you want to know how the richest man in Babylon came to a prosperous life?

He never forgot, A part of all you earn is yours to keep.

Seven Cures for a Lean Purse

  1. Start thy purse to fattening; save at least 10% of everything you earn
  2. Control thy expenditures; budget your expenses so you never spend more than 90% of what you earn on necessities and luxuries alike
  3. Make thy gold multiply; put your savings to work and let your wealth multiply
  4. Guard they treasures from loss; always ensure first that you don’t lose what you have and that you can get your money back out of any investment you make
  5. Make thy dwelling a profitable investment; own your own home
  6. Insure a future income; your financial planning should take into consideration the fact that you will have decreased earnings power as you age, and that one day you may pass on and leave dependents behind who need financial sustenance
  7. Increase thy ability to earn; cultivate your own powers, study and grow wiser, learn new skills and enhance your ability and number of ways you can earn income

Meet the Goddess of Good Luck

Men of action are favored by the goddess of good luck

The Five Laws of Gold

  1. Gold comes easily to anyone who would put aside 10% of his earnings to provide for an estate for his future and his family
  2. Gold will work for the wise person who finds safe investments in which it can multiply on its own
  3. Gold clings to the owner who looks after its safety in his dealings
  4. Gold slips away from those who invest it carelessly or in ways he is not familiar with
  5. Gold flees the man who has unrealistic earnings expectations, listens to tricksters and schemers or who follows his passions and desires rather than consideration and experience

The Gold Lender of Babylon

Better a little caution than a great regret

The Walls of Babylon

We cannot afford to be without protection

The Camel Trader of Babylon

Where determination is, the way can be found

Notes – There’s Always Something To Do

There’s Always Something To Do: The Peter Cundill Investment Approach

by Christopher Risso-Gill, Peter Cundill, published 2011

The Peter Cundill approach to value investing

The following note outline was rescued from my personal document archive. The outline consists of a summary of Christopher Risso-Gills’ recent biographical investment profile of Canadian value investor Peter Cundill, There’s Always Something To Do. The notes are in summary form of the most critical aspects to Cundill’s value investment perspective and analytical process.

There’s Always Something to Do: The Peter Cundill Investment Approach

  • “I think that intelligent forecasting should not seek to predict what will in fact happen in the future. Its purpose ought to be to illuminate the road, to point out obstacles and potential pitfalls and so assist management to tailor events and to bend them in a desired direction.”
  • He made a habit of visiting whichever country had the worst performing stock market in the past 11 months.
  • “In a macro sense, it may be more useful to spend time analyzing industries instead of national or international economies.”
  • “It must be essential to develop and specify a precise investment policy that investors can understand and rely on the portfolio manager to implement.”
  • A few investment principles:
    • never use inside information, “All you get from inside information is a whiff of bad breath.”
    • economic facts and company values always win out in the end
    • don’t try to be too clever about the purchase price
    • isolate what the real assets are
    • never forget to examine the franchise to do business
  • Insider buying is not always well-informed– Peter once scooped up shares of J. Walter Thompson (JWT) at a perceived discount and faced a hostile and confused president who was selling stock from the companies pension fund and couldn’t figure out why Cundill was buying (pg. 29), which demonstrates that there are informational disadvantages and ambiguities that keen analysts can take advantage of, even over company insiders; insider buy/sell ratios and actions should be considered thoughtfully and fully “discounted”, not taken as authoritative proof of anything by themselves
  • “Very few people really do their homework properly, so now I always check for myself.”
  • Look for hidden gems on the balance sheet
  • Investing globally:
    • if you find one foreign stock that is trading at a significant discount, snoop around because there may be other bargains in the foreign industry or market
    • There was nothing “ad hoc” about the way Peter addressed the process of international value investment. In every instance it had to be firmly based on a clear understanding of local accounting practices and how those might differ from accepted standards in North America. The fact that it was different, less transparent, or deliberately opaque was never a reason for ignoring or excluding a market or security. Peter’s attitude was “vive la difference”; if a balance sheet was hard to penetrate it was not just a challenge but an opportunity because the difficulties actually represented a “barrier to entry” even for the experienced professional investor and undoubtedly excluded all but the most sophisticated private investors.
    • The other aspect, which Peter considered to be a vital component of a successful international strategy, was building carefully constructed networks of locally based professionals who had a thorough understanding of value investment principles and would instinctively recognize a security that would potentially fit the Cundill Value Fund’s investment criteria.
  • “THE MOST IMPORTANT ATTRIBUTE FOR SUCCESS IN VALUE INVESTING IS PATIENCE, PATIENCE AND MORE PATIENCE. THE MAJORITY OF VALUE INVESTORS DO NOT POSSESS THIS CHARACTERISTIC.”
  • “It is also dangerous to rely on a single strategy in a doctrinaire fashion. Strategies and disciplines ought always to be tempered by intelligence and intuition.”
  • Personal margin note: Peter did not succeed in isolation but cultivated and utilized networks of knowledgeable and influential people (investors, political activists and politicians, business people); he also had several mentors
  • Peter was impressed by a group of corporate socialites he had dinner with, “They maintain that having a hangover is a waste of a day.”; personal margin note: respect the value of time, the ultimate scarce resource, always
  • Peter organized a prestigious investment conference, the Cundill Conference, where he both talked and exchanged ideas on investing with other friends and gurus, as well as heard from invited guest expert speakers who spoke on a range of topics totally unrelated to investing, to promote cross-disciplinary rigor and creative spark
  • “The boards of charitable foundations are convenient meeting places for influential people. Their ostensible purpose is intimately bound up with the social and commercial ones.”
  • Peter relocated to London from Toronto to better pursue his global value investment approach, seeing London as the center of capital and the business crossroads of the world at the time; personal margin note: where is today’s London, or tomorrow’s?
  • On flying across the Atlantic routinely on the Concorde:
    • “It is a remarkable sounding board, especially in my world of matters financial.”
    • “One becomes even more keenly aware that there is never just one factor determining events, there are many of them interwoven and acting simultaneously.”
    • “I always need to discipline myself to be aware of the world generally, rather than trying to be specific. I only need to be specific about the numbers.”
  • Selling stocks which near or surpass their intrinsic value often acts as an “inbuilt safety valve” for the value investor in markets which are in a bubble or overpriced generally
  • Peter channels Horace’s Ars Poetica via Graham in a journal entry prior to the 1987 Crash: “Many shall be restored that now are fallen, and many shall fall that are now held in honor.”
  • “Sooner or later the market will do what it has to do to prove the majority wrong.”
  • Cundill, via Oscar Wilde, on an approach to stocks: “Saints always have a past and sinners always have a future.”
  • “Being out on a limb, alone and appearing to be wrong is just part of the territory of value investment.”
  • Cundill on overvalued markets: “it can tempt one to compromise standards on the buy side and it may lure one into selling things far too early.”
  • Cundill’s value approach gently evolves: “Discounts to asst value are not enough, in the long run you need earnings to be able to sustain and nurture these corporate values. We now, as a matter of course, ask ourselves hard questions as to where we expect each business to be in the future and, as well, make a judgment on the quality of management.”
  • Cundill defines shorting based off of his ‘antithesis of value’: “identifying a market where values are so stretched and extreme that they are clearly unsustainable. They have passed far beyond the realms of any measure of statistical common sense.”
  • “The great records are the product of individuals, perhaps working together, but always within a clearly defined framework.”
  • “In reality outstanding records are made by dictators, hopefully benevolent, but nonetheless dictators.”
  • On avoiding the temptation to sell an eventual winner: “What we ought to do is go off to Bali or some such place and sit in the sun to avoid the temptation to sell too early.”
  • Cundill on his shock related to 1968 sentiment toward the shoddy accounting of the conglomeration movement: “Nobody cared; accounting is a bear market phenomenon!”
  • “Every company ought to have an escape valve: inventory that can readily be reduced, a division that can be sold, a marketable investment portfolio, an ability to shed staff quickly.”
  • “We always look for the margin of safety in the balance sheet and then worry about the business.”
  • “If there’s no natural skeptic on an investment maybe it would be wise to appoint one of the team to play Devil’s Advocate.”
  • More on investing overseas in developing markets: What was required was an asset-based margin of safety significantly greater than would be considered adequate in the more developed markets. It was also fairly obvious that in these less developed markets tangible fixed assets were superior to cash, which had a nasty habit of evaporating.
  • Cundill on retirement: “Retirement is a death warrant.”
  • Poetic Cundill: “No fortunes are made in prosperity, Ours is a marathon without end: Enjoy the passing moments.”
  • Cundill’s wit and wisdom on what makes for a great investor:
    • “Curiosity is the engine of civilization”, he advises to have serious conversations with people that result in an exchange of thoughts and to keep one’s reading broad.
    • “Patience, patience and more patience.”
    • “Always read the notes to a set of accounts very carefully… seeing the patterns will develop your investment insights, your instincts — your sense of smell. Eventually it will give you the agility to stay ahead of the game, making quick, reasoned decisions, especially in crisis.”
    • “Holding on to a heavily discounted stock that the market dislikes for a period of five or ten years is not risk free. As each year passes the required end reward to justify the investment becomes higher, irrespective of the original margin of safety.”
    • “An ability to see the funny side of oneself as it is seen by others is a strong antidote to hubris.”
    • Routines: “They are the roadmap that guides the pursuit of excellence for its own sake.”
    • Via Peter Robertson, “always change a winning game.”
    • “An investment framework ought to include a liberal dose of skepticism both in terms of markets and of company accounts.”
    • Personal responsibility: “If you lose money it isn’t the market’s fault… it is in fact the direct result of your own decisions. This reality sets you free to learn from your mistakes.”
    • Suggested reading list:
      • Extraordinary Popular Delusions and the Madness of Crowds
      • The Crowd: A Study of the Popular Mind
      • Buffett: The Making of an American Capitalist
      • The Money Masters
      • The Templeton Touch
      • The Alchemy of Finance
    • Cundill’s Corrolary to Murphy’s Law: “When things get so bad that you’re really scared, that’s the time to buy.”
    • Global investing: “Given the dearth of bargains today, it pays to search for them everywhere.”
    • On independence, via Ross Southam, “You have to be willing to wear bellbottoms when everyone else is wearing stovepipes.”
    • “If it is cheap enough, we don’t care what it is.”
    • “I would say that the problem with big businesses that have moats around them is they tend to over-expand.”
    • “IPOs for the most part are dreams engendered by the hope that pro forma estimates will be met. We deal to a certain extent in nightmares that everyone knows about.”
  • Three parts to Cundill’s investment strategy:
    • NAV
    • sum of the parts analysis
    • future NAV estimation
  • “Sometimes nothing is more misleading than personal experience.”
  • Investments held by Peter Cundill, managed by others, a potential place to search for ideas or gain more insight, pgs. 223 and 224

Gary North Pulverizes IRA-based Retirement Investing

Austrian school economic commentator Gary North has written an outstanding take-down of some of the political and financial risks inherent in government-approved IRA retirement savings vehicles. It’s creatively written from the point of view of a CPA counseling his client on why he should use an IRA for tax-reduction retirement planning. But, it’s written sarcastically and shows the naivety of this advice, so it could be a little confusing to read as you have to realize the opposite of what the fictional CPA is saying is what Gary North believes.

I list the major points against investing via an IRA for tax-reduction purposes made by Gary North below:

  1. Free money from Congress
    1. Congress is not looking for ways to save US citizens from their tax burden; historically, they have worked to expand it
    2. There is no incentive for Congress to not change the rules and force you to pay taxes to withdraw your money from your IRA, eventually
    3. The record of Congress is one of repeated duplicitousness, lies and rules-changes, none of which have ever benefitted the average investor
  2. Emotionally locked in
    1. Most people are emotionally locked in to non-Roth IRA plans because they fear paying taxes now and would prefer to push that inevitability into the future
    2. It is unlikely their tax terms will improve with time; Congress raises taxes and fees over time
    3. People have emotionally committed themselves to higher future tax burdens to avoid confronting the reality of their tax burden right now
  3. Price inflation
    1. Investors must contend with constant price inflation caused by the Federal Reserve
    2. Even at 2% inflation per annum, prices double every 35 years
    3. If you begin investing at 30, prices will have doubled by the time you retire at 65; your IRA will have lost half its value
    4. Traditional IRA investment choices, such as major stock market index funds, have yielded negative net returns for the last 12 years
    5. It’s unlikely the average investor can shield himself from inflation within the investment choices available in an IRA
  4. Privacy
    1. Information on IRA holdings must be sent to the IRS every year
    2. Congress and the IRS know exactly what you hold in your IRA
    3. You have no privacy and no secrecy of your investments via an IRA
    4. Congress and the government do not set a good precedent in this regard, as they insist on transparency from investors but lie, cheat and distort the truth on their own behalf
  5. A freeze on IRA accounts
    1. The odds of another crisis, financial or otherwise, are relatively high
    2. The government could use this as a pretext for issuing an executive order to lay claim to IRA assets, or otherwise freeze individuals’ ability to manage them
  6. Gold in an IRA
    1. It is difficult and costly to buy gold in an IRA
    2. Placing gold in an IRA negates part of the benefit of owning gold (privacy)
    3. Typical IRA offerings are managed by graduates and defenders of the current financial and political system, who have proven themselves incompetent on numerous occasions (2007-2009 being the most recent) and who are ignorant of economics and have a vested interest in propping up the current system

I don’t get how anyone could doubt the Austrian school.

Review – The 4-Hour Work Week

by Timothy Ferriss; published 2009

A few important takeaway quotes from Chapter 1, “Rules That Change The Rules”:

  1. Retirement is an unsustainable notion: implies you do what you dislike during the most physically capable years of your life; the math doesn’t work; you’ll probably opt to look for a new job or start another company as soon as you retire, out of boredom
  2. Alternating periods of activity and rest is necessary to survival, as well as “thrival”; work only when you are most effective to be more productive and happier overall
  3. “Someday” is a disease that will take your dreams to the grave with you; if it’s important to you and you want to do it “eventually”, just do it and course correct along the way
  4. Ask for forgiveness, not permission; if the potential damage is moderate or in any way reversible, don’t give people the chance to say no
  5. It’s better to emphasize strengths than repair weaknesses; identify your best weapons and focus on wielding them more wisely
  6. The positive use of free time implies doing what you want as opposed to what you feel obligated to do
  7. Relative income uses two variables: money and time
  8. Eustress: role models who push us to exceed our limits, physical training, risks that expand our sphere of comfortable action; people who avoid all criticism fail

The value of money spent is determined by:

  • what you do
  • when you do it
  • where you do it
  • with whom you do it

In other words, quality, not quantity, is the major consideration in “psychic yield” from money spent.

In Chapter 2, Ferriss proposes some “rules that change the rules”. To start with, the concept of saving and sacrificing for an old-age retirement is a broken one because:

  • it assumes up to that point you spend a majority of your time doing something you dislike during the most physically capable years of your life
  • the math doesn’t work and you end up reliving your low-income lifestyle in old-age
  • you’ll likely get bored and look for a job or start a company just to keep yourself busy, negating the whole point

Instead, Ferriss proposes taking periodic “mini-retirements” throughout your life. This concept is consistently applied even down to the weekly and daily level, as he suggests that,

Alternating periods of activity and rest is necessary to survive, let alone thrive… By working only when you are most effective, life is both more productive and more enjoyable.

Many people push their dreams into the future and thereby let “someday” become “never.” Instead of waiting for the perfect time to take a break, Ferriss recommends following a passion as soon as you are aware of it and course correcting along the way.

To use your time wisely in life, focus on the things you are best at, rather than wasting time shoring up your weaknesses. This is an economic concept known as “competitive advantage” and it works for individuals just as well as companies or countries (obviously). Using free time efficiently implies doing what you want to do with your free time, not what you feel obligated to do. Finally, it’s important to seek out eustress, which is healthy stress that results in testing our limits and then pushing them out a little further afterward. In other words,

People who avoid all criticism fail.

Chapter 3 is about overcoming the fear of realizing your dreams. Ferriss opens with the quote,

Many a false step was made by standing still.

To overcome fear, we must define it. Often, we realize that what we fear going wrong is an unlikely, temporary 3 or 4 (on a scale of ten) disaster, in return for a probable and permanent 9 or 10 success. If you don’t like what you’re doing now, and you stick with it, how likely is your situation to be improved one year from now?

Instead of seeing how much definite pain you can tolerate now, Ferriss advises you to pull the cord, take a leap and try something different while you still have a chance. You must develop a habit of doing things you fear on a daily basis because “what we fear doing most is usually what we most need to do.” You should ask yourself,

If I don’t pursue those things that excite me, where will I be in one year, five years and ten years?

If you’re bored and dissatisfied with your life and not following your passions, and you define risk as “the likelihood of an irreversible negative outcome”, then it follows that “inaction is the greatest risk of all.”

You’ve decided to face your fears and challenge yourself by demanding more. What should you do? As Chapter 4 recommends, aim as high as you can, and never let admonitions that what you are attempting is “unreasonable” stop you.

The reasonable man adapts himself to the world; the unreasonable one persists in trying to adapt the world to himself. Therefore all progress depends on the unreasonable man.

The bigger the goal, the less competition you will face. The less competition, the better your chances of bagging the big one– “the fishing is best where the fewest go.”

When choosing goals and objectives, ask yourself, “What would excite me?” and then do that thing.

Ferriss’s preferred method for envisioning your future, exciting lifestyle is called “dreamlining”. You are to come up with a number of “having, being and doing” items, and then try to convert the “beings” into “doings” by coming up with specific actionable steps you could take (lessons, events, workshops, etc.) that will transform you into that kind of person. Then, you estimate the cost of these different items and divide each amount by 12 (or however many months you’re giving yourself to realize these dreams, though the shorter the better to avoid “someday”-fatigue) to get your monthly cost for each.

Adding the monthly costs of your dreamline to your current monthly expenses (multiplied by 1.3 to give yourself a savings buffer for something going wrong) gives you your Target Monthly Income (TMI) and gives you a real goal to shoot for in helping you understand how much more you need to make on a monthly basis to start realizing your dreamlines. This is the part where you get creative– sell stuff you don’t need and aren’t using anymore, reduce your expenses by not getting that latte every morning, and think up new sources of income by starting a side business or other passive income stream. You’ll often be amazed how close you are to your dreams when you look at them as a monthly figure and consider ways in which your current spending doesn’t really satisfy your dream desires.

Living your dream is about doing, and making bold decisions for yourself. This is why Ferriss ends the chapter by stating:

To have an uncommon lifestyle, you need to develop the uncommon habit of making decisions, both for yourself and others.

The next time someone asks you for a decision on something (where to go for lunch, what to do about that client, etc.), MAKE ONE and course correct if necessary. Almost everything is reversible.

Chapter 5 develops the theme of time management. The focus is on the 80/20 principle of Italian economist Vilfredo Pareto, namely, focus on eliminating the 20% of sources causing 80% of your problems while spending that freed up time on the 20% of sources responsible for 80% of your desired outcomes and happiness. Productive efficiency is about doing more by doing less ineffective stuff via selectivity.

The most important lesson: lack of time is actually lack of priorities.

Give yourself short, clear deadlines to work out critical tasks that contribute the most to your work or quality of life. Ignore or eliminate the rest. A few other tips:

  • Ask yourself, “If this is the only thing I accomplish today, will I be satisfied with my day?”
  • Never arrive at the office, your computer or anywhere else without a clear list of priorities– otherwise you’ll make up distractions to fill your time
  • Compile your to-do list for tomorrow no later than this evening
  • You should never have more than two mission-critical items to complete each day
  • Do not multitask

Chapter 6, The Low Information Diet, takes these principles and applies them further. Stop wasting time reading the news; start using, “Tell me, what’s new in the world?” as a conversation starter and let others read the news and summarize headlines for you.

If you need to learn how to do something, read the autobiography of someone who has done it. If you’re suffering from information overload, ask yourself, “Will I definitely use this information for something immediate and important?” And practice the art of nonfinishing– if something is boring or not useful, stop reading it/listening to it/watching it, etc.

Stop asking people “How are you?” and instead ask them, “How can I help you?” The former invites interruptions, the latter invites action.

Living The New Rich Lifestyle Starts With Mini-Retirement Jet-setting Practice

Paraphrasing (in Ferriss’s words) the first few paragraphs of the chapter about doing a life-reset by traveling abroad:

Some jobs are simply beyond repair. Improvements would be like adding a set of designer curtains to a jail cell. Most people aren’t lucky enough to get fired and die a slow spiritual death over 30-40 years of tolerating the mediocre. Being able to quit things that don’t work is integral to being a winner. The person who has more options has more power. Don’t wait until you need options to search for them. Take a sneak peek at the future now and it will make both action and being assertive easier.

Begin your new lifestyle of mini-retirements and following your life’s passion by relocating to one place for one to six months before going home or moving to another locale. This will give you time to relax and enjoy the new experiences without having to worry about catching your flight home, and without shortchanging yourself by assuming you won’t be around long enough to really submerse yourself in the local culture and language.

Chose a location where your money will go further than back home (such as Argentina, Thailand or Eastern Europe). To get there, use credit card miles or buy your tickets either far in advance or at the last minute, comparison shopping with Orbitz.com or Kayak.com and the airlines’ own websites and then bidding on Priceline.com for 50% off, moving up in increments of $50 at a time. Consider using major airlines to get to travel hubs in foreign countries and then buying a local airline ticket to make the final leg(s) of the trip from there.

When you arrive, stay in a hostel or cheap hotel and query fellow travelers and hostel/hotel owners for the lay of the land. Tour around local neighborhoods with hop on/hop off bus tours or public transit, or rent a bike. Go look for an apartment (fully furnished and full of amenities) and set up your base for a few months.

If you’re relocating to a country where you can use dollar-arbitrage to your advantage, you can likely live much better than you do back home, enjoying a nice apartment, eating out at fancy restaurants and enjoying entertainment and nightlife you couldn’t dream of back home.

You should also look into local, private language instruction (several hours per week), as well as other local activities such as cultural dance, music, athleticism and exercise, that will allow you to learn from experts, mix with locals, learn the language and do it all for less money than you’d spend back home for equivalent experiences.

Practice taking less with you: take one week of clothes, no toiletries and allocate $100-300 to buy the rest of what you need when you get there. When you come home, leave the excess behind. You should be able to travel internationally with a carry-on and a backpack.

Final Remarks About Living Life Well

If you can’t define it or act upon it, forget about it.

Have at least one 2-to-3 hour dinner and/or drinks per week with those who make you smile and feel good.

Eat a high-protein breakfast within 30 minutes of waking and go for a 10-to-20 minute walk outside afterward, ideally bouncing a handball or tennis ball.

A good question to revisit whenever overwhelmed: Are you having a breakdown, or a breakthrough?

Rehearse poverty regularly. (You’ll fear it less when you know what it’s like and that you can handle it.)