I have meditated on and off for the past 15 years. I tried a bit in high school but never got into a rhythm. My first three years of college were so busy that I forgot about it. My senior year, however, I took a class taught by Daniel Kahneman where we discussed research on happiness and life satisfaction. During that class it became clear that science was beginning to back up what people had been saying for many millennia: meditation can be good for you.
After I graduated I decided to give meditation a real shot. I purchased a meditation program called Holosync. Then – for a period of about a year – I tried to meditate for an hour every day. Though not easy, I am entirely serious when I say that this was one of the best things I’ve ever done for myself.
Since that time I’ve meditated sporadically. I’ll usually manage 30 minutes a day for a few weeks. Then something will happen, I’ll stop for several months, and then I’ll start up again. I still use Holosync, but recently also started using Sam Harris‘s Waking Up app.
Meditation is like exercise. Doing it consistently isn’t easy. It takes time to see results. But – also just like exercise – even a little bit helps, and doing it regularly can dramatically improve your life. It certainly has for me.
I’ve had trouble sleeping most of my life. When I was younger, it was mostly an inability to fall asleep. As I got older, I started to wake up in the middle of the night (~3am) and have trouble falling back asleep. The phenomenon of being extremely tired but unable to sleep was common enough that I started to distinguish being ‘tired’ from being ‘sleepy’*. Conversely, there would be times when, though I thought I had slept reasonably well, I would get so sleepy during the day that I would have to take a quick nap…even if that meant going out to my car to do so.
After much experimentation, I’ve finally found a solution that seems to work reasonably well for me.
First, I have to keep it cool in the room. For me, that means 68 degrees or lower. I also take a combination of melatonin and magnesium 60-90 mins before bed. I’ve tried different configurations but this seems to work the best for me. Next, I wear earplugs to block out any noise (such as my snoring French Bulldogs). Next, I make sure that sunlight will wake me up in the morning. In the summer this is easy; in the winter I use a sunlamp alarm clock. I rotate mattresses every so often (e.g. I sleep in one bed for several weeks, then move to another bed). I also avoid eating anything after 9pm. Whenever possible, I try to stop working at least two hours before bed to let my brain relax. Finally, I try to go to bed at a similar time (+/- 1 hour) each night.
With those rough guidelines in place, I would say I’m sleeping better now than I ever have.
I’m not sure if others suffer from similar issues but wanted to share what works for me.
“One thing I learned as president was that the decisions I had to make were so weighty and consequential, the pace so unyielding, that it was easy to feel almost removed from myself. But the time I spent away from my desk, especially with my wife and kids — whether coaching Sasha’s basketball team or date night with Michelle — was a crucial, daily reminder of who I fundamentally was as a person. This was so important, because we bring our whole selves to the decisions we make. And those decisions, in turn, both reflect and determine who we are.”
Naval Ravikant has a saying: “Clear thinker” is a better compliment than “smart“. He doesn’t define exactly what he means by this, but if you’ve ever observed smart people acting stupidly (or done so yourself), then it’s clear they are not exactly the same.
To me, clear thinking seems to imply two things:
An ability to think logically and rationally.
An ability to be able to articulate or explain your reasoning.
Professors Keith Stanovich and Richard West have also proposed that there are actually two types of rationality: epistemic rationality(the ability to see reality accurately) and instrumental rationality (the ability to pursue one’s goals in a rational manner). Importantly, they also posit that someone’s “RQ” (rationality quotient) is only loosely correlated with someone’s IQ.
It has been my experience that many people – and particularly folks who have been in a field for a long time – have very powerful intuitions. However, their ability to articulate their intuitions and the rational basis behind them is often much weaker.
This is one of the reasons why I think the practice of writing can be helpful, as it forces you to slow down and verbalize your intuitions.
Many people took off the past two weeks for the holidays, so today marks the beginning of the new ‘work year’. For some, it may also represent the start of a new role or even an entirely new job.
Though I’ve been working on this for some time now, today marks my official first day as Managing Director of Centinel. As such, it has me thinking a lot about beginnings and how much they can matter.
Beginnings are a unique time. Almost everything is a ‘first’: a first impression; a first policy; a first decision; a first precedent. One of my favorite eras in history to study is the founding of the United States government. From the signing of the Declaration of Independence though the drafting of the Constitution to Washington’s first administration, the Founders were keenly aware that what they said and did in those early days set the tone and character for all that was to come. As such, those early days shaped our country and its government in ways that were uniquely powerful. This is true of personal relationships, too.
The start of a new role and especially the founding of a new company is similar. Though the scale and magnitude is not likely to be as large as founding a new country, those early days nevertheless have an oversized impact on what’s to come. That’s why I believe it’s so important to think carefully about what messages and precedents are set.
Many of are thankful to be done with 2020. As we begin 2021, let’s remain mindful to start on the right foot.
Confirmation bias – i.e. overweighting evidence that supports your view and underweighting evidence that doesn’t – is a well-established cognitive bias. Indeed, it often seems to be the case that when people are presented with evidence against their beliefs, they simply retrench further.
Several years ago, I came up with a trick that helps me avoid this.
The method is simple. In my mind, I make two columns, each of which represents one ‘hypothesis’.
For example, a few years ago my wife made the claim that I was a “bad driver”. I of course immediately became defensive and thought of all the evidence I could that supported my being a good driver: I had never been in an accident; had only received two speeding tickets since I started driving; etc.
Using this technique, I picture something like this in my mind:
For each piece of evidence, I then ask which hypothesis that evidence supports better and put it in that column. For example, let’s say we had the following pieces of evidence:
In my driving career:
I had gotten in one accident
I had gotten two speeding tickets
I often parked terribly
I had been in many near accidents
I seemed to drive much worse when other people were in the car
When asked, other people rated me as ‘below average’.
Using my method, in my mind I saw something like this:
Based upon this, I had to concede that the balance of the evidence suggested that, while I may not be a terrible driver, I certainly wasn’t as good a driver as I had thought.
I think the reason this framework works (at least for me) is that it forces me to start by treating the probability of each hypothesis being right as equal and then to consider all the evidence and how each piece supports the hypotheses.
I use this general construct all the time. Is a person being malicious or just lazy? Does God exist or not? Is a given policy likely to be helpful or hurtful?
Now if I were doing this more rigorously I suppose I would instead ask whether each peice of evidence refutes or falsifies each hypothesis. I’ll work on that. In the meantime, I’ve found this practice to be easy to do and effective in helping me think more clearly.
Every once in awhile – I won’t say once a year because that would be more frequent than is true – I like to think about my asset allocation. This is different than thinking about making more or spending less. This is about how I split the money I have across different asset classes. I’ll first share how I thought about this decision and then the resultant allocation. I share my thinking for two reasons. On the one hand, others may find it helpful. On the other, others may be able to point out where I’m making a mistake and help me.
Considerations
Here are some of the factors I considered when I was thinking this through:
Target Outcome
I like using the word ‘outcome’ instead of ‘goal’ or ‘objective’, as I think it forces me to be more concrete. When I use the word ‘outcome’, I’m really asking “what does the (relevant part of the) world look like if I’ve done this well?” In this case, the target outcome is that I can sleep at night knowing that my finances have appropriately balanced risk and return while providing me sufficient optionality for the future. More concretely, this implies a few subprinciples with the following order of priority:
Don’t do anything too stupid to mess up the future.
Ensure a comfortable retirement.
Provide exposure to events that could materially increase wealth.
Optionality
In my view, optionality is provided by cash and highly stable, liquid assets. Public market securities (i.e. stocks and bonds) are fairly liquid. Therefore, these assets ought to get a bit more weight than they might have otherwise. Whereas investing in illiquid assets is a difficult-to-reverse decision, liquid assets allow me to quickly correct myself if I realize I’ve made a mistake or the situation (personal or the macro-environment) changes.
Avoiding the Worst Case Scenario
To help plan, I wanted to define the worse case scenario and then, as a first priority, make sure that the chance of the worse case was near zero.
I first defined the ‘worst case scenario’ as comprising either of two outcomes:
A significant loss of capital such that I wouldn’t be able to go at least 2 years without working with no loss in lifestyle and without dipping into retirement savings.
A material change to my retirement outlook (which I predefine as starting at age 65), such that my public securities portfolio alone (which has significant historical returns data) wouldn’t be able to support my “minimum acceptable” retirement income with at least 95% probability.
#1 implied that I wanted to maintain a fairly large position in cash (or other conservative assets). #2 implied, for at least a portion of my public securities positions, a combination of high diversification and a clear and explicit tail hedge. While these two things were likely to damp returns, they provided downside protection.
Allocations
Reserve Account
One of the first things financial advisors always recommend is having a ‘rainy day’ fund: cash enough to maintain your standard of living for at least six months. I took that view and modified it in several ways.
First, because of the relative rarity of the roles I’m likely to accept, I adjust the six months to twelve. Further, because one of my most likely routes is to start another company (which not only takes time without income, but also initial business expenses), I wanted to plan for a two year timeframe.
Now two years worth of cash for me is quite a bit of cash to be sitting on. Having that much sitting in a bank account (at near 0% yields at the time I’m writing this) didn’t seem to make a lot of sense. Money markets weren’t much better. CDs were an option but the yields there weren’t that good either and had penalties for early withdrawal. What I really wanted was a place where I could park my money that was liquid, could earn a reasonable return, and would be relatively safe.
Now I’m fairly risk-seeking by nature so what seems ‘relatively safe’ to me may seem risky to others. That said, I ended up deciding to assign 80% of the value of my ‘reserve account’ to an allocation close to Ray Dalio’s All-Weather portfolio. This has averaged about 8% returns but more importantly has shown relatively minimized drawdowns across economic cycles. Even during the Great Depression (when the S&P 500 lost almost 65% of its value), back-tested All-Weather was shown to have lost just over 20%. Is 20% meaningful? Absolutely. Is it a risk I’m comfortable with? Yes, particularly because I still hold 20% of my reserve in cash and have a tail hedge position (more on that below).
Public Equities
Next in my allocation is public equities. Here I’ve divided my allocation into three strategies.
First is my allocation to net-nets. If you’ve never heard of them, they are basically deep value stocks where the total value of the company (as implied by the stock price times the number of outstanding shares) is less than an estimate of how much an investor could get if they bought the whole company and liquidated its assets. In essence, buying dollars for pennies. Now the availability of attractive net-nets varies so my allocation to this strategy will vary with time, but 10% represents my target position.
Next is my allocation to a concentrated buy-and-hold portfolio. This follows Warren Buffett’s adage that “it’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price”. One of the main reasons for this is tax-advantages: if you can let a company’s stock price compound for many years without selling, you avoid the loss incurred by having to pay taxes when you sell. (Of course, there are many other reasons as well.) Here my target is a 10% allocation to no more than 7 companies that I expect to hold for 10 years or longer. The high bar is intentional, as it forces me to focus and think through what I’m doing. Of course I may hold for less than 10 if circumstances (or my views) materially change.
Finally is an allocation to a widely diversified portfolio of both US and international stocks. This is primarily a nod to the fact that I don’t know what I don’t know. Here, my focus in on simply buying broadly diversified exposure through low- or no-fee ETFs.
Tail Hedge
My current allocation includes a 3% position in TAIL, a means of providing a tail hedge on my portfolio. My view on this is that it allows me to be more aggressively invested most of the time, since when a big downturn happens (such as in March due to COVID), my tail position will offset it. Moreover, during these big drops after the hedge spikes, I can sell off a portion of it and use it to purchase stocks a bargain prices when appropriate. I consider my 3% position a bit larger than what I’d probably do normally, but I am also generally concerned about valuations broadly in the market and believe the combination of historically unprecedented support from the Fed and likely further shifts in both monetary and fiscal policy create higher-than-usual concerns from me about a rapid, negative shock.
Real Estate
I’m a big fan of residential real estate: as businesses go, it’s relatively simple to understand and operate; it’s fairly localized; residential in particular is relatively recession proof (people still need somewhere to live); there are significant tax advantages; and appropriate leverage is easy to come by. Most importantly, however, my wife and her family are very handy: she has assembled her team – agents, brokers, bankers, accountants, and repair folks – that de-risk our investments substantially. For those willing to do the work, owning real estate can be an attractive investment; even for those that aren’t, consider REITs or a private real estate platform like Roofstock or Fundrise (disclosure: I am both a fund and equity investor in Fundrise).
Angel Investments
As an entrepreneur, I feel fairly comfortable making early-stage startup investments. I approach this asset class with a few things in mind. First, due to the power-law nature of returns in startups, I focus on building a large portfolio of bets: 100-125 at any given time (consider AngelList funds for broad diversification). Second, I try to minimize the amount of capital gains tax I need to pay via Qualified Small Business Stock or through investing via my Roth Solo 401k.
New Business Ideas
Beyond traditional angel investments (which are passive), I also am always continuing to think of new business ideas that I may want to start myself or in conjunction with others. Doing so often takes some amount of money, so I have an allocation to this pool as well. I do this to provide myself with some boundaries and make sure I don’t just spend all my money on my own ideas that I fall in love with. While investments in this bucket obviously take the most time, they also provide the most upside potential.
Cryptocurrency
Finally, there’s cryptocurrency. I know very little about cryptocurrency. That said, some investors I respect are quite bullish on crypto and I do see the incredible potential it (along with blockchain) has; a few years back Fred Wilson at USV recommended the ‘average investor’ have a 3% allocation to crypto; as I tend not to invest in things I don’t feel I understand, I further reduced my allocation to 2%.
Summary Table
Given all that, here’s where I end up:
Asset Bucket
Allocation
Cash
2.5%
Non-Cash Reserve: All-Weather Allocation
10.0%
Public Equities: Widely Diversified
12.5%
Public Equities: Concentrated Buy-And-Hold
10.0%
Public Equities: Net Nets
10.0%
Public Equites: Tail Hedge
3.0%
Real Estate: Private Residential
25.0%
Angel Investments
10.0%
My Own New Business Ideas
15.0%
Cryptocurrency
2.0%
Total
100%
Asset Allocation
There are a few things to comment on here:
Allocation to Equities
First, when you include the equity position within the All-Weather part of the portfolio, 42% of this portfolio is made up of public equities. While less than the 60% in a typical 60/40 portfolio, public equities still make up a sizable portion of the portfolio. (Bonds, in contrast, make up a much smaller part. Part of this is that I’m attempting to acheive diversificationt through other asset classes. The other part is that I don’t feel I know as much about bonds, and I try to invest in things I feel I understand.)
Second, though there are still sizable allocations to illiquid investments like non-REIT real estate and angel investments, over 60% of this portfolio is still liquid.
Third, a comment on the public equities positions. In reality, these allocations are a bit more fluid. While I intend to keep the diversified holdings invested at all times, the net nets positions depend on the availability of such deals. These tend to get more rare in hot markets (like we’re in as I write this), so deals are not always to be found. The same holds true for the concentrated positions: since here I’m looking for “great companies at a fair price”, sometimes those can be more difficult to find. In those cases where I’m ‘building up’ reserves to allocate to those other areas, I plan to split that reserve 50/50 between cash and the all weather portfolio.
Finally, Insurance
Something I didn’t talk a lot about here but should be part of every investor’s “portfolio” (and is part of mine) is insurance. As you can tell from the above I’m a big believer in managing downside (and tail) risk, and that’s exactly how I view insurance. Beyond health insurance, I have term life insurance sufficient that, if I die and the proceeds are invested in an all-weather portfolio, the income generated from that would be sufficient to take care of my family. In a few more years, I expect that my net worth will be such that we can self-insure and let the insurance expire.
Conclusion
So that’s how my assets are allocated, along with the reasoning that got me there. It lets me sleep at night, allows me to focus where I feel most comfortable, balances risk and return, and feels appropriately diversified. I’m sure it’s far from perfect but it works for me.
