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Gambling at Wharton




I talk a lot about the idea of becoming a competent (wo)man, and the benefits of jack-of-all trading.  When I was stationed in Groton, CT in the Navy, I spent A LOT of time at Mohegan Sun  and Foxwoods Casinos.  I eventually became a poker player (this was around 2002; I was part of the Rounders generation, not the WPT generation), but before that, I also spent a great deal of time playing and studying table games.

Understanding casinos was a skill I thought might come in handy some day.  I learned how to count blackjack, though the edge is tiny with 6-8 decks.  MIT teams had already forced the no mid-shoe entry rule when I got started.  I also learned about other table games and even developed a team craps strategy which had slight positive expectation (in certain circumstances) and was fun to implement with a couple of friends.

Many of my submarine school classmates thought it was a waste of time and money to spend so much time at the casino.  I’m not sure what they did with their spare time, but I suspect that I’ve benefitted more from my casino time than whatever they were doing.

The proposition at Wharton:

Fast forward to today, where I’m a student at Wharton’s MBA for Executives.

In marketing class, we had a discussion about how estimates are biased by personal preferences.  For example, we were asked in a survey about a preference, such as:

1.  Do you prefer Chipotle over Qdoba?

Then we were asked to estimate the group’s preference:

2.  What percentage of your classmates prefer Chipotle over Qdoba?

The point of the exercise is this.  The first question determines the factual % of the group that prefer one preference over the other.   It turns out that the average of the answers to the second question is an accurate predictor of the responses to question one, but there is always a positive prediction gap.  This means that those who prefer Chipotle tend to over estimate  what percentage of the group prefer Chipotle, and those who prefer Qdoba tend to overestimate the fraction of the group that prefers Qdoba.

The takeaway seemed to be that preferences of marketers will influence their estimate of a population’s preference, so data collection is always necessary to ensure personal bias doesn’t taint strategy.

All of this is an elaborate leadin to discuss one particular question we received in the survey.

The Question:

Would you accept a 50-50 gamble where you would win $1000 if a coin comes up heads and lose $750 if the coin comes up tails?  (Assume that the stakes are real and the coin is fair).

and the followup:

What percent of your classmates would accept a 50-50 gamble where you would win $1000 if a coin comes up heads and lose $750 if the coin comes up tails?  (Assume that the stakes are real and the coin is fair).

Without even taking pen to paper, I know  you absolutely have to take the bet, as much and as frequently as possible.  Or even just once!  I’ll go through the exercise, to give a basic understanding of how to approach bets.

It’s worth discussing the theory behind this kind of bet, since it is (apparently) obscure!

Calculating the edge:

Half the time, you will win $1000.  Half the time you will lose $750.  So (0.5 x 1000) – (0.5 x $750) = $500 – $375 = $125.  Each time you make this bet, you will win $125, on average.

What’s known as the “edge” in gambling parlance is computed by dividing the expectation by the risked capital.  So in this case you have a $125/$750 or a 16.6667% edge as a player.  In other words, you’ll get $1.17 back for every $1 you manage to wager on this proposition.

That may sound like much, but many fortunes have been made in casino gaming by offering games with much more microscopic edges.  For example, typical blackjack rules are usually <1% house edge when players use basic strategy.  Baccarat is less than 2%, and is impossible to mess up as a player (unless you take insurance).  Roulette, which is notoriously house friendly, has a house edge of around 5%.

Offer a real gambler a fair bet with a 16.67% edge- they won’t believe you, at first, but if they do, they’ll do everything they can to pile into the bet.  This is a wager that would cause real gamblers to jump in the air, click their heels, and give a rebel yell… whether they actually win or lose the bet.  Real gamblers, and real businesspeople have to believe in the long run.

Bet sizing

You might say, “Sure, but what about the risk of ruin?  If you offer me a coin flip where I get paid $10 million if I win but owe $1 million if I lose, I can’t take that bet because it’s too likely I’ll go broke.  What if I only get to do this bet once?”

There’s an answer– the Kelly Criterion.  It was developed at Bell Labs, based partly off the work of Claude Shannon, who developed what’s known as the Shannon Channel Capacity equation.  Shannon’s equation helped determine all sorts of things, such as how much data a modem can push over telephone lines before data losses get too high and error correction has to kick in.  (There’s an interesting extension of this concept, which is if you push a modem to very high data transmission speeds, the losses will get very high… but the data rate will also get higher because you’re shooting more marginal data through the line than the losses you incur.  Modems capped out at 57.6Kbaud or whatever, but DSL uses the exact same telephone lines to shoot data MUCH faster. Through the air this is Bluetooth.  But we digress.)

The Kelly Criterion is based on an extension of information theory into gambling.  If there is a certain probability of successful outcome and a certain “edge,” then there is a specific percentage of your bankroll you should wager each time.  If your edge is negative, i.e., there is a house edge, then the percentage of bankroll you should wager is zero.

You can see on the wikipedia page that for investment decisions, the Kelly criterion is:



f* = percentage of bankroll to wager each iteration

p = probability of success,  0.5 in this case

q= probability of failure (1-p), also 0.5 in this case

b = if you win, your investment increases from 1 to (1+b) = 1 here

a = if you fail, your investment decreases from 1 to (1-a) = .75 here

So, applying the Kelly Criterion, the optimal bet is 16.66667% of the bankroll.  (You might note that this is the same as the edge %, and you’d be right.  It can get more complicated than that, but not in this case, and this is an excellent rule of thumb).

Microeconomics note:  I interpret that the Kelly Criterion assumes risk-neutral individuals from a utility standpoint.  A factor could be applied to increase or reduce f* based on risk aversion or risk seeking attitude, but is not necessary here.

The Bankroll

In gambling, a bankroll has a very specific meaning.  It is not net worth.  It is not what’s in your bank account.  It’s not what you take living expenses from.  It’s specifically the amount of money you have handy to apply to what you perceive to be high positive expectation situations.

In this case, a $1000 bet would be optimal for someone with a bankroll of $6000.  It’s important to note that the Kelly Criterion represents the maximum optimal bet.  If a gambler bets more, the risk of ruin (bankruptcy) is too high.  If the gambler bets less than the Kelly Criterion amount, then the positive expectation is there, but variance falls dramatically.

To put this in colloquial terms, you should feel reasonably safe betting the precise Kelly Criterion amount.  Anything less will make money for you as well, but less quickly- though you’ll be able to sleep better at night.

Coming full circle, what bankroll means to non-gamblers in my mid-career executive MBA program is a bit squishy, but I’m almost certain that everyone in my class has at least $6,000 sloshing around somewhere.  If not, then certainly they have an effective bankroll of at least that much based on human capital alone.

Full circle to Gambling at Wharton.

Now you know almost as much as I know about gambling, so let’s revisit this question.

Would you accept a 50-50 gamble where you would win $1000 if a coin comes up heads and lose $750 if the coin comes up tails?  (Assume that the stakes are real and the coin is fair).

Not only yes, but HECK YES.  I will take this bet once, or as many times as it will be offered to me.  This is not a good bet, it’s a great, screaming, monstrous, OMG, back up the truck, let’s do this, awesome bet.  Especially hypothetically since we can believe the coin is fair (might not believe that in real life).

What percent of your classmates would accept a 50-50 gamble where they would win $1000 if a coin comes up heads and lose $750 if the coin comes up tails?  (Assume that the stakes are real and the coin is fair).

Here’s the whole reason I wrote this article.  I am very impressed with my classmates, and seriously thought about guessing 100%, but I was dead wrong about this question.  I didn’t go to the trouble of computing the Kelly Criterion, but I knew the required bankroll was very, very, low.  I decided that since I knew the point was to demonstrate bias, I would lowball my class and guess 75%.  SURELY, I thought to myself, more than three of every four would take this home run bet.

The answer… was 40%.

Only 40% of my classmates would take this bet.

I immediately looked back at the question to see if I misinterpreted it.

Then I looked back at the question to see if others might have misinterpreted it.

No to both.

You could knock me down with a feather.  Only two out of every five of my Wharton MBA for Execs classmates would take this bet?  It’s just so… perfect.  It’s just so… obvious.  In fact, the prediction gap was the largest of any question in the survey at 44%:  those who would take the bet estimated 70% of the class would take it, and those who would not take the bet estimated that only 26% of the class would take it.

Sure, you might take the bet and lose $750.  You might not get to do it again.  But you have a whole lifetime to live.  If you always take gambles when you have a high positive edge, and limit risk of ruin through a concept like the Kelly Criterion, you will win in the long run.  In fact, the more bets like this you take in a lifetime, the more you’ll win.

I’ve thought about this a lot, and this scenario is a profound learning experience.  I think my diverse background has simply armed me with a lot of helpful tools that some people don’t have, and it’s important to neither overestimate nor underestimate anyone of any background encountered in business.

The ultimate takeaway for me is that behavioral finance is real.  In a group of smart, successful businesspeople who have already had graduate-level coursework in game theory, statistics, and monte carlo simulations, three out of five students made what I consider the absolute wrong decision in a straightforward probabilistic financial proposition.  The stock market is much more complicated, and the notion that everyone is driving valuations through purely rational decisions is hard to believe.

One thing’s for sure, I’ve found a great interview question.  Everyone’s entitled to their opinion, and there are no truly wrong answers to this question… but I can’t imagine ever working closely on a business project with someone who would not take a 16.7% edge with reasonably low stakes!


Improve your life with PULL Notifications

No bone had he to bind him,
His speech was like the PUSH
Of numerous humming-birds at once
From a superior bush.

From Emily Dickenson’s “The Wind Tapped Like a Tired Man”


I lost my cell phone a couple of weeks ago, and made up my mind to not get a new one.  Apparently… that is not an option.  People in this world are committed above all else to having cell phones, but they are almost as committed to making sure that YOU have a cell phone.  Must be something about network effects.  The whole thing makes me think of this old Married to the Sea:



If having a cell phone is the only way to have any hope of having friends, doing business, raising kids, and living life, then I wouldn’t exist, because nobody had a cell phone at my house until I was pretty old.  And even then it was a CAR phone.  Remember those?


Anyway, I was strongly encouraged to get a phone in the most persuasive manner by all the people I’m closest to, so I capitulated and agreed.  But there are conditions.

I leave it on airplane mode in my pocket.  I also pretend that I’m in a place where phones aren’t allowed, all the time.  Therefore, I never look at the phone when I’m having conversations, or really in eyeshot of other people, period, unless they are staring at their phones and I can’t convince them to look away.

Remember, looking at your phone is a shackle, not a reward.  That little bit of dopamine or serotonin you get from seeing who liked your like is false happiness, not real happiness.  Looking at your phone in the middle of a conversation is the worst thing you can possibly do.  Your friends will just think you’re blowing them off, which is a problem, but your kids will think you’re blowing them off, which is much worse.

Push notifications are the new smoking

I read an article recently that sitting in an office chair all day is “the new smoking.”  I think I’ll start referring to everything I don’t like as “the new smoking.”  So let’s get started:

What if an annoying guy sat next to you and read your phone all day.  Every few minutes he’d poke you in the ribs and say “hey dude, check this out.”  “Check out FB dude.”  “Someone texted you.”  Or even worse, “Whazzzzzzzzz-APP.”

That’s what push notifications are!  They’re an annoying guy, sitting next to you, snatching away precious time and even more precious attention away from you.  They have no place in your life.  It’s the new smoking!

I can convince you of the terrifying power of the push in one word.


Yo is an app that lives in the notification layer.  That is a place marketers want you to inhabit, but I assure you, you don’t want to live there.  Push notifications are so powerful that a company that essentially is a pure notification layer play just got a $1.5MM investment.  A few decades ago, nobody would have believed that consumers would carry around a device that would let advertisers ping them at will, but that’s the world we live in.  Friends can ping you at will too, which is almost as bad, because you have only so much attention to go around.

The solution to all these problems:  PULL notifications

I’m not suggesting your friends aren’t important, or that you can’t interact with them on a regular basis.  But do it on your time.

Here’s my solution:

  • Turn off all push notifications on your phone.  Seriously, every one.  IOS makes this easy, so does Android.
  • Put every single app that allows you to communicate with others on one screen, all by itself.  These are mine, and yours may vary.  Looks like this:


  • Go set up your own “pull notifications.” Mine look like this, the idea being that I need to force myself to “pull” communications at certain times (after settling in at work, just before lunch, just before end of day, in the evening while there are still a few hours before bed, etc).  You might have wildly different needs, and you’ll know when it’s important to force yourself to pull and check.  I’ll likely look at my phone more frequently than this, but these five times are important, at least for now, on weekdays:


  • Next, turn off your ringer on your phone- and the vibrate too.  GO SILENT.  If you are an on call firefighter, neurosurgeon, have a 39 week pregnant spouse, etc., then you can leave it on, but have a phone number ONLY for emergencies if possible.  The freaking guy who has the nuclear football doesn’t even need his phone on ring, because he’s got the President right there.  For 99% of us 99% of the time, there’s absolutely nothing that’s better to hear now rather than an hour or two from now.  Talking on the phone is important, but it’s much better to plan phone calls in advance, whenever possible.  In the following situations, you really don’t need a mobile device anyway.  How many calls about Canadian Pharmacy and car warranties can you take anyway?  Besides, you’ll usually be in one of these scenarios anyway:
  1. At work with a desk phone
  2. At home with a landline
  3. With your significant other, who is a “normal” phone person
  • So, you’re set up now.  Every time your phone alarm goes off, you go through the six or so apps you have queued up and PULL in the communications.  Respond immediately to each of them, or like away, but do your best not to get PULLed into a conversation.  If you need to talk to someone, pick up the phone and call them.  Texting is more efficient for quick points but completely inefficient for long conversations.  It’ll save a bunch of time AND MORE IMPORTANTLY give you hours of uninterruption.
  • Use the Pull pings to check your missed calls as well.  If you use a service like Google Voice, you can actually read your voicemails and delete them.  Checking 3-4 voicemails takes 2-3 minutes by listening, but only 10 seconds when GV transcribes them for you.  Then, you can call back or email and set up calls for people you actually want to talk to.

What about friends and family?

If you are in a social situation where friends are hopping from bar to bar, you’ll obviously be inclined to look at your phone much more frequently.  If you’re heading to the airport, you’ll have the sense to see if your airline sent you a delay notice.  If you told someone to call you after 8PM tonight, you’ll have your phone on ring after 8PM tonight.

You’ll still have access to your phone, YOU’LL just have to be the one to think about looking at it.

Of course you need to stay in touch with friends and family, but when they know you are not a phone addict, several things will happen:

  • They will not expect you to be available at any moment’s notice
  • They will do a much better job of planning events in advance in the future
  • Life will be much more like <1997, when people lived fine lives.


Like all of my lifestyle, the point of this strategy is not to avoid life, rather it is to live it more fully.  I’ve always said that time is the only limited resource, and Tim Ferriss has further refined my thinking by considering “attention units.”  It’s your only truly limited, slow-renewing resource, and allowing technology to snatch it away is a grave mistake.

Stop getting pushed around.

Start PULLING your communications.

It’s one of the easiest way I know to change your life for the better, right now.


I Hate Old People

I’ve gotten a lot of positive feedback since I’ve been writing here.  I’ve gotten in touch with people important to me from my past.  I’ve even gotten some negative anonymous internet comments, which according to Ramit is a hugely encouraging sign, since it means people (of all types) are reading.

A sentiment recycled again and again says the quickest way to fail is to try to please all the people all the time.  I’m probably a little guilty of that, in that I very carefully screen lots of content from my public writing that I deem too controversial (politics, social issues, the music of Prince, etc.).

What I want to address today is OLD PEOPLE!  I linkbaited you in with my title, because I actually love old people, and in fact I aspire to be one some day.  Time is relative, and by my calculations, I already am old.  So why do people think I hate old people?

In this post I made this statement:

Delayed gratification would be the choice to work hard until age 65 or 70, then being able to support a “continuous vacation” retirement of worldwide jet-setting, cruising, golf, a house in The Villages: extreme and frequent consumption.  Such retirees are not incapable of enjoying their hard earned retirement, but they have traded the best years of their life for a long vacation in the increasingly arthritic, childless and variously dysfunctional (use your imagination) years.

From feedback I’ve gotten from my friends (and especially various members of my family) this quotation seems to be the most controversial thing I’ve ever written!  I still stand behind what I wrote, but let me make it clear exactly what I mean.

  • First and foremost, if you work hard and love your job, keep doing it.   The point I was making throughout the article is that life is all about finding what you like to do and doing it.  MOST of the people I talk to would prefer to be doing something other than doing a traditional 9-5 job working “for the man.”  If you love it, and can’t wait to do it, then keep doing it!!!
  • Second, the dysfunctional and arthritic part is talking about me.  I have family history of all sorts of arthritis, and already today at 35 I can’t raise my left arm above my shoulder level without intense pain.  While I’m probably in the best physical condition of my life, if the next ten years yield as much decline as the previous ten years, I’ll be in big trouble.  My point was not to wait for age 65 or 70 or 80 to START doing what you really want to do.
  • Finally, I don’t think you have to have children to be happy.  I know a lot of people who do nothing but complain about their children’s expenses and needs for time.  I want to grab them by the shoulders and scream “why did you want to have kids anyway!!!” and often, “why do you keep having them???”  Conversely, I know lots of people who haven’t had children that seem very happy- at least, the things they complain about are high-order “first world problems” (can’t decide whether to ski in the Alps or Japan this year, tired and bored of the nicest restaurant in town ).  What I was trying to convey is that if you DO have kids, the imperative is to free up time to spend with them while they’re young.  That window of opportunity will close soon.  See this post on temporal wealth and the song “Cat’s in the Cradle” for further elaboration.

Here’s the point I was trying to make.

Everyone has different intelligence, different looks, different financial resources, and different hopes and desires.  But everyone has exactly the same amount of time.  Whether you’re a billionaire or a member of an uncontracted tribe in the rainforest, you have exactly 24 hours in each day and an uncertain number of days remaining.

If you love your 8-5 career job and can’t wait to leap up every day and do it, then you’ve won the game of life!  Keep doing what you’re doing, this post and the previous post are not for you.

But if you start feeling a deep, hollow dread Sunday evening, and come home emotionally exhausted and bitter with nothing left for yourself or your family every day, if you can’t enjoy Saturday because Monday is only two days away, then there is an alternative.  Don’t wait for retirement to start enjoying life.  That’s the one point I hope people take away from that post.

Bronnie Ware, a hospice nurse, documented the top five regrets of the dying.  I haven’t read it, but she eventually expanded her thoughts into a book (linked below).  I would encourage you to apply these principles to your life, not before you get OLD, but before you get any OLDER than you already are.


1. I wish I’d had the courage to live a life true to myself, not the life others expected of me.

2. I wish I hadn’t worked so hard.

3. I wish I’d had the courage to express my feelings.

4. I wish I had stayed in touch with my friends.

5. I wish that I had let myself be happier.


Are you expressing these, especially #1 and #2, through your career?  Don’t wait until you’re way older to have a continuous vacation retirement, start living your life so that your weekdays and weekends look the same.  Then you’ll be experiencing Continuous Gratification.

That’s all I have to say about that!


Declaring My Major in Marketing


Right now, I’m a student in Wharton’s MBA for Executives program. (WEMBA, if you’re nasty). What that means is that I travel to Philadelphia every other week or so for two pretty full days of classes. It’s somewhat questionable from a value proposition, as it is the Most Expensive MBA Program in the World (still I think, even though this article is dated). Whether or not it’s worth it or not is up for debate.

My conclusion- it is only as valuable or invaluable worthless as I make it.

(tried to go for parallelism there, but it’s like flammable/inflammable- same thing!)

In my case I’ve been exposed to ideas and people and opportunities that have permanently changed who I am and who I will be, in ways that are good. That’s all I can ask for, and almost no price is too high for the value I’ve already received. I can’t stress enough that going to WEMBA was a decision I don’t regret in the slightest.  If you’re thinking about WEMBA, go!  Go, go, go!

Of course, I’ve learned in marketing class that there is no such thing as value, only perceptions of value. I’ve learned a lot more in marketing class, and at this point I, as a finance, investment management and ops guy with a side of engineering, have all but decided to major in marketing. While majors are not necessary in my program, you can pick a major if there are sufficient electives offered to meet the requirements (our guide is here).

I came in thinking I would almost certainly major in Finance. After first term I was convinced I wanted the PE/VC individualized major. After second term I was pretty convinced I wanted to major in operations (OPIM) or even Statistics (though sufficient stats electives are never offered as a major to WEMBAs).

Now in the third term, we’re in the midst of a survey marketing course, and they’re throwing out all kinds of clever, interesting, gotcha concepts (perhaps as a marketing pitch to lure more future course signups?). And now, I’m 100% convinced I want to major in Marketing. I had zero interest until now, and granted, while the teacher is great, it’s the material that draws me in. It’s exactly what I want to study, for three reasons:

  • It’s the hard part! I’m pretty good at operations, statistics, and even strategy (though my strategy grade doesn’t show it). I’ve done the CFA program, and maybe because I’m somewhat familiar with the material, the finance classes are making me want to poke my eyeballs out. The one business concept I completely don’t understand is how to find, sign, and mind customers, aside from very basic and generic impressions I’ve gathered over the years. You can hire people to do anything, and hiring employees to achieve specific, measurable outcomes with clearly defined input processes is pretty easy – prepare an annual report, injection-mold a widget, or answer phone calls. How to go about those things is something of an art, but marketing is a unique business process because it has explicitly measurable deliverables, but means to achieve those deliverables are undefined pure art. There is (mostly) only one way to do GAAP accounting, but there are infinite ways to market a product. Throwing money at the problem makes it easier but there are winners and losers even among companies that buy Super Bowl ads. All art on the input (marketing strategy) and pure science measuring the deliverables (revenue) is a sticky wicket to… well, to do whatever people do with wickets. I want to master it!
  • It’s fascinating: This stuff is 100% pure black magic. If you haven’t delved into some of the reading, you have no idea how completely your every decision is understood, measured, and ultimately driven by marketing experts. It’s fascinating and scary!  I’ve put myself on a self-imposed media fast for the last couple of weeks because I am concerned with how our collective zeitgeist has become completely immersed in marketing and concerned by how sensitive I have become to it. You probably think you’re more or less immune from having your thinking taken over by marketers, but believe me, you’re not. Nobody is. When my 5 year old daughter sees an ad for something appealing on a carefully crafted TV commercial, you can see the desire engage in her mind like a switch. Within seconds she runs over and asks if she can have it for $NEXT_GIFT_HOLIDAY (Christmas, birthday, President’s Day, etc.). Here’s the problem: this phenomenon is not limited to kids. When you are barraged with thousands of images and messages as an adult, the same thing happens to you, more subtly. You think things like “when I’m successful some day, I will deserve a Mercedes.” Or “Valentine’s Day is coming up soon, I MUST spend a lot of money on flowers/ chocolate/ champagne/ fancy dinner/ pajamagram/ singing telegram/ animal actors, etc., etc. to prove how much I care. Or “geez the new fall lines are coming out, I better go buy new winter-y clothes and donate last year’s stuff to Goodwill.” Those are not your thoughts, they are marketers’ thoughts. You might independently think them yourself occasionally, but when you’re experiencing hundreds or thousands of these messages every day these thoughts begin to dominate your mind. Yes, they do. For you in particular. You have been immersed in this environment so long, you don’t realize you’re immersed. Yes, you! No, you’re not able to compartmentalize this stuff. Yes, you. I’m talking to you! Which is why productivity has doubled in recent decades but we still have a 40 hour workweek. Which is why everyone is beginning to accept that they’ll have to work until they’re dead. Which is why the work so you can spend more, then spend more on conveniences so you can work more mindset is universal. Which brings me to my next point…
  • It’s espionage: As you know if you’ve read my writing, I’m a bit of an anti-consumerist, and the chance to learn this material at an advanced level from serious experts almost feels like cheating. Will this material ultimately serve as fodder for my cause, or will the material change me in the end? There are always stories floating around about ridiculous juxtapositions, like a CEO of a sausage company being vegan or president of an airline who refuses to fly. I’d be surprised if Muhtar Kent or Indra Nooyi drink a case of their soft drinks a week, or if whoever the CEO of McDonalds is now eats McDonalds three meals a day? Maybe I can have it both ways, and end up someday as a virulently anti-consumerist marketing mogul?

Last weekend in class, we were talking about a website (I think it was gilt.com) that showed three handbags for sale. I think we were talking about the idea of avoiding extremes- if you put an expensive, cheap, and average handbag side by side, buyers will be drawn to the average priced one, and it also helps to put the “retail price” above the actual price because it makes it look like a good deal too. All this I could handle, but then our professor erased my mind by adding something like:

Studies have shown that these tactics help restrict consumer desire to perform research outside of the choice environment.

(the choice environment being the website or physical store)

This was a big revelation to me, as it connected the writing and thinking I’ve been doing all along with real academic research. Without knowing it, it defined all I’ve wanted to do on lifestyle – perform research outside of the choice environment, writ large.

At that moment, I knew I had found my major.


Kids Only Know Temporal Wealth

This continues the note from my friend and represents: 

Note to Mr. J, Part 2:  Kids and other things

From Mr. J:

Your post about ways to live and the approach to retiring had me thinking.  Since graduating from USNA I have not ever come close to living outside of my means.  Not by eating ramen or cranking down the heat to 62.  I simply extended my basic life at college and the boat to my life ashore.  Now we are doing really well and we still live the same basic life.  The first raise I got I heard the advice to save 50% and spend the rest on myself.  I asked, “What in the world would I blow this extra 50% on that is worth it?”  When I never found a good answer I just banked it.  So my wife and I have a couple of “expensive” habits.  We bought a house that was located where we want to be with the amenities we wanted for the kids.  The caveat I put in was it could be no more than 2X my annual salary.  That’s my salary, not the wife and me combined.  If that’s an $80K house I renovate myself I think that is important for keeping the debt low.  Since my income is good it does get me a 4 bedroom house in a new Houston suburb.  We fly a decent bit, but that is almost always to visit family.  And lastly we have the most expensive habit any of us can have – kids.  So not really habits, but that’s where we splurge within the limits.  The added plus is having a wife who is also frugal.

I remember that same advice about banking 50% of raises.  At USNA, there was a strong presence of USPA & IRA (now known as First Command Financial) which had a system they pitched very hard to senior midshipmen and recent graduates.  If I remember correctly, they took your money and invested you in front loaded mutual funds, and somehow had a contractual arrangement you would sign where you really would divert half of every raise to them for investment purposes… and they knew exactly how much raise you would get every period as a junior officer.  In retrospect, in some ways it was not a very good deal (fees, load, expenses, etc.) but on the other hand, had I actually signed up with them I might have ended up today with more money than I have now.  The 20s were not good on my finances!

Regarding kids, they certainly can be expensive.  There’s a sort of corollary to Parkinson’s Law that might state that kids are as expensive as you make them.  Jacob Lund Fisker has some interesting thoughts here.  In his book, he makes the point that if he can be happy living on $7000 a year, than easily a kid could be happy, having that much or less being spent on them each year.  If appropriate free schooling or cost effective homeschooling can be worked out, what else do kids really need?

The most important thing they don’t need is more stuff.  I was just in the last 24 hours reading someone talk about Laura’s doll Charlotte from Little House in the Big Woods.  That old doll is a big, huge deal to Laura, because she doesn’t have a lot of stuff lying around.  I remember parts of Where the Red Fern Grows being the same way, that kids have a few treasured possessions and those possessions really mean a lot to them.  Kids only have so much love to assign to material objects, and can only play with a couple of things at a time.  Laura loved Charlotte more than anything, but if she had 50 dolls, she’d only love each of them 1/50th as much.  If Laura had a whole room full of toys and even more packed away in totes in the garage, then she wouldn’t be attached particularly to any of them for any length of time.  What’s worse, is if there is a feeling of infinite abundance, then kids revert to a state where NO possessions have any meaning to them, rather they learn to seek and appreciate only novelty.

I’ve realized on my journey that novelty-philia and novelty seeking were among my worst traits, well into adulthood (like even six months ago).  Novelty seeking costs money, prevents development of mastery in any particular area, and is ultimately unsatisfying, unless constant novelty is evoked.  The worst kind of novelty seeking is collecting almost anything, since not only does a constant stream of money need to be spent but then stuff accumulates in your room/garage/attic etc.

This is how I think of collecting anything.  Substitute anything for “panflute” in this flowchart and it will help you make wise acquisition decisions:

panflute flowchart

this image was found here, one of many brilliant pieces on Drew and Natalie’s sites

It’s ironic that the point of anti-consumerism is to find MORE value in your possessions!

I’ve written before about efforts to become a Competent Man, and that’s very different than novelty.  While I want to work my way up the sigmoid curve in many areas, I don’t consider that novelty seeking.  I’m talking about at least getting up to the linear part in my chosen areas, but true novelty seekers get nowhere close to that stage.

So, enough about kids.  I think they are as expensive or cheap as you want them to be.  There is a theme I hear again and again, which I just recently heard on an interview with Arnold Schwarzenegger by the incomparable Tim Ferriss.  Tim asked Arnold about growing up, and Arnold pointed out that by today’s western standards he grew up dirt poor.  However, he never realized he was poor because he was surrounded by people in similar circumstances, and his mother (and to lesser extent father) had lots and lots and lots of TIME to spend with him.

Kids don’t know what you have in your bank account.  Their only sense of wealth is YOUR TIME.  J, you have put yourself in a position to spend lots of time with your kids.  So that money in your bank account doesn’t represent financial wealth, it represents temporal wealth.  Spend it by using it to spend more time with your kids!

more to follow from my long email exchange with J!


Note to Mr. J, part 1: motivation for writing

This is the first in a series of responses to a wonderful email I received from a long-lost friend.  I decided to break it up into multiple posts so that I keep to my “finish each post during lunch hour” rule and, more importantly, don’t bury some of the very thought provoking points he makes.

I received an email recently titled “this became much longer than I planned!”  It was, in fact, pretty long, but very powerful almost made me tear up reading it.

It’s from a friend from a long time ago… I’m pretty sure the last time we spent time together was class 0106 in Naval Nuclear Power School.  He obviously is a “big thinker,” and what’s exciting and amazing is that he is spending his time thinking about a lot of the same stuff that I do.  Here’s the first paragraph:

I have been reading your posts on LinkedIn the last several months with interest primarily because I knew you.  But as it is with most things you are getting better with each post.  And now I believe you are on to something with your recent string of posts.  This is quickly becoming something I would have searched out and added to my collection of guys with interesting ideas. Originally you were just posting what came to you, and it showed.  This look at minimalism and decluttering your stuff and your mind changes it all.  These posts come from you – the real you.  I know because that is the same guy I knew who slept in a closet for 6 months and showered at the gym as if that’s what you are supposed to do.  When you write about what you know people can feel it.  When you write about something you live every day you take it to the next level.

This is 100% true, I slept in a spacious walk in closet for much of my time at power school and also spent the last couple months sleeping in someone’s dining room.  I was committed to the idea of full time RVing back then, though orders to Hawaii complicated things a bit.  I also am 100% convinced that speaking from the heart of true experience is what makes people want to read what you write.  This post from J.D. Roth about Mr. Money Mustache makes that point clearly.    I like the phrase “building a cult through the power of story.”  There are numerous sources that have a message similar to the message I’m developing, and they all have their cults (aka audiences).  What’s interesting is that again, because influence is not transitive, essentially the same message can be applied by different storytellers to different audiences.  Of course I think my evolving message is unique, but it’s ok to borrow significantly from others.

I’ve been reading a lot of Ramit Sethi lately, not because I particularly want to go where his train leads, but simply because he’s a really engaging guy.  He offers a great object-lesson on this topic through his blog, which unlike many such sources seems to never have had the “registers cleared” from when he began.  If you’re unfamiliar with him, read a little of his very compelling blog and then go read some from the beginning forward (currently the beginning is page 216).  His blog was pretty bad in the beginning (i.e., not very personal) but over time it’s zeroed in on near-perfection.  It’s a great lesson in always evolving (always inverting, as Charlie Munger would say) and I really enjoyed stepping through it.

The reason Ramit is Ramit and nobody else is Ramit is because he started his blog, probably recognizing that it wasn’t great.  Rather than giving up though, he kept iterating, and he has become who he is because of that.

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Zen and the Art of Accord Maintenance

A human being should be able to change a diaper, plan an invasion, butcher a hog, conn a ship, design a building, write a sonnet, balance accounts, build a wall, set a bone, comfort the dying, take orders, give orders, cooperate, act alone, solve equations, analyze a new problem, pitch manure, program a computer, cook a tasty meal, fight efficiently, die gallantly. Specialization is for insects.

-Robert A. Heinlein


My uncle, (among the smartest and most successful people I know), says that specialization above all else is what will create success in a career.  He is an attorney who has written textbooks on the law and has focused in his practice on a few very obscure things.

On the other hand, people like Jacob from Early Retirement Extreme believe that vast and wide experience is critical to a successful life.  He does not use this term (to my knowledge) but apparently there is a literary archetype known as “The Competent (W0)Man,” which epitomizes this sentiment.  Jacob does use the Heinlein quote above, which I have known and loved for many years.

So who is right?

I think they’re both right.

Success in a career is contingent upon specialized knowledge, for several reasons.  First, as competitive as the job market has become, there are a zillion people who say they are well rounded generalists, but few actually are.  Someone with general skills AND specialized ability will win every time.  More importantly, the legal and regulatory environment has become so complicated (computer word processing and accumulating laws without a “clearing of the registers) that any subject has a large number of sub areas to master, and no one person can claim to be a complete expert on something as broad as “Mergers and  Acquisitions.”

So, as a careerist or academic, it’s important to develop specialization, but as someone looking for independence some day, it’s important to gain as many broad skills as possible.  These days I straddle the line.  I have developed significant expertise in a few career-related areas, but I work hard to become a “Competent Man” on the side.

All of this is a long way of saying that I replaced the starter on my car today.

I’m fortunate to have a largely depreciated, optional car.  

But sometimes, it still needs fixin’.  For the last month or so, I was having hard starting problems.  Usually I would get a click and no cranking whatsoever when I turned the key.  I found that cycling the key all the way off and back on again, several times, would ultimately lead to successful cranking.  I replaced the battery, and the problem persisted, so I figured it was probably the starter.  It was as though the current flowing through it warmed it enough to crank, but it was likely to go soon.

If the condition were static, I would have kept going like that indefinitely, but I started getting the sense that the symptoms were worsening.  Our driveway has a large slope down to get out, so since I have a manual, I could have hill started indefinitely.  The problem is that where I park for work is relatively flat, so I ran the risk of getting stranded away from the house, which was more of a problem.

So, for a number of reasons, I decided to replace the starter myself:

  • It would be ok if it took days or weeks to replace the starter (ordering new parts, tools, etc.).
  • I fancy myself an emerging Competent Man, so taking it to the repair shop would have been a betrayal of myself
  • Barring a huge error, doing the work myself almost certainly would be cheaper.
  • I’ve made peace (and arrangements) such that we can become a one car family, so any further maintenance on my car, particularly four-digit $ maintenance, is not going to happen anyway.

So, here was the problem presented to me:

old starter


That rusty looking thing that says Honda is the starter.  I had a nice new starter from amazon ($89.95 shipped) that had to get in there:


Car maintenance at this level is remarkably easy.  There are two bolts that hold the part in the car, and two wires that connect to the starter from the car.  Easy, right?

Well, it really is, but the only hard part is getting the bolts loose.  They’re pretty well buried in the car, as you can see, and I had a comedy of errors (and bloody knuckles) getting to them.  The biggest problem was figuring out what size the bolts actually were (14mm and 16mm, thankyouverymuch).  At least I think they were.  My 12 point 14mm wrench almost stripped the smaller bolt, and it took me forever to figure out how to even get a wrench onto the bolt underneath the starter.  I had the advantage of a diagnostic not available until recently, which is the cell phone digital picture of the offending bolt (if nothing else to make sure it actually was a bolt and not something else)…

So in the end, mission accomplished!


I know as much as you do about cars.

I have never changed a starter before.

But, using just a small handful of principles, I was able to do it.  Those principles include:

  • An awful lot of people have successfully done this kind of thing before
  • Designers make these sorts of things as simple as possible
  • If the engineers have not made it simple, there will be a lot of people on forums complaining about how hard it is and exactly how to do it

This goes far beyond starters.  I googled up the links above (which showed me exactly how to do it) in about 30 seconds.

The internet can teach you exactly how to do anything.

Seriously, we live in amazing and unprecedented times.  If I can change a starter in a few hours just using the internet and amazon, anyone can do it.  All you need is the will, desire, and a belief that you can do things for yourself.

So, in terms of a competent man or woman, this would be the continuum of starter replacement:

  • Buy a new car because you are unwilling to troubleshoot
  • Take the car to the dealership for troubleshooting / starter replacement
  • Take the car to a non-dealer maintenance shop for starter replacement
  • Take the car to a competent friend to help you replace it yourself
  • Replace it yourself (my level now)
  • Remove the starter, take it apart, replace brushes/stator etc. as necessary, reinstall same starter (aka Beast Mode, what I intend to do next time)

After all, this thing is just an electric motor, and I’m sure there’s a youtube video on rewinding starter motors, right?



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Influence is not Transitive

When I was younger, we had a family friend named Walt who was a really good cook.  He was funny and cooked fancy stuff and had opinions on all kinds of things.  He was the man who taught me to tear plastic wrap off the roll without folding it over on himself.

He talked about writing a cookbook for some time, and actually even started, I think.  But then one day, he said he was done with the cookbook, because Pierre Franey had written “the cookbook he wanted to write.”

I got a copy of that cookbook, and was honestly pretty disappointed with it.  It was BORING and sounded nothing like Walt!  The lesson is that the voice is just as important as the ideas conveyed, and influence is not transitive.  Pierre’s cooking expertise was everything to Walt, and Walt’s cooking opinion was everything to me, but Pierre’s cooking expertise was meaningless to me.

When I read posts like this one  from Jacob at www.earlyretirementextreme.com I wonder what I could possibly offer as a writer, since he so perfectly covers everything already.  This stuff is so unbelievably good, I can’t imagine ever writing anything more meaningful than what he tosses around on his blog, not to mention his book

But I am one of those people who is capable and actually prefers to read everything from a book, and many people are not that way.  Jacob segments a very specific market for his influence, and I think my potential market is very different.

Ultimately I write because I enjoy it, irrespective of readership.  I’ve been getting a lot of feedback from friends lately, which is very meaningful and encouraging.  I’ve also received more than one comment from people I haven’t seen since elementary school (Jigar, are you out there?) and it makes me feel I might have a future in writing.

So if you’re reading this, thanks for reading.  I’ll keep writing, if for no other reason than this stuff is not transitive and my voice might ultimately matter.


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How to Buy a Lifetime Subscription to Anything

One of the biggest comments I get is “I couldn’t live like you do, because I enjoy the little luxuries too much.”

Well, I do too. But money is something much more sacred to me than little luxuries. Money represents freedom. I want to make as much money as anyone, I just want to do completely different things with it once I get it.

I think about every dollar I earn or spend in terms of lifetime subscriptions. I would use Starbucks Lattes to ilustrate, but that horse has been beaten to death. Let’s use… getting a bagel instead.

Let’s say you really enjoy bagels, and want to get one every morning. Maybe you go every day, but you miss a few, so you go 25 times a month, and each bagel costs $4 after taxes.

  • Regular people would say $4 a day is not a big deal for a high earner.
  • Smarter people would say it’s $100 a month, which is kind of a lot.
  • Some might think that over 10 years it costs $12,000, which is also a lot.

A lifetime subscription for these bagels actually costs precisely $30,000.

What if your bagel place offered a lifetime subscription, or 25 bagels a month for life? What would you pay for that (assuming you’ll live there forever and the bagel place stays open, your tastes don’t change, etc.)? There is a rule, called the 4% rule, which states that any recurring expense requires invested assets such that only 4% of the initial invested amount will be withdrawn each year. Over the long haul, inflation will hurt you and investment returns will help you, and in most cases, you’ll be able to withdraw enough to cover the expense each year forever. There are critics of this method, but if you want to simply adjust it, just make it the 3% rule for conservatism, or whatever withdrawal rate you ultimately feel comfortable about.

Using the 4% rule, you need 1/.04 or 25 times any annual expense to cover it, forever. Since there are 12 months in a year, a lifetime subscription costs about 12 x 25 the monthly cost, or 300x. So a $100 a month bagel habit costs $30,000 today for a lifetime subscription.

Maybe you’re fine with that, but it’s going to cost you. In particular, let’s say you manage to invest $2000 a month after expenses, which is pretty good by today’s standards. Well, in that case, you will have to work 15 months extra before retirement ($30,000/$2000) to buy your lifetime bagel subscription.

A $4 a day expense can be bought out by gathering and investing $30,000.

Note that I’m in no way making a value judgement about your daily bagel. Maybe $30K is completely worth it, and you’d gladly work an extra 15 months before retirement to buy that subscription. So the question becomes not do you like bagels, or do you deserve bagels, but do you love a daily café bagel enough to work 1.25 years longer in your job than you otherwise would have to work to buy a lifetime subscription? Your numbers, of course will vary, but are easily calculated.

If you love café bagels and love your job, 15 months of working may not be a big sacrifice. For most people I know, however, they would do untoward, unsavory, possibly illegal things to have a free year of their life away from their job- things much less impactful than ditching a $4 a day habit! The standard substitute is straightforward bulk rolled oats from Costco, at cents per serving rather thandollars.

This rule can be extended to any recurring expense, such as:

  • Your power bill
  • Your cleaning lady
  • Your car payments
  • Netflix
  • Going to the movies
  • Eating out
  • YMCA/Crossfit/Yoga classes
  • Dog grooming

Try listing all your expected expenses, calculate the cost to “buy them out” as lifetime subscriptions. Total those subscription costs up. That’s how much you need to retire! Then, divide that by how much you save per year, and that’s how many years you need to work before you achieve financial independence.

In one direction, there is an unfortunate feedback loop which develops. “I work hard, so I deserve the little luxuries. By the time I’m 75 and retire, I’ll have plenty of money from my 10% savings rate to live a permavacation so I better do what I can to make these working years more palatable.”

In the other direction, there is a virtuous cycle which develops. “I work hard, so that I can save up money which represents freedom. I’ll be financially independent in the next decade, so I’ll have decades to learn how to appreciate all sorts of things, including becoming an expert bagel baker/boiler with the vast oceans of free time I’ll have if I decide to quit my 8-5 salaryjob. As recurring expenses are cut, less money is needed for retirement AND more money is invested each period, meaning less work is required before retirement… and so on.

Everything in this world can be bought as a lifetime subscription. But each lifetime subscription you buy increases time until retirement.

If you abandon a lot of things that ultimately prove irrelevant to you, your retirement date will be shockingly few years away.

Gene blogs semi-anonymously at www.solexist.com


Trolling, or Educating?

Take a look at this facebook exchange.  I don’t begrudge anyone their opinions, but I do have wildly different views than the people around me most of the time.

While I’m sure most of these people just think I’m weird or trolling, from my perspective I really am trying to offer a different viewpoint.  I suppose I could be less abrupt, but being bold does draw attention.

As far as I’m concerned, if any one of these people actually read the link, the whole process is worth it.  It’s funny how my comment was not even argued or confronted, just completely ignored.  I love how the last comment just puts an exclamation point on the whole problem I perceive with this thread!

Can you guess which one is my comment?





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