Why Financial Wellbeing Matters

Why Financial Wellbeing Matters

By Robin Powell  April 27, 2021

The concept of financial wellbeing is suddenly receiving plenty of attention. What is it? Why is it important? And most importantly, what can we do about it?     The global pandemic has brought into sharper focus the concept of “financial wellbeing”,  a holistic measure of personal security not typically captured by investment returns, consumer spending and saving data or macro-economic aggregates.

On some measures, financial wellbeing has been deteriorating in developed economies for years, thanks to privatisation of social services, rising divorce rates, the growth of short-term employment contracts, increasing consumer debt and the shift to defined-contribution retirement plans.  But the sense of isolation and loss of control that many people feel in increasingly market-driven economies with minimal safety nets became more intense in 2020 as COVID-19 cut incomes through job losses, furloughs or reduced hours.

Dealing with the unexpected

In the US, a wellness survey by PwC showed that many American workers were already in a fragile financial state going into the pandemic, with more than a third of the full-time employed having less than $1000 saved to deal with unexpected expenses.  The PwC report found with governments stretched and community services already beyond capacity, there was an important role for employers to pay in financial wellness.

“Employees are seeking guidance more broadly on how to prioritise their spending, which bills to pay, and how to handle creditors.” PwC said. “Employers have a unique opportunity here to help employees avoid making poor short-term financial decisions at the expense of their overall financial wellness.”

The Australian Government last November released a report showing many people had reduced their spending in response to the pandemic. Among the worst hit, one in seven had asked for a pause in their rent or mortgage payments, one in five had asked for financial help from family or friends and one in eight had sought welfare assistance.

In the UK, also, there is growing awareness of the role that employers can pay in addressing financial wellness issues, an effort that aside from the moral imperative also makes perfect business sense by helping staff regain a sense of control of their lives.

 The Money and Pensions Service, sponsored by the UK government, found almost eight in ten British employees take their money worries to work, affecting their performance. In fact, money worries are the biggest source of stress for people, with 4.2 million worker days lost each year due to absences related to lack of financial wellbeing.

To continue reading, please go to the original article here:

https://www.evidenceinvestor.com/why-financial-wellbeing-matters/

The Golden Age of Fraud is Upon Us

The Golden Age of Fraud is Upon Us

Posted April 27, 2021 by Ben Carlson

A 30-something low-level actor created a business plan that would buy the rights to cheap movies and turn around and sell those rights to HBO for audiences in Latin America.  The investors backing the project were promised returns of 15% in just 6 months.  No bad in an era of 0.25% savings account yields.  Investors forked over more than $690 million to bankroll the rights to these films.

So what’s the catch?

The movie contracts with HBO were fakes, the business plan was a hoax and the entire ordeal was a Ponzi scheme where new money paid off previous investors. The money was used to provide a lavish lifestyle for the architect of the fraud, Zachary Horowitz.1  One investor claimed to have “99% of his and his family’s money” invested in Horowitz’s scheme.

Thodex is a cryptocurrency trading platform in Turkey. Last week it was reported the 27-year-old founder of the exchange took a flight to Albania.   He took with him $2 billion from more than 30k clients.  Last month the company brought in hoards of new clients by offering free dogecoin to anyone that signed up.

Whoops.

I don’t know if this SCAMcoin actually happened or if it’s just a social media thing but it wouldn’t surprise me if it’s real:

https://twitter.com/i/status/1385365742506364929

If Charles Ponzi were alive today, I have no doubt that he would be able to raise capital from investors, probably in the form of a SPAC. Many investors would laud him for being a genius as he bilked investors out of millions of dollars.

When I was researching the history of financial scams for Don’t Fall For It the one thing that jumped out above all else is how similar financial frauds are across time and place. They typically involve new technologies, people with extraordinary sales skills and the insatiable human desire for get-rich quick schemes.

Despite the fact that people have been getting duped by hucksters and charlatans for centuries, there was one period that kept coming up over and over again in my research — the 1920s.

It was the golden age of financial fraud.

The Roaring 20s had everything a con-artist looking to dupe people out of their money could ask for — innovation, new financial products, a booming economy, rising markets, new and exciting technologies, loose lending standards, new communication tools and people getting rich all over the place.

To continue reading, please go to the original article here:

https://awealthofcommonsense.com/2021/04/the-golden-age-of-fraud-is-upon-us/

When The “Lord Protector” Turned Out To Be The Worst Tyrant Of All

When The “Lord Protector” Turned Out To Be The Worst Tyrant Of All

Notes From The Field By Simon Black  April 26, 2021  Cancun, Mexico

In early 1657, a young farmer from southeastern England named John Washington boarded a small merchant vessel bound for the English colonies in North America.  Officially he was supposed to be part of a minor trade voyage to transport tobacco to the colonies.  But secretly John had no intention of ever returning home. He wanted to sail as far away from England as he could.

Britain in the 1657 was a pretty miserable place. A series of civil wars throughout the 1640s had left the country impoverished and chaotic, leading to the dictatorship of Oliver Cromwell.  Cromwell, in theory, was supposed to be on the side of the commoners who wanted to limit the power of the monarchy. But after installing himself as “Lord Protector” in 1653, Cromwell turned out to be more dangerous and autocratic than even the most tyrannical of kings.

He fought costly, unnecessary wars of ego, and paid for it all by raising taxes far beyond his predecessors. Yet despite the high taxes, he ran a massive budget deficit and further indebted the country.  Cromwell waged genocide against Irish Catholics, while hypocritically preaching unity and tolerance.

His administration jumped into bed with big business (like the East India Company, which “loaned” him the princely sum of 60,000 pounds), yet over-regulated artisans, merchants, and small shopkeepers.

He even confiscated property of those who couldn’t PROVE that they had been loyal to him.

Winston Churchill summed it up centuries later when he wrote, “the rule of Cromwell became hated as no government has ever been hated in England before or since.”

It was this hatred for Cromwell that prompted countless people to flee England forever.

John Washington was one of them; he settled in Virginia colony and had a family there. And more than a century later, his great-grandson George helped found a new nation.

It’s fitting that the American origin story of the first US President started with his great-grandfather who had the courage and independence to leave a brutal dictatorship behind.

This story is as old as history; from the Israelites leaving Egypt, to the Mayflower voyage, people have always sought freedom and opportunity abroad whenever their liberties at home are threatened.

Back then it was difficult. Voyages were dangerous and fraught with risk, disease, and starvation.

By comparison, today we have it easy; we can avail ourselves to much of what the world has to offer without leaving our living rooms.

But I’ll come back to that in a moment.

Have you stepped back lately to look at the big picture… to really take in what’s happening in the world? Honestly it’s difficult to believe.

It’s difficult to believe, for example, that we live in a world where several Dr. Seuss titles have been banned. But you’ll have no problems buying a copy of Adolf Hitler’s mostly peaceful Mein Kampf.

It’s difficult to believe that we live in a world where mostly peaceful protesters can pack together to torch cars and destroy property with impunity, yet everyone else is banned from having family over for Christmas dinner.

Power-hungry politicians are playing God with the economy and have established dehumanizing ‘people controls’ to save us against a virus that has a 99% survival rate.

And Lord Protector Fauci has become a tyrant in his own right.

Big Tech and Big Media refuse to allow any discussion about science and public health policy. Any attempt at rational discourse, including from prized scientific minds, results in censorship or banishment.

Children are taught that they are either victims or oppressors. Mathematics is full of white supremacy. History is racist. Biology is subjective. Capitalism is evil.

Big business has jumped on board the bandwagon, with dozens of major corporations blasting “Jim Crow” voting laws because certain state governments want voters to present valid identification before casting a ballot.

And the Twitter mob is there to keep everyone in check, with legions of people dedicated to being offended about something and destroying the lives of every heretic who dares disagree.

The government is fanning the flames of chaos by pushing Neo-Marxist policies, which they want to pay for with punitive, retroactive tax increases.

The US national debt has soared to more than $28 trillion, vastly exceeding the size of the entire economy, with no end in sight.

Meanwhile the central bank roughly doubled the size of its balance sheet in the past year, stoking inflation and creating a dangerous asset bubble that dwarfs the size of the 2008 financial crisis.

It’s extraordinary that five years ago, even two years ago, most of this would have been unthinkable.

But now it’s happened. And with every book they ban, every person they cancel, every demeaning public health order they issue, and every stimulus check they send, these people are emboldened.

And that takes me back to liberty and opportunity.

This isn’t the first time that freedom-minded people have found their world turned upside down.

But we have it far easier than our ancestors ever did.

We don’t have to risk the perils of a long ocean voyage. We have the whole world at our fingertips.

If you’re concerned about rising inflation, for example, you can buy gold online and have it delivered to a secure vault in a safe country of your choosing.

If you’re concerned about declining economic prospects in your home country, you can invest in rapidly growing frontier markets or more competitive foreign nations.

And if you want to have the ultimate Plan B for your family, you can even establish residency in a foreign country, or obtain a second passport.

All of this, in many cases, you can do without ever leaving town.

The world is not coming to an end. But it’s changing. Fast.

There’s no reason to despair or panic. Instead, have the confidence in yourself that you can use the many tools available to take back control of life, freedom, and prosperity.

All it takes is the right information, and the will to act.

To your freedom and prosperity,  Simon Black, Founder, SovereignMan.com

https://www.sovereignman.com/trends/when-the-lord-protector-turned-out-to-be-the-worst-tyrant-of-all-32032/

What Are NFTs And How Do I Get In On The Action?

What Are NFTs And How Do I Get In On The Action?

Published: 04/26/2021 by Samurai Sydney

Chances are you’ve been seeing the term NFT popping up in headlines all over the place. But what are NFTs? NFT is the abbreviation for non-fungible token. NFTs are a type of cryptographic asset that are verified using blockchain technology. Huh? WTH does that mean?  If you a creator and an investor, NFTs could be the right up your alley with the alternatives portion of your portfolio. Let’s dive in.

What are NFTs?

When I first heard about NFTs, I didn’t know what the hell people were talking about. Now, I understand what they are, but I still find this new asset class incredibly bizarre. This is mostly due to the insane amounts of money people are throwing into them. More on that below.

First, let me help you better understand what a non-fungible token is.

Simplest Definition Of A Non-Fungible Token

The simplest definition of an NFT is an original, one-of-a-kind asset that can be digitally authenticated using technology. The type of technology that is used to verify an NFT’s authenticity is blockchain. Blockchain is encrypted and includes information such as who sold the NFT, who bought it, and when it was sold. NFTs are cryptocurrencies. But unlike Bitcoin, which is a fungible cryptocurrency, NFTs are all unique. Because a non-fungible token is unique and can be digitally authenticated, this creates scarcity and helps increase its value.

Wait, step back a minute. Need a refresher on blockchain? Here’s my oversimplified stab at it. Blockchain is a type of database technology. Data is grouped together into clusters: the blocks. Each block has a storage capacity. Once a block is full of data, another block is created and filled with new information.

These blocks of data are strung together chronologically like a chain, creating a timeline of data. In other words, blockchain is a chain of unique data blocks. When a block is full, the data inside is essentially frozen in time. One way to visualize blockchain is like a bunch of snapshots put into an album chronologically.

Regular Money Is Fungible. NFTs Are Not.

Another way to better understand what NFTs is to understand what they are not. The opposite of an NFT is a fungible asset. Take everyday money as a classic example. Let’s say you have 2 bucks in change in your piggy bank. You might have 20 dimes, 8 quarters, or 2 silver dollars. Instead of carrying heavy coins around, you can exchange them at a bank for two crips one-dollar bills. Or you could even ask for a two-dollar bill instead. You can continually substitute or exchange various coins or bills to represent your $2.

Regular currency is fungible because you can hold it in different forms that represent the same value.

To continue reading, please go to the original article here:

https://www.financialsamurai.com/what-are-nfts/

It’s Time To Start Thinking About Inflation

It’s Time To Start Thinking About Inflation

Notes From The Field  BY Simon Black April 20, 2021  Cancun, Mexico

In the year 215 AD, the young Roman Emperor Caracalla, then just 27 years of age, decided to ‘fix’ Rome’s perennial inflation problem by minting a brand new coin.  Caracalla’s predecessors over the previous several decades had ordered an astonishing debasement of Roman currency; the silver content in Rome’s ‘denarius’ coin, for example, was reduced from roughly 85% in the early 150s AD, to less than 50% by the early 200s.

And with the silver content in their currency greatly reduced, government mints cranked out unprecedented quantities of coins.  They spent the money as quickly as they minted it, using the flood of debased coins, for example, to finance endless wars and buy up food supplies for their soldiers.

Needless to say this caused rampant inflation across the empire.

Egypt was a province of Rome at the time, and the one of the Empire’s major agricultural producers. Its local provincial coin, the drachma, had also been heavily debased.

A measure of Egyptian wheat in the early 1st century AD, for example, cost only 8 drachmas. In the third century that same amount of Egyptian wheat cost more than 100,000 drachmas.

Caracalla tried to fix this by simply creating a new coin– the antoniniamis.

It was originally minted with 50% silver content. But the antoniniamis was debased down to just 5% silver within a few decades.

Caracalla’s undisciplined attempt at controlling inflation was about as effective as Venezuela trying to ‘fix’ its hyperinflation by chopping five zeros off its currency.

In fact this same story has been told over and over again throughout history:

Governments who spend too much money almost invariably resort to debasing the currency.

In ancient times, ‘debasement’ meant reducing the gold and silver content in their coins.

In early modern times, it meant printing vast quantities of paper money.

Today, it means creating ‘electronic’ money in the banking system.

But the effect is the same: every new currency unit they create reduces the value of the existing ones. This is not the path to prosperity.

Economies flourish when talented, hardworking people are free to produce valuable goods and services.

It’s ridiculous to expect that an economy becomes wealthier when people are paid to NOT work, when debt levels soar, and when central bankers conjure trillions of dollars out of thin air.

Debasing the money supply does not create REAL wealth. It does, however, create inflation.

Central banks around the world, especially in Europe and the United States, debased their currencies last year in record proportions.

The Federal Reserve in the US roughly DOUBLED the size of its balance sheet last year, with ‘M2 money supply’ growing faster than any year in history except 1943.

More importantly, there’s no end in sight. The Federal Reserve, the US Treasury Department, and influential members of the United States Congress, all want even MORE expansion of the money supply.

Of course, they call it ‘stimulus’. But giving it a positive-sounding name doesn’t change the truth: they’re engineering inflation. And we’re already seeing signs of it.

Commodities prices, for example, have surged over the last year. Lumber has tripled. Corn has doubled.

Bear in mind that commodities represent the input costs to other products; so if lumber is more expensive, for example, it means that home construction prices will also rise.

Just this morning, consumer product giant Procter & Gamble announced it would raise prices across the board for its products, from diapers to beauty products, due to rising commodity prices.

Even official statistics from the US federal government show that inflation last month reached a multi-year high. We can also see inflation when we look at asset prices.

Stocks are trading at peak valuations; the average Price/Earnings ratio in the S&P 500, for example, is now 42, roughly 3x the historic average. It has only been higher two other times– just before the 2000 crash, and just before the 2008 crash.

Bonds are so expensive that more than $13 trillion worth trade at negative yields.

Real estate prices are so expensive that cap rates in many sectors have hit record lows.

These are all obvious signs of inflation.

It’s important to think about inflation, and to prepare for it… because the government’s options to deal with it are extremely limited.

In theory they could clean up their fiscal imbalance and stop spending so much money, which means the central bank would no longer have to debase the currency.

But such political responsibility is highly improbable.

Alternatively, if inflation continues to rise, the central bank could raise interest rates to reign it in.

But higher interest rates could easily cause a meltdown in financial markets; stocks, bonds, and even real estate, whose current record high prices depend on 0% interest rates, could experience a sudden crash.

More importantly, higher interest rates would push the federal government beyond its breaking point; if rates were to rise to just 5%, the government’s annual interest expense would eventually reach $1.5 trillion.

So that leaves the final option: the Federal Reserve could simply ignore the inflation data and continue financing government deficits.

They’ll tell us that the inflation is ‘temporary’ and ‘transitory’, and not to worry because they’re still in control of the situation.  But anyone who visits a grocery store, fills up a gas tank, or pays tuition, will know the truth.

I’m not suggesting the sky will fall and we’ll see some Zimbabwe-style hyperinflation. But a return to the painful inflation levels in the 1970s? That’s absolutely a possibility.

In a future letter I’ll discuss different ways to prepare for it. But for now I’ll leave you with a simple thought–

I am not fanatical about any asset, and I would never describe myself as a ‘gold bug’. I do, however, recognize that gold has a 5,000 year track record of performing well during times of inflation, with very few exceptions.

And at the moment, both gold and silver are among the only major assets that are NOT selling for record high prices.

On another note… We think gold could DOUBLE and silver could increase by up to 5 TIMES in the next few years.

That's why we published a new, 50-page long Ultimate Guide on Gold & Silver that you can download here.

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​The 5 smartest, safest and most lucrative ways to own gold and silver (and one way you should definitely avoid)

​Why gold is the ultimate anti-currency and insurance policy against the systematic destruction of the US dollar (that everyone should at least consider owning)

​Why ETFs are a lurking timebomb and why you want to avoid them like the plague

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To your freedom and prosperity,  Simon Black, Founder, SovereignMan.com

https://www.sovereignman.com/trends/its-time-to-start-thinking-about-inflation-31989/

All Market Models Are Wrong But Some Are Useful

All Market Models Are Wrong But Some Are Useful

Posted April 23, 2021 by Ben Carlson

I was doing a little research into the relationship between wages and inflation this week and found a report from 1952 detailing the incomes of families in the United States in 1950.   There were nearly 40 million households in the U.S. in 1950. Just 3.3% of those households made $10k or more per year while 77% made less than $5k.  So you could talk all you want about candy bars selling for a nickel or houses selling for $7k back then but the main reason things were so much cheaper is because people made less money.1

People are very scared of inflation today but the trade-off with inflation is you typically see wage growth as well. Since 1950, prices are up around 1000% as measured by the CPI. But median household income is up more like 2500% in this time.  Wages aren’t growing as fast as many people would like in recent decades but they have still grown over the rate of inflation over the long-term. So I think some inflation could actually be good in the coming years if it is accompanied by higher wages.

These types of trade-offs are everywhere in the markets when you start looking.

Once I went down the wages and inflation rabbit hole I realized there were all sorts of other variables to consider. My list got quite long very quickly:

I also looked at economic growth, returns for housing, stocks, bonds and cash, earnings growth, interest rate levels and stock market valuations.

You can see the 1970s were a period with high growth in earnings, GDP and wages but inflation was out of control so that growth was a mirage. Then you had a period like the 1990s where the economy did well, wages were up, inflation was average and stocks went nuts. Wages actually outpaced inflation by a wide amount in the 2010s but those gains weren’t equally distributed.

While inflation and wages do have some sort of relationship, it’s not as clear-cut as you would think.

Once you begin looking at all of these variables you realize there are relationships here but caveats abound. There is no such thing as a “normal” market or economic environment. Each period is unique in its own way.

Markets and economies are constantly changing as are the inputs that make them up.

For example, Michael Mauboussin wrote an excellent research piece this month about the relationship between valuations and accounting methods that bears this out. Look at this chart of the percentage of companies in the U.S. stock market with negative earnings:

To continue reading, please go to the original article here:

https://awealthofcommonsense.com/2021/04/all-models-are-wrong-but-some-are-useful/

Could Reading Literature Make You Better With Money?

Could Reading Literature Make You Better With Money?

Posted by Robin Powell on April 19, 2021

Could Reading Literature Make You Better With Money?   By Jacon Schroeder

 To make better choices and build wealth, have you tried investing time with the works of Shakespeare?  Our relationship with money is forged by experience. Why wouldn’t we then want the broadest experience possible to help us make important financial decisions? Experience by proxy is one of the values literary fiction offers.

Reading can be more than just a way to accumulate knowledge. Some of the most useful money skills you won’t acquire from traditional personal finance and investing books. Qualities such as self-discipline, self-awareness, creative problem-solving, empathy, adaptiveness, among others. All of which science suggests can be honed by losing yourself in a novel.

It is why, when people ask the timeless question, What are the best finance books to read?, I’m likely to recommend the names of Tolstoy, Hemingway and Morrison, alongside those of Bogle, Graham and Hill.

Many notable business and finance personalities are voracious readers. Famously, Bill Gates releases an annual reading list and Warren Buffett often name-drops books in his Berkshire Hathaway shareholder letter. But rarely do high-profile people in these industries recommend literary fiction. The attitude is seemingly reminiscent of a character in the movie Sideways who disparages fiction by saying: “There is so much to know about the world that I think reading a story someone just invented is kind of a waste of time.”

Research, however, shows that reading fiction is very much a worthwhile activity. It can help us develop the abilities to manage our emotions and behaviours and plan for the future. Two necessary traits for good financial decision-making.

Here’s the story of how.

 Conflict: We don’t recognize our future selves

To continue reading, please go to the original article here:

https://www.evidenceinvestor.com/literature-money/

How Much is Your Time Worth?

How Much is Your Time Worth?

April 20, 2021 by Ben Carlson

In his final letter to shareholders as CEO, Jeff Bezos took a victory lap by calculating all of the time Amazon Prime has saved for its customers:

Customers complete 28% of purchases on Amazon in three minutes or less, and half of all purchases are finished in less than 15 minutes. Compare that to the typical shopping trip to a physical store – driving, parking, searching store aisles, waiting in the checkout line, finding your car, and driving home. Research suggests the typical physical store trip takes about an hour. If you assume that a typical Amazon purchase takes 15 minutes and that it saves you a couple of trips to a physical store a week, that’s more than 75 hours a year saved. That’s important. We’re all busy in the early 21st century.

So that we can get a dollar figure, let’s value the time savings at $10 per hour, which is conservative. Seventy-five hours multiplied by $10 an hour and subtracting the cost of Prime gives you value creation for each Prime member of about $630. We have 200 million Prime members, for a total in 2020 of $126 billion of value creation.

You may quibble with his estimates on how much your time is worth on an hourly basis but the amount of time saved for consumers is probably low for many households.

In 2020, my family placed more than 600 orders through Amazon. This number was higher than normal because of the pandemic but I doubt it goes down considerably in the years ahead.

My wife and I have three young children. It’s not exactly a walk in the park to take them all to the mall for new clothes or a sporting goods store to get soccer cleats. Now we can simply buy this stuff on Amazon and it shows up at our front door the very next day.

No rounding up the kids to get in the car. No trips to the store. No searching for parking spots. No aimlessly wandering around the store looking for just the right size or style.

All of that is avoided by ordering directly on your phone or computer with the click of a button.

Some people claim Amazon’s prices aren’t the best and that’s probably true. I’m sure you could find lower prices elsewhere.

But that’s not the point.

You’re not necessarily going to Amazon for the best prices. You’re going to Amazon for convenience. Prime as a convenience is worth every penny and then some.  And convenience is something I’ve grown to appreciate more in life as I’ve gotten older and accumulated more responsibilities.

To continue reading, please go to the original article here:

https://awealthofcommonsense.com/2021/04/how-much-is-your-time-worth/

Classic “Money Rules” Applied to TIME

Classic “Money Rules” Applied to TIME

FIRE is not a single point in time. It’s a lifestyle. If you follow a basic set of money rules it will lead to a financially successful life.   The same thing can be said about TIME. To me, 5am is not a single point in time, or a number on a clock face. It’s a lifestyle. Similar to FIRE, following a simple set of time rules will lead to a satisfying and life well spent.

I’ve written before about how the Pay Yourself First rule is similar to getting up early each day. (I pay the first few hours of every day to ME, not others – more here). It doesn’t matter if it’s 5am, 6am or 7… Paying yourself first each morning ensures you never lose out on personal time.

So this got me thinking…. What other classic money rules can we apply to TIME?

Applying “Money Rules” to TIME

 Money Rule:                                                                                      Equivalent TIME Rule:

Track your spending                                                                        Track your time

Create a budget → follow it!                                                          Create a to-do or goal list → follow it!

Always max out your 401k                                                             Always max out your vacation time

Don’t buy shit you don’t need                                                       Don’t waste time on dumb stuff

Donate to charity / Tithe                                                               Volunteer and give time to others

Diversify, diversify, diversify!                                                        Always try new experiences!

Invest early, invest often                                                               Don’t wait. Do stuff while you’re young

You can’t predict a market crash, it could be tomorrow.              You can’t predict when you’re gonna die, it could be tomorrow!

 Tracking Your Time:

Just like your finances… Create a nerdy spreadsheet and track what you do each hour of the day. Start by gathering a full month of data, and tally up the results. If you’ve never done this before, I promise you the results will be sobering!

Next, compare all of your hours spent with your priorities in life.

How much time do you spend driving each week? How much time do you spend watching TV and movies? What about time spent browsing social media?

To continue reading, please go to the original article here:

http://5amjoel.com/money-time-rules/

A Thought Experiment from Warren Buffett

A Thought Experiment from Warren Buffett

By Kyle Kowalski

Being born at the right time and at the right place

The “Ovarian Lottery” is a short thought experiment popularized by Warren Buffett.

The idea is borrowed from John Rawls, a Harvard philosopher and author of A Theory of Justice. There are also earlier references like “Ovarian Roulette” from Dr. Reginald Lourie in the 1960s.

In The Snowball by Alice Schroeder (Amazon), Warren Buffett is quoted as saying:

“When I was a kid, I got all kinds of good things. I had the advantage of a home where people talked about interesting things, and I had intelligent parents and I went to decent schools. I don’t think I could have been raised with a better pair of parents. That was enormously important. I didn’t get money from my parents, and I really didn’t want it. But I was born at the right time and place. I won the ‘Ovarian Lottery.’“

The Ovarian Lottery — A Thought Experiment from Warren Buffett

I’ve found a few different versions Warren Buffett has shared over the years. The remainder of this post outlines two of them.

The Ovarian Lottery from Warren Buffett’s Annual Meeting in 19971

For this version, you can actually listen to Warren Buffett tell the story (beginning around the 4:15 mark in the video). The full transcript is also available below the video.

“Imagine that you were going to be born 24 hours from now. And you’d been granted this extraordinary power. You were given the right to determine the rules — the economic rules — of the society that you were going to enter. And those rules were going to prevail for your lifetime, and your children’s lifetime, and your grandchildren’s lifetime.

Now, you’ve got this ability in this 24-hour period to make this decision as to the structure, but — as in most of these genie-type questions — there’s one hooker.

You don’t know whether you’re going to be born black or white. You don’t know whether you’re going to be born male or female. You don’t know whether you’re going to be born bright or retarded. You don’t know whether you’re going to be born infirm or able-bodied. You don’t know whether you’re going to be born in the United States or Afghanistan.

In other words, you’re going to participate in 24 hours in what I call the ovarian lottery.

It’s the most important event in which you’ll ever participate. It’s going to determine way more than what school you go to, how hard you work, all kinds of things. You’re going to get one ball drawn out of a barrel that probably contains 5.7 billion balls now, and that’s you.

Now, what kind of a society are you going to construct with that in prospect?

To continue reading, please go to the original article here:

https://www.sloww.co/ovarian-lottery/

https://www.youtube.com/watch?v=5YYlp8HzN5k&t=256s

Go Figure

Go Figure

John Goodell  |  April 12, 2021

A LOT OF INVESTMENT math focuses on how money grows over time. But as an attorney who’s worked with many clients hoping to retire in comfort, I find myself thinking more about risk—and how the math can work against us. Consider five sets of numbers:

Inflation’s toll: 0.98

Got cash? If you multiply that sum by 0.98, you’ll see your money’s purchasing power a year from now. This assumes 2% inflation, which is the Federal Reserve’s stated target. To be sure, inflation has averaged less than 2% over the past decade. But cumulatively, it has still totaled roughly 17%. An item that cost $10,000 in 2011 would cost $11,692.68 today. Think your wealth is safer sitting in cash? It isn’t.

Goodbye, marriage: 0.5

Half. That’s roughly what you’ll give up if you divorce. Just about any small-town family law attorney will tell you the annoying-but-true adage, “It’s cheaper to keep her.” Each state has its own laws that apply to the division of property in a divorce, but the number approaches 50% in many states.

For instance, if you live in a community property state, the general rule of thumb is you give up 50% of commingled assets, regardless of who contributed what. While there are ways to hedge through pre- and post-nuptial agreements, divorce is a true wealth destroyer.

The taxman’s take: 0 to 0.2—or 0.1 to 0.37

Take the gain on any investment and multiply it by these numbers. The first two numbers tell you how much you might lose to federal taxes if you sell a winning investment that counts as a long-term capital gain, while the last two numbers are the potential tax hit if you have a short-term capital gain.

For couples with total taxable income of less than $80,800 in 2021, the long-term capital gains rate is 0%. Above that amount, the long-term capital gains rate is 15%, unless your taxable income exceeds $501,600, in which case it jumps to 20%. By contrast, short-term capital gains—which are triggered by selling winning investments owned for 365 days or less—are taxed at ordinary income tax rates, which means you’ll lose 10% to 37% of your gain to the taxman. Short-term capital gains are a killer of long-term wealth accumulation.

Those with lower incomes are less affected by the difference between short- and long-term capital gains. Suppose you’re married and your combined taxable income is just above $81,000. Your recent foray into GameStop may have resulted in a quick profit (though probably not), but your tax rate is going to be seven percentage points higher because you didn’t own the stock for more than a year.

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