## a zero-sum worldview

In game theory and economic theory, zero-sum describes a situation in which a participant’s gain or loss is exactly balanced by the losses or gains of the other participant(s). If the total gains of the participants are added up, and the total losses are subtracted, they will sum to zero. Cutting a cake is zero- or constant-sum because taking a larger piece reduces the amount of cake available for others. (from Wikipedia)

Let me go all geeky for a moment. I was a math major in college. I was precocious enough to get admitted to a state university’s PhD program directly, jumping past the Master’s program. It was a terrible mistake – I was in well over my head, both academically and “attitudinally” (if that’s a word), but I did learn a few things in the year I stuck it out. One was that I wasn’t a mathematician. It takes a weird breed to live in the world of numbers like that. Another thing I learned was that math – once you get to a certain level – is less science than poetry. It gets almost horrifying in short order; I spent an entire semester on a single mathematical problem related to chaos theory (“a butterfly flaps its wings in South America and causes a tornado in Iowa, etc. etc.”).

My point is just that before I abandoned math for the routine money-centric world of finance I learned enough to alter my worldview about certain things. One of the areas I was very interested in was game theory, although primarily I did focus on chaos theory. Game theory had the interesting concept of zero-sum situations; if I gain, you lose. Me +1; you -1. The implications of game theory, as wikipedia points out, have been extended to economics and war and even personal relationships.

But is wealth zero-sum? Is your increase in wealth directly related to someone else’s decrease in wealth? If you do better in your career, does that mean someone else’s career suffers? And, to bring it (as always, in this election season) to the macro level, if you are taxed less does it mean that someone else must be taxed more?

Any reasonable person who isn’t sticking to ideological talking points can probably immediately identify the answer: no. Wealth is not zero-sum. If I create a new technology – a Delorean that uses table scraps to power a time-travel engine, for example – I will create wealth for myself and others. The benefit will spread and everyone will benefit. No-one loses. Wealth is created when the person GETTING the wealth gives more than they receive. Has Stephen King benefited others more than himself? If you could put a price tag on enjoyment, probably he has – he’s probably provided millions and millions of “enjoyment hours” at some nominal cost and received millions of dollars in compensation. The value he’s provided has far outweighed the value he’s received.

Too many people today view wealth creation as “stealing.” Yeah, the real estate boom created wealth at the cost of all of us – through bailouts and long-term economic damage. But REAL wealth creation means that you’re giving away MORE than you’re receiving. If you build a better mousetrap, you’re going to make millions – but people are going to benefit from your better mousetrap far more than you’re going to benefit from them buying it. Everyone wins. I think if more of us thought this way we’d be better off. The trick in life is not to think of how you can increase your wealth by taking but how you can increase your wealth by giving.

## the riddle of steel

“He is strong! If I die, I have to go before him, and he will ask me, ‘What is the riddle of steel?’ If I don’t know it, he will cast me out of Valhalla and laugh at me.” … “That’s Crom, strong on his mountain.” ~Conan the Barbarian

Over the last couple of months we’ve all learned that some of the advice that we’ve been handed over the years will not be easy to swallow. Learning to live within your means and invest in index funds and network to maintain your job are all nice, friendly pieces of advice when the economy and the market are headed in a never-ending positive direction.  The same was true during the real estate boom – “invest in real estate” was such basic, incontrovertible advice that it seemed almost crazy to ignore it.

Now for my generation (Gen X) and the rest of the country it’s time to learn the riddle of steel. I’m not apocalyptic, but as I’ve mentioned before it’s awfully easy to advise people to invest in the market when it’s returning 10% per year, or to invest in real estate when it’s wildly appreciating, or even to be aggressive in your career when the job market is hot.  Nerves of steel will be required now.  When the job market is tight and the investment possibilities are limited, it will take some fortitude to stick with the wealth-building philosophy.  I made a pledge to reach a wealth goal last year, and recently I’ve doubted I’m going to make it.  But I’ve decided that the current economic environment offers even MORE opportunities than the rosier markets of the past few years.  When times are bad, individuals with focus and discipline are going to win the day.

I’ve been badly distracted by the presidential election in the US. I’ve mentioned it before – I’m a presidential politics junkie and I spend most of my free internet-reading time reading about minor political moves by the candidates, when my decision’s been made for months (although I’m not terribly happy with my choice).  I am looking forward to the conclusion of the race simply because it will allow me to shake my addiction to political news and return my full focus to the question of building wealth for the benefit not just of myself but for my family, friends, community and clients/customers.  I know that times are hard but I’ve realized that times like this are the times when people with real skills – not just paper degrees and flimsy networking connections – can move forward, and the more I think about it the more excited I get.  The market will be tough, the business environment will be challenging, and even daily life will be harder – but these are the challenges that will allow us to measure the best versions of ourselves.

photo credit: giopuo

## the math hurts

What is the name for what’s going on with the economy these days? We’re still technically not in recession and I think shrieks about a depression are overdone.  A crisis?  Whatever it is, it continues and I see no signs that it will abate before long.

I had managed to stay calm about the crisis even after seeing my investment and retirement accounts (IRAs) stagger. I work on Wall Street, so I’ve seen the bloodbath in the workforce – people who worked in accounting or IT who had nothing to do with the idiotic ponzi schemes got axed.  Times are tough, and from an objective viewpoint I understood that.

Here’s what brought it home for me. I have a 401(k), and the company it’s with has a nifty little feature to calculate “real” return; returns with the matches, contributions and so on factored out so you only see the return on what was in your account.  Up until 2008 I had been running at a slightly-disappointing-but-tolerable 8% per year return.

From my point of view 8% on a tax-free return is not a bad return, but in the heady market froth of the last few years it seemed less than exciting. I had managed not to worry too much about my 401(k), but I finally broke down and checked it Friday.  The result?  This year, down 65%.  My portfolio in my 401(k) is dull:  S&P 500 index funds, a midcap index fund and a euro-pacific index fund (plus I have a bit in stable value, about 5% of the total).

That alone wasn’t enough to bother me, but this was:  the standard assumption in the personal finance world, based on a lot of historical stats, is that a 10% per year return in the stock market is reasonable and expected for retirement planning purposes.  At first glance, that seems to be reasonable.  10%?  No big deal.  But here was the kicker, for me:  it takes 11 years to restore a 65% loss to breakeven at 10%.

I need to make 10% per year for 11 years just to get back to where I was in 2007. Is there another dot-com run-up somewhere in the future, when the market will surge 20%, 30%?  Keep in mind I’m talking about index funds, so the return is based on the market as a whole, not an individual stock where the possibility of a 30% rise is greater (although the possibility of a 100% collapse is also greater).

I’m not saying this to discourage anyone from investing in index funds, but it is a brutal reminder that you are not “investing” in index funds:  you are SAVING. I have some spare cash and I’m tempted to put it towards individual stocks rather than index funds when I look at those breakeven numbers.  11 years of great returns to break even?  Whee.  If you ever needed a reminder why you shouldn’t put ALL of your savings and investments in the market, thinking about the math on losses should be enough to keep you scared straight.  It takes a 100% gain to recapture a 50% loss…

photo credit: Petrick2008

## what’s the dealio with retirement accounts?

After my screed from yesterday I started wondering what everyone else is doing with their retirement accounts – 401(k)s and IRAs.  Personally I passed on the IRA this year (I wasn’t eligible for a normal IRA, just a Roth) and I have upped my 401(k) to ensure the maximum contribution this year.  I did this on the assumption that I’m buying at bargain prices, an assumption that I question almost hourly these days.  So what’s the thinking?  Part of me says it’s time to put spare cash in, well, cash… in order to get ready to invest in real estate or other types of investments (p2p lending, building a business, whatever).

## Glenn Beck’s emails

Editor’s Note: Since I wrote this post, Mr. Beck has gone…how shall I put it?  Insane?  I still think these emails were interesting reading, but I want to be completely clear that he has now (March 2009) transformed and I completely disagree with most (if not all) of his views.

Glenn Beck is a conservative commentator on CNN who differs from other commentators who call themselves conservatives but really mean “party hacks.”  I don’t agree with him all the time, but his economic views usually mirror my own…

…which is why I found these emails unnerving. He sent some letters to his family that ended up on the internet with his take on the current economic crisis.  It came in three parts:  “(1) how did we get here; (2) what’s coming; and (3) what can I do to prepare myself and my family.”

The emails, if nothing else, make for some thought-provoking reading. An unnamed business leader told him a 15%-20% reduction in GDP was possible:

A 15%-20% reduction of GDP would be like wiping out between \$2.1 to \$2.8 trillion dollars from our \$14 trillion GDP.  To show you how big that number really is, consider that in one year we spend about \$583 billion to run the entire Defense Department, \$43 billion to fund the entire Department of Homeland Security and have spent less than a trillion dollars fighting in Iraq
since that war began.

By way of comparison, in the Great Depression, our national GDP fell 29% over a four year period (1929-1933) and in that period we saw 7000 banks fail, a 25% unemployment rate and a Dow Jones industrial Average suffer an 80%  decline.  And that was when the pain of a shrinking GDP

His take on what to do (in the third email) gets a little apocalyptic for my taste, but his first two emails are interesting reading. Here’s the link to the emails again.

## troubles

I meant to post something last night, but I had to spend most of the evening wrestling with password changes. I don’t know if it was related to my recent loss of my USB key, but many of my password-protected sites suddenly didn’t work with the usual password I assigned to them.  I had to assume my key had been found.  I rapidly changed the last few sites that I hadn’t changed.

So amongst other things I think that brip blap’s access has been secured; for about 30 minutes I couldn’t log in since it seems the password had changed.  Good times…

This is worth reading.  As is this.

In the meantime, I managed to waste time watching this (I realize hulu destroys the blog format but I don’t know how to fix it):

## minding the little things

A few months ago my car’s air conditioner stopped working. To be more exact, the fan quit working except on the 5 (high) setting.  I could have the A/C off, or blowing like a hurricane.  I didn’t think about it too much, since I drive with the windows open except when it’s raining, and I don’t drive my car much (a couple of miles to the train station each weekday).

Some other things broke down a few months later and I decided to take the car in for an overhaul. The mechanics were mystified by the fan problem, and ended up keeping the car for an extra day.  When I picked it up, I found out that a non-standard part had been substituted at some point in the car’s repair history and the result had been that the fan had shorted out not only itself, but a lot of the wiring in my ignition.  I didn’t follow all of the technical details, but the mechanic summed it up this way: “you were lucky the steering column didn’t burst into flame when you turned the car on.”  I let out a “whew” and decided that in the future I would try not to let “little” repairs go too long without checking them out.

The same is true for most aspects of your life. Think about all the areas where you need to check out the “little things” to make sure the “big problems” aren’t lurking:

1. Your health. Going to a doctor once a year is a must, but I realized that my insurance covers vision, dermatology, podiatry, etc.  I am trying to make a better effort to work visits to specialists in occasionally to make sure that no problems are lurking (for example, getting a glaucoma test once a year from my optometrist, whether I need new glasses or not).
2. Your financial future. Check on your insurance policies and your will.  I am up-to-date on insurance, but Bubelah and I still don’t have a will.  I wonder how I can really offer much financial advice when I haven’t gotten that one piece of critical financial planning done myself, but do as I say, not as I do in this case.
3. Your family future. Make sure you check on the little things with your family.  Understand what’s going wrong with your relatives, your spouse or your kids before it becomes a bigger issue.   This could be health, school, social life, finances, etc.  Anyone you feel responsible for needs a “checkup” from you once in a while.
4. Your home. If you own, making sure your home is in good shape is no small exercise.  From alarm systems to air systems maintenance to just checking out the drafty places around the window, fixing little problems now can prevent big problems tomorrow.
5. Your political future. I know most people get excited about presidential politics in America, but let’s face it – your Senators and Representatives (both federal and state) and even your local officials have more day-to-day influence on your life than the President does.  I know worrying about who gets elected to the state senate isn’t as “big a deal” as Obama v. McCain, but it matters.
6. Your life, the universe and everything. Little things that bother you today can become a bigger problem tomorrow.  If you’re unhappy about something today, don’t let it fester.  Even if you can’t fix it today, take one tiny step toward correcting it.

I am often more worried about the long-term, big-picture issues and grand questions about life and history and whether the Jets will win a Super Bowl in my lifetime, but little things like avoiding a fiery steering wheel column through dumb luck remind me that I need to pay attention to the details in life, too.  Don’t wait until the little problems become big problems; I don’t know of too many problems that disappear on their own.

photo credit: swambo

I have to say that the whole peer-to-peer lending world is looking shaky these days. As pointed out by my fellow Money Writer, Lazy Man, Prosper abruptly moved into their quiet period.  Prosper sent an email today saying that their quiet period was beginning, just after Lending Club finished their 6-month quiet period.  I imagine Prosper’s quiet period will be shorter, but still several months.  I’m not sure how everyone else reacts to this news, but I don’t view it as a net negative or positive for p2p lending.  I think it has a future, but I think we need to wait until Prosper is out of the quiet period to see where it’s going to go.  Zopa pulled out of the US, eliminating another p2p lender.

On the other hand…with the market as crazy as it is, I don’t think p2p lending is a bad investment at all.  These SEC requirements regarding quiet periods are strange, I’ll grant, but I’m going to keep my small investment in both Lending Club and Prosper going.  It’s a non-market investment and I’m comfortable risking a small amount of money to see where it goes – so far I’ve been collecting my money and I’m happy with the returns.  The way I see it, any “alternative” investment is worth it at this point!

photo credit: Chris Fleming

## losing it

Just when I thought things were just about as chaotic as they could get – car troubles, work insanity, stress, etc. – I had to lose my USB key that had some personal information on it during my morning commute. On the off chance that someone found it and decided to check out brip blap (since that’s where I kept all of my drafts for future posts), please call the number on the key – there’s a cash reward, no questions asked.

I’m sure there are a number of lessons to be learned about putting personal information on a USB key, or a laptop, or a phone, or even in a notebook. Too late for that lesson to apply to me.  I had password protection on MOST of the files on the key, but paranoia has required that I spend most of the evening changing my password on all of our financial sites – banking, brokerage, insurance and so on.  Not to mention sitting around agonizing about the fact that a lot of blog-related work was on that key – now, all gone.

I had made a habit of backing up the key monthly, but of course this was the month I hadn’t gotten around to it so I had to go back almost 60 days to my most recent backup. Again, I’m sure there is a lesson to be learned.  Most of the important documents were backed up, and probably the worst thing that happened was the loss of two months of journal entries.

I have had ideas in the past about switching to a career as a professional life coach, but it’s quite clear to me that you need to be in a mental space where you feel quite confident about your life before you can do that.  I’m not there. You don’t have to have a perfect life, but you do need to feel that you’re in control and moving in the right direction before you can offer people advice.  I thought I was there about a year ago; now I’m not so sure.  I’ve written about losing weight, and managing careers and finance and relationships, and for me all of those things have been a struggle over the last few months.  I don’t know what to attribute it to – as I wrote about a few days ago, I think I have to look primarily at my own mental state.  External events have been annoying, to say the least, but not catastrophic by any measure.

So at least from the blogging point of view, you can bear with me as I’m going to be trying to apply all of the life-improving tips that I give in real time, as I give them, again. I’m trying to work on positivity, my fitness, my career and even on what I think of as the “big to-do” list of everything-that-needs-to-get-done-in-my-life.  It’s certainly not easy, and tonight I made no headway on any of it, but having been through all of this before I’m sure that it’s not impossible to do again.  I’m going to start with my career: the contract consulting for Fortune 50 firms of the Wall Street variety.  It’s not me.  So that’s going to change.  Wish me luck.

photo credit: Shereen M

## lending club open again

I got an email today, and apparently Lending Club is back up and running after lo, these many months.  What is Lending Club?  Guess you’ll have to go and find out.  Good to see they are back.

Another rough day in Corporate America and I don’t have much to say today, but rather than just skipping a day posting I thought I would try and put something up that reflects my frame of mind. Things are bad in the belly of the beast, despite a record day in the market.

## how to enjoy life, or not

The longer I live the more I learn about how NOT to enjoy life. The opposite lesson is much harder to figure out – how to enjoy life. I have learned a lot about what makes life less than pleasant. Commuting, for one thing. Poor health, for another. Bad relations with my friends, family, co-workers, neighbors, and even just people on the street. Overeating. Spending money on crap that you don’t need 72 hours later. Worrying about the future.  Agonizing over small things. The list could go on and on.

What I’ve learned is that identifying the things that make life more enjoyable is difficult. You make think you know; you may think you like pina coladas and getting caught in the rain, but maybe that’s not a truly life-changing statement. You may say “I love my kids, they make life more enjoyable” – but is that true all the time? If you’re a parent you know that there are plenty of 3 am puke-on-you sessions that are not, by any measure of the word, enjoyable. You may say you enjoy money or free time or food or any number of things, but often that’s a passing enjoyment. The true measure of something that is truly enjoyable is something that is unrelenting, unending and endlessly renewable.

I can give a few examples of things that are enjoyable by that definition. Health. Nobody ever gets tired or ceases enjoying good health. You may take it for granted or ignore it, but trust me, you enjoy it. Nobody gets tired of learning new things, or gaining respect for work well done. Nobody gets tired of being loved. It can be taken to extremes – stalkers, etc. – but I’m talking about the normal healthy human expression of love. My daughter lights up like the sun over the ocean when I smile at her, and I can’t imagine ever getting tired of that. My son puts his head on my shoulder and, unprompted, says “Papa I love you.” I could hear that a billion times and not want a second of that time back. My wife smiles at me without any reason and I get thrown back to the early days of dating and the starry eyes.  Reading a good book is always enjoyable.  Good times with family and friends are never a disappointment.

I have realized that you have to be careful about what you focus on for your own happiness. I focus on money, for example.  Money is not, and should never be, the focus.  The acquisition of the ability to get what you want might be a focus, or financial freedom, or freedom from debt, or the power to do something meaningful or enjoyable with that money – but money itself is not the focus.  I focus on my kids, but my kids themselves are not the focus.   Making sure that I am the person that they need me to be, without reservations, should be the focus.  I cannot control how they react to me, but I can make myself the best possible parent I can be, and take pride in their reaction to that.  I can’t guarantee I can control my physical state (I have some control over my physical state, but none over genetics or chance).  I can take the steps to ensure that I have done what I could to prepare for whatever my body may throw at me in the future.

If you are looking for happiness in things, or other people, or external events you are bound to be disappointed. In the end, there is only one happiness – in making yourself into the best possible person you can be and hoping that doing so translates to benefits for the rest of the world (which translates to your family, friends, neighbors, colleagues, acquaintances and humanity).  It’s hard for me to remember that I can’t actually change the way my kids or my wife or my relatives think.  I can only make myself the happiest, most persuasive person I can be and hope that optimism transfers to them as well.  Hoping to change external events or other people is a great way to ensure that you don’t enjoy life.  Focus on improving yourself – as a person, a worker, a spouse, a parent, a friend, a son, a sister, a brother, a cousin, a citizen, whatever – the rest will follow.

photo credit: macieklew