I’ve recently pulled back on reading and posting on FIRE blogs, except for a few I consider close friends. The more I study the reality of the interdependence of the financial system the more the concept of financial independence becomes a joke. The financial independence “movement” is simply a loose collection of narratives, all claiming some basis in fact, but in fact the basis is just narrative. The interesting thing is people base their realities, and the security of their futures on narratives and folk lore. As an aside I grew up on the south side of Chicago and in the winter they would open the hydrants around the park and the park. The park had been graded to form a shall bowl, so H2O in a big bowl plus a Chicago winter = instant hockey rink! In the summer the park dried out and we played baseball. This will eventually get somewhere.
I read Doc G’s posts sometimes at Diversfi and his story is a case in point. He’s a smart guy, quite entrepreneurial and managed to turn primary care into a near 1M/yr producer being a provider to nursing home patients. He lived on half and soon enough had a pile. He branched into side gigs including Hospice medical director and started a blog and a pod cast and a career in speaking. I was reading how all of that has virtually vanished for him. The nursing home practice is gone, the Hospice gig is gone, his partner in the podcast has other plans. Doc G is a smart guy and will no doubt survive, but the point is just because you write a narrative, a reality does not materialize. His narrative was not independent. It was entirely dependent. Dependent on the continued Hospice employment, on the continued podcast. Furthermore his “independence” is dependent on the performance of the economy. Doc’s in his mid 40’s and has another 45 years of expenses to cover.
I wish Doc well in his endeavor but it occurs to me he has an opportunity. Suzie O published a podcast with Paula at “Afford Anything” about the danger of “financial independence” and the FI world lost their minds! The very idea their independence could be threatened was anathema. Yet in Doc G’s story we see exactly how dependent we are, how in no time the narrative of our tycoonery can be blown away. The illusion of independence is the core narrative being sold in FIRE land.
In hockey to win, you have to learn to skate to where the puck is going to be, not to where the puck isn’t or was. You have to be where the puck is going to be and then put the puck in the net in a spot where the goalie isn’t, using velocity, acceleration, rates of change, probability, finesse, and brute force.
I have a friend who went to Chautauqua and heard JL Collins. He was all about buy my book! He was also all about “don’t review my book unless you’re going to give me and it 5 stars!”. He was prominently featured in this stupid documentary Playing with FIRE along with Vicki Robbin and half a dozen other FIRE movers and shakers as THE GURU’s. As I study real finance Guru’s these “luminaries” aren’t even smoke on the water.
Buffet says: “USE PASSIVE!!” Buffet is sitting on 100B dollars. If USE PASSIVE is the way to go why isn’t that 100B in VTSMX? I own BRK by the way. Munger has a few B. Munger owns 3 stocks. Not 3 funds, 3 stocks. Buffet made his dough by buying low and selling high. Buffet tells you to buy VTSMX. Why would he tell you to buy VTSMX and not own VTSMX himself? Why does Munger not own VTSMX? What is the present day value of VTSMX that would be all time high. Buffet doesn’t own VTSMX because he’s waiting for it go go low before he buys it (this is called timing). Buffet knows how to skate to where the puck will be. He’ll be there to buy you out when you will be forced to sell low. I own BRK for this exact reason Buffet knows where to skate and when to pounce. Munger knows to put his money in 3 winners not 2997 losers. One of those winners is BRK. Munger skates with Buffet. If you’re not predator, you’re prey. JL Collins knows this. He’s not a great guru he sells books to prey. Vicki Robbin is the same. She’s not a guru she’s a promoter. She’s the fisherman you are the fish.
Doc G with his recent reversal of fortune can become the voice of reason based on experience in this space. The voice of the reality of how dependent your “independence” really is. In surgery we have a saying: whip it out and someone is going to come along and cut it off for you.
Investing is not all gloom and doom nor is it all happy days are here again. Investing is about learning to skate to where the puck is going to be, against a very predatory competition who’s desire is to buy low when you are forced to sell low. Investing is dynamic and nuanced and success is hidden from view behind the narratives. Do not be complacent Buffet is waiting to eat your lunch.
12 Replies to “The Illusion of Independence”
Another great eye opening post Gasem.
I too read the post by doc G but did not realize the extent of what happened. Proves that life is indeed unpredictable.
I wish Doc G the best, but I think he’s going to have a lot of company when it hits the fan. Suddenly all the advertisers will go out of business and quit advertising, and the get rich quick narrative will be in the toilet so web traffic will implode and you’ll be creating 7 days a week of content for 50 bux a month profit. CNBC will turn and the new narrative will be “look at this dumb ass, he retired at 35!” But till then what could possibly go wrong?
Thought provoking as usual, on both the unreality of FIRE and the uncertainty of passive strategies.
No good stock values to be had now it seems. What would you do if you were in the accumulation phase? Stack cash and wait for the inevitable?
Though anathema market timing is a thing. When a train is barreling down on you, get off the damn tracks before it hits! The problem with market timing is not the timing but the animal with his/her finger on the trigger. The human brain is wired for asymmetric risk/reward, with risk aversion outweighing reward in a 4:1 ratio. This means a human can not hope to win except with a mechanical strategy. That strategy is not “all or none” which is how it is often characterized. Either you’re all in stocks or all in cash for example. There are portfolios which make money in all seasons but they do NOT hold a concentration in stocks, but they do own some stocks. 2 portfolios like this are the Ray Dalio All Season portfolio and the Golden Butterfly. The thing with these portfolios is they risk adjust across decades so you can’t screw with the ratio’s and goose the concentrations of stocks because the DOW is high.
Personally I have diversified away from what is expensive, like stocks into other asset classes to preserve my wealth. So I own less “stocks” which I sold high, and bought, bonds, gold, cash and BTC. I also started an active trading account, using a trading system, as another form of diversification but I wouldn’t recommend that unless you have experience. In that account I am trading ETF’s and hold bonds wood oil energy cattle and some countries like Italy and Russia.
The calculators say the golden butterfly does a bit better but it’s damn hard to discount Ray Dalio so I would say diversifying into one or the other while you can sell high, is likely to be the right move. Also I diversified across tax strategies because in retirement you get to spend only what they say you can keep.
That is why I still hold my license and we continue to work. My husband and I focus on being more picky in the types of work we do but we are not stopping Medicine. I am prepared to pivot to full time if I ever need to.
My daughter is in university now. She is surrounded by students simply dying to be physicians. We know we have it good.
No one on the blogs is so wealthy that a few issues won’t sink them. Many folks way smarter and way richer have lost their fortunes. Be paranoid.
I reached so called FI when I was 36. That was 15 years ago. But my version was that maybe I would go from 6 days a week of work down to 2 days a week instead.
That’s the reason I plan to have my lowly government benefits partially or wholly cover my living expenses. I cringe when I read bloggers judge other with how much someone might have left to their heirs because they spent too little.
Who cares?!!!! I care much more if I planned poorly and was over confident but left them with NOTHING.
Unfortunately practically all of life’s biggest lessons must be learned by experience. I look back at my younger self and cringe at all my beliefs back then. That’s likely why I am much more careful nowadays.
Life has always thrown curveballs. I have come to expect them. I will quietly continue to build a foundation for our family.
I’m about to let my license go. I’m struggling with that decision a little, but I don’t want to work anymore. At some point even though you know the medicine, the process becomes absolutely intolerable. My likelihood of failure is small. I’m nearly 68 and for sure won’t see 88 maybe not 78. It’s a different story if you have to fund 50 years of leverage and inflation. It’s interesting how people consider themselves “financially independent” on evanescent criteria. IMHO the concept of independence is a delusion. The only thing one possesses is a possibility of success in the face of assured failure.
Man Plans God Laughs.
Still, everything is relative. Losing your lucrative gig hurts a lot more when you’ve been living hand to mouth. But I agree that it’s important not to confuse the model for reality, and believe that everything will be ok because The Math Works.
I read a book by Benoit Mandlebrot on markets. Basically the math works till it doesn’t. Black swans are only black when the odds are along a Gaussian distribution. If the Gaussian tails become fat, black swans are no longer rare but in fact become more like their white brothers in terms of being common. Gaussian tails become fat all the time in nature. In the field of fluid dynamics it’s called turbulence and is a measure where risk goes from relatively “linear and predictable” to wild. We call this a hurricane. A half assed house won’t stand in a hurricane. In my mind the solution is a longer accumulation and a shorter distribution
Nice splash in the face with ice water. But you’re right the narratives are more dependent than independent. Jobs, passive income, financial mathematics wizardry will work unless they don’t. Besides the DocG story the Financial Samarai is also looking to return to the working world. Things change. There’s a concept in the comp sci world called a bit flip – when the one randomly flips to zero or vice versa. Whether due to cosmic radiation, quantum physics voodoo or whatever it doesn’t really matter. The answer is redundancy so if something fails you have a backup plan that keeps working. Applying that to our financial planning is a very good idea so I enjoy reading your thoughts on how to mitigate the damage should one of these bad narratives occur.
I think mitigating the risk is related to NOT exaggerating the ease with witch the future will unfold, and it will unfold regardless. The more I study, the more hidden risk I uncover. I read recently they have re-jiggered CPI twice. This means a study like the Trinity is completely worthless. It means the best laid plans.. are built on smoke. If you can’t accurately judge inflation, there is no plan, there is just a wing and a prayer. Why is inflation slated by the FED to be 2%? A target of 2% inflation eats up 62% of the principal in a 50 year retirement IF YOU NEVER EXTRACT A DOLLAR FROM THE PORTFOLIO. Put that in your financial independence pipe and smoke it. If they then change the benchmark it means they are hiding a higher rate of inflation than would have otherwise been reported. A 3% inflation in 50 years eats up 76% of the principal. What that means is if the portfolio is leveraged at 6% you actually need to make 9% to stay even. If the CPI is jiggered by 1% you need to make 10%. Governments that have debt and run deficits love inflation. They get to pay off the debt with cheaper dollars. Governments that own debt HATE deflation because it makes the debt more expensive. For the saver it’s just the opposite since they take the other side of the trade. Savers get creamed with high inflation and rewarded with deflation. There is about 15 trillion in negative interest bonds in the world. That means they pay negative. You give $1000 and get $900 back at maturity. This is the equivalent of how inflation works. You save $1000 and in 50 years it’s worth $380. Buffet quacks about how gold pays nothing!!! In a land where investing costs you, getting paid nothing beats hell out of having to pay.
I wish Doc G well, and had not been aware of his recent reversal of fortune.
He’s a resourceful guy who will land on his feet, which I suspect is the ultimate lesson here: it will all get pulled out from under you, and it’s the resilient investor who planned for the worst case scenario that will survive.
Weebles wobble but they don’t fall down.
I have no doubt Doc G will prosper. His example is an example of how we tell ourselves narratives to delude ourselves until reality raises it’s ugly head.
The rush of the free fall out of a airplane is amazing, but the entire thing is predicated on the idea the pulling the rip cord will actually change the momentum and allow you to land instead of bounce.