finances – Christopher Wink

How countries go broke

The American-led political order that started in 1945 at the conclusion of the Second World War is 80 years old and due for a major reordering.

That’s from How Countries Go Broke, the most recent in the “Principles” series by Ray Dalio, the billionaire hedge fund manager who has written a collection of books on economic systems and investment strategy. I read “The Changing World Order” a few years back.

This, like others in the series, is backed what Dalio vaguely refers to a research team he employs. This makes sense, that a billionaire investor would employ research to develop an ever more detailed view of the world, but he’s become best known for a more expansive view than current economic conditions. Beyond his Bridgewater hedge fund, Dalio pumps out content now that attempts to put today into a broader historical context. No doubt simplified, his “big cycle” is the idea that eternally human qualities result in governments following predictable patterns, of relying on a hard, fixed currency before devaluing it long enough until there is a collapse.

He argues we’re something like 90%-95% through this pattern. Dalio has a reputation of prescience, if not precision: His prediction of a coming internet bubble bursting came five years too early (a half decade of earnings). I struggle with this. The books and research are compelling and interesting, but exactly because they’re comfortingly simple, they also read is unhelpful in any specific or actionable way. The interpretation is nonetheless welcome.

Below I share my notes for future reference.

How not to invest

Public stock markets are exchanges to buy and sell shares in big companies. Most days most people involved are trying to solve some problem. Share prices go up when there is more demand, reflecting market conditions, innovations and/or a story about the future, and they go down when there is less demand.

Shorter-term business cycles (a few years) rotate longer-term secular trends (decades). Investors try to make money by putting this all together into a theory about the world. Different eras call for different strategies. For example, more than three-quarters of the gains in the American stock market between 1982 and 2000 were from rising price-to-earnings multiples (how much more expensive stocks got), rather than rising corporate profit (how much more efficient companies got). Over those 20 years, one could have called stocks “too expensive” and been wrong, until the very end, when a correction brought a big reset. “Fair value” is just just a mark in a continuum on the path from the start to the end of a bull market. Gotta pick your bets.

That’s from How Not to Invest, a book out this year from the investor Barry Ritholtz, who is a frequent writer and speaker.

The reason his book as a negative title? His big idea? A tiny sliver of any competitive field, including wealth accumulation, play the “winner’s game,” in which they’re competing on expertise. The rest of us play the “loser’s game,” as an analyst called it, in which we just try to avoid unforced errors. It’s true in tennis, and in money management. Just be smart, cautious and consistent and you’ll outperform most of the rest.

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The book’s foreward was written by Morgan Housel, another wealth manager who is active online and whose Psychology of Money was a bestseller in this tradition of the approachable personal finance books. Ritholtz’s book is longer and more tactical, but continues the tradition of introducing broader strategy and worldview.

He brings up lots of familiar, but effective, truths from psychology and other social sciences.

For one, he brings up the evolutionary mismatch hypothesis, which suggests that traits beneficial in our ancestral past, like craving sugar or storing fat, become detrimental in the rapid, modern world, leading to modern diseases like diabetes, obesity, and inflammation, because our ancient biology hasn’t caught up to today’s vastly different environments (e.g., sedentary lifestyles, abundant processed foods, constant stress). It’s also why basic personal finance strategies are so hard, even if the research has been so dependably clear for decades: put little bits into a diversified portfolio with the lowest fees possible.

Then again, when it goes wrong, as investor Howard Marks wrote: “Experience is what you got when you didn’t get what you wanted.”

Below I share my notes from the book for future reference.

Inside Crypto’s Wild Rise and Staggering Fall

An entrepreneur friend who fell deep into crypto mania said he hadn’t thought of it before.

The inevitability of crypto dominance that he predicted would be led by how traditional fiat currencies would fall out of favor. The thing about bitcoin and other cryptocurrencies, I told him, was that no military backed them. Tanks favor the status quo.

Now, as the founder of a tech-business publication, I always knew I needed a handle on blockchain, crypto and its myriad interwoven technologies, now increasingly labeled web3 and decentralization. So I still hold a small stash of bitcoin and ethereum, and I do hold an NFT, but I’ve always been prepared for them all to be priced at zero. That did help me better understand the world.

But that friend of mine had a hard fall. His stake in cryptocurrencies has so far fared better, but his portfolio of NFTs are essentially worthless today. It will always be a cautionary tale. And I bet the story isn’t done. Yet, the high-profile fall of the crypto exchange FTX and its boyish, one-time-billionare founder Samuel Bankman Fried was enough to spin an array of books – including one by a former coworker of mine. More recently, I read another account from journalist Zeke Faux, in his 2023 book “Number Go Up: Inside Crypto’s Wild Rise and Staggering Fall.”

Below I share my notes for future reference.

The Changing World Order: Why Nations Succeed or Fail

Empires rise and fall in predictable ways that follow long-established patterns.

An emerging power invests heavily in education, infrastructure and trade to create wealth, which it protects by strengthening its military. Elsewhere the current leading power grows decadent with rising wealth inequality, in-fighting and fading investments until the emerging power confronts it – and wins. War and revolution start the cycle anew.

That’s among the biggest themes from the high profile 2020 book from Ray Dalio, the founder of one of the world’s largest hedge funds: Principles For Dealing With The Changing World Order Why Nations Succeed And Fail. It’s part of the “principles” series that includes extensive independent research that Dalio’s team maintains here. He intends to look at the longest historical period possible to find patterns that can inform what happens next.

Most pressingly, he argues we’re at the late stage of the American empire, when the United States will continue to decline from its role as the world’s global hegemony and cede that position to China. I’ve been disappointed that much of his coverage has not challenged him on what seems a very big conflict of interest: Dalio is heavily invested in China, an authoritarian country that does not protect criticism, and he has been careful to avoid criticizing the party. In short, the book’s biggest flaws may be that he pulls his punches against China. Still, by using his own determinants and data, he paints a stark picture of unassailable patterns over the last 500 years up until today that looks like this:

Below I share my notes from reading the book for my future reference.

Personal finance is a social justice issue

The so-called K-shaped recovery to the pandemic economy is expected to widen inequality. It was already well-known that it is expensive to be poor. Yet we sometimes think of personal finance as the hobby of the already rich — of a white male dalliance.

Since the Great Recession and the lost generation of Millennials, there has been renewed interest in accessible financial advice. Yet even as white Millennials are finally making financial gains, it seems Black Millennials are still falling behind. For years at my company, I’ve tried to strike a balance between being positively encouraging to my team to increase their retirement savings (and to speak to the financial planner we make available to staff) without becoming too overbearing. We’ve made gains but I find the topic daunting.

Perhaps because the pandemic cancelled my annual Personal Finance Day with friends, I’ve been thinking a lot about a passion of mine: Personal finance is a social justice issue.

This is important because so many savings and investment fundamentals are simply not intuitive. Get rich schemes continue to fool many. In contrast, slowly and patiently putting a little bit aside into a passive index fund has been a remarkably reliable method for building wealth. Even God couldn’t beat dollar cost averaging.

Talk openly with your friends about what you earn, what you save and how you develop on your own journey. The internet is full of bad advice, but it’s also home to so much good stuff too. How to decide what is what? A solid rule: look toward the longterm and be committed by building habits.

(Photo of the calculator app by Kelly Sikkema via Unsplash)

A few quick personal finance lessons from Morgan Housel’s ‘Psychology of Money’

Finance is no science. It involves the tiny actions and feelings of millions of people.

Finance writer Morgan Housel published a tidy book last year called the Psychology of Money that does a fine job communicating the concept. I quite liked it, so I’ve shared a few quick takeaways I got from the book. Consider buying your own copy.

Here’s a 2018 blog post he wrote honing the topic.

Your retirement savings goal to strive for should mean you never dip into principal

Americans are rotten at saving for retirement.

It’s at least in part because of the seismic market change from 20th century-era defined benefit offerings (the pension you might have gotten working at a company in 1972) to today’s climate of defined contribution plans (the 401k you have at work or the IRA you might have with a company like Vanguard). More recently the Great Recession complicated the story more.

Whatever the case, we know one in three Americans has less than $5,000 in retirement savings. Two-thirds of Americans say they’ll outlive what they have saved, including the half of households that have no retirement-specific savings at all. Rules of thumb to the contrary abound: you ought to have the equivalent of a year’s salary by the time you turn 30, and you might want at least 10 times your top earning salary saved by the time you do retire.

When things are stressful, I tend to try to find some way to make them more approachable.

It’s in part why for the last several years, two childhood friends and I have gotten together once a year to discuss what we’ve tried, learned and accomplished on the subject the previous year. With a bit of nerdy glee, we call it Personal Finance Day, and we just held the fourth annual earlier this month.

Continue reading Your retirement savings goal to strive for should mean you never dip into principal

There’s no such thing as a safe investment worth making: ‘Personal Finance Day’ notes

I’ve shared before what a strange nerd I am. I tackle learning in a full-force kind of way, and I love to pair seeing old friends with new experiences and ideas.

For the third year, two childhood friends and I came together Saturday for dinner and drinks and elaborate slide presentations sharing lessons we had learned about the difficult and tricky and complex world of business and retirement planning and, yes, wealth creation.

Indeed, it was the third annual Personal Finance Day.

I wanted to share a few things we talked about that might transfer well. And use this as a reminder: when something as stressful and arcane as personal finance intimidates you, find friends, make whiskey sours and dive in and discuss. You’ll be surprised how much fun you can have.

Continue reading There’s no such thing as a safe investment worth making: ‘Personal Finance Day’ notes

What I learned at our second annual ‘Personal Finance Day’

Following up on last year’s inaugural, two friends and I returned to the rural county we grew up in together and had a day-long nerd out on personal finances.

Yes, after cocktails and dinner and catching up, we literally gave presentations and shared tips on things we were learning about navigating the very complicated personal finance world. It’s all about fun and self-improvement.

We shared and discussed and debated over ideas and rules of thumb and data — like the above pictured Zillow chart predicting longterm real estate growth in my neighborhood of Fishtown.

Below, I share a few notes that aren’t top secret.

Continue reading What I learned at our second annual ‘Personal Finance Day’

Getting married? here’s some advice on handling joint finances

More than a year ago, I got married. It’s fun and challenging and rewarding. I’ve learned a ton — even before the big day. One of the great challenges of any marriage is how two people merge their finances.

I wanted to share some of what I’ve learned over the last two years.

Continue reading Getting married? here’s some advice on handling joint finances