Wealth Growth Mindset - Part 2
This post continues from Part 1
Asymmetric Opportunities
Wealth Growth is the lifelong execution of realizing asymmetric opportunities.
An asymmetric opportunity is something with a small downside and a potential massive upside. By placing a percentage of your net worth in such an opportunity you get to realize a large potential upside and if it fails, losing a small amount.
You want to string together asymmetric opportunities one after the other over a lifetime. Lets say the S&P averaged 10% per year. Using the rule of 72 we’d get 7.2 years to double (72/10 = 7.2). If you invest wisely in asymmetric opportunities and get a 25% Compound Annual Growth Rate over a period of time, you will see your money double in under 3 years. That could be a lot of doublings between your current age and 80!
Aim to keep finding asymmetric opportunities. Use a percentage of your wealth not a dollar value to buy in. When you don’t have much wealth you can take bigger gambles. 10%, 20% of your net worth. What’s the worst case situation? You miss the target and still have little net worth? As your net worth increases, you might want to consider utilizing smaller percentages.
It’s easier to visualize money doubling rather than the the compounding effects that it will yield. Keep in mind great opportunities a very short lived. Somewhere between a day and a few months.
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Gaining conviction
Capital allocation has two steps.
Intuition, then deeper and deeper conviction.
Intuition is using your subconscious, gut feeling, unique character, soul, history of experiences, outlook to identify opportunities. Knowledge will be high level, abstract, opaque and vague. Details are muddy and the full picture may not be present. Intuition is the trigger that starts a Capital Allocation.
Conviction is backing up this up with math, facts, research, analysis. The conviction stage is ongoing, repeated and lifelong. With time your high level knowledge will shift to lower and lower level knowledge. You will explore the full tree of knowledge that sits under the investment down to the lowest, atomic levels. You will read all forms of information from dozens of authors. Conviction leads to more and more added to the same investment. It is also the fuel for increasing duration of the investment. Conviction lets you weather the hurricane force winds battering your allocation.
Should conviction change, re-allocate.
Both steps are essential for investing.
Constraining yourself
One of the main reasons we save and invest is to achieve “retirement” which really is financial freedom and control over your life.
The government with it’s quest to enslave all humans and parasitically leech individuals life force, leads to rules and regulations as to where one can invest. In this post I wrote about How Debt is Slavery I cover why society is set up to make you a slave.
Humans are sheep. Safety in numbers. The government creates routes to herd the population into pens where they are constrained for their whole life until they get old, lifeforce dwindles and they retire. An example of this would be some form of tax deferred savings.
Don’t let the tail wag the dog.
A lot of people will read the advantages of compounding and obviously having a larger starting amount leads to a higher compounded amount.
However there are many constraints and risks that come with the decision.
The approach I take to Capital Allocation involves buying things when they are cheap for asymmetric opportunities.
See this Post on my Wealth Growth Formula
In order to buy something you need cash. As your portfolio grows, the amount of money you can buy something with from your salary will not move the needle and will not achieve any significant percentage of holdings. Therefore you will sell some other asset to buy the cheap thing.
This can be considered as diversification as a side effect of an seeking an asymmetric return.
In a lot of cases, this cannot happen when you are stuck in a government built pen such as a Tax Deferred investment account.
We’re working for freedom - why make it binary. I.e. not-free when you are young, and free when you have little life force remaining and are old. I opt for gaining freedom as early as possible.
There is also the risk of the Government swindling your money. I wrote this post about the value of Complexity and decentralization. In end-times when Governments confiscate, steal, introduce Austerity, Bank Bail Ins etc… - they will do anything and everything to take your stuff.
This may sound wild but by simply looking at my How Debt is Slavery Post you can see the current active methods they employ to steal everything you have. Most if not all of the things they can do to steal more wealth have been used before.
The idea of being told what I can and can’t do as as a Capital allocator by a life draining, gray, enslaving army of rent seekers (government) enrages me.
There are mathematical benefits to government schemes, however use your own logic and reasoning to evaluate what makes sense for you.
Rewarding yourself and your family
Take small sums of money that you have grown to treat you and your family so they get some reward for their sacrifices. They get to see some real world manifestation of these virtual digits spinning on a spreadsheet.
Below is a picture of inside my garage which is full of fun toys for me and the kids. We have another KTM dirt bike coming later this summer. Walking through the garage brings me happiness as I get some real world manifestation of what I work towards.
It’s not a bunch of Lambos and boats, but I am somewhat careful with money.
These are what I consider fun and rewarding for the family, your might have your own ideas of what is rewarding to the family.
I feel that the next two decades will not be like the previous two decades. I do feel the probability of Government overreach, conflict, false flags, war are significantly higher. Do things while you have the energy and means.
