Getting Started: Part 4 - A Map of Ideas to Create a Life Theory

Let me set the stage a bit.

Plans are worthless, but planning is everything. There is a very great distinction because when you are planning for an emergency you must start with this one thing: the very definition of “emergency” is that it is unexpected, therefore it is not going to happen the way you are planning." - Dwight D. Eisenhower, 1957

This was written in 2017.  I was trying to gather together my thoughts on how to apply all my studying into a cohesive whole.  I was also trying to set a bit of a direction, making it clear to myself what I was about to do.  In no way did I follow this plan exactly, but it gave me bounds to start thinking about, areas I could start experimenting on, seeing which pieces really fit me and my life and which pieces wouldn't work.

Chaos Engineering is the discipline of experimenting on a system in order to build confidence in the system’s capability to withstand turbulent conditions in production. - Principles of Chaos Engineering

While not all of it remains precisely accurate (such as the tax rate at 15%), it is a great place to start.  I'm not suggesting this is the plan anyone else should adopt, rather take this structure and use it to apply to your own life.  You need not even obey your own plan, just rather contemplate it to give you a better idea of where you are going.  I should note I have edited this for formatting consistency and clarity, but tried to leave this as close to the original as I could.  Lastly, as I have studied, my understanding has gotten more complete.  For example, I would now limit gold to 10-15% and I am trying to live closer to 4.5% and think that is risky, but acceptable due to my plan to earn ~$10k a year, which gets it down to 3% a year.  That all is not in the plan.  That is why I wrote the plan, to test it myself and to find what areas to study!

Here is the plan:

Portfolio Theory:

Stock & Bonds

• General Philosophy
  • Margin of Safety is important.
  • Prefer dividends 3.5+%
  • Prefer lower P/B, P/E ratios.
  • Extra preference to stocks I want to keep long term.
• REITs 5-25%
  • AFFO, FFO is relatively low.
  • P/B ratio is no more than 1.5
  • Some effort to mix mortgages and equities.
• Hand-picked 10-50%
  • Use Options during uncertain times.
  • Lower beta is better
  • Contains a margin of safety by DCF or DDM.
  • Sell when margin of safety or P/* ratios are violated.
  • Prefer local companies I ‘intuitively’ understand.
• Commodities 5-25%
  • Things that reverse-correlate to the market overall
  • Gold~100%
  • Research: Anything else work here
• Index Funds 20-60%
  • All bonds use index funds.
  • REITs are preferred over bonds.
  • Prefer low fees.
  • When no investing ideas, invest here.
  • Prefer international companies to provide coverage
  • (I was including cash as part of "bonds", since on can invest in 3 month treasuries and virtually have cash)

Housing

• Housing cannot be more expensive than 25-40% of the sum total of money I have. At the 40% mark it has to have significant and strong advantages.

Stuff

• Keep it to a minimum.
• Keep some keepsakes.
• Filter as need be.
• Don’t buy for the sake of collecting unless it pays. Keep storage costs in mind.

Living Theory:

Money Affects On Life:

• Income
  • Accept that 5% a year is about as good as the income can get.
  • Multiple small income streams that take up 50% of my time is acceptable.
  • Monetary constraints are a challenge; enjoy them!
  • If I live on 5% a year and keep income at 1-2%, I’m golden. Mini-retirement is also acceptable.
  • Money will be laddered out of the 401k into Roth IRA.
  • Review bi-monthly or more often if using options.
  • Min Withdrawal Rate =25k in 2017 money. Max Rate=35k. Using a 8% of the portfolio, removed in 2%-Dividends every 3 months.
  • On down markets, consider getting a job.
  • If values drop substantially (15+%), use bridge loans until market recovers rather than withdrawing money.
  • 10% failure rate or lower is acceptable (as in running out of money).
• Taxes
  • Remaining in the 15% bracket which means $0 taxes.

Web of Goals

• Purpose
  • Exploration of new.
  • Renaissance: Improve self. Improve others.
  • Lower stress from externalities.
  • Production: Create items of interest to me; hope they interest others.
    • Write software I care about (e.g. Friend finder, investing)
  • Stability: I don’t want to be desperate nor penny-pinching.
  • Follow energy flows.
  • Invest in skills that might provide smaller, sustainable income streams.
• Anti-Fragile
  • Serendipity: Learn new skills that can get me paid. Accept that these skills may pay little but enough to supplement income.
  • Sustainability: Inflows and outflows tend towards matching so bad years do not harm capital overall.
  • Adaptability: Limit distinction between work, play, leisure and recreation.
• Health
  • Weight loss is a must. Starving appears to be the ideal short-term means. (Starving is short hand for not eating for 1-7 day stretches)
  • Use/maintain older CPAP equipment. Cut doctors out as much as possible.
  • Walk from place to place is preferred.
• Stuff
  • Buy when it is a reasonable price for the amount of joy it will provide.
  • Prefer borrow over buy. Prefer used over new except when it makes a significant difference.
  • Repurchasing an item at less than 10 dollars over storing maybe worth it.
• Moving
  • Moving should be limited to approximately once per year locally or in cases of international travel, a maximum of twice per year. (This is speaking of major flights, moving between countries for visa issues was not a consideration at the time of writing.  Local trips means road trips inside the USA)
  • Storage of nick-knacks should be kept to a minimum (See stuff).
  • If possible, get paid to move (by a job).
  • Use Geo-arbitrage to save money.
• Travel
  • Prefer cheap countries and cheap travel early on. Prefer ‘easy’ travel early. (Easy meaning travel that requires less skill, knowing that skills grow with practice)
  • Prefer easy access to US until I know if I enjoy it.
• Food
  • Learn how to cook at some level.

Therefore:

Live below my means. Do activities that I enjoy that produce things of value. If this does not work, this can be re-evaluated. Retirement at 5% should be reasonably safe but may require me to go back to work at any time. This is an acceptable risk at my present age.