The Long Term Investor

To continue.....I see all the headlines today about the Ten Year Yield hitting 5%....for the first time since 2007.

Well the world did not start in 2007. If you look at a long term chart of ten year yields.........we are now on the low end of normal. The current yields are not HIGH....they are at the low end of normal.

What is actually abnormal....is the extremely low yields.....that we saw since the economic CRASH of 2008.

 

I agree Smokie......if I had free cash right now I wold be piling into the markets. If I can keep on budget over 2024....I will....hopefully....be able to put about $20,000 into the markets. I cant wait to do so.....regardless of what is going on short term or in the markets.

My general view is.....that when we look back in six months or a year we will see that the current time period is a time of maximum negativity.....maximum chaos. I also believe that as is the norm....we will see that the current negativity was.....for the most part....unjustified.

The FUTURE is BRIGHT whether we choose to see it or not. Money WILL be made and returns will be good. Great companies will thrive and grow. Compounding will happen as it always does. The only question is.......will YOU....... participate.

I know I will.

 

I like this....fun....little article. Of course I am a Baby Boomer.

It’s official: The housing market is turning millennials into their parents. A Fortune 500 economist says it’s a déja vù market that is replaying the 1980s

https://finance.yahoo.com/news/official-housing-market-turning-millennials-174955268.html

(BOLD is my opinion OR what I consider important content)

"It might be time for millennials to let go of the “okay, boomer” mentality considering they’re reliving their parents’ 1980s housing journey.

Although current mortgage rates—which hit 8% this week—mimic the early 2000s, the overall housing market is actually more reminiscent of the 1980s, according to a new report by the chief economist for the Fortune 500 financial services company First American.

"Today’s housing market isn’t anything like the housing market of the mid-2000s,” Mark Fleming, chief economist at First American wrote in a Tuesday report titled "1980s Déjà Vu for the Housing Market." Of course, Fleming was dismissing the ghost of the housing crash of 2008 that precipitated the Great Financial Crisis, when subprime mortgages and other shoddy lending practices were common. Today is just fundamentally different, he wrote: “The housing market today is not overbuilt, nor is it driven by loose lending standards, sub-prime mortgages, or homeowners who are highly leveraged.”

“However,” he added, there is another precedent: ”the current housing market is similar to the market of the 1980s.” That could be a tough pill for millennials to swallow, considering they largely blame baby boomers for their inability to purchase a home in today’s market since they’re holding onto homes longer out of fear of high mortgage rates—and are swooping in with all-cash offers that can’t be matched by their younger counterparts.

Fleming cited three key ways the economy and housing market of today seem to “rhyme” with that of the 1980s, noting that both periods featured high inflation, rising interest rates, and a boom of homebuyers coming of age. These three factors could create a similar “housing recession” to the one four decades ago, Fleming argues—one where home sales stay low in a frozen, unaffordable market, but home prices merely stagnate.

“History doesn’t repeat itself, but it often rhymes," Fleming wrote in a Mark Twain–ish flourish.

Demographic changes

In the late 1970s and early 1980s, demographics helped sustain the housing market even amid stubborn inflation and aggressive interest rate hikes from then–Federal Reserve Chairman Paul Volcker. Millions of baby boomers came of homebuying age, leading to a wave of steady purchasing demand during the decade.

Now, in a strikingly similar pattern, millions of millennials are hitting the prime age this decade to buy a home, and Fleming believes that could help support home prices.

“Demographic demand against a severely limited supply of homes for sale continues to put a floor on how low prices can go, but sales suffer as potential buyers are priced out and existing homeowners see no incentive to sell,” he wrote Monday.

Millennials now comprise the biggest share of the “homebuying pie,” as Redfin puts it, purchasing about 60% of homes bought with mortgages during the past few years.

And as Fortune previously reported, Fleming isn’t alone in concluding that this demographic wave should support home sales and prices despite rising mortgage rates. Fleming sounds an almost identical note to Bank of America Research’s U.S. economist Jeseo Park, who wrote earlier this month: “Some sales activity should be supported by millennials reaching the prime homebuying age, and single-family building permits have steadily held up. This can help the housing market retain some of its momentum without falling apart.”

Inflation and high interest rates

After he took office in August 1979, Fed chair Paul Volcker fought to control inflation through aggressive interest rate hikes, leading the average 30-year fixed mortgage rate to surge to a peak of roughly 18% by late 1981. The spike in borrowing costs caused home affordability and sales to plummet in the early ’80s. And after years of rising home prices, the housing market stalled out, but it didn’t crash—due in large part to demographics.

At the start of Volcker’s term as Fed chair, the median U.S. home sales price was $64,700. And even after a near doubling of mortgage rates, that figure rose to $69,400 by the second quarter of 1981.

Similarly, over the past 18 months, the Fed has rapidly raised interest rates to combat inflation, after it hit a four-decade high of over 9% last year. And even after a rapid drop in inflation this year, the central bank’s chair Jerome Powell has taken the stance that inflation remains “too high” and interest rates may need to remain higher for longer as a result.

“Although inflation has moved down from its peak—a welcome development—it remains too high,” Powell said in late August. “We are prepared to raise rates further if appropriate and intend to hold policy at a restrictive level until we are confident that inflation is moving sustainably down toward our objective.”

As a result of Powell’s hawkishness, some economists and housing experts fear that mortgage rates could stay at or above 8% this year and early next.

The impact on the housing market from rising mortgage rates has been reminiscent of the 1980s. Both back then and today, housing affordability and existing-home sales plummeted amid increased borrowing costs and high home prices.

For example, existing home sales dropped almost 50% between 1978 and 1982, according to the Office of Policy Development and Research. While today, at their current pace, total existing-home sales are projected to amount to 4.1 million in 2023, a significant drop from the more than 6 million home sales in 2021, according to National Association of Realtors data.

And soaring mortgage rates have pushed the average monthly payment on the median priced home in America up $670 or 38% over the past 12 months alone, according to Morgan Stanley’s calculations.

In turn, the housing market today also faces a potential recession akin to that of the early 1980s, according to First American’s housing recession indicator. Again, that doesn’t necessarily mean home prices will fall sharply, however. Experts expect more of a frozen housing market, then potentially a collapse similar to the disaster in 2008.

First American uses factors such as average hourly earnings of construction workers; the total number of employees in residential building and real estate rental and leasing; the number of single-family housing starts; existing home sales; and more to determine whether the housing market is currently in a recession.

“Because mortgage rates have increased further in October, we expect the housing recessionary conditions to linger in the near term,” Fleming concluded based on the recession indicator, noting that “the housing market did rebound from the 1980s, but it took some time inflation and mortgage rate stabilization were key.”

Beyond Park and Fleming, a Morgan Stanley team, led by strategist James Egan, also warned in a Tuesday research note that if mortgage rates remain elevated for too long and home inventory rises even slightly, that could lead to a 5% drop in home prices by the end of 2024 in a bearish scenario.

“The longer-term impact to demand if rates remain at 8% should not be ignored,” he wrote."

MY COMMENT

Well.......the current conditions are a MINI version of the extreme conditions happening in the late 1970's and early 1980's. Rates now peaking at about 8%....back than....rates peaking at 18%.

Yes....every generation has it's challenges.....and....thinks theirs are worse.

LOL....this is why it is hard for me to get all excited when I see news items about people not having AC in the Texas summer. Guess what....no one had AC when I was a kid in Texas.....the busses we rode to school did not have AC....school rooms did not have AC. GASP......even our car did not have AC. I never had AC in any house that I owned till I was 40 years old in 1990......and....being in the Pacific NW our house having AC was a rarity even in our extremely high end...CEO and professional athlete neighborhood.

A single example above.....but....times change. Norms change. People change. Over time every generation will see the same and have fun thinking back to what they lived with and through compared to what the younger generations complain about. The big picture view.....yes....the more things change the more they remain the same......when it comes to human behavior.

 

As you can see from my posts today.....I am IGNORING the actual markets. There is nothing happening that I care about. It would simply be a waste of my time to get all focused on what the markets are doing today and why.

The BENEFIT of being a long term investor.

 

As a senior on Medicare....we are required (under threat of Medicare charging us) to have a part D drug plan. Last year we had a plan with Humana. We paid about $35 per person for that plan each month. About a month ago I got a notice from good old Humana that our plan was going up to $55 per month.

This is an outrageous increase for only one year....a 57% increase in only one year.

So with now being the time to change our enrollment I went looking for a new plan. I was able to find one with Aetna that will cost us $9 per month per person. We will actually come out ahead with the drugs that we take....they will all be 100% covered with zero deductible. With Humana we were paying a dollar or two for deductible.

So for the two of us......we will pay $18 per month in 2024 versus the $110 we would have been paying under the new Humana rate.

So......"Alpha Mike Foxtrot".....Humana.

 

OK....a perfect day for me in my stocks today.....all down. I also got beat by the SP500 today by 0.32%.

This week is now history.

 

This week is one of those.....read-em and weep.....weeks. Definitely a losing week for investors all the way across the averages.

DOW year to date (-0.06%)
DOW for the week (-1.61%)

SP500 year to date +10.02%
SP500 for the week (-2.39%)

NASDAQ 100 year to date +33.18%
NASDAQ 100 for the week (-2.92%)

NASDAQ year to date +24.05%
NASDAQ for the week (-3.16%)

RUSSELL year to date (-4.57%)
RUSSELL for the week (-2.26%)

As for my entire account.....I ended the week at +27.32% year to date. I did not post data last week. So....the last time I did my data was October 6 when my year to date on my entire account was +31.31%. So over the past two weeks my year to date has slipped by 3.99%.

 

Nice to be done with this week. We are close to the FED meeting the first of November. We are also close to being at the start of the final two months of the year.

ENJOY THE WEEKEND....EVERYONE.

Lets come back next week ready to go once again.

 

Next week is a BIG EARNINGS week.

On Tuesday I will have.....GOOGL and MSFT.

On Thursday I will have.....HON and AMZN.

 

Time will take care of you.....rg. With what you own....I am sure you will do well.

 

As to "time".....I like the bottom line conclusion of this little article.

How Time Horizon Affects the Odds of Equity Investing
The reward for those who stand and wait.

https://www.morningstar.com/stocks/how-time-horizon-affects-odds-equity-investing

(BOLD is my opinion OR what i consider important content)

"From Theory to Practice

In 1962, economist Paul Samuelson showed that when using standard economic assumptions, time diversification is a mathematical fallacy. In other words, the idea that investors should hold relatively safe assets for near-term goals while funding their long-term goals with riskier assets is false. Per Samuelson, if you have liked stocks for 40 years, you should like them equally well for one month.

Future researchers have hedged Samuelson’s finding, but they have not disproved it. Yet his finding remains ignored. Along with other investment websites, Morningstar routinely publishes articles that presume time diversification. So do investment professionals, when creating portfolios. For example, every target-date 2050 fund owns more equities than any target-date 2025 fund.

I write this not to dispute common practice—I agree with it. (Next week, I will discuss why.) My point is to acknowledge the existence of Samuelson’s argument. Ultimately, it does not persuade me. If it persuades you, though, the material presented in this article is irrelevant. Consider yourself forewarned.

Time Horizon: 1 Year

This column contains four charts. Each portrays the same information over periods of different lengths. They show since January 1926 the after-inflation returns for four portfolios: 1) 100% U.S. large-company stocks, 2) 60% stocks and 40% intermediate-term U.S. government bonds, 3) 30% stocks and 70% bonds, and 4) 100% bonds. The first picture, which depicts one-year results, looks familiar.

Rolling 1-Year Real Returns
(Annualized Real Return %, January 1926-September 2023)

However, I did need to triple-check that early blue line! Yes, stocks did earn 180%, after inflation, for the 12 months from July 1932 through June 1933. Sadly, equities lost money in five of the next eight calendar years.

Here are the summary statistics. The table shows how frequently the 100% stock portfolio beat each of the other three portfolios. It also indicates how often each investment suffered a double-digit loss (again, the returns are in real terms).

1-Year Summary


100% Stocks n/a 17%
60% Stocks 67% 9%
30% Stocks 67% 5%
100% Bonds 66% 3%

Surprisingly, at least to me, stocks compiled essentially the same victory margin against each of the three alternative portfolios. I thought bonds would have performed best. However, the percentage of double-digit losses matched my expectations. The more bonds in a portfolio, the likelier it was to avoid that fate.

Time Horizon: 5 Years

This picture looks different. Whereas the blue line representing the 100% stocks portfolio bounced continually in the one-year chart, neither consistently leading the other lines nor placing behind them, the five-year chart exhibits some patterns. The blue line spent considerable time below the others during the Great Depression, as well as prolonged periods ahead of the rest, in the 1950s, late 1990s, and 2010s.

Rolling 5-Year Real Returns
(Annualized Real Return %, January 1926-September 2023)

Overall, though, the outcome resembles that of the one-year time horizon. The winning percentage for the 100% stocks portfolio inched upward, but not by much. Once again, that portfolio posted double-digit losses once in every six trials. (This calculation, as well as those for the 10- and 20-periods, is cumulative. That is, to place in the loss column, the return over the entire period was less than negative 10%, rather than the return being that amount annualized.)

5-Year Summary


100% Stocks n/a 16%
60% Stocks 72% 16%
30% Stocks 73% 5%
100% Bonds 75% 13%
The lone surprise—and disappointment—was the 100% bonds portfolio, which posted double-digit losses 13% of the time as opposed to only 3% for the single-year periods. This happened because bond market problems have tended to cluster rather than happen randomly—bad news for fixed-income investors.

Time Horizon: 10 Years

The picture for equities visibly brightens when the horizon is expanded to 10 years. The blue line spends prolonged time above the other lines, including one 25-year stretch. Conversely, it trails the crowd only briefly, during three eras that occurred decades apart.

Rolling 10-Year Returns
(Annualized Real Return %, January 1926-September 2023)

The summary statistics for the 100% stocks portfolio also progress, although the improvement remains incremental. The portfolio’s winning percentage climbs to about 80%. While impressive, that does indicate that through one 10-year period in five, investors would have been better off either mixing in some bonds or (somewhat less commonly) skipping equities altogether.


10-Year Summary


100% Stocks n/a 10%
60% Stocks 78% 6%
30% Stocks 81% 4%
100% Bonds 83% 17%

Not that the latter choice would have been prudent. With a 10-year time horizon, bonds replace equities as the likeliest portfolio to lose at least 10% of its value. The 100% stocks portfolio experienced the largest losses, during the very worst of times, but the 100% bonds portfolio recorded more double-digit downturns.

Time Horizon: 20 Years

Extending the period to 20 years ends the contest. Since the very early observations, which incorporated the Great Depression, the 100% stocks portfolio has almost always outgained the alternatives—often greatly. Even a cursory glance at the chart yields the conclusion that the blue line is vastly superior.

Rolling 20-Year Real Returns
(Annualized 20-Year Real Return %, January 1926-September 2023)

The summary statistics confirm the impression. (Not that they could disconfirm it; this picture does indeed reveal the full story.) Diluting the equities portfolio with bonds reduces its total return 93% of the time when the bond stake is moderate, 97% of the time when the position is large, and a whopping 99% of the time when bonds substitute for the entire position.

20-Year Summary


100% Stocks n/a 0%
60% Stocks 93% 0%
30% Stocks 97% 0%
100% Bonds 99% 19%

At 20 years, the risk evaluation is reversed. Bonds are the true danger, routinely realizing double-digit losses, after inflation is considered. The safe path comes from equities. Placing 30% of the portfolio into stocks eliminates cumulative losses exceeding 10%, although on a few occasions, the 30% stocks portfolio did shed purchasing power over 20 years. When stocks make up either 60% or the entire portfolio, however, the losses disappear. In none of the historic 20-year rolling periods did either the balanced or the 100% stocks portfolio land in the red. They always gained at least something."

MY COMMENT

A good illustration of the power of time and stock investing. If you start early and have time on your side and make good realistic stock picks....it is hard to lose money.

BUT.....when it comes to short term money......less than three years.....I would NOT personally use the above to justify stock investing. The data above is broad averages....not individual specific results. if I was going to need money within three years or less I would NOT have that money in stock or funds. I would use safer investments like....CD's.

 

As a person that ONLY invests in AMERICAN companies I like the little article below.

Stop Betting Against America

https://awealthofcommonsense.com/2023/10/stop-betting-against-america/

(BOLD is my opinion OR what I consider important content)

"There’s this guy on Twitter, Paul Fairie, who does these threads using old newspaper clippings to show how the stuff we worry about today is the same stuff people have been worrying about for decades.

There was one called a brief history of we are raising a generation of wimps. Every older generation thinks this (and will always think this…it’s called progress).

There was also a brief history of no one wants to work anymore.

And a recent favorite: A brief history of America is in decline like the Roman Empire.

There are plenty of recent examples of this but here’s one from 1973:


This was in 1951:


And all the way back to 1917:



That was just a taste but you get the idea.

My whole life people have been predicting things like a crash of the dollar, a government debt crisis and the end of America as we know it.

In the 1980s, Japan was going to overthrow the United States as a global power. In the 2000s it was China.

I’m not completely dismissing the idea that other world powers will rise. I just think it’s a bit premature to be dancing on the grave of the United States just yet, especially as an economic power.

The dollar remains the global reserve currency and has actually strengthened since the Global Financial Crisis:


Currencies are always and forever cyclical but some people were sure the dollar would crash following the 2008 crisis. Nope.

The U.S. economy was described as the cleanest dirty shirt in the laundry hamper for much of the 2010s as other developed and emerging economies struggled mightily.

It would also be hard to argue any country survived the pandemic as well as ours.

U.S. economy is actually in a better place than where the IMF projected it to be in 2019 before the pandemic (via WSJ):


The rest of the world is worse off economically speaking.

The U.S. currently has the lowest inflation in the G7 as well (via CEA):


So the U.S. economy has experienced higher growth and less inflation than the rest of the developed world.

During the worst inflation of the past 40+ years, wages have been keeping pace with prices:


In fact, we’re back on trend for pre-pandemic wage growth (via Arin Dube)



Plus Americans just experienced their largest three year increase in wealth ever going back to 1989:


Per Bloomberg:

Inflation-adjusted median net worth jumped 37% to $192,900 from 2019 to 2022, according to the Federal Reserve’s Survey of Consumer Finances out Wednesday. That marked the largest three-year increase in data back to 1989, and it was more than double the next-largest one on record, the Fed said.

Read that again. We just had the largest three year jump in wealth in this country and it was more than double the next-largest increase on record.

Listen, America is not bulletproof.

We have a lot of problems in this country.

We’ve always had problems and we’ll certainly have more problems in the future.

Maybe our hubris will take us down someday.

But to the doomers predicting the end of the U.S. empire, I say: Good luck betting against America.

It’s always been a losing trade and I don’t see that changing anytime soon."

MY COMMENT

YEP.....we are still massively the top economic power in the world. Our companies dominate all aspects of business world-wide

Too bad we do not see some of this reality in the day to day short term media coverage.

 

And....one last little article with some good folk-wisdom.

A Few Laws of Getting Rich

https://collabfund.com/blog/a-few-laws-of-getting-rich/

(BOLD is my opinion OR what i consider important content)


"There are 13 divorces among the 10 richest men in the world. Seven of the top ten have been divorced at least once.

Correlation isn’t causation, and that sample size is tiny. But a statistic that is so much worse than the national average, on a topic so fundamental to happiness, among a group whose lives are envied by so many, is interesting, isn’t it?

There are a million ways to get rich, most of which involve exploiting specific niches and one-off opportunities, to say nothing of luck. Universal rules about how to get rich are hard to come by.

But losing money, or losing happiness when you have money, or becoming a slave to your money – those stories tend to have common denominators. They are so common you can call them laws.

Measuring wealth is easy. You just count it up. Measuring some of the downsides of wealth is so much harder and more nuanced. They can be so nuanced and hard to measure that many people won’t even believe they exist. A downside to wealth? How could that possibly be?

Let me propose that the absurdity of talking about the downside of wealth is part of why wealth doesn’t tend to make people as happy as they thought it would.

When the benefits of money are so obvious but the downsides are so subtle, the downsides you didn’t anticipate can be more jarring than the benefits you expected.

I want more money, of course. Almost everyone does, albeit for different reasons.

This is not an anti-wealth list – just a collection of subtle downsides that are easy to ignore, and so common you may as well call them the only true laws of getting rich.

1. Most of what makes you happy in life has nothing to do with money, and realizing that once you have money can be a painful admission.

Will Smith wrote in his biography that when he was poor and depressed, he could dream about a future when he had more money, and that money making his problems go away.

Once he was rich, that optimism was gone.

He had all the money he could ever need and he was still depressed, his life was still filled with problems.

Rick Rubin once echoed something similar:

It’s hard to get really depressed until your dreams come true. Once your dreams come true and you realize you feel the same way you did before then you get a feeling of hopelessness.

Happiness is complicated, but if you simplify it into things like a loving family, health, friendship, eight hours of sleep, well-balanced children, and being part of something bigger than yourself, you realize how limited money’s role can be. It’s not that it has no role; just smaller than you may have assumed.

Think of it this way: Would you rather make $100,000 a year with a spouse who loves you, children who admire you, good friends, good health, and a clear conscience, or make $1,000,000 and have none of those things? It’s so obvious.

Of course you can be poor and miserable or rich and happy. But only the rich are aware of how tenuous that relationship can be. Gaining money probably didn’t fix your marriage, it didn’t make your friends like you more, it didn’t make you more fulfilled. So what used to be comforting optimism about what money could do for you is replaced by the stark reality of what it can’t.

Sometimes the dream is what feels good, and once you’ve hit it the dream is gone and you actually become depressed. Malcolm Forbes: By the time we’ve made it, we’ve had it.

2. What you think is admiration of your success may actually be envy.

The rapper Drake once said, “People like you more when you are working towards something, not when you have it.”

It can be hard to tell when that transition takes place, and it’s common for a rich person to think they are being admired when they are actually envied.

Author Robert Greene once wrote:

Never be so foolish as to believe that you are stirring up admiration by flaunting the qualities that raise you above others. By making others aware of their inferior position, you are only stirring up unhappy admiration, or envy, that will gnaw away at them until they undermine you in ways you cannot foresee.

This is especially true when what made you rich was some form of advertising your success in a way that made others want to help and support you. When admiration turns to envy, that support dwindles, and people’s tolerance for your errors shrinks. If a no-name journalist wrote a book obliquely defending Sam Bankman-Fried, no one would care – they may have actually congratulated the author. But since Michael Lewis did, the pitchforks came out.

Thoreau said, “Envy is the tax which all distinctions must pay.”

3. The richer you become, the less likely people around you are to tell you when you’re wrong, crazy, mean, or oblivious.

Matt Damon says, “You retard socially and emotionally the moment you become famous. Your experience of the world is never the same.”

The same may be true – and far more common – for those who become wealthy. No one ever treats you the same. And the worst part is that you may not even know it.

Artist Damien Hirst once said:

They all love you. The bank loves you, and the accountants love you, because they’re taking your money. Every year you get more and more people as well. One guy is taking 10 per cent and then it’s another guy taking 10 per cent and another guy taking 10 per cent and it’s all a big party. The people who give you the overdraft are your best mates as well, smiling at you and telling you that you’re amazing so you keep doing it.

Sometimes people take advantage of you intentionally, prying some benefit out of you. Other times they take you seriously when they shouldn’t. A big problem with bubbles is the reflexive association between wealth and wisdom, so a bunch of crazy ideas are taken seriously because a temporarily rich person said it.

Buffett once explained:

I was at my best at giving financial advice when I was twenty-one years old and people weren’t listening to me. I could have gotten up there and said the most brilliant things and not very much attention would have been paid to me. And now can say the dumbest things in the world and a fair number of people will think there’s some great hidden meaning to it or something.

4. Sometimes what made you successful was worry and anxiety, and you can’t let go of that when you’re rich.

I think what many people really want from money is the ability to stop thinking about money. To have enough money that they can stop thinking about it and focus on other stuff. It’s this weird relationship: They become obsessed with making money with the hope that someday they can ignore it altogether.

That obsession is fueled by stress and anxiety. It often shows up as career ambition, aggressive investing, and Type-A motivation.

Then, once they become rich, they realize they can’t let go of that stress. It’s become ingrained in their identity.

They work 80 hours a week because they want to eventually never have to work at all. But once they have enough money to retire, they can’t cut back because they don’t know how to do anything else in life but work.

A lot of financial planners I’ve talked to say one of their biggest challenges is getting clients to spend money in retirement. Even an appropriate, conservative amount of money. Frugality and savings become such a big part of some people’s identity that they can’t ever switch gears.

I think for some people that’s actually fine. Watching money compound gives them more pleasure than they would get spending it.

But those whose ultimate goal is to stop thinking about money are stuck. Refusing to recognize that you’ve met your goal can be as bad as never meeting the goal to begin with.

5. There is no easy way to manage wealth and kids.

Charlie Munger was once asked by one of his rich friends if leaving his kids a bunch of money would ruin their drive and ambition.

“Of course it will,” Charlie said. “But you still have to do it.”

“Why?” the friend asked.

“Because if you don’t give them the money they’ll hate you,” Charlie said.

Like a lot of Munger advice, I think this interaction is designed to be memorable. It’s probably 80% true.

But by and large, he’s right. Those are the two options for the rich: Ruin their ambition with inheritance, or risk some form of strife by denying them an easy life.

Warren Buffett once said that he often hears rich people talk about how dangerous a welfare society is, creating a generation of moochers reliant on food stamps and unemployment benefits. But “these same people are leaving their kids a lifetime supply of food stamps and beyond” he said. “Instead of having a welfare officer, they have a trust fund officer. And instead of having food stamps, they have stocks and bonds that pay dividends.”

Of course there are exceptions. But most of the exceptions – rich kids who inherit money and it doesn’t impact their ambition – are because the kids are special, not because the parents necessarily made a smart decision. If 18-year-old Bill Gates inherited $1 billion, it wouldn’t have stopped his ambition. Same with Steve Jobs and Elon Musk. Mark Zuckerberg was offered $1 billion cash for Facebook when he was 22 and he didn’t blink, didn’t even consider it.

But those are the rare birds. Most people need to be driven by fear of not making it.

My friend Chris Davis grew up in a wealthy household – his grandfather is legendary investor Shelby Davis, who turned $50,000 into almost $1 billion – and was told when he was young that he wouldn’t see a penny of it because he family didn’t want to rob him of the opportunity of making it on his own.

Chris joked: “They could have robbed me just a little.”

It’s never easy.

6. Quick wealth is fragile wealth.

I love the idea that the speed in which you made your wealth is the halflife for how fast you can lose it. Double your money in a year? Don’t be surprised when you lose half of it just as quickly. Blitzscaling? Blitz failing.

Two things happen with quick, fragile wealth.

One is that money that comes easily tends to be spent easily. When money comes quickly, the emotional cost of blowing it on something frivolous is low. You are only careful with something when it’s dear to you. Spending quick money that you didn’t invest much time or energy into earning can feel like the equivalent of a one-night stand: impulsive and prone to regret. Old money wants a tax shelter, new money wants a Lambo.

The other is that the quicker the wealth was made, the higher the odds it came from luck that will revert just as fast.

Put those two together, and whenever you see a surge of quick wealth – crypto in 2021 was a good example – you know it’s going to end poorly, as luck converts to risk and conspicuous consumption converts to inconspicuous lifestyle debt.

7. Reputations have momentum in both directions because people want to associate with winners and avoid losers.

The more successful you are the more people want to be associated with you – which is great.

But that’s equally powerful in reverse.

Someone early in their career can screw up and recover quickly, moving onto the next company. A successful person or company has each flaw blared across the news, saturating the gossip channels of their network.

Lehman Brothers’ 2008 struggles made front-page national news; a small community bank could have been at its wits end with hardly a soul aware.

A company like Sears also fits this bucket: Everyone is aware how strained it is, so no one – customers, employees, investors, vendors – wants to be associated with it.

It’s like the saying, “The higher the monkey climbs on the pole, the more you can see its ass.”

8. Expectations can rise faster than income, so a higher income sends expectations spiraling out of control.

Wealth is relative. Luxury is relative. Both are just a comparison between what you have and what other people have.

A quirk I have seen many times is that some of the wealthiest people are the most prone to expectations spinning out of control, because they become hyper aware of how other rich people live.

In 1907, author William Dawson wrote about how the feeling of wealth is relative to what you’re accustomed to:

A man of education, accustomed to easy means, would suffer tortures unspeakable if he were made to live in a single room of a populous and squalid tenement, and had to subsist upon a wage at once niggardly and precarious. He would be tormented with that memory of happier things, which we are told is a ‘sorrow’s crown of sorrow.’

But the man who has known no other condition of life is unconscious of its misery. He has no standard of comparison. An environment which would drive a man of refinement to thoughts of suicide, does not produce so much as dissatisfaction in him. Hence there is far more happiness among the poor than we imagine.

To drive home his point: Dawson was himself fairly successful and accustomed to easy means by the standard of his day. But Dawson, who died in 1928, spent most of his life without electricity or air conditioning. He never had antibiotics, Advil, or a Polio vaccine. He never experienced reasonably accurate weather forecasts, or an interstate highway.

An average American today sent back in time to experience Dawson’s life would suffer the same “tortures unspeakable” he wrote about. But he didn’t have modern times to compare his life to, so it felt luxurious to him.

Everything good in life is just the gap between expectations and reality, and when your main frame of reference are other rich people trying to impress each other, that gap can close quickly.

9. No one is going to remember you in 100 years.

So you might as well focus on what’s going to make you happy now, instead of what money might buy you in the future.

There is a Scottish proverb: Be happy while you are living, for you are a long time dead."

MY COMMENT

Some good folk-wisdom here. I have lived some of it.

When our income and net worth first took off.....we noticed the impact on many of our friends. People just could not handle it. Having more income and wealth......did.....impact our friendships and social life. We did maintain some friends for life....but many quickly faded away. We have seen the same thing happen to others when they suddenly hit success.

Another item above....being able to let go and relax a bit once you have enough money. We took the ultimate path in this regard. Once we hit age 49 and had enough money to allow us to do so.....we closed our business and retired. We still had to budget our money to make sure it lasted for life....but.....we took the jump to leave the business world. Very few people can or should do this....but for us....it worked. Of course we continued to have income through music and through investing. At that point in my life....investing, planing our financial life, and budgeting our money........ became my job.

We were also lucky with our kids. They turned out great even though they had a lot of privilege. They are both hard workers and very dedicated to family.

HAPPY INVESTING TO ALL........regardless of the real life impact.....I hope everyone on here achieves their money and investing goals. It is a very nice feeling to look back when you are a older and think.....WOW...how did we do all that.