All, here is the piece I distributed internally few weeks back. Hope you enjoy and pertinent to the subject here.
Month 18 UPDATE: Lookback- Short changing the CHANGE?
‘All truths are not easy to understand once they are discovered, the point is to discover them.’ Galileo
July 31 marked the end of 18 months from active employment. My mentor said you must construct a big picture now. Yeah, heard it million times my life; what the heck is big picture? You think like CFO and retired as manager? Or think like data scientist and end up as coding for some financial services company? Of course, some stories do turn up inspiring but point, thinking a big dream is hallucination or more? He asked me to use fractal data here as well, and end results looks like this:
Lesson 1: Non-linear
‘Too many people give up too easily. You have to keep the desire to forge ahead and you have to take bruise of unsuccess. Success is just one long street fight.’ Charles Faulkner
‘He who lives by the crystal ball will eat shattered glass’. Ray Dalio
It is not strongest of the species that survive, nor the most intelligent, but the ones most responsive to change. Charles Darwin
I knew income stream is not going to be linear but what I really pondering what could have been mental state when you see a graph like this.
Let’s look at both pictures above, Picture 1 is income generated during 2016-2017 full year (1 Apr to 31 Mar) where as Picture 2 is one of salary earned for a year while I was working. Look at the massive roller coaster in first picture, interestingly this is a story of majority full time investors. Now imagine if this hell rider movement is not managed properly it can take you to the brink. Now you must be wondering what would be my emotional state in these 12 months? For example, Month 9 to 12 when it plunged to almost zero and even negative one month. By the way bump up in salary graph is due to bonus. Anything hidden here, lots… coming soon.
Important note- the base is equalised but picture 1 does not include long term capital gain and dividends.
Summary of lessons:
- The picture can be worse than real life, though it looks like my BP should have gone sky roof during drawdowns. In reality, I was not even aware the valleys are so huge.
- If you are venturing out on your own embrace volatility. Do not run away.
Lesson 2: Work might be god, but all work does not deliver results
‘The people who excel in any field are people who realise that moment is there to be seized- that there are opportunities at every turn. They are more alive to the moment.’ Charles Faulkner
‘Life is a school of probability’. Walter Baeghot
‘I believe babies are born as innovative personalities but our social processes work to stamp out exploration and questioning.’ Jay Forrester
Ask anyone who works in month end activity, does your work deliver results? He will fight with tooth and nail to show you all the activities with completion and review date. For me it was not the story.
Now look at these two pictures:
The picture 1 is capital allocation and picture 2 is hours worked. Capital allocation is how much capital allocated every month, hours worked is self-explanatory.
One is you can very little co-relation between capital allocation to wealth creation as far as timing is concerned. So, the dictum put more money get more is not true. Take example of April 16 where my capital allocation was at base the wealth creation was highest in year. Similarly, Month 6 i.e. Sep 16 income bumped up where as I was negative on capital allocation meaning withdrawn.
Regarding efforts or hours worked as I marched towards end of year appears like I have exhausted. May be 2 reasons behind 1. I reached my mile stone by end of Sep 16. 2. Fatigue may be! But key point is at some point else, after Apr 16 I realised work hours have little impact on timing on wealth creation. It has to be ongoing process not like you work weekend and I will pay you incentives.
Summary of Lessons:
Timing of efforts and skills are not correlated 1:1 for rewards. When one works hard one is building competency and capabilities. Reward comes later or even before. Do not get complacent or frustrated by comparing. Skills and capabilities are ongoing work, those who said absolutely correct.
You can reach your milestone before or after. Do not put a target date like what we have been told. That pulls back your effort and enthusiasm, for example if you achieve something early you are likely to dose off till next project.
Lesson 3: End result is big picture
‘Be less curious about people and more curious about ideas’. Marie Curie
_‘The difference between a successful person and others is not a lack of strength, not a lack of _
knowledge but rather lack of will.’ Vince Lombardi
‘Losing an illusion makes you wiser than finding a truth.’ Ludwig Borne
Now look at these final two graphs
First picture depicts holidays/travels I was engaged and second is the cash holding across years. Second half of the year I was almost out half of time with little access to markets. Income skewed definitely but not exactly in same fashion. And this was only possible with a big percentage of cash holdings i.e. deploy what is required. Not necessary to play big always to survive.
Summary of Lessons:
Newton’s law is right, if you have to get happiness you need to put ‘some effort’ motion. Had I not increased cash position my holidays would not have gone up? Though I would like to study this further, my mentor says you can still dose off with 100% exposure and negative risk.
By giving your heart and soul without a plan does not work. The problem is who says they are committed most of them does not have a plan I guess or else they won’t say we are always busy! When you create an objective, and plan you would realise to save heart and soul is important and also holidays!
More I will come back post or middle of October. Fractal data looks exciting, how to enjoy volatility more. Of course, holidays will continue, after all money is unit of account.