THE FINANCIAL PHILOSOPHER

Are You Part of the 0%?

"The wise man knows that it is better to sit on the banks of a remote mountain stream than to be emperor of the whole world." ~ Zhuangzi

I never really placed much energy or thought into the "99% vs 1%" debate.  I think my lack of interest may be because I do not sympathize with or support either side--from what little I know, it seems neither side represents me.

If the 99% and 1% make one entity, what would it be?  If it's "Main Street" vs "Wall Street," what about those of us who reside or work at neither figurative address?

I don't think the 100% whole, if you will, represents 100% of the people.  Instead I believe both sides combine to form one group that shares one common, self-defeating human flaw--they care too much about money, material wealth and social status. 

The 99% are discontented and the 1% are greedy.  From my perspective, there is no real distinction between discontent and greed--both share the same path and destination; they are each causation and correlation of the other.

If thou wilt make a man happy, add not unto his riches but take away from his desires." ~ Epicurus

Are you part of "The 0%"?  Here are some of the principles and philosophies that may confirm you are a Zero Percenter:

• To the 0%, the definition of wealth has little or nothing to do with money or materiality.  To be financially rich is to have anything more than "enough."
• Life is not a zero sum game; there can be more than one winner.  If someone earns more in one minute than you earn in a lifetime, so what?
• You won't identify yourself as part of "The 0%" because you don't care to be part of any defined organization.  By virtue of not being 99% or 1%, you are 0%; there is no reason to announce to the world your alignment with any defined group.
• You have no complaints against any particular party or entitity because you believe that "everything is exactly as it should be" and therefore the attempt to change others is no different than attempting to fight against nature--it is foolish and self-defeating. 
• There will never be any protests or public display of anger by The 0% because it goes against their contented nature.  Making matters worse, protesting will only attract pretentious people looking to find some reason to protest!
• You prefer to be nobody because trying to be somebody is an act of ego.
• You know little of the 99% or the 1% because you--The 0%--are too busy enjoying life to read, watch or listen to the noise of mainstream media or annoying people around you trying to align with either side.

Perhaps I should start an organization called "The 0%:" 

I could create a fancy logo and slogan; the 99% will join the organization, buy my merchandise, read my messages on my blog, website, Facebook page and Twitter account and thus propel the entity to become large enough that the 1% will sell it to the world with an Initial Public Offering; the 99% will buy more merchandise and shares of stock, the 1% will gain more financial wealth; the 99% will complain about the fortunes of the 1% (but continue to consume the 1% group's newly developed version of The 0% product); and the world will find which side to share sympathy so they may publicly communicate their ego-driven ideals and dogma through other products (i.e. Facebook, iPhone, etc) that are all owned by the 1%.

Naahhhh....

-----------------------------------

Related:

The Greatest Source of 'News You Can Use'

How Ego Hurts You (and How to Overcome It)

A Philosopher in Disneyworld

"A man should never neglect his family for business." ~ Walt Disney

I recently returned from a family trip to Disneyworld in Orlando, Florida.  As you might expect, I had a wonderful time with my wife and two young boys.  You might also expect that I returned with a few philosophical observations about human behavior and life perspectives.  Your expectations are correct!

"The highest and most beautiful things in life are not to be heard about, nor read about, nor seen but, if one will, are to be lived." ~ Soren Kierkegaaard

The featured photograph (above) was one of only around 100 that I took while in various parks of Disneyworld over a four day period.  We spent at least 10 hours per day riding rollercoasters, watching shows, consuming wonderful food and drinks, and generally soaking in the magical world of Disney.  You math minds may already be thinking, "That's only an average of 2.5 photographs per hour."  Thanks for that segue into my point...

I estimate some people must have averaged close to 2.5 photographs per minute.  I love photography and I respect the desire to capture the moment but at what cost?  As I snapped the photo during Disney's "Wishes" fireworks display, I noticed dozens of people filming the entire 30-minute show with digital cameras, iPhones and iPads without pausing to watch the show with their own eyes. 

I took 4 pictures.  The point is that looking through a lens deadens the experience; capturing the image loses the moment. 

Philosophical observation #1 is that images may be seen again and again but life cannot be re-lived. 

A photograph will not remind you of something that you never fully experienced.  Unless photography is your art and brings meaning and purpose to your life, every moment you live behind a screen is a moment you lose in life.  Keep a balance.

"Once men are caught up in an event, they cease to be afraid. Only the unknown frightens men." ~ Antoine de Saint-Exupery

If you need evidence that humans have a fear of the unknown, I have three words for you: Tower of Terror -- easily the most thrilling ride in Disneyworld (Hollywood Studios Park). You step inside what appears to be the set of a Twighlight Zone episode while Rod Serling explains the story of the Hollywood Hotel and the death of guests one fateful evening during a lightning storm, which caused the elevator to fall 13 floors down.

Of course, you step into the elevator, strap yourself in and the lights go off.  As you sit in suspense for 10 seconds (which feels more like 10 minutes), the elevator drops.  Classic suspense... 

It is no surprise that two of the other great thrillers, Space Mountain in The Magic Kingdom and The Rockin' Roller Coaster in Hollywood Studios also take unexpected turns... in the dark. 

Philosophical observation #2: The fear of the unknown is at the root of all human fears.  Turn out the light, turn on the fear.

"If we choose, we can live in a world of comforting illusion." ~ Naom Chomsky

Sometimes, when illusion is voluntary--when one is aware of it--illusion can be good. In different words, the awareness that illusion exists dissolves it and transforms it into entertainment (or as Disney calls it, magic). Many people make the mistake of living in a man-made world of form deadened by words, symbols, concepts and social conventions. This is the bad form of illusion.

Often, people go on vacation to escape the real world.  Ironically, the vacation is real and the dreaded return to reality is actually a return to illusion.

On vacation one relaxes and releases their inhibitions, they sense their authentic nature. Laughter is effortless, deadlines cease, connection to screens are disconnected. You become yourself because there is nothing covering your authenticity.  Why must that only be reserved for weekends, vacations and retirement?

Philosophical observation #3 is to never leave the mindset of vacation.  This is not escapism, it is realism.  Transform the reality you thought was illusion into the illusion you thought was reality.

Knowledge Wins, Wisdom Never Plays the Game

"Truly it is an evil to be full of faults; but it is a still greater evil to be full of them and to be unwilling to recognize them, since that is to add the further fault of a voluntary illusion." ~ Blaise Pascal

Living in a world created by humans is living in a world of illusion, which is the preferred state of humans.  If perception is reality, wouldn't it be beneficial to obtain the means to shape it?

• The package is more important than the contents.
• First impressions are lasting impressions.
• The resume gets the interview, the interview gets the job.
• More is better.

In a world where both the demand for illusion and the capacity to present it are nearly limitless, there is little incentive to consume or produce substance.  Wants can be met without ever providing the needs.  When perception is reality, the illusion is necessary to control the perception.  In the game of illusion, he who has the greatest illusion wins.

The most convincing illusions are a combination of packaging and message. When people demand an illusion, the illusion is created and presented.  For example, a financial sales person who is dressed in expensive business attire and who presents a message filled with financial industry terminology and anxiety-provoking questions will win more clients than the casually-dressed, plain-spoken professional. 

"When you live in a world deadened by mental abstraction, you don’t sense the aliveness of the universe anymore. Most people don’t inhabit a living reality, but a conceptualized one." ~ Eckhart Tolle

Illusion is a pretentious game played to obtain more tools to help perpetuate more illusion--more money, more things to consume more illusion for oneself and to produce it for others.  The problem is that illusion is nearly impossible to sustain indefinitely.  If one loses the tools to produce illusion, they lose the illusory game, the illusion fades and an unwelcome reality appears.

"Luxury is artificial poverty; contentment is natural wealth." ~ Socrates

In the game of illusion, winning is also an illusion.  To win at illusion, one loses the self.  For the fortunate individuals, losing the game of illusion (or awakening to it because of a life-changing event) inspires the wisdom of withdrawing from the game.  The rat-racing, carrot-chasing existence dissolves into one of self-produced contentment from things that illusion--money, material wealth, and social status--cannot provide.

-------------------------------------------------

Related:

Are Financial Plans Illusions? 

What Do You Look Like Under Your Mask?

How Wealth is Measured

"Self-actualizing people have the wonderful capacity to appreciate again and again, freshly and naively, the basic goods of life, with awe, pleasure, wonder, and even ecstacy, however stale these experiences may have become to others… Thus, for such a person, any sunset may be as beautiful as the first one, any flower may be of breath-taking loveliness, even after a million flowers have been seen." ~ Abraham Maslow

True wealth is not measured by monitary means; it is by the richness of one's perspective. Given a healthy perspective, the simple things in life—the small pleasures—are easy to obtain; what appears terrible is easy to endure; a life with few and small worries and wants is one of tranquility and contentment—one of peace—one of wealth.

That is all.

------------------------------------------

Related: Quotes on Contentment

Words That (Almost) Capture Love

"Absence diminishes mediocre passions and increases great ones, as the wind extinguishes candles and fans fires." ~ Francois de La Rochefoucauld

Words fail in explaining or expressing something that goes beyond words.  However, when it comes to love, the mere attempt at trying to capture with words a feeling that cannot be captured expresses the power of that feeling.

"Affection is responsible for nine-tenths of whatever solid and durable happiness there is in our lives." ~ C. S. Lewis

"As soon go kindle fire with snow, as seek to quench the fire of love with words." ~ William Shakespeare

"Being deeply loved by someone gives you strength, while loving someone deeply gives you courage." ~ Lao Tzu

"Can miles truly separate you from friends... If you want to be with someone you love, aren't you already there?" ~ Richard Bach

"I can live without money, but I cannot live without love." ~ Judy Garland

"I have found the paradox, that if you love until it hurts, there can be no more hurt, only more love." ~ Mother Teresa

"In love the paradox occurs that two beings become one and yet remain two." Erich Fromm

"Love is the triumph of imagination over intelligence." ~ H. L. Mencken

"You say it best when you say nothing at all." ~ Song performed by Keith Whitley, written by Paul Overstreet & Don Schlitz

I won't add any words, except these: Happy Valentines Day to my beautiful and electric wife, my two brilliant boys, my extended family and friends, and to anyone reading this.

---------------------------------------------

Related: Quotes on Contentment

Why Index Funds Had a Record Year

"The little reed, bending to the force of the wind, soon stood upright again when the storm had passed over." ~ Aesop

Living on the coast of South Carolina, I can attest that a flexible nature is required to survive the most powerful tropical storms: 

The hardest of woods break and the softest of reeds bend.

This go-with-the-flow nature extends to escaping deadly rip currents in the tide and it also applies to navigating the volatility of financial markets.

On my mutual funds site today, I wrote how Index Funds Had a Record Year in 2011.  This milestone was marked by the record amount of investor money flowing (fund flows) into index funds.  In contrast, one of the largest mutual fund families, American Funds, had record outflows.  Why is this significant and what does it have to do with reeds in the wind?

"Thus what we gain is Something, yet it is by virtue of Nothing that this can be put to use." ~ Lau Tzu

Index funds are passively managed, which means there is no fund manager or team of managers trying to "beat the market" by using their knowledge and skill to research and analyze stocks with the greatest prospects of high relative returns.  Instead, the objective is to simply match the returns of the benchmark index, such as the S&P 500 -- an example of knowledge yielding to humility.  This passive nature keeps expenses low and eliminates the risk of human error caused by emotion (i.e. greed, complacency, and hubris) and it reduces the risk of inferior returns due to a random set of unforeseen circumstances (bad luck).

Actively-managed fund managers attempt to beat the market, which is the primary reason why most actively-managed funds lose to passively-managed funds over long periods of time.  In summary, the higher expenses and greater exposure to human fallability is why S&P 500 Index Funds Beat the Pros in 2011...

Passive funds bend; active funds break.

--------------------------------------------

Thoughts on Taoism, Rip Currents and Market Cycles

Quotes on Contentment

Why Index Funds Beat Actively-Managed Funds

Lau Tzu Beats Wall Street in 2011

"Those who have knowledge, don't predict. Those who predict, don't have knowledge." ~ Lau Tzu

The title to this post was written with tongue only partially in cheek: The passive investor, in the spirit of Lau Tzu and the Taoist philosophy, proved once again in 2011 that going with the flow of nature most often provides the greatest results.

"Nature never hurries, yet all is accomplished." ~ Lau Tzu

Lau Tzu's Taoism is largely based upon the wisdom of applying the rythms and balance of nature to one's behavior and to one's life in general.  Humans are a part of nature and, as I often like to point out here, human nature extends to financial markets. 

As I addressed in my Angles post, going against the crowd has its merits at times both in life and in investing, but unless the investor receives intrinsic value from the act of investing, the go-with-the-flow nature of passive (index) investing is the best approach.

This passive indexing style vastly outperformed actively-managed funds in 2011. For example, the S&P 500, including dividends, was up 2.11% in 2011 while the average large blend category fund gained just 0.02%. In different words, it paid to just go with the flow of the broad market last year rather than buy an actively-managed fund. 

Index funds don't beat fund managers every year but there is certainly enough historical data to show that most fund managers do not outperform the broad market indexes on a consistent or long-term basis. As I enter my sixth year as the owner of an independent investment management firm, I've become increasingly humble as I continue to align my investment philosophies with balance and passivity (the attempt to beat the market often ends in the opposite result).

"Health is the greatest possession. Contentment is the greatest treasure. Confidence is the greatest friend. Non-being is the greatest joy." ~ Lau Tzu

Unless investing provides a significant level of non-financial reward for you, there is no good reason to ever attempt to "beat the market."  In 2012, enjoy the richness of life by applying the natural virtues of patience, moderation, contentment and simplicity.

------------------------------------

Related:

Angles

(Why You Need to) Get Rich Quickly

Quotes on Contentment

Angles

As a child, I would roll down the window in our family car while travelling on the highway and put my hand a few inches outside until I felt the pressure placed upon it from the strong and rushing wind.  The force was enough to push my arm to the back of the window. 

However, if I placed my hand flat and parallel to the ground, it would slice through the air like a hot knife through butter.  If I angled my hand by tilting it slightly upward, my hand would lift up much like I imagined a bird would fly.  The opposite was true:  I could angle my hand down and the wind would push it down. 

That was an early lesson in angles.

"Thus what we gain is Something, yet it is by virtue of Nothing that this can be put to use." ~ Lau Tzu

Today, if I think my young children are in a listening mood, I'll pass along to them this lesson that combines physical science and Taoism: 

• Resistance is the root of all suffering; non-resistance is the root of contentment.
• The rigid tree breaks in the strong wind; the reed bends.
• Swimming against a rip tide is a cause of drowning; swimming with the rip current will save your life.
• The forceful and outspoken attract adversity; the mild and reserved remain at peace.

These yins and yangs do not need to be either/or; they can be balanced and comined or they can be altered slightly.  This lesson takes little imagination to apply to our every day lives:

• Investing passively (not trying to time the stock market) most often produces the best results but a well-chosen and slight angle can produce greater results.
• Going with the crowd can be advantageous but a slight deviation from it can be better for the individual.
• The human eye prefers right and complimentary angles--it seeks patterns--but an obtuse or odd angle can be much more interesting and attracting.
• In music, the notes of a scale work together to create melodies or harmonious chords but bend a note just the right way or strike a dissonant chord and you can communicate an entirely different and powerful emotion.

The flat hand slices through the air, but a slight angle can make it fly.  Conversely the wrong angle will make the hand turn down dramatically.  In other words, non-resistance can be good; but just the right amount of resistance--the right angle--the right perspective--can be better if you can find it.

"The little reed, bending to the force of the wind, soon stood upright again when the storm had passed over." ~ Aesop

One only needs to learn when to resist (or bend) and by how much.  I've found many advantageous angles in life but when I find one that doesn't work I can always return to the flat hand of non-resistance.

-------------------------------------

Related:

Thoughts on Taoism, Rip Currents & Market Cycles

The Desirable Way to Dance: On Becoming Passive Instruments

Are You Thankful for Money?

Imagine sitting around a table on Thanksgiving with family and friends.  Everyone around the table takes a turn vocalizing the things for which they are most thankful--health, personal relationships, money...

Wait.  Did someone say money?

"A crust eaten in peace is better than a banquet partaken in anxiety." ~ Aesop

The truth is that money is not something that people consciously include as the highest priorities in life but actions often say otherwise.  When someone says they are thankful for their health, friends, family and/or significant other, they really mean it.  However, the time and energy spent on the pursuit and acquisition of (and anxiety related to) money vastly outweighs the time and energy spent on those highest priorities of life--those things you are truly thankful for during a time of honest reflection, such as Thanksgiving day in North America.

Adding more evidence of this misalignment of priorities and actions, almost at the very moment thanks have been given, the planning strategies for Black Friday--the day hoards of Americans compete to acquire material goods at "discount" prices--shifts away from what little focus was given to life's greatest treasures and back to money and the things it can buy.

"Be content with what you have; rejoice in the way things are. When you realize there is nothing lacking, the whole world belongs to you." ~ Lau Tzu

For those of us in North America and for anyone elsewhere on the planet reading this blog, please take time to reflect, not only on those priorities of life that money cannot buy, but on the fact that this kind of reflection should be practiced on a daily basis: Every day is Thanksgiving; every moment is an opportunity to live life now--to remind yourself of who you are and why you live and to align those with what you do.

Here are a few guiding points for thankfulness in daily reflection:

• Don't worry that your investment portolio could lose value today; worry that you may miss another valuable moment with a loved one or doing some other thing that is meaningful--a moment that cannot be retrieved (money can come back, time cannot).
• If you pray to God, don't ask for things; just give thanks for what you have now.
• Believe that everything at this moment is exactly as it should be.  This removes the desire for control and the anxiety surrounding it.

Consistent reflecting--giving thanks daily--will help maintain the healthy perspective that money is a tool for life, rather than perpetuating the herd behavior that says life is a tool for money.

-----------------------------

Related:

Be Thankful (and Remain That Way)

Mind vs Brain Part III: Habits of the Reflective Mind

Quotes on Contentment

Quotes on Money, Greed & Investing

Money is Not Wealth

This is a guest post by Greg Linster, a graduate student studying economics at the University of Denver. He blogs at Coffee Theory about things philosophical and shares aphorisms (almost daily) at Aphoristic Cocktails.

The father of modern economics, Adam Smith, once wrote: "All money is a matter of belief."  The question I want to pose (and hopefully answer in this article), then, is: Should we believe?  I’m afraid, however, that the answer is a rather tricky one.

Since Kent’s blog is called The Financial Philosopher and since I'm an economics graduate student with a philosophical proclivity, it seems only fitting that I attempt to tackle a philosophical question about the nature of money.

Most of us wake up in the morning and go to a place called 'work' in order to earn money.  And most of us surely spend money every day.  In essence, money is a medium of exchange that helps us get the things we want and need.  In other words, you provide your labor in exchange for this medium called money, which you can then exchange for others goods or services you want. [1]  However, it’s important to note that money has no intrinsic value (unless it’s commodity money).  Is money, then, really the thing we want?

It seems fairly obvious that most of us would prefer to have more money as opposed to less.  In some ways, this is merely a truism.  After-all, who wouldn’t want to be able to buy more goods and services?  All other things equal, I’d certainly rather have more money in my life!  With that point in mind, I’m not here to deny that material well-being can improve happiness because I believe it certainly can.  However, the quest to acquire money can come with hefty spiritual costs that are oft ignored.

As such, I think most of us, when we say we want money, really mean that we want wealth.  So what, then, exactly is wealth?  Being wealthy means having the actual things, both tangible and intangible, that we want in our lives.  An eclectic array of things can make us wealthy (and in many different ways), e.g.,: a place to live, leisure time, a loving family, wonderful friends, gadgets, a creative outlet, and travel. 

What's interesting to note is that you can be wealthy without having money.  As Kent is fond of saying, "True wealth is not measured by financial means." However, money is needed for some of these things (unless you are bartering) and so to say that money doesn't matter at all isn’t entirely accurate either.

Most of us want the things that money can buy, but often what makes us happiest are the things that money can't buy.  Having a healthy balance between these two is the key to being wealthy and it's a different balance for each of us individually.

I think pursuing wealth is the more important thing than pursuing money, but we usually only hear public discourse surrounding money.  If what we really want is wealth, why do we waste our lives chasing money?  Starting at a very young age, society bombards us with the message that money makes people happy and successful.  As you can see, however, this rests on the mistaken assumption that wealth and money are synonymous terms; they’re not.

I think the French political economist, Frédéric Bastiat, would agree with me.  He famously wrote:

I cry out against money, just because everybody confounds it, as you did just now, with riches, and that this confusion is the cause of errors and calamities without number. I cry out against it because its function in society is not understood, and very difficult to explain. I cry out against it because it jumbles all ideas, causes the means to be taken for the end, the obstacle for the cause, the alpha for the omega; because its presence in the world, though in itself beneficial, has nevertheless introduced a fatal notion, a perversion of principles, a contradictory theory which in a multitude of forms, has impoverished mankind and deluged the earth with blood. I cry out against it, because I feel that I am incapable of contending against the error to which it has given birth, otherwise than by a long and fastidious dissertation to which no one would listen. Oh! if I could only find a patient and right-thinking listener!

As you can see, the answer to the question I posed at the beginning of this article is both "yes" and "no".  However, I think Adam Smith, like me, would be fond of how Tim O’Reilly, founder of O’Reilly Media, thinks about money.  "Money is like gasoline during a road trip. You don’t want to run out of gas on your trip, but you’re not doing a tour of gas stations."

--------------------------------------------------------

Notes:

[1] We can thank the Phoenicians for inventing metal money.

Related:

Financial Wealth: Real or Perceived?

The Diminishing Marginal Utility of Wealth