Human Capital

From a financial perspective, we are more than our (paper) net worth.  We also possess something economists call “human capital”.  I’d call it expected earnings potential.  Whatever you call it, it is an asset and is worthy of upkeep and proper maintenance.

So lets say you’ve learned some valuable skills and have a desk job with a comfy office chair… and free juice and soda.  Well, cool — until your age surpasses your waste line.  Your waste line gets jealous and tries to catch up.  This is not cool.  It is time to start exercising your human capital — literally.  (Or swear off the soda.)

Some financial advisers would say its time to think about insurance, especially life insurance.  Possibly.  I’m thinking the best returning investments are exercise and diet.  One’s a four-letter word and the other is even more unpleasant.  Both, however, pay dividends.  Benefits include longer life expectancy, better wellness, healthier appearance, and often improved mental function.  Yes, your mileage and results may very, and please consult your doctor.  Keeping yourself fit and healthy is a good investment.  It is often challenging and frustrating, but many investments in the self are.

Another investment to consider is education and training.  I’ve read articles saying that a master’s degree beats a bachelor’s degree, even after educational expenses and a ~2 year delay in entering the workforce.  I’ve also read publications claiming the opposite.  I think its a toss up and depends on many factors including major.  What I strongly believe is that a four-year college education is both financially desirable as well as rewarding for many people, and that in general state colleges and universities provide a better overall return on investment than expensive private colleges.

I also believe that there is such a thing as too much school, from a financial standpoint.  In many fields, a Ph.D. is no more valuable than an M.S., and is sometimes even a liability.

Some folks are not that into traditional classroom-based learning.  I love the classroom, but if I had the talent (aka a better arm, better glove, better hitting, and better speed) I’d be a professional baseball player.  Right fielder for the San Diego Padres sounds perfect.  Sorry, Will Venable, I want your job.

The long and short of this financial blog post is that an important component in investing in your financial future involves investing in yourself.  For me that takes a lot more emotional effort.  Nonetheless, I am making that effort.

Frugal Investments That Pay Off

Not all investments are big.   One favorite small investment I recently made is changing the oil in my car with Mobil 1 Synthetic.  Why?  Because, IMO, it’s a great investment.  For an extra $30 I get two benefits.

  1. Vastly reduced engine wear.
  2. Longer oil life. (Meaning my oil will easily last 6,000-7,000 miles).

I don’t drive much compared to the average driver.  I drive about 8,000-9,000 miles per year.  But a lot of my driving is short distance, which is harder on the engine.  However the essentially homogeneous medium-length hydrocarbon chains help my engine fare well against frequent “cold-starts.”  That’s what research tells me.  Additionally I inherited my first car that made it to 287,000 miles with no engine work, from my family who used synthetic oil in it.

Another frugal investment that worked out great for me was a 4-year electrical engineering degree from a state college.  Could I have gone to MIT, Cal Tech, Stanford?  Sure… until I ran out of money or went up to my ears and beyond with student loans.  But, guess what?  When I came to interviews, I got job offers when folks from these same great schools as often as not got rejection letters.  Why?  Because it is a waste of time to get an BSEE from a big-name school.  I got a better undergrad education from a state school, at 1/5 the price!  Talk about a good deal.

A third example of fiscal frugality is paying for good snow tires.  I have a car I like, a life I like, and friends that I cherish.  I find good/great snow tires to be excellent insurance.  I want to keep these  safe.  And one easy way I can help do that is by having control and stopping power when the roads turn icy.  I already drive 10-15 MPH below the speed limit in bad winter road conditions… but if I drive much slower I increase the risk of  some huge, out-of-control, SUV rear-ending or side-swiping me.   Having great tires (I love Blizzaks) helps enormously.  The combination of driving for the conditions and being well equipped helps improve the odds.  A very high ROI proposition.

Finally, in the same vein as driving, is NOT driving.  I, for one, tend to believe the per mile statistics about driving vs. commercial flying.  Hands down flying is way safer than driving.  So, given a choice, I will shell out a few extra bucks to fly rather than drive for trips longer than about 700 miles.   Do I hate security lines? Yes!  Do I hate taking off my shoes and belt?  Yes!  Do I like sitting like a sardine in coach?  Hell, no!  But do I think it is safer to fly.  Ya, ya betcha!

So, investing is as much about the little things as the big ones.  Cheaper is not always better.

Free your Mind and Bogle the Broker. A Zen Guide to Investing.

Zen is uncomplicated.  Investing is uncomplicated, until it isn’t.

I like the short Zen story about attention.  It starts out

There’s an old Zen story: a student said to Master Ichu, ‘Please write for me something of great wisdom.’

Master Ichu picked up his brush and wrote one word: ‘Attention.’

Simple. Right?

On some level the concepts are simple.  They are also profound.  On some level Zen is remarkable, stunning.  On another level unremarkable.

Investing concepts are similar.  Simple, profound.

Possibly the most difficult investing thoughts to grasp and put into action are the most simple.

  • Save.
  • Balance.
  • Own.
  • See.

I believe these simple words capture all you need to know to be a wise investor.  Like ‘attention’ these ideas benefit from lots of practice.

To ‘Save’ is easy for some, difficult for others.  Investing starts with savings.  For those not born into a great inheritance savings is crucial.  Savings is the art of spending less than you make.  The art of delayed gratification.   Keeping some of your income and keeping it safe.  For many the verb ‘save’ is easy in the way that the verb ‘diet’ is easy.  Simple concept, challenging action.

‘Balance’ is a deceptively simple term.  Martial arts train balance.  Speed skating, ice skating, and tight-rope walking showcase balance.  In the investing arena ‘balance’ refers to two key ideas: diversification and emotional equanimity.  Diversifying means balancing risks between different types of assets.  Emotional balance means “Caring about your investments, but not THAT much.”

To fully ‘own’ your investments you must understand, control, and value them.  In the same way that a stable master may own and value a prize horse without understanding veterinary medicine, a stock holder may own  and value a stock without being a financial comptroller.  An owner cuts out the middlemen and makes decisions.  An owner weighs decisions and responsibilities carefully because the financial buck stops with her and no one else.

Finally, to ‘see’ your investments you must see beneath the surface.  You see that all investments inevitably change.  You see that some good investments go bad.   You see the fog that shrouds some investments so thickly that you move on by.  You see that taxes are constantly changing and possibly that an accountant may see the ever-changing tax waters more clearly than you.

That’s it.  To invest with wisdom is to save, balance, own, and see.

Now for a curve ball.   If you have been shot by poison arrows, first carefully remove them.  Do not dwell on the cause of their intrusion into your flesh.   After you have recovered, you may be tempted to ask “Why was I shot?”.  It is the ‘why’ that takes most of the ‘attention’.  The same is true for investing.   The ‘why’ is the tricky, time-consuming, complicated part.

I believe that for the beginning investor the why can be unimportant.   For the enlightened investor the why is also unimportant.    The journey to investing enlightenment is about discovering the why and then letting it go.