Questions

Money is merely a means to live out our values. We should be wise stewards of it.

To do so we answer five questions:

1. How do we fund the present and save for the future?
2. How do we fund the family if we die?
3. How do we fund the future?
4. Are there wise ways to accelerate wealth creation?
5. How do we fund the family if we suffer financial destruction?

Roles

We answer our questions through playing financial defense and financial offense.

CB is the defensive coordinator and leads on these matters. John is the offensive coordinator and leads on these matters.

We collaborate in all matters — we each benefit from the wisdom of the other and can only act like owners if we both understand what we own and how we’re handling it.

Financial defense

[1] Funding the present

We answer our first question — how do we fund the present and save for the future? — through setting a lifestyle budget and living by it.

The budget is formed through our pursuit to live out our family values. For example:

• We value wise stewardship of our minds. This includes pursuing the good, true, and beautiful through education and participation in certain communities. Our budget reflects this.
• We value wise stewardship of our bodies. This includes feeding ourselves with things that are good (or less likely to be bad) for us. Our budget reflects this.
• We value doing as we would be done by. In some cases this requires money, and where it does we allocate budget for it. This includes “I can have a little and you can have a lot”, so we budget our giving.
• We value being intentional with our time. Sometimes we are able to pay to avoid losing time (e.g. a direct flight vs. multiple layovers). We budget for this.

Some may find our budget rather spiky — relatively low in some areas and high in others. This as a good thing. We are seeking to be authentic, not average. [1]

We use simple tools to track spending vs. budget (we currently use Copilot).

Money is a window into the heart. We have learned an enormous amount about ourselves and our values through conscious, intentional tracking and review of our use of money.

We refine our budget through regular discussion of trade-offs. This includes a short weekly check-in on spend vs. plan and a monthly review of spend vs. trend. A few times each year we discuss whether we can reduce or increase any spending or giving that would improve our ability to live out our values, and adjust accordingly. We have found that much of this naturally flows from the simple act of intentionally reviewing our spending on a regular basis.

[2] If we die

We answer our second question — how do we fund the family if we die? — by holding life insurance that, combined with our assets, would provide for our children should we die while they are still young.

The common notion of insuring to offset loss of future earnings due to death is too arbitrary. Instead, we thought about what we want to financially enable for our kids if we’re not around, and set a level that would enable this.

Regardless of when we die, we want our kids to have enough so they could do anything, but not so much that they could do nothing. [2]

Financial offense

[3] Funding the future

We answer our third question — how do we fund the future? — through investment.

Businesses are the wealth creation engines of society. We invest in wonderful businesses and act as business partners.

Investing is highly personal, so we seek to be highly attuned to our personalities. In this matter we have found little use in optimizing things for the short-term. Money we need to fund the present is generally held in cash and equivalents. We meet rebuttals of “but, inflation!” with “small payoff.” [3] There are a lot of ways to get cute with short-term cash. The safe ones don’t pay well and the ones that pay well aren’t safe. We find our time is better spent investing for the future.

What remains is money we can play a nearly infinite game with — investing with very long time horizons and having the patience and courage to see those investments to fruition provided the underlying businesses continue to perform. This also enables us to sidestep the flawed notion that risk is volatility.

We have found that much of investing boils down to a sophisticated understanding of incentives — what some may call the “deep reality” of some businesses, together with their market context. “People follow incentives” is the best summary of economics; learning this early would have saved John quite a bit of time in college. “Macro for context, micro for conviction” is wise as well.

Our most profitable insights have come from recognizing the deep reality of some businesses, not from being more contrarian than everyone else. Nick Sleep

In investing and everywhere else, doing business with people one likes, trusts, and admires can never be overstated. [4]

[4] Accelerating wealth creation

We answer our fourth question — are there wise ways to accelerate wealth creation? — through opportunistic pursuit of investments with very high expected value — the sum of all potential outcomes times their probabilities.

These have included investments in small growing businesses, early stage venture capital, and some digital assets.

We like these opportunities when the odds are strongly skewed towards the upside, and view them as opportunities to accelerate wealth creation.

However, it is nearly always the case that potential dramatic upside is paired with potential dramatic downside. Given their higher probability of permanent loss of capital we size these positions such that we would be functionally unaffected should they not pan out. This creates a “heads I win, tails I don’t lose much” dynamic. If successful, growth in wealth will accelerate. If unsuccessful, we are minimally affected.

Rational people don't risk what they have and need for what they don't have and don't need. Warren Buffett

[5] If we suffer financial destruction

We answer our fifth question — how do we fund the family if we suffer financial destruction? — in two manners.

The first way we answer this question is through protecting against reasonable risks with reasonable solutions. This principally means investing in wonderful businesses, doing business with people we like, trust, and admire, and staying in great company. This also means planning for the unexpected-but-possible to a reasonable degree. Life insurance is a good example. Assets that would likely appreciate if the US loses dollar hegemony is another. Avoiding institutions and counterparties likely to have outsized and/or hidden risks is another.

But we don’t believe in taking this too far. The types of dramatic, shocking shifts that could cause the above are impossible to predict. One could spend their whole life buying more insurance, further diversifying their assets, and stocking fallout shelters. Our approach is different: hold wonderful assets, hold some things that can zig when others zag, have wonderful relationships, and trust in our ability to be wise and work hard if times get tough.

The second way we answer this question is by keeping a healthy historical perspective and remaining focused on living out our values.

It is impossible to study history and not conclude that we may lose it all. There are many ways this can happen, and we cannot protect against all of them. It is also possible that the risks we protect against are the wrong ones, or that the risks that cause the most damage cannot be avoided.

In light of this we try not to be so arrogant as to think financial destruction cannot happen to us, nor so despairing as to think it would be the end of us.

When money is one’s measure of success, financial ruin is absolute ruin. When money is merely a means to live out one’s values, the range of positive future outcomes is very wide.

In the unlikely event we suffer financial destruction, we’ll get over it, and we’ll get on with living out our values.

Notes and references

[1] Thanks, Blas Moros. More here.

[2] Thanks, Warren Buffett

[3] We would have a different cash strategy if we enter a period of persistent high inflation

[4] Thanks again, Warren

Last updated: 2022 (v5)

Prior versions: 2014 (v1), 2015 (v2), 2017 (v3), 2018 (v4)