Efficiency or resiliency in investing, business, personal finance, etc.

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Efficiency or resiliency in investing, business, personal finance, etc.

Post by willthrill81 » Mon May 18, 2020 3:54 pm

The recent downturn has made it clear that many consumers, small businesses, and even large corporations were set up to be efficient and not resilient. I've heard of many stories of landlords, for instance, who are at risk of foreclosure if they miss a couple of months of rent on their properties. We've already known that half of Americans couldn't lay their hands on $500 without going into debt long before the current economic woes. Countless small business are taking out PPP loans just in order to make payroll only two months into all of this. And many large corporations in many industries are already on life support paid for by tax dollars.

A year ago, many businesses of all sizes would have said that it would have been grossly inefficient to have 3-6 months of payroll set aside in short-term reserves, but such a strategy would now be viewed as very prudent. Similarly, investors with well funded emergency funds are in much better shape than those without them or other liquid capital.

I'm wondering several things about what lessons there are to be learned from all of this.

1. How desirable is resiliency when it comes to an investor's strategy?

2. Are efficiency and resiliency truly at odds with each other? Is it likely impractical for a strategy to have both characteristics?

3. If the answer to #2 is yes, then should an investor lean more in one direction than another?
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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ResearchMed
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Re: Efficiency or resiliency in investing, business, personal finance, etc.

Post by ResearchMed » Mon May 18, 2020 4:05 pm

willthrill81 wrote:
Mon May 18, 2020 3:54 pm
The recent downturn has made it clear that many consumers, small businesses, and even large corporations were set up to be efficient and not resilient. I've heard of many stories of landlords, for instance, who are at risk of foreclosure if they miss a couple of months of rent on their properties. We've already known that half of Americans couldn't lay their hands on $500 without going into debt long before the current economic woes. Countless small business are taking out PPP loans just in order to make payroll only two months into all of this. And many large corporations in many industries are already on life support paid for by tax dollars.

A year ago, many businesses of all sizes would have said that it would have been grossly inefficient to have 3-6 months of payroll set aside in short-term reserves, but such a strategy would now be viewed as very prudent. Similarly, investors with well funded emergency funds are in much better shape than those without them or other liquid capital.

I'm wondering several things about what lessons there are to be learned from all of this.

1. How desirable is resiliency when it comes to an investor's strategy?

2. Are efficiency and resiliency truly at odds with each other? Is it likely impractical for a strategy to have both characteristics?

3. If the answer to #2 is yes, then should an investor lean more in one direction than another?
Is this question any different that asking something like what proportion (or perhaps simply "how much") one should have in that Emergency Fund (or perhaps more than one "bucket" with differing time planning)?

Doesn't an Emergency Fund serve as the "resilency", with the equities serving as the efficient portion? Not sure if (conservative) bonds would be an intermediate category, but isn't that already the case?

They are "sort of" at odds, in that the higher the percentage one has in the "safe" holdings, the smaller the percentage in the "growth type" portion.

And as for Question 3, isn't that similar to the "age of investor" situation already in terms of "investing strategy", at least for those who recommend getting more conservative as one gets older? (This would be different for those who plan to increase equities as one ages.)

RM
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Re: Efficiency or resiliency in investing, business, personal finance, etc.

Post by willthrill81 » Mon May 18, 2020 4:16 pm

ResearchMed wrote:
Mon May 18, 2020 4:05 pm
willthrill81 wrote:
Mon May 18, 2020 3:54 pm
The recent downturn has made it clear that many consumers, small businesses, and even large corporations were set up to be efficient and not resilient. I've heard of many stories of landlords, for instance, who are at risk of foreclosure if they miss a couple of months of rent on their properties. We've already known that half of Americans couldn't lay their hands on $500 without going into debt long before the current economic woes. Countless small business are taking out PPP loans just in order to make payroll only two months into all of this. And many large corporations in many industries are already on life support paid for by tax dollars.

A year ago, many businesses of all sizes would have said that it would have been grossly inefficient to have 3-6 months of payroll set aside in short-term reserves, but such a strategy would now be viewed as very prudent. Similarly, investors with well funded emergency funds are in much better shape than those without them or other liquid capital.

I'm wondering several things about what lessons there are to be learned from all of this.

1. How desirable is resiliency when it comes to an investor's strategy?

2. Are efficiency and resiliency truly at odds with each other? Is it likely impractical for a strategy to have both characteristics?

3. If the answer to #2 is yes, then should an investor lean more in one direction than another?
Is this question any different that asking something like what proportion (or perhaps simply "how much") one should have in that Emergency Fund (or perhaps more than one "bucket" with differing time planning)?

Doesn't an Emergency Fund serve as the "resilency", with the equities serving as the efficient portion? Not sure if (conservative) bonds would be an intermediate category, but isn't that already the case?

They are "sort of" at odds, in that the higher the percentage one has in the "safe" holdings, the smaller the percentage in the "growth type" portion.

And as for Question 3, isn't that similar to the "age of investor" situation already in terms of "investing strategy", at least for those who recommend getting more conservative as one gets older? (This would be different for those who plan to increase equities as one ages.)

RM
I'm not sure that it's as simple as the ratio of one's investment portfolio to one's emergency fund or the ratio of one's stocks to bonds. In fact, I really don't think that it is.

For instance, is a 20/80 more resilient than a 70/30? It's less volatile, but I'm not sure that that means that it's more resilient.

Vineviz recently suggested that an emergency fund may be better invested in a very conservative allocation to stocks and bonds (e.g. 20/80 or 30/70), which was an approach that I used for years when we had an emergency fund to speak of (we don't any longer). So I'm not convinced that the traditional wisdom to put an EF into cash equivalents is maximally resilient.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Efficiency or resiliency in investing, business, personal finance, etc.

Post by ResearchMed » Mon May 18, 2020 4:22 pm

willthrill81 wrote:
Mon May 18, 2020 4:16 pm
ResearchMed wrote:
Mon May 18, 2020 4:05 pm
willthrill81 wrote:
Mon May 18, 2020 3:54 pm
The recent downturn has made it clear that many consumers, small businesses, and even large corporations were set up to be efficient and not resilient. I've heard of many stories of landlords, for instance, who are at risk of foreclosure if they miss a couple of months of rent on their properties. We've already known that half of Americans couldn't lay their hands on $500 without going into debt long before the current economic woes. Countless small business are taking out PPP loans just in order to make payroll only two months into all of this. And many large corporations in many industries are already on life support paid for by tax dollars.

A year ago, many businesses of all sizes would have said that it would have been grossly inefficient to have 3-6 months of payroll set aside in short-term reserves, but such a strategy would now be viewed as very prudent. Similarly, investors with well funded emergency funds are in much better shape than those without them or other liquid capital.

I'm wondering several things about what lessons there are to be learned from all of this.

1. How desirable is resiliency when it comes to an investor's strategy?

2. Are efficiency and resiliency truly at odds with each other? Is it likely impractical for a strategy to have both characteristics?

3. If the answer to #2 is yes, then should an investor lean more in one direction than another?
Is this question any different that asking something like what proportion (or perhaps simply "how much") one should have in that Emergency Fund (or perhaps more than one "bucket" with differing time planning)?

Doesn't an Emergency Fund serve as the "resilency", with the equities serving as the efficient portion? Not sure if (conservative) bonds would be an intermediate category, but isn't that already the case?

They are "sort of" at odds, in that the higher the percentage one has in the "safe" holdings, the smaller the percentage in the "growth type" portion.

And as for Question 3, isn't that similar to the "age of investor" situation already in terms of "investing strategy", at least for those who recommend getting more conservative as one gets older? (This would be different for those who plan to increase equities as one ages.)

RM
I'm not sure that it's as simple as the ratio of one's investment portfolio to one's emergency fund or the ratio of one's stocks to bonds. In fact, I really don't think that it is.

For instance, is a 20/80 more resilient than a 70/30? It's less volatile, but I'm not sure that that means that it's more resilient.

Vineviz recently suggested that an emergency fund may be better invested in a very conservative allocation to stocks and bonds (e.g. 20/80 or 30/70), which was an approach that I used for years when we had an emergency fund to speak of (we don't any longer). So I'm not convinced that the traditional wisdom to put an EF into cash equivalents is maximally resilient.
What is your definition of "resilency", and also "efficiency"?

BTW, I wasn't suggesting any specific breakdown in percentages; mostly whether resiliency and efficiency as you were using them were any different than an emergency fund "and the rest"... and if so, how?

Of course, the trade-off (and percentages/etc.) between the two categories, and whether/how it changes by age/stage of life, seems to always be "up for discussion".

RM
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Re: Efficiency or resiliency in investing, business, personal finance, etc.

Post by Rosencrantz1 » Mon May 18, 2020 4:24 pm

I come from the point-of-view that resiliency is highly desirable - and, in our case, it's reflected in our EF. We're fortunate in that our pension income is greater than our expenses - but, we (mostly because of DW) still maintain an outsized (by most standards) EF. Every time I see interest rates tick down, I'm reminded how 'inefficient' our cash holdings are.

I'd think, given the BH mantras of 'buy and hold' and 'stay the course', resiliency would be favored - - but, IDK, maybe not...

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Re: Efficiency or resiliency in investing, business, personal finance, etc.

Post by willthrill81 » Mon May 18, 2020 4:27 pm

ResearchMed wrote:
Mon May 18, 2020 4:22 pm
willthrill81 wrote:
Mon May 18, 2020 4:16 pm
ResearchMed wrote:
Mon May 18, 2020 4:05 pm
willthrill81 wrote:
Mon May 18, 2020 3:54 pm
The recent downturn has made it clear that many consumers, small businesses, and even large corporations were set up to be efficient and not resilient. I've heard of many stories of landlords, for instance, who are at risk of foreclosure if they miss a couple of months of rent on their properties. We've already known that half of Americans couldn't lay their hands on $500 without going into debt long before the current economic woes. Countless small business are taking out PPP loans just in order to make payroll only two months into all of this. And many large corporations in many industries are already on life support paid for by tax dollars.

A year ago, many businesses of all sizes would have said that it would have been grossly inefficient to have 3-6 months of payroll set aside in short-term reserves, but such a strategy would now be viewed as very prudent. Similarly, investors with well funded emergency funds are in much better shape than those without them or other liquid capital.

I'm wondering several things about what lessons there are to be learned from all of this.

1. How desirable is resiliency when it comes to an investor's strategy?

2. Are efficiency and resiliency truly at odds with each other? Is it likely impractical for a strategy to have both characteristics?

3. If the answer to #2 is yes, then should an investor lean more in one direction than another?
Is this question any different that asking something like what proportion (or perhaps simply "how much") one should have in that Emergency Fund (or perhaps more than one "bucket" with differing time planning)?

Doesn't an Emergency Fund serve as the "resilency", with the equities serving as the efficient portion? Not sure if (conservative) bonds would be an intermediate category, but isn't that already the case?

They are "sort of" at odds, in that the higher the percentage one has in the "safe" holdings, the smaller the percentage in the "growth type" portion.

And as for Question 3, isn't that similar to the "age of investor" situation already in terms of "investing strategy", at least for those who recommend getting more conservative as one gets older? (This would be different for those who plan to increase equities as one ages.)

RM
I'm not sure that it's as simple as the ratio of one's investment portfolio to one's emergency fund or the ratio of one's stocks to bonds. In fact, I really don't think that it is.

For instance, is a 20/80 more resilient than a 70/30? It's less volatile, but I'm not sure that that means that it's more resilient.

Vineviz recently suggested that an emergency fund may be better invested in a very conservative allocation to stocks and bonds (e.g. 20/80 or 30/70), which was an approach that I used for years when we had an emergency fund to speak of (we don't any longer). So I'm not convinced that the traditional wisdom to put an EF into cash equivalents is maximally resilient.
What is your definition of "resilency", and also "efficiency"?

BTW, I wasn't suggesting any specific breakdown in percentages; mostly whether resiliency and efficiency as you were using them were any different than an emergency fund "and the rest"... and if so, how?

Of course, the trade-off (and percentages/etc.) between the two categories, and whether/how it changes by age/stage of life, seems to always be "up for discussion".

RM
The definitions from Merriam Webster seem appropriate.

Efficient: "capable of producing desired results with little or no waste"

Resilient: "tending to recover from or adjust easily to misfortune or change"
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Efficiency or resiliency in investing, business, personal finance, etc.

Post by willthrill81 » Mon May 18, 2020 4:30 pm

Rosencrantz1 wrote:
Mon May 18, 2020 4:24 pm
I come from the point-of-view that resiliency is highly desirable - and, in our case, it's reflected in our EF. We're fortunate in that our pension income is greater than our expenses - but, we (mostly because of DW) still maintain an outsized (by most standards) EF. Every time I see interest rates tick down, I'm reminded how 'inefficient' our cash holdings are.
I think that most would agree that cash is not an "efficient" asset class in that it doesn't really do much of anything. It's non-volatile, and that's about all that it has going for it.

But is the lack of volatility enough to make cash a "resilient" asset class (e.g. keeping with the above definition of "tending to recover from or adjust easily to misfortune or change")?

Portfolios/strategies that strike me as being resilient include the Permanent Portfolio, the Larry Portfolio, and the Golden Butterfly portfolio. It's probably worth nothing that all of these strategies have a moderately small stock allocation (25% - 40%) but that they all have stock.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Efficiency or resiliency in investing, business, personal finance, etc.

Post by Wanderingwheelz » Mon May 18, 2020 4:32 pm

willthrill81 wrote:
Mon May 18, 2020 3:54 pm
The recent downturn has made it clear that many consumers, small businesses, and even large corporations were set up to be efficient and not resilient. I've heard of many stories of landlords, for instance, who are at risk of foreclosure if they miss a couple of months of rent on their properties. We've already known that half of Americans couldn't lay their hands on $500 without going into debt long before the current economic woes. Countless small business are taking out PPP loans just in order to make payroll only two months into all of this. And many large corporations in many industries are already on life support paid for by tax dollars.

A year ago, many businesses of all sizes would have said that it would have been grossly inefficient to have 3-6 months of payroll set aside in short-term reserves, but such a strategy would now be viewed as very prudent. Similarly, investors with well funded emergency funds are in much better shape than those without them or other liquid capital.

I'm wondering several things about what lessons there are to be learned from all of this.

1. How desirable is resiliency when it comes to an investor's strategy?

2. Are efficiency and resiliency truly at odds with each other? Is it likely impractical for a strategy to have both characteristics?

3. If the answer to #2 is yes, then should an investor lean more in one direction than another?
As an investor, I think it comes down to a few things. How large is your portfolio? What are your expenses and what is your lifestyle? And how much volatility can you handle? Does getting every last spec of performance out of your last investable dollar matter to you?

Personally, I place a high value on resiliency, less so on efficiency. I’m fine with some drag on my portfolio to sleep better at night.

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Re: Efficiency or resiliency in investing, business, personal finance, etc.

Post by livesoft » Mon May 18, 2020 4:34 pm

willthrill81 wrote:
Mon May 18, 2020 3:54 pm
...
Countless small business are taking out PPP loans just in order to make payroll only two months into all of this.
....
I want to make the statement that when free money is being given out that everybody gets in line to get some. A careful analysis of these PPP loans in the future will probably show that many of them were not needed, but made business sense. There have been reports of some businesses taking advantage of the PPP loans.

Full disclosure: I was involved peripherally in advising a non-profit to apply for such a loan and they got it.
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Re: Efficiency or resiliency in investing, business, personal finance, etc.

Post by willthrill81 » Mon May 18, 2020 4:55 pm

livesoft wrote:
Mon May 18, 2020 4:34 pm
willthrill81 wrote:
Mon May 18, 2020 3:54 pm
...
Countless small business are taking out PPP loans just in order to make payroll only two months into all of this.
....
I want to make the statement that when free money is being given out that everybody gets in line to get some. A careful analysis of these PPP loans in the future will probably show that many of them were not needed, but made business sense. There have been reports of some businesses taking advantage of the PPP loans.

Full disclosure: I was involved peripherally in advising a non-profit to apply for such a loan and they got it.
That's a good point. Still, I've heard that many small businesses need such loans in order to survive.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Efficiency or resiliency in investing, business, personal finance, etc.

Post by Rosencrantz1 » Mon May 18, 2020 5:02 pm

willthrill81 wrote:
Mon May 18, 2020 4:30 pm

But is the lack of volatility enough to make cash a "resilient" asset class (e.g. keeping with the above definition of "tending to recover from or adjust easily to misfortune or change")
I'd argue precisely that - the lack of volatility - that makes cash (and, in particular, the USD) a resilient asset class. Pretty tough to recover from misfortune if one's assets are completely tied up in real estate (housing crash) or stocks (sudden bear market). Even my short term bond funds bounced around fairly significantly before the Fed jumped in.

Curious. What do you consider a resilient asset class?

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Re: Efficiency or resiliency in investing, business, personal finance, etc.

Post by KlangFool » Mon May 18, 2020 5:03 pm

OP,

It is very simple.

In order to be efficient, you assume something will go right. You are counting on to be able to predict the future to a certain degree.

To be resilient, you assume nothing. Anything that can go wrong will go wrong at the same time.

I am a Telecom engineer. It is part of our jobs to design the network/system that works in spite of everything goes wrong at the same time.

The spectrum of efficiency versus resiliency is the degree of your assumptions. How many things do you assume to be working or not go wrong at the same time?

KlangFool

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Re: Efficiency or resiliency in investing, business, personal finance, etc.

Post by willthrill81 » Mon May 18, 2020 5:16 pm

Rosencrantz1 wrote:
Mon May 18, 2020 5:02 pm
Curious. What do you consider a resilient asset class?
I'm not sure that there is such a thing. But investors should seemingly be more concerned about their overall finances being resilient than their investments, and they should be more concerned about their portfolio being resilient than their individual holdings.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Efficiency or resiliency in investing, business, personal finance, etc.

Post by KlangFool » Mon May 18, 2020 5:25 pm

Rosencrantz1 wrote:
Mon May 18, 2020 5:02 pm
willthrill81 wrote:
Mon May 18, 2020 4:30 pm

But is the lack of volatility enough to make cash a "resilient" asset class (e.g. keeping with the above definition of "tending to recover from or adjust easily to misfortune or change")
I'd argue precisely that - the lack of volatility - that makes cash (and, in particular, the USD) a resilient asset class.
Rosencrantz1,

I disagreed. If USD loses its reserve currency status and we have hyperinflation, CASH will lose values.

KlangFool

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Re: Efficiency or resiliency in investing, business, personal finance, etc.

Post by willthrill81 » Mon May 18, 2020 6:10 pm

KlangFool wrote:
Mon May 18, 2020 5:03 pm
To be resilient, you assume nothing. Anything that can go wrong will go wrong at the same time.
How would an investor practice such an approach?
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Efficiency or resiliency in investing, business, personal finance, etc.

Post by KlangFool » Mon May 18, 2020 6:14 pm

willthrill81 wrote:
Mon May 18, 2020 6:10 pm
KlangFool wrote:
Mon May 18, 2020 5:03 pm
To be resilient, you assume nothing. Anything that can go wrong will go wrong at the same time.
How would an investor practice such an approach?
willthrill81,

A) Stress-test your portfolio against:

1) Bear market

2) Bull market

3) Deflation

4) Inflation

5) Hyperinflation.

6) Low-interest rate

7) High-interest rate.

B) Diversification is a good thing.

KlangFool

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Re: Efficiency or resiliency in investing, business, personal finance, etc.

Post by willthrill81 » Mon May 18, 2020 6:20 pm

KlangFool wrote:
Mon May 18, 2020 6:14 pm
willthrill81 wrote:
Mon May 18, 2020 6:10 pm
KlangFool wrote:
Mon May 18, 2020 5:03 pm
To be resilient, you assume nothing. Anything that can go wrong will go wrong at the same time.
How would an investor practice such an approach?
willthrill81,

A) Stress-test your portfolio against:

1) Bear market

2) Bull market

3) Deflation

4) Inflation

5) Hyperinflation.

6) Low-interest rate

7) High-interest rate.

B) Diversification is a good thing.

KlangFool
I'm not sure that a portfolio with only stocks and bonds would hold up well against all of those scenarios.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

Rosencrantz1
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Re: Efficiency or resiliency in investing, business, personal finance, etc.

Post by Rosencrantz1 » Mon May 18, 2020 7:04 pm

KlangFool wrote:
Mon May 18, 2020 5:25 pm
Rosencrantz1 wrote:
Mon May 18, 2020 5:02 pm
willthrill81 wrote:
Mon May 18, 2020 4:30 pm

But is the lack of volatility enough to make cash a "resilient" asset class (e.g. keeping with the above definition of "tending to recover from or adjust easily to misfortune or change")
I'd argue precisely that - the lack of volatility - that makes cash (and, in particular, the USD) a resilient asset class.
Rosencrantz1,

I disagreed. If USD loses its reserve currency status and we have hyperinflation, CASH will lose values.

KlangFool
KlangFool,

If and If - - I suspect both of your scenarios are remote - especially in the near term (next few years). Frankly, I'm a bit more concerned about deflation instead of inflation.

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Re: Efficiency or resiliency in investing, business, personal finance, etc.

Post by 260chrisb » Mon May 18, 2020 7:18 pm

Okay, I cheated and looked ahead and appreciate the answers but I'll answer number 2 in my opinion. Efficiency and resiliency are not at adds and I believe it is practical to have both within an investment strategy.

Rosencrantz1
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Re: Efficiency or resiliency in investing, business, personal finance, etc.

Post by Rosencrantz1 » Mon May 18, 2020 7:22 pm

willthrill81 wrote:
Mon May 18, 2020 5:16 pm
Rosencrantz1 wrote:
Mon May 18, 2020 5:02 pm
Curious. What do you consider a resilient asset class?
I'm not sure that there is such a thing. But investors should seemingly be more concerned about their overall finances being resilient than their investments, and they should be more concerned about their portfolio being resilient than their individual holdings.
Agreed 100%. I guess I'm suggesting (probably obviously) a nice chunk of USD (cash) as a significant step in the direction of resiliency (of course, one pays for that in the current environment). Unlike KlangFool, I don't think hyperinflation or the USD ceding status as the world reserve currency are threats anytime soon. \0.02cents

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Re: Efficiency or resiliency in investing, business, personal finance, etc.

Post by KlangFool » Mon May 18, 2020 7:35 pm

willthrill81 wrote:
Mon May 18, 2020 6:20 pm
KlangFool wrote:
Mon May 18, 2020 6:14 pm
willthrill81 wrote:
Mon May 18, 2020 6:10 pm
KlangFool wrote:
Mon May 18, 2020 5:03 pm
To be resilient, you assume nothing. Anything that can go wrong will go wrong at the same time.
How would an investor practice such an approach?
willthrill81,

A) Stress-test your portfolio against:

1) Bear market

2) Bull market

3) Deflation

4) Inflation

5) Hyperinflation.

6) Low-interest rate

7) High-interest rate.

B) Diversification is a good thing.

KlangFool
I'm not sure that a portfolio with only stocks and bonds would hold up well against all of those scenarios.
What is there to stop someone to invest beyond stock and bond?

KlangFool

KlangFool
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Re: Efficiency or resiliency in investing, business, personal finance, etc.

Post by KlangFool » Mon May 18, 2020 7:36 pm

Rosencrantz1 wrote:
Mon May 18, 2020 7:22 pm
willthrill81 wrote:
Mon May 18, 2020 5:16 pm
Rosencrantz1 wrote:
Mon May 18, 2020 5:02 pm
Curious. What do you consider a resilient asset class?
I'm not sure that there is such a thing. But investors should seemingly be more concerned about their overall finances being resilient than their investments, and they should be more concerned about their portfolio being resilient than their individual holdings.
Agreed 100%. I guess I'm suggesting (probably obviously) a nice chunk of USD (cash) as a significant step in the direction of resiliency (of course, one pays for that in the current environment). Unlike KlangFool, I don't think hyperinflation or the USD ceding status as the world reserve currency are threats anytime soon. \0.02cents
Rosencrantz1,

I assume that I know nothing. You assume that hyperinflation is unlikely.

KlangFool

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Re: Efficiency or resiliency in investing, business, personal finance, etc.

Post by willthrill81 » Mon May 18, 2020 7:43 pm

KlangFool wrote:
Mon May 18, 2020 7:35 pm
willthrill81 wrote:
Mon May 18, 2020 6:20 pm
KlangFool wrote:
Mon May 18, 2020 6:14 pm
willthrill81 wrote:
Mon May 18, 2020 6:10 pm
KlangFool wrote:
Mon May 18, 2020 5:03 pm
To be resilient, you assume nothing. Anything that can go wrong will go wrong at the same time.
How would an investor practice such an approach?
willthrill81,

A) Stress-test your portfolio against:

1) Bear market

2) Bull market

3) Deflation

4) Inflation

5) Hyperinflation.

6) Low-interest rate

7) High-interest rate.

B) Diversification is a good thing.

KlangFool
I'm not sure that a portfolio with only stocks and bonds would hold up well against all of those scenarios.
What is there to stop someone to invest beyond stock and bond?

KlangFool
I didn't say that there was. My comment was merely that something like the 3-fund portfolio isn't going to be resilient against all of those scenarios.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Efficiency or resiliency in investing, business, personal finance, etc.

Post by Rosencrantz1 » Mon May 18, 2020 7:49 pm

KlangFool wrote:
Mon May 18, 2020 7:36 pm
Rosencrantz1 wrote:
Mon May 18, 2020 7:22 pm
willthrill81 wrote:
Mon May 18, 2020 5:16 pm
Rosencrantz1 wrote:
Mon May 18, 2020 5:02 pm
Curious. What do you consider a resilient asset class?
I'm not sure that there is such a thing. But investors should seemingly be more concerned about their overall finances being resilient than their investments, and they should be more concerned about their portfolio being resilient than their individual holdings.
Agreed 100%. I guess I'm suggesting (probably obviously) a nice chunk of USD (cash) as a significant step in the direction of resiliency (of course, one pays for that in the current environment). Unlike KlangFool, I don't think hyperinflation or the USD ceding status as the world reserve currency are threats anytime soon. \0.02cents
Rosencrantz1,

I assume that I know nothing. You assume that hyperinflation is unlikely.

KlangFool
KlangFool,

You've got me there. My whole life and investment style are based upon some assumptions - How long should I live, average CAGRs of various types of investments, employment prospects/security, etc etc. Many of these assumptions have - fortunately - panned out.

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Re: Efficiency or resiliency in investing, business, personal finance, etc.

Post by KlangFool » Mon May 18, 2020 8:09 pm

Rosencrantz1 wrote:
Mon May 18, 2020 7:49 pm
KlangFool wrote:
Mon May 18, 2020 7:36 pm
Rosencrantz1 wrote:
Mon May 18, 2020 7:22 pm
willthrill81 wrote:
Mon May 18, 2020 5:16 pm
Rosencrantz1 wrote:
Mon May 18, 2020 5:02 pm
Curious. What do you consider a resilient asset class?
I'm not sure that there is such a thing. But investors should seemingly be more concerned about their overall finances being resilient than their investments, and they should be more concerned about their portfolio being resilient than their individual holdings.
Agreed 100%. I guess I'm suggesting (probably obviously) a nice chunk of USD (cash) as a significant step in the direction of resiliency (of course, one pays for that in the current environment). Unlike KlangFool, I don't think hyperinflation or the USD ceding status as the world reserve currency are threats anytime soon. \0.02cents
Rosencrantz1,

I assume that I know nothing. You assume that hyperinflation is unlikely.

KlangFool
KlangFool,

You've got me there. My whole life and investment style are based upon some assumptions - How long should I live, average CAGRs of various types of investments, employment prospects/security, etc etc. Many of these assumptions have - fortunately - panned out.
Rosencrantz1,

You got lucky! The rest of us may not be able to count on that.

KlangFool

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Re: Efficiency or resiliency in investing, business, personal finance, etc.

Post by Rosencrantz1 » Mon May 18, 2020 8:25 pm

Rosencrantz1,

You got lucky! The rest of us may not be able to count on that.

KlangFool

[/quote]

Funny story... my ex mother-in-law, when we were custom building a beautiful home liked to tell me how 'lucky' I was/am. I tried to explain to her that choosing to invest, choosing to go to college, choosing a lucrative career field and field of study, choosing to save money/live below my means etc etc were not all attributable to "luck". Some of it was (I hope) a result of a little "planning" too. But, who knows? I may get hit by a bus crossing the street tomorrow.

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Re: Efficiency or resiliency in investing, business, personal finance, etc.

Post by KlangFool » Mon May 18, 2020 8:33 pm

Rosencrantz1 wrote:
Mon May 18, 2020 8:25 pm

Funny story... my ex mother-in-law, when we were custom building a beautiful home liked to tell me how 'lucky' I was/am. I tried to explain to her that choosing to invest, choosing to go to college, choosing a lucrative career field and field of study, choosing to save money/live below my means etc etc were not all attributable to "luck". Some of it was (I hope) a result of a little "planning" too. But, who knows? I may get hit by a bus crossing the street tomorrow.
Rosencrantz1,

Have you ever consider the ability to choose itself requires a certain level of luck? For example, in my home country, the ability to choose to go to colleges was taken away from some race. We have to go oversea just to go to college. And, we are not allowed to enter some career fields and/or businesses because of our race.

KlangFool

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Re: Efficiency or resiliency in investing, business, personal finance, etc.

Post by Ivygirl » Tue May 19, 2020 7:50 am

Efficiency is an idiot. Resiliency is wise.

In my years of working I never saw the pursuit of resilience harm anybody, but I have seen the pursuit of efficiency squeeze people until they are brought to poverty and nearly out of their minds with misery. It has happened to me.

Has anyone ever seen resiliency bring harm to anyone? Does it not rather increase richness, variety, freedom, broadness of views, curiosity, exploration, enjoyment of life and work, security in hard times, enough to share and the willingness to do it, hope that as bad as things seem there is always something that can be done about it?

What would we do if Nature were efficient? The world would be all sharks and cockroaches. Eek.

Efficiency has no sense of humor, which is enough of a reason to say it is a knave, whereas resiliency is a queen.

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Re: Efficiency or resiliency in investing, business, personal finance, etc.

Post by WoodSpinner » Tue May 19, 2020 8:44 am

willthrill81 wrote:
Mon May 18, 2020 5:16 pm
Rosencrantz1 wrote:
Mon May 18, 2020 5:02 pm
Curious. What do you consider a resilient asset class?
I'm not sure that there is such a thing. But investors should seemingly be more concerned about their overall finances being resilient than their investments, and they should be more concerned about their portfolio being resilient than their individual holdings.
Willthrill81,

I have to agree with your comment. For me, Financial Resiliency has been a cornerstone of my planning for the last 30 years. Living Below Your Means, not being greedy, supporting your community, building strong relationships are just some of the ways you can affect this goal. There is great power in having enough versus the drive for more and more.


This thread reminds me a bit of the Optimizer vs. Satisfier discussions you started earlier.
viewtopic.php?t=288908

WoodSpinner

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Re: Efficiency or resiliency in investing, business, personal finance, etc.

Post by willthrill81 » Tue May 19, 2020 9:39 am

WoodSpinner wrote:
Tue May 19, 2020 8:44 am
willthrill81 wrote:
Mon May 18, 2020 5:16 pm
Rosencrantz1 wrote:
Mon May 18, 2020 5:02 pm
Curious. What do you consider a resilient asset class?
I'm not sure that there is such a thing. But investors should seemingly be more concerned about their overall finances being resilient than their investments, and they should be more concerned about their portfolio being resilient than their individual holdings.
Willthrill81,

I have to agree with your comment. For me, Financial Resiliency has been a cornerstone of my planning for the last 30 years. Living Below Your Means, not being greedy, supporting your community, building strong relationships are just some of the ways you can affect this goal. There is great power in having enough versus the drive for more and more.
Yes, I agree that all of those things can make you financially resilient.

Also, I do think that a portfolio can be constructed in such a way as to be more resilient than one with only stocks and bonds or at least more resilient than the 3-fund.
WoodSpinner wrote:
Tue May 19, 2020 8:44 am
This thread reminds me a bit of the Optimizer vs. Satisfier discussions you started earlier.
viewtopic.php?t=288908
I'm not sure how much overlap there would be. Some might think that optimizers would tend to be more concerned with efficiency, but I'm not sure that satisficers are generally very concerned about resiliency either.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Efficiency or resiliency in investing, business, personal finance, etc.

Post by willthrill81 » Tue May 19, 2020 9:40 am

Ivygirl wrote:
Tue May 19, 2020 7:50 am
Efficiency is an idiot. Resiliency is wise.

In my years of working I never saw the pursuit of resilience harm anybody, but I have seen the pursuit of efficiency squeeze people until they are brought to poverty and nearly out of their minds with misery. It has happened to me.

Has anyone ever seen resiliency bring harm to anyone? Does it not rather increase richness, variety, freedom, broadness of views, curiosity, exploration, enjoyment of life and work, security in hard times, enough to share and the willingness to do it, hope that as bad as things seem there is always something that can be done about it?

What would we do if Nature were efficient? The world would be all sharks and cockroaches. Eek.

Efficiency has no sense of humor, which is enough of a reason to say it is a knave, whereas resiliency is a queen.
Interesting. I'll bet you have some stories to tell.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Efficiency or resiliency in investing, business, personal finance, etc.

Post by KlangFool » Tue May 19, 2020 12:51 pm

OP,

Another key to resiliency is the level of automation. Aka, "do nothing". By default, the 3 funds-portfolio is not resilient in this regard due to the rebalancing requirement. The individual investor is the failure point.

My portfolio was 50% Wellington fund and 50% VSMGX (Lifestrategy moderate growth) fund with 1 year of the emergency fund during 2008/2009. My employer laid off 50% of its employees on 1/1/2009 for my location. My energy was spent keeping my job. I do not have the time and energy for rebalancing. And, I don't have to.

KlangFool

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Re: Efficiency or resiliency in investing, business, personal finance, etc.

Post by Harry Livermore » Wed May 20, 2020 6:11 am

I would also opine that the two fall under different headings.
"Resiliency" is under the heading of life planning, which includes the disciplines of personal management, lifestyle choices, and planning for unlikely events. LBYM, debt reduction, diversification, various insurances, emergency funds, cash/ gold/ silver in the safe, six months' worth of canned/dry foods and household supplies, standby whole-house generator, and many other (often inefficient) spending choices might be appropriate depending on location, age, family size, and other factors.
"Efficiency" is under the heading of financial planning, which for Bogleheads means simplicity, low cost, and often education and self reliance. Indexing, debt reduction, diversification, avoiding complex financial products and salespeople, avoiding ventures that require too much money or time input (real estate and low-value side hustles) and other practices might be appropriate choices depending on age, employment, and specialized knowledge.
They both involve money, are most definitely at odds with each other. There is also some overlap (in my examples, debt reduction and diversification) But the resulting tension can be a good thing, pushing people to think a little deeper about their personal values, and what is important in the journey through life.
Cheers

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Re: Efficiency or resiliency in investing, business, personal finance, etc.

Post by pseudoiterative » Wed May 20, 2020 6:40 am

Fantastic topic. This tradeoff between resilience and efficiency pops up all over the place -- outside of the realm of personal finance, I was pleased to see KlangFool call out telco engineering work as a great example where systems need to be designed and built to handle these two competing objectives. E.g. when you're installing fibre optic cables to buildings, you can produce a much more resilient design if you install two different fibre cables in trenches at least 10m apart --- there's less risk of a single backhoe cutting both cables -- but you pay a lot more due to all the additional work of digging two trenches and installing two different redundant cables & the associated gear, so the redundant design is a lot less efficient.

Really simple example from personal finance: do you have an "emergency fund", sitting in some bank account accruing interest less than the inflation rate, waiting for hard times that might never come? You can immediately increase your efficiency (in the sense of expected returns) by sacrificing resilience by withdrawing your emergency fund and investing it in the stock market. Is that a good move? It probably depends on your other circumstances (e.g. if you have enough assets invested to cover 100x of annual expenses, it probably doesn't matter if you have no emergency fund, but for most people this would be a poor trade).

Another simple example from day to day life is keeping a "spare" at hand. E.g. the spare tyre in the car. 99.7% of the time the spare tyre is useless, it reduces fuel efficiency due the extra weight, it ties up capital that you could have otherwise put to more productive uses. But the 0.3% time you need to use the spare, then you find you're much more resilient by having the spare at hand to swap in for the failed tyre. Similarly spare keys, having two copies of organs when your body can operate with only a single one -- as long as that one doesnt fail!

I don't think it is realistic to hope there is a strategy that maximises resilience while simultaneously maximising efficiency -- these two different criteria are often in complete conflict with each other, as can be seen intuitively from the examples above. What is far more interesting and useful is to look for opportunities where you can trade away a little resilience and gain a large improvement in efficiency, or trade away a little efficiency and gain a large improvement in resilience.

C.f. "efficient frontier" / "Pareto optimal solution" https://en.wikipedia.org/wiki/Multi-obj ... timization

There's lots of academic interest in one particular kind of resilience -- efficiency tradeoff in finance, where there are the competing objectives of risk (that we usually want to minimise) and expected return (which we want to maximise). The former is a form of resilience, the latter is a form of efficiency. Bill Bernstein's excellent website & logo is named after this one: http://www.efficientfrontier.com/

Taleb's books e.g. "fooled by randomness" are interesting reads that explore some of these ideas.

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Re: Efficiency or resiliency in investing, business, personal finance, etc.

Post by pseudoiterative » Wed May 20, 2020 7:11 am

re: resilience in personal life , a different way to frame a lot of overlapping ideas is this (somewhat unusual) idea of "slack"
Slack is hard to precisely define, but I think this comes close:
Definition: Slack. The absence of binding constraints on behavior.
Poor is the person without Slack. Lack of Slack compounds and traps.
Slack means margin for error. You can relax.
Slack allows pursuing opportunities. You can explore. You can trade.
Slack prevents desperation. You can avoid bad trades and wait for better spots. You can be efficient.
Slack permits planning for the long term. You can invest.
-- https://thezvi.wordpress.com/2017/09/30/slack/

the language is a bit unusual, but think "slack" in the sense of a rope being slack. you can pull or push one end of the rope and the other end of the rope is still free to just sit there, it isn't forced to react in response while there is still some slack. a life or situation without slack means the metaphorical rope is tight -- circumstances yank on that rope and you are forced to react, your freedom of choice and action is constrained.

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Re: Efficiency or resiliency in investing, business, personal finance, etc.

Post by KlangFool » Wed May 20, 2020 8:21 am

pseudoiterative wrote:
Wed May 20, 2020 7:11 am
re: resilience in personal life , a different way to frame a lot of overlapping ideas is this (somewhat unusual) idea of "slack"
Slack is hard to precisely define, but I think this comes close:
Definition: Slack. The absence of binding constraints on behavior.
Poor is the person without Slack. Lack of Slack compounds and traps.
Slack means margin for error. You can relax.
Slack allows pursuing opportunities. You can explore. You can trade.
Slack prevents desperation. You can avoid bad trades and wait for better spots. You can be efficient.
Slack permits planning for the long term. You can invest.
-- https://thezvi.wordpress.com/2017/09/30/slack/

the language is a bit unusual, but think "slack" in the sense of a rope being slack. you can pull or push one end of the rope and the other end of the rope is still free to just sit there, it isn't forced to react in response while there is still some slack. a life or situation without slack means the metaphorical rope is tight -- circumstances yank on that rope and you are forced to react, your freedom of choice and action is constrained.
In engineering, we called that "safety margin". All good engineering design has that.

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Re: Efficiency or resiliency in investing, business, personal finance, etc.

Post by KlangFool » Wed May 20, 2020 8:27 am

Harry Livermore wrote:
Wed May 20, 2020 6:11 am
I would also opine that the two fall under different headings.
"Resiliency" is under the heading of life planning, which includes the disciplines of personal management, lifestyle choices, and planning for unlikely events. LBYM, debt reduction, diversification, various insurances, emergency funds, cash/ gold/ silver in the safe, six months' worth of canned/dry foods and household supplies, standby whole-house generator, and many other (often inefficient) spending choices might be appropriate depending on location, age, family size, and other factors.
"Efficiency" is under the heading of financial planning, which for Bogleheads means simplicity, low cost, and often education and self reliance. Indexing, debt reduction, diversification, avoiding complex financial products and salespeople, avoiding ventures that require too much money or time input (real estate and low-value side hustles) and other practices might be appropriate choices depending on age, employment, and specialized knowledge.
They both involve money, are most definitely at odds with each other. There is also some overlap (in my examples, debt reduction and diversification) But the resulting tension can be a good thing, pushing people to think a little deeper about their personal values, and what is important in the journey through life.
Cheers
Harry Livermore,

I disagreed that they are under a different heading. They are closely related. For example, the 3-funds portfolio assumes that the person could rebalance when necessary. But, in some cases, a person could hit by a truck and the market crash at the same time. Life interferes.

KlangFool

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Re: Efficiency or resiliency in investing, business, personal finance, etc.

Post by Fortune Seeker » Wed May 20, 2020 8:31 am

I don't see how you can compare unleveraged stock index fund to what most people do with buy-to-let mortgages. 20% down mortgage is high leverage, of course it's risk profile is going to be completely dfferent. It is probably more correct to compare risk of unleveraged stock market index fund to a property which you buy in cash outright and then rent it out. So no mortgage payment etc.

We can even substitute stock market index to a REIT. Then the difference in risk is just liquidity, diversification, initial capital requirement and personal time investment. :)

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Re: Efficiency or resiliency in investing, business, personal finance, etc.

Post by Sandtrap » Wed May 20, 2020 8:35 am

R/E Development and Income Property
Also Construction Industry

Both of the following are needed without compromise:

Business efficiency. Lean and clean.

Plus.....

Staying power. Deep pockets.
(Cash reserves, operating capital, etc. a must)
=
Survivability

j🌺
Wiki Bogleheads Wiki: Everything You Need to Know

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Re: Efficiency or resiliency in investing, business, personal finance, etc.

Post by Harry Livermore » Wed May 20, 2020 8:48 am

pseudoiterative wrote:
Wed May 20, 2020 6:40 am

99.7% of the time the spare tyre is useless, it reduces fuel efficiency due the extra weight, it ties up capital that you could have otherwise put to more productive uses. But the 0.3% time you need to use the spare, then you find you're much more resilient by having the spare at hand to swap in for the failed tyre.
Great analogy!
Cheers

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Re: Efficiency or resiliency in investing, business, personal finance, etc.

Post by willthrill81 » Wed May 20, 2020 9:20 am

Sandtrap wrote:
Wed May 20, 2020 8:35 am
R/E Development and Income Property
Also Construction Industry

Both of the following are needed without compromise:

Business efficiency. Lean and clean.

Plus.....

Staying power. Deep pockets.
(Cash reserves, operating capital, etc. a must)
=
Survivability

j🌺
But if you have deep pockets like cash reserves, are you really operating at peak efficiency?
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Efficiency or resiliency in investing, business, personal finance, etc.

Post by Sandtrap » Wed May 20, 2020 9:25 am

willthrill81 wrote:
Wed May 20, 2020 9:20 am
Sandtrap wrote:
Wed May 20, 2020 8:35 am
R/E Development and Income Property
Also Construction Industry

Both of the following are needed without compromise:

Business efficiency. Lean and clean.

Plus.....

Staying power. Deep pockets.
(Cash reserves, operating capital, etc. a must)
=
Survivability

j🌺
But if you have deep pockets like cash reserves, are you really operating at peak efficiency?
Yes and no.
It depends on the nature and size of the R/E business.
If there's active investing and development, (aquisitions) then yes.
If properties are in areas of high turnover, but yet high profit margin (volatility), then yes.

For some businesses, cash reserves are not like an emergency fund, they are not static, but ebb and flow like a shock absorber to maintain a certain level of business optimization. If the business is growing, which many successful ones do, then there's an even greater need for cash reserves/working capital to take advantage of new aquisitions, etc, etc.

This from a R/E developement, income property and management business. I don't have other direct experience comparisons.
so. . . .
It depends.

j :happy
Wiki Bogleheads Wiki: Everything You Need to Know

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Re: Efficiency or resiliency in investing, business, personal finance, etc.

Post by willthrill81 » Wed May 20, 2020 9:37 am

Sandtrap wrote:
Wed May 20, 2020 9:25 am
willthrill81 wrote:
Wed May 20, 2020 9:20 am
Sandtrap wrote:
Wed May 20, 2020 8:35 am
R/E Development and Income Property
Also Construction Industry

Both of the following are needed without compromise:

Business efficiency. Lean and clean.

Plus.....

Staying power. Deep pockets.
(Cash reserves, operating capital, etc. a must)
=
Survivability

j🌺
But if you have deep pockets like cash reserves, are you really operating at peak efficiency?
Yes and no.
It depends on the nature and size of the R/E business.
If there's active investing and development, (aquisitions) then yes.
If properties are in areas of high turnover, but yet high profit margin (volatility), then yes.

For some businesses, cash reserves are not like an emergency fund, they are not static, but ebb and flow like a shock absorber to maintain a certain level of business optimization. If the business is growing, which many successful ones do, then there's an even greater need for cash reserves/working capital to take advantage of new aquisitions, etc, etc.

This from a R/E developement, income property and management business. I don't have other direct experience comparisons.
so. . . .
It depends.

j :happy
My understanding of rental real estate is that the 'extreme' ends of the spectrum are (1) maximize cash-on-cash returns via maximum leverage and (2) make minimal use of leverage. Maximizing leverage is very efficient but lacks resiliency, which many who employed this approached experienced firsthand in the last recession, whereas the inverse is true of minimal use of leverage.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Efficiency or resiliency in investing, business, personal finance, etc.

Post by Sandtrap » Wed May 20, 2020 9:52 am

willthrill81 wrote:
Wed May 20, 2020 9:37 am
Sandtrap wrote:
Wed May 20, 2020 9:25 am
willthrill81 wrote:
Wed May 20, 2020 9:20 am
Sandtrap wrote:
Wed May 20, 2020 8:35 am
R/E Development and Income Property
Also Construction Industry

Both of the following are needed without compromise:

Business efficiency. Lean and clean.

Plus.....

Staying power. Deep pockets.
(Cash reserves, operating capital, etc. a must)
=
Survivability

j🌺
But if you have deep pockets like cash reserves, are you really operating at peak efficiency?
Yes and no.
It depends on the nature and size of the R/E business.
If there's active investing and development, (aquisitions) then yes.
If properties are in areas of high turnover, but yet high profit margin (volatility), then yes.

For some businesses, cash reserves are not like an emergency fund, they are not static, but ebb and flow like a shock absorber to maintain a certain level of business optimization. If the business is growing, which many successful ones do, then there's an even greater need for cash reserves/working capital to take advantage of new aquisitions, etc, etc.

This from a R/E developement, income property and management business. I don't have other direct experience comparisons.
so. . . .
It depends.

j :happy
My understanding of rental real estate is that the 'extreme' ends of the spectrum are (1) maximize cash-on-cash returns via maximum leverage and (2) make minimal use of leverage. Maximizing leverage is very efficient but lacks resiliency, which many who employed this approached experienced firsthand in the last recession, whereas the inverse is true of minimal use of leverage.
I've had family and fellow businessman in R/E that ran across that spectrum.
IMHO: it's cyclical if the R/E company embraces both, expansion and stability, and long term suvivablility. There are some that are minimally or zero leveraged and operate lean and clean, and still with substantial operating capital that survive well through each deep recession. There's also a large component of survivablilty in operational flexibility. Some businesses paint themselves into a corner in this area. They can't adapt, improvise, or are slow to adjust to changing markets, etc.
In 40 years, I have yet to see a highly leveraged strategy survive well in downturns and certainly many do not recover from the losses. Unless it is a "side business" and not one's principal source of employment and business.
For those that are working with a paycheck and them dabbling in R/E income property on the side, that's something else.
j :happy
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patrick013
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Re: Efficiency or resiliency in investing, business, personal finance, etc.

Post by patrick013 » Wed May 20, 2020 10:50 am

Resiliency certainly has something desired.

Mortgage banks with ¨unlimited QE¨ certainly have
a peculiar type of resiliency. Growing businesses
with limited debt and a substantial ¨operating
reserve¨ always demand a higher PE. They are
resilient and the numbers would prove it.

Investors with 5 years´ expenses in a govt. bond ladder
have taken steps to be resilient. A stock market
that cannot absorb a normal interest rate or a 1%
increase isn´t very impressive whether successful or
not in terms of resiliency. So COVID is making 2020
a weak year and the era of large caps likely to continue
as they are better known for sustainability or resiliency
whatever you´d like to call it.
age in bonds, buy-and-hold, 10 year business cycle

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willthrill81
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Re: Efficiency or resiliency in investing, business, personal finance, etc.

Post by willthrill81 » Wed May 20, 2020 10:56 am

patrick013 wrote:
Wed May 20, 2020 10:50 am
So COVID is making 2020 a weak year and the era of large caps likely to continue as they are better known for sustainability or resiliency whatever you´d like to call it.
That's an interesting point that I had not thought of. Large-cap firms certainly have better access to funding needed to weather such storms than do small-cap firms (or small businesses in general). So yes, current events may result in the continued outperformance of large-caps.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

dachshunddad
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Re: Efficiency or resiliency in investing, business, personal finance, etc.

Post by dachshunddad » Wed May 20, 2020 11:22 am

OP,

Good discussion. I recently had this discussion with a friend. Obviously you have to have a balance of both. Personal finance and small businesses must have an element of resilience. If you can’t pay the bills you will go hungry.

However, I would argue that large essential corporations can run efficient as nearly primary function. Take for example the airline industry. They can run efficient because their resilience comes from the government backstop in the form of a bailout. I’m not saying this is correct but these types of companies have “too big to let fail” government assurance while smaller entities do not. Food for thought.

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pennsylvania211
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Re: Efficiency or resiliency in investing, business, personal finance, etc.

Post by pennsylvania211 » Wed May 20, 2020 4:07 pm

willthrill81 wrote:
Mon May 18, 2020 3:54 pm

I'm wondering several things about what lessons there are to be learned from all of this.

1. How desirable is resiliency when it comes to an investor's strategy?

2. Are efficiency and resiliency truly at odds with each other? Is it likely impractical for a strategy to have both characteristics?

3. If the answer to #2 is yes, then should an investor lean more in one direction than another?
You're a funny guy willthrill81. I have a feeling that you already know the answer.

Which is to balance efficiency and inefficiency, resiliency and non-resiliency, in whichever subjective (not objective) way that helps you best sleep at night. How much do 'x' amount of dollars really matter as long as the human holding the dollars is satisfied with their decision until they reach the end of their life as everyone before them and the universe continues it's march? To know the answer you must know yourself.
"In the long run, investing is not about markets at all. Investing is about enjoying the returns earned by businesses." - Jack Bogle

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willthrill81
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Re: Efficiency or resiliency in investing, business, personal finance, etc.

Post by willthrill81 » Wed May 20, 2020 4:24 pm

pennsylvania211 wrote:
Wed May 20, 2020 4:07 pm
willthrill81 wrote:
Mon May 18, 2020 3:54 pm

I'm wondering several things about what lessons there are to be learned from all of this.

1. How desirable is resiliency when it comes to an investor's strategy?

2. Are efficiency and resiliency truly at odds with each other? Is it likely impractical for a strategy to have both characteristics?

3. If the answer to #2 is yes, then should an investor lean more in one direction than another?
You're a funny guy willthrill81. I have a feeling that you already know the answer.

Which is to balance efficiency and inefficiency, resiliency and non-resiliency, in whichever subjective (not objective) way that helps you best sleep at night. How much do 'x' amount of dollars really matter as long as the human holding the dollars is satisfied with their decision until they reach the end of their life as everyone before them and the universe continues it's march? To know the answer you must know yourself.
I do have thoughts about these questions, but I don't believe that there is a single answer. As you note, much of it is subjective.

Traditional Boglehead thought is probably that the answer to #2 is yes. But I think that certain strategies can be both efficient and resilient.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

senex
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Re: Efficiency or resiliency in investing, business, personal finance, etc.

Post by senex » Wed May 20, 2020 8:19 pm

Great thread idea, reminiscent of Taleb's Anti-Fragile.

Margin of safety is a large part of resiliency, and margin of safety is inefficient.

Leverage is efficient and fragile. Just-in-time delivery is efficient and fragile. Centralized command-and-control is efficient and fragile. Tight coupling is efficient & fragile. Etc.

As an investor, I get as efficient as I can get without becoming unduly fragile. It is subjective, and for me means:
- paying a few extra basis points in order to split assets across several custodians
- holding more cash than is "recommended" for my situation
- no debt
- practicing self-restraint (Seneca: "it is not he who has little, but he who craves more, that is a pauper")

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