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

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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 8:27 pm

willthrill81 wrote:
Wed May 20, 2020 4:24 pm
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.
I sometimes think about that, how to best align resilience and efficiency through design. Do you have a good example of what's on your mind?
"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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Re: Efficiency or resiliency in investing, business, personal finance, etc.

Post by willthrill81 » Wed May 20, 2020 9:44 pm

pennsylvania211 wrote:
Wed May 20, 2020 8:27 pm
willthrill81 wrote:
Wed May 20, 2020 4:24 pm
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.
I sometimes think about that, how to best align resilience and efficiency through design. Do you have a good example of what's on your mind?
Perhaps I'm just interested in what Taleb calls 'anti-fragility'.

I think that a fairly high saving rate helps with resiliency and maybe with efficiency as well. If things go along well, a high saving rate will enable you to become financially independent well before others of a similar age. And if things don't go so well, a high saving rate helps you to better deal with reductions in income, increases in expenses, poor returns during the last crucial decade before retirement, etc.

I've already provided a few examples of portfolios that have done a good job at balancing efficiency and resiliency, such as the Permanent Portfolio, the Larry Portfolio, and the Golden Butterfly portfolio. All of these have some stock exposure but less than 50% (25%, 30%, and 40%, respectively). They all include a very healthy bond allocation, and two of them include a moderate allocation to gold, which I think is likely to continue to be helpful to portfolios primarily comprised of stocks and bonds in preserving efficiency while adding resiliency.
“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 Ari » Thu May 21, 2020 1:46 am

I think that in some areas of life there are trade-offs between efficiency and resiliency, and in others you can have both.

I'm quite resilient in my career. I'm a mechanical engineer, having worked in many diverse industries making me easy to hire. I know many foreign languages, which led me to a teaching gig. Learning some coding has also proven useful in many situations. When the teaching opportunities dried up in the virus epidemic, my resilient skill set meant that I could quickly get a new job. Ironically, for me the pandemic has meant that I have more work than ever and suddenly have to take the bus across town to cram myself into an office with hundreds of people, whereas before I'd bike to work and do quite a bit of work by telecommute. Now I'm in the situation of having to juggle the teaching gigs that still pop up with my current responsibilities at my new job, fearing to make customers angry by having to say no.

Anyway, resilience in my career and by having low expenses means I can be more efficient in my investments, where there's more of a trade-off. I'm 105% stocks (I get some free leverage at my brokerage) and was able to leverage up during the dip (though with too little money and selling off too early to make any substantial difference).

Being resilient where you can do it without sacrificing efficiency can free you to be efficient in the areas where they are at odds.
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Re: Efficiency or resiliency in investing, business, personal finance, etc.

Post by DonIce » Thu May 21, 2020 1:58 am

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.
Great topic! During a bull market, there is definitely pressure to sacrifice resiliency in exchange for "efficiency". I think efficiency is in some sense a kind word. Really it's just greater risk-taking. For example, a bank is more "efficient" by increasing its leverage, but that obviously also increases risk. When times are good, its easy to forget that taking risk is actually, in fact, risky. That's why every time we go into a recession, we find out companies were over-leveraged.
1. How desirable is resiliency when it comes to an investor's strategy?
Well, this is Bogleheads. Here, resiliency is valued very highly. I tend to agree with this assessment... when an investor does poorly in their investments, the government isn't gonna come bail out the individual retail investors. Except for very high income individuals (which of course seems to describe 95% of posters on these forums), you really only get 1 shot at investing succesfully for retirement. Being wiped out 10 years into your investing career because you went with too much leverage is a setback you can't recover from on an average salary. Therefore resiliency is key. Except if your income is so high (relative to your expenses) that you can afford to lose everything a few times and restart.
2. Are efficiency and resiliency truly at odds with each other? Is it likely impractical for a strategy to have both characteristics?
I think efficiency is not at odds with resiliency. But maximizing returns during good periods is at odds with resiliency. Public companies and their executives are driven by quarter-quarter results, and therefore make short term decisions. Individual investors on the other hand have a very long time horizon, and therefore should make long term decisions. For the long term, it is efficient to be resilient.

Remember:

Someone that takes a risk and has it pay off is seen as a visionary.

Someone that avoids a risk, and because of the avoided risk everything goes as planned, gets zero recognition.

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

Post by Ari » Thu May 21, 2020 2:02 am

Oh, and of course, one area where resilience and efficiency go hand in hand is wealth. The best downside protection is having a lot of money, after all. So increasing your net worth will likely be beneficial for both your resiliency and your efficiency, especially if you keep your expenses low. If you have a lot of money, you can dispense with the emergency fund, for example. This is an area where focusing unduly on resiliency might be non-resilient. I can keep all my money in very safe assets earning nothing, which might be very resilient, but ten years from now, had I been more efficient, I might have earned a lot more, making me more resilient.
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Re: Efficiency or resiliency in investing, business, personal finance, etc.

Post by willthrill81 » Thu May 21, 2020 9:25 am

Ari wrote:
Thu May 21, 2020 1:46 am
I'm quite resilient in my career. I'm a mechanical engineer, having worked in many diverse industries making me easy to hire. I know many foreign languages, which led me to a teaching gig. Learning some coding has also proven useful in many situations. When the teaching opportunities dried up in the virus epidemic, my resilient skill set meant that I could quickly get a new job. Ironically, for me the pandemic has meant that I have more work than ever and suddenly have to take the bus across town to cram myself into an office with hundreds of people, whereas before I'd bike to work and do quite a bit of work by telecommute. Now I'm in the situation of having to juggle the teaching gigs that still pop up with my current responsibilities at my new job, fearing to make customers angry by having to say no.
That's a great example of what I was thinking about. You could probably have had a different career where you might have earned more, but your employment would have been less secure. Similarly, with my background, I could be earning more in a different career, but my current one is much more resilient (and provides us with a quality of life that's second to none).
Ari wrote:
Thu May 21, 2020 2:02 am
Oh, and of course, one area where resilience and efficiency go hand in hand is wealth. The best downside protection is having a lot of money, after all. So increasing your net worth will likely be beneficial for both your resiliency and your efficiency, especially if you keep your expenses low. If you have a lot of money, you can dispense with the emergency fund, for example. This is an area where focusing unduly on resiliency might be non-resilient. I can keep all my money in very safe assets earning nothing, which might be very resilient, but ten years from now, had I been more efficient, I might have earned a lot more, making me more resilient.
Absolutely. If you have enough wealth, you can afford to take on more risk than someone who just barely has 'enough'.

Also, I definitely think that it's possible to trade short-term resiliency for long-term resiliency and vice versa.
Last edited by willthrill81 on Thu May 21, 2020 9:36 am, edited 1 time in total.
“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 » Thu May 21, 2020 9:34 am

DonIce wrote:
Thu May 21, 2020 1:58 am
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.
Great topic! During a bull market, there is definitely pressure to sacrifice resiliency in exchange for "efficiency". I think efficiency is in some sense a kind word. Really it's just greater risk-taking. For example, a bank is more "efficient" by increasing its leverage, but that obviously also increases risk. When times are good, its easy to forget that taking risk is actually, in fact, risky. That's why every time we go into a recession, we find out companies were over-leveraged.
Indeed. It reminds me of Buffett's quote:

"Only when the tide goes out do you discover who's been swimming naked."
DonIce wrote:
Thu May 21, 2020 1:58 am
1. How desirable is resiliency when it comes to an investor's strategy?
Well, this is Bogleheads. Here, resiliency is valued very highly.
In some ways, I agree. But it seems that portfolios that are comprised of anything other than stocks and bonds (and only certain stock and bond asset classes at that) are usually met with considerable disdain around here, even though the inclusion of other asset classes may increase a portfolio's resiliency.
DonIce wrote:
Thu May 21, 2020 1:58 am
Remember:

Someone that takes a risk and has it pay off is seen as a visionary.

Someone that avoids a risk, and because of the avoided risk everything goes as planned, gets zero recognition.
Sadly true.
“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 » Thu May 21, 2020 9:43 am

Ari wrote:
Thu May 21, 2020 2:02 am
Oh, and of course, one area where resilience and efficiency go hand in hand is wealth. The best downside protection is having a lot of money, after all. So increasing your net worth will likely be beneficial for both your resiliency and your efficiency, especially if you keep your expenses low. If you have a lot of money, you can dispense with the emergency fund, for example. This is an area where focusing unduly on resiliency might be non-resilient. I can keep all my money in very safe assets earning nothing, which might be very resilient, but ten years from now, had I been more efficient, I might have earned a lot more, making me more resilient.
Ari,

If you have a lot of money, why would you care that your EF earn nothing? Efficiency is no longer your major concern.

<<had I been more efficient, I might have earned a lot more, making me more resilient.>>

If you have a lot of money, aka 100 times your annual expense, that statement would be false. Investing or not investing your EF will not significantly impact your resiliency.

KlangFool

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

Post by KlangFool » Thu May 21, 2020 9:46 am

willthrill81 wrote:
Thu May 21, 2020 9:25 am

Absolutely. If you have enough wealth, you can afford to take on more risk than someone who just barely has 'enough'.
willthrill81,

But, the willingness and need to take risk goes down. Don't lose the money matters more than anything else.

KlangFool

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

Post by willthrill81 » Thu May 21, 2020 9:52 am

KlangFool wrote:
Thu May 21, 2020 9:46 am
willthrill81 wrote:
Thu May 21, 2020 9:25 am

Absolutely. If you have enough wealth, you can afford to take on more risk than someone who just barely has 'enough'.
willthrill81,

But, the willingness and need to take risk goes down. Don't lose the money matters more than anything else.

KlangFool
Not everyone holds to the notion that an investor must 'need' to take risk in order to do so. Virtually none of the world's wealthiest people do.
“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 » Thu May 21, 2020 9:58 am

willthrill81 wrote:
Thu May 21, 2020 9:52 am
KlangFool wrote:
Thu May 21, 2020 9:46 am
willthrill81 wrote:
Thu May 21, 2020 9:25 am

Absolutely. If you have enough wealth, you can afford to take on more risk than someone who just barely has 'enough'.
willthrill81,

But, the willingness and need to take risk goes down. Don't lose the money matters more than anything else.

KlangFool
Not everyone holds to the notion that an investor must 'need' to take risk in order to do so. Virtually none of the world's wealthiest people do.
willthrill81,

<<Not everyone holds to the notion that an investor must 'need' to take risk in order to do so.>>

We called those people gamblers as opposed to investors.

<< Virtually none of the world's wealthiest people do.>>

I have no idea what do you mean by that. The world's wealthiest people would have enough CASH/EF to last them for at least one year or more. And, given that we are not one of them. What they do has little to no relevance to us.

KlangFool

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

Post by willthrill81 » Thu May 21, 2020 10:22 am

KlangFool wrote:
Thu May 21, 2020 9:58 am
willthrill81 wrote:
Thu May 21, 2020 9:52 am
KlangFool wrote:
Thu May 21, 2020 9:46 am
willthrill81 wrote:
Thu May 21, 2020 9:25 am

Absolutely. If you have enough wealth, you can afford to take on more risk than someone who just barely has 'enough'.
willthrill81,

But, the willingness and need to take risk goes down. Don't lose the money matters more than anything else.

KlangFool
Not everyone holds to the notion that an investor must 'need' to take risk in order to do so. Virtually none of the world's wealthiest people do.
willthrill81,

<<Not everyone holds to the notion that an investor must 'need' to take risk in order to do so.>>

We called those people gamblers as opposed to investors.
You might, but I don't. Even if I didn't need stocks, for instance, I would still have a healthy allocation to stocks for those that will still be here when I'm dead and gone.

Someone who has 50x or more, and there are many such people here, doesn't need any bonds at all. They could easily be 100% stocks. They could also be 100% bonds.
“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 firebirdparts » Thu May 21, 2020 10:27 am

pennsylvania211 wrote:
Wed May 20, 2020 8:27 pm
willthrill81 wrote:
Wed May 20, 2020 4:24 pm
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.
I sometimes think about that, how to best align resilience and efficiency through design. Do you have a good example of what's on your mind?
I'm not Will, but I think the ideal would be to have uncorrelated investments which all have the same return. That's my opinion. You can see from that the logic of why people invest in the things they do. It's not crazy. There is an assumption built into that which says you are an investor. You could be something other than an investor.

Since the ideal is not possible, you look for things that are as ideal "as possible". For instance, idiosyncratic risks of single companies are uncorrelated. We'll take that. The world offers us that for free and we take it.
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Re: Efficiency or resiliency in investing, business, personal finance, etc.

Post by KlangFool » Thu May 21, 2020 10:40 am

willthrill81 wrote:
Thu May 21, 2020 10:22 am

You might, but I don't. Even if I didn't need stocks, for instance, I would still have a healthy allocation to stocks for those that will still be here when I'm dead and gone.

Someone who has 50x or more, and there are many such people here, doesn't need any bonds at all. They could easily be 100% stocks. They could also be 100% bonds.
willthrill81,

<<Even if I didn't need stocks, for instance, I would still have a healthy allocation to stocks for those that will still be here when I'm dead and gone.
>>

Which by your own admission, you have a need for stock because you are investing for someone else.

<<Someone who has 50x or more, and there are many such people here, doesn't need any bonds at all. They could easily be 100% stocks. They could also be 100% bonds.>>

Why? 100% stock or 100% bond is not necessarily safe. So, the need for diversification is still there. Why take the risk of 100/0 or 0/100? They may buy Gold and Silver too.

KlangFool

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

Post by CyclingDuo » Thu May 21, 2020 10:40 am

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?
I would say a balance needs to be struck between the two for households.

Your favorite buddy's Baby Steps 8-) - when fulfilled (or at least when the most relevant ones through at least step 4) - set up a household's balance sheet quite well in terms of striking a balance between efficiency and resiliency. It certainly has exposed weaker balance sheets not only for households, but also for small businesses, organizations, and certain corporations in spite of the narrative being one that a year ago would have sounded like a bad plot for a sci-fi movie.

It's been amazing to watch the adaptability of companies, businesses, organizations, and individuals over the past two months. I would imagine the lessons learned from this pandemic forcing all of the adaptations will be vital for the future as well.

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

Post by smitcat » Thu May 21, 2020 11:44 am

willthrill81 wrote:
Thu May 21, 2020 9:25 am
Ari wrote:
Thu May 21, 2020 1:46 am
I'm quite resilient in my career. I'm a mechanical engineer, having worked in many diverse industries making me easy to hire. I know many foreign languages, which led me to a teaching gig. Learning some coding has also proven useful in many situations. When the teaching opportunities dried up in the virus epidemic, my resilient skill set meant that I could quickly get a new job. Ironically, for me the pandemic has meant that I have more work than ever and suddenly have to take the bus across town to cram myself into an office with hundreds of people, whereas before I'd bike to work and do quite a bit of work by telecommute. Now I'm in the situation of having to juggle the teaching gigs that still pop up with my current responsibilities at my new job, fearing to make customers angry by having to say no.
That's a great example of what I was thinking about. You could probably have had a different career where you might have earned more, but your employment would have been less secure. Similarly, with my background, I could be earning more in a different career, but my current one is much more resilient (and provides us with a quality of life that's second to none).
Ari wrote:
Thu May 21, 2020 2:02 am
Oh, and of course, one area where resilience and efficiency go hand in hand is wealth. The best downside protection is having a lot of money, after all. So increasing your net worth will likely be beneficial for both your resiliency and your efficiency, especially if you keep your expenses low. If you have a lot of money, you can dispense with the emergency fund, for example. This is an area where focusing unduly on resiliency might be non-resilient. I can keep all my money in very safe assets earning nothing, which might be very resilient, but ten years from now, had I been more efficient, I might have earned a lot more, making me more resilient.
Absolutely. If you have enough wealth, you can afford to take on more risk than someone who just barely has 'enough'.

Also, I definitely think that it's possible to trade short-term resiliency for long-term resiliency and vice versa.

"That's a great example of what I was thinking about. You could probably have had a different career where you might have earned more, but your employment would have been less secure. Similarly, with my background, I could be earning more in a different career, but my current one is much more resilient (and provides us with a quality of life that's second to none)."

I agree with Ari, the most resiliency comes from having multiple jobs/skills/interests between two spouses which can both compliment and add much security when they are in separate fields. There are many opportunities to add incomes to a household that can make for both security and transition into another career but they need to be cultured and initiated for results.
Resiliency by income diversification will always be a more secure path. Any reasonable income will always be a more secure path than any reasonable investment income prior to a robust & healthy FIRE.

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

Post by Maestro G » Thu May 21, 2020 12:19 pm

willthrill81 wrote:
Wed May 20, 2020 9:44 pm
pennsylvania211 wrote:
Wed May 20, 2020 8:27 pm
willthrill81 wrote:
Wed May 20, 2020 4:24 pm
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.
I sometimes think about that, how to best align resilience and efficiency through design. Do you have a good example of what's on your mind?
Perhaps I'm just interested in what Taleb calls 'anti-fragility'.

I think that a fairly high saving rate helps with resiliency and maybe with efficiency as well. If things go along well, a high saving rate will enable you to become financially independent well before others of a similar age. And if things don't go so well, a high saving rate helps you to better deal with reductions in income, increases in expenses, poor returns during the last crucial decade before retirement, etc.

I've already provided a few examples of portfolios that have done a good job at balancing efficiency and resiliency, such as the Permanent Portfolio, the Larry Portfolio, and the Golden Butterfly portfolio. All of these have some stock exposure but less than 50% (25%, 30%, and 40%, respectively). They all include a very healthy bond allocation, and two of them include a moderate allocation to gold, which I think is likely to continue to be helpful to portfolios primarily comprised of stocks and bonds in preserving efficiency while adding resiliency.
Yes, and to those I might add the Risk Parity philosophy as exemplified by Dalio’s All-Weather portfolio strategy and the recent https://rparetf.com/rparwhose economic principals, strategy and frame work mirror the idea of resiliency that you, and to a great degree Taleb is arguing for in view of the random and unpredictable nature of economic climates and unforeseen negative or positive events. Like the others, this strategy employs no more than 25% global equity.

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

Post by willthrill81 » Thu May 21, 2020 2:59 pm

firebirdparts wrote:
Thu May 21, 2020 10:27 am
pennsylvania211 wrote:
Wed May 20, 2020 8:27 pm
willthrill81 wrote:
Wed May 20, 2020 4:24 pm
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.
I sometimes think about that, how to best align resilience and efficiency through design. Do you have a good example of what's on your mind?
I'm not Will, but I think the ideal would be to have uncorrelated investments which all have the same return.
Yes, that's the 'holy grail' of the big adherents of modern portfolio theory. They've searched high and low for investments with 'stock like returns' that are uncorrelated to stocks. AFAIK, the search has not yet really turned up anything significant. Peer-to-peer lending seemed like a good one for a while, but institutional investors swooped in and greatly eroded returns.

As I've alluded to above, I think that a modest allocation to gold to portfolios primarily comprised of stocks and bonds is likely to continue to improve resiliency (e.g. drawdowns, sequence of returns risk) without a lock-step reduction in efficiency (e.g. returns). The judicious use of leverage via funds like NTSX may improve resiliency as well.
“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 Ari » Fri May 22, 2020 3:03 am

KlangFool wrote:
Thu May 21, 2020 9:43 am
Ari,

If you have a lot of money, why would you care that your EF earn nothing? Efficiency is no longer your major concern.
As you yourself say below, investing or not investing my EF is not likely to have a significant effect on my resilience. In that case, the choice is to earn money from it or not earn money from it. Why wouldn't I choose to earn money from it?

At the base, this is the common difference in perspective between different people. If I have a large ability and no need to take risk, it's all up to my willingness. Some think that if they don't need to, why take risk? Others think that if they can afford to, why not take it? I doubt either side will convince the other. Matter of priorities and mindset.
<<had I been more efficient, I might have earned a lot more, making me more resilient.>>

If you have a lot of money, aka 100 times your annual expense, that statement would be false. Investing or not investing your EF will not significantly impact your resiliency.
If you reread my statement, that comment was written when talking about investing ALL my assets in safe investments. And this is BEFORE I have "a lot of money" (a phrase where I'd draw the limit closer to 10x expenses, rather than 100x, which I would categorize as "An insane bat-poop crazy amount of money"). If I don't have a lot of money, not taking any risks with the assets that I have can lead me to become less resilient in the future (since in the future I still won't have a lot of money). Taking some risks with my assets can make me more resilient in the long run, due to having more assets.

It's like how those charts of "maximum drawdown" never take into account the runup preceding the drawdown. My portfolio might be in better shape after a 50% drop than yours is after a 30% drop, because my higher stock allocation means I had more money before the drop.
All in, all the time.

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

Post by halfnine » Fri May 22, 2020 3:09 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.
While this is a great start, I believe looking at just one's portfolio in isolation is a mistake. One should also consider other intangibles such as human capital, home ownership, pensions/social security, social capital, etc. On the flip side one should also consider additional risks such as one's individual health, rising healthcare costs, longevity, disability, divorce, etc.

At one point I made a huge list of every risk I could possibly think of and started addressing them. There are, of course, many low probability high consequence events that are difficult to insure against. That said, I would rather use my assets to better insure those events than looking at increasingly smaller SWRs that do nothing to address those risks.

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

Post by willthrill81 » Fri May 22, 2020 4:51 pm

Ari wrote:
Fri May 22, 2020 3:03 am
At the base, this is the common difference in perspective between different people. If I have a large ability and no need to take risk, it's all up to my willingness. Some think that if they don't need to, why take risk? Others think that if they can afford to, why not take it? I doubt either side will convince the other. Matter of priorities and mindset.
I agree. I've never agreed with the notion that an investor should only take a 'risk' if the investor has need, willingness, and ability to do so. In my view, only the latter two are relevant.

Similarly, while I can see some of the impetus behind Bernstein's idea of taking a lot of risk off the table when an investor reaches a certain level of assets relative to expenses (i.e. having 25x in fixed income and only investing additional assets into volatile assets like stocks), such an approach seems to at least potentially be sacrificing long-term resiliency for short-term resiliency.
“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 » Fri May 22, 2020 4:55 pm

halfnine wrote:
Fri May 22, 2020 3:09 pm
While this is a great start, I believe looking at just one's portfolio in isolation is a mistake. One should also consider other intangibles such as human capital, home ownership, pensions/social security, social capital, etc. On the flip side one should also consider additional risks such as one's individual health, rising healthcare costs, longevity, disability, divorce, etc.
I agree. That's I said this further up the thread.
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.
With regard to many, probably most, of the issues you raise, I would argue that a 'big pile of money' is one of the best defenses. As Napoleon once said, "quantity has a quality all its own." To this end, giving your portfolio a solid opportunity for continued growth via a healthy allocation to asset classes likely to outpace inflation (e.g. stocks, rental real estate) seems like a solid strategy for improving one's overall financial resilience. But at the same time, excessive dependence on stocks (and their expected returns) opens an investor to substantial sequence of returns risk and actually reduce resilience.
“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 rbaldini » Fri May 22, 2020 5:05 pm

I suppose one could say it's a matter of timescale.

A strategy that succeeds in short bouts but ultimately fails due to somewhat rare events is not efficient in the long term. Because they go broke.

A strategy that survives rare events because they put money aside for that purpose will usually appear to be inefficient - especially in the good times, when everyone else is employing their assets more profitably. But they're the only strategies still around in the long run, so they are long-term efficient.

Also... is "resiliency" a real word? What does "resiliency" gives us that "resilience" does not?

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

Post by SantaClaraSurfer » Fri May 22, 2020 5:54 pm

I'm all about resilience and how even small contributions can add up to make a big difference.

Personal Finance example.

We've got an account we keep for our kids' education / futures / our parents.

1. In addition to dedicated savings targets in that account, I started putting $150 a month into a Bond Mutual Fund as a standby dedicated emergency fund for College Age children. Just pure extra money not dedicated or budgeted for anything. Plane ticket, minor car repair, etc. etc.
2. At some point, $1500? more like $3000? I feel like we've got most the basic emergencies covered. Entering resilience.
3. At that point I could take that same monthly contribution and instead invest in an equity index fund, with same general goal, and perhaps make a better return.

My question to myself is what is the marginal benefit of that? I'm not sure. At $1800 a year max, are we best served investing in equities over the next four years or so? Maybe? So long as there's not a repeat of two months ago? If we don't need it we can roll it into another family purpose. But my general thought would be to keep it simple.

What I do know is this. The first step towards resilience (ie. saving not spending) is the most important.

Further, having the money available and set aside changes the conversation from one we'd have where we'd be pulling dollars from our equity investments or our own emergency funds. It's just a much easier to lift to plan for things that way.

Finally, there's no downside to saving money and building up your accounts. In fact, in my experience, it's the opposite. Nothing stopping you from paying off one thing with savings in a dedicated account and then paying yourself back monthly with a "payment" to yourself.

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

Post by willthrill81 » Fri May 22, 2020 6:14 pm

rbaldini wrote:
Fri May 22, 2020 5:05 pm
Also... is "resiliency" a real word? What does "resiliency" gives us that "resilience" does not?
Resiliency: an ability to recover from or adjust easily to adversity 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 ResearchMed » Fri May 22, 2020 7:17 pm

willthrill81 wrote:
Fri May 22, 2020 6:14 pm
rbaldini wrote:
Fri May 22, 2020 5:05 pm
Also... is "resiliency" a real word? What does "resiliency" gives us that "resilience" does not?
Resiliency: an ability to recover from or adjust easily to adversity or change
From:
https://www.google.com/search?q=define+ ... e&ie=UTF-8

"the capacity to recover quickly from difficulties; toughness"

So, to repeat rbaldini's question, "What does "resiliency" gives us that "resilience" does not?" ?

An extra syllable? :wink:

RM
This signature is a placebo. You are in the control group.

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

Post by rbaldini » Fri May 22, 2020 9:10 pm

ResearchMed wrote:
Fri May 22, 2020 7:17 pm
willthrill81 wrote:
Fri May 22, 2020 6:14 pm
rbaldini wrote:
Fri May 22, 2020 5:05 pm
Also... is "resiliency" a real word? What does "resiliency" gives us that "resilience" does not?
Resiliency: an ability to recover from or adjust easily to adversity or change
From:
https://www.google.com/search?q=define+ ... e&ie=UTF-8

"the capacity to recover quickly from difficulties; toughness"

So, to repeat rbaldini's question, "What does "resiliency" gives us that "resilience" does not?" ?

An extra syllable? :wink:

RM
It kinda rhymes with efficiency?

Sorry. That's the last I'll say about that.

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

Post by anoop » Sat May 23, 2020 10:27 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.
You mean over-leveraged?

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

Post by willthrill81 » Sun May 24, 2020 9:14 am

anoop wrote:
Sat May 23, 2020 10:27 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.
You mean over-leveraged?
That's part of it, yes.
“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 TSPballer » Sun May 24, 2020 9:57 am

I'm of the opinion that for 99% of individual investors, attempts at maximum efficiency works well...until it doesn't. This 10+ bull market has many people tricked into thinking that the music always plays and we all dance until we're rich.

At 30 years old, I was raised financially conscious. Living below our means was just something I was raised to do because that's what our family had to do.

I say all this to say: sacrificing resiliency for efficiency sounds a lot like scrapping a good plan in search of a perfect plan. It may work temporarily but I assess that throughout my next 40 year investing horizon the music will stop plenty of times and I sleep much better knowing that I have a game plan to make it through those times.....even if it means trading off a couple %'s of growth (savings rate > all).

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

Post by anoop » Sun May 24, 2020 11:21 am

willthrill81 wrote:
Sun May 24, 2020 9:14 am
anoop wrote:
Sat May 23, 2020 10:27 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.
You mean over-leveraged?
That's part of it, yes.
I think Taleb may have been trying to be diplomatic. It’s not efficiency. It’s over-leverage caused by greed. Tell me, which CEO implements “efficiency” in their personal life? Mark Hurd who was known for implementing efficiency at HP had a million+ sitting in his checking account.
https://www.businessinsider.com/heres-t ... 11-12?op=1

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

Post by willthrill81 » Sun May 24, 2020 5:24 pm

anoop wrote:
Sun May 24, 2020 11:21 am
willthrill81 wrote:
Sun May 24, 2020 9:14 am
anoop wrote:
Sat May 23, 2020 10:27 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.
You mean over-leveraged?
That's part of it, yes.
I think Taleb may have been trying to be diplomatic. It’s not efficiency. It’s over-leverage caused by greed. Tell me, which CEO implements “efficiency” in their personal life? Mark Hurd who was known for implementing efficiency at HP had a million+ sitting in his checking account.
https://www.businessinsider.com/heres-t ... 11-12?op=1
If all CEOs are engaging in substantial leverage with their companies, then it seems that the market must at least expect it if not insist upon it.

For many years, I've lamented that Wall Street is driven by a very short-term mentality (e.g. next quarter's/year's sales/profits must be higher than the last's). Five years is considered to be long-term by many.

An emergency fund of 3-6 months expenses is heralded by most in the personal finance space, but if the revenues of many (most?) S&P 500 firms are cut off for a couple of months, their very existence is threatened. That alone seems to indicate that efficiency, not resiliency, has been what stockholders have wanted.
“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 anoop » Sun May 24, 2020 5:33 pm

willthrill81 wrote:
Sun May 24, 2020 5:24 pm
anoop wrote:
Sun May 24, 2020 11:21 am
willthrill81 wrote:
Sun May 24, 2020 9:14 am
anoop wrote:
Sat May 23, 2020 10:27 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.
You mean over-leveraged?
That's part of it, yes.
I think Taleb may have been trying to be diplomatic. It’s not efficiency. It’s over-leverage caused by greed. Tell me, which CEO implements “efficiency” in their personal life? Mark Hurd who was known for implementing efficiency at HP had a million+ sitting in his checking account.
https://www.businessinsider.com/heres-t ... 11-12?op=1
If all CEOs are engaging in substantial leverage with their companies, then it seems that the market must at least expect it if not insist upon it.

For many years, I've lamented that Wall Street is driven by a very short-term mentality (e.g. next quarter's/year's sales/profits must be higher than the last's). Five years is considered to be long-term by many.
Not all of them do it. There are companies with zero debt. It's greed that makes CEOs engage in this type of behavior and the only reason they act on it is because it comes with no consequences for them. They run the company into the ground and still make out like bandits.

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

Post by willthrill81 » Sun May 24, 2020 5:38 pm

anoop wrote:
Sun May 24, 2020 5:33 pm
willthrill81 wrote:
Sun May 24, 2020 5:24 pm
anoop wrote:
Sun May 24, 2020 11:21 am
willthrill81 wrote:
Sun May 24, 2020 9:14 am
anoop wrote:
Sat May 23, 2020 10:27 pm

You mean over-leveraged?
That's part of it, yes.
I think Taleb may have been trying to be diplomatic. It’s not efficiency. It’s over-leverage caused by greed. Tell me, which CEO implements “efficiency” in their personal life? Mark Hurd who was known for implementing efficiency at HP had a million+ sitting in his checking account.
https://www.businessinsider.com/heres-t ... 11-12?op=1
If all CEOs are engaging in substantial leverage with their companies, then it seems that the market must at least expect it if not insist upon it.

For many years, I've lamented that Wall Street is driven by a very short-term mentality (e.g. next quarter's/year's sales/profits must be higher than the last's). Five years is considered to be long-term by many.
Not all of them do it. There are companies with zero debt. It's greed that makes CEOs engage in this type of behavior and the only reason they act on it is because it comes with no consequences for them. They run the company into the ground and still make out like bandits.
Maybe that should be a new factor: publicly traded companies with no debt. :wink:
“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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