Is entrepreneurship anti-Boglehead?

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FIby45
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Is entrepreneurship anti-Boglehead?

Post by FIby45 » Sat Aug 01, 2020 11:26 am

Entrepreneurship is very risky. You have 0 diversification. For years most entrepreneurs will need to reinvest all proceeds directly into the business at the expense of building a Boglehead portfolio.

I started a business 10 years ago when I was around 30 that has been successful. After many, many years (7-8) of reinvesting all profits back into the business I shifted to pulling profits out of the business. I now invest profits in a Boglehead fashion- low cost index funds, auto invest monthly, never sell, four fund portfolio. I do that because I got to a point where I needed to diversify and not have 100% of my net worth tied up in the business. I did not want to have some business catastrophe happen and be 40 and broke and nothing to show for it. Due to good cash flow from business I have been able to build up decent portfolio since I made that shift a few years ago- one much higher that I could have achieved had I remained an employee somewhere.

My Boglehead portfolio was built by undertaking what seems to be very anti-Boglehead activities- namely putting all of my money and effort into the single endeavor of the business (non diversification), seizing an opportunity I saw (timing market?,) and attempting to trounce market returns (with an investment of $50k and a few years of blood sweat and tears I built a multi-million dollar enterprise.) It was a binary game that I could have lost- through hard work and healthy bit of luck I did not..

I feel a Boglehead philosophy would see entrepreneurship as far too risky. Statistically the best bet financially is probably to become a highly paid professional and climb the ladder and invest using Boglehead philosophy; however, I think choosing to be an entrepreneur was one of the best decisions of my life. Not only financially but in satisfaction and lifestyle.


How do you square that? It takes money to make money and successful entrepreneurs are able to generate significant cash flow to invest by taking a massive risk- perhaps being a little less Bogleheadish in your 20's is the way to go?

Thoughts?
Last edited by FIby45 on Sat Aug 01, 2020 12:06 pm, edited 1 time in total.

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Re: Is entrepreneurship anti-Boglehead?

Post by firebirdparts » Sat Aug 01, 2020 11:30 am

Risk aversion is just tied up in personality. A person who wants low-risk investments might also like to have a low-risk career. That's the only connection I can see. We all have idiosycratic risk with respect to our paycheck, but of course that's different from having your net worth be a business.

HOWEVER, understand that Boglehead investing is not risk aversion. Not at all. You take the proper amount.
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Re: Is entrepreneurship anti-Boglehead?

Post by smitcat » Sat Aug 01, 2020 11:35 am

FIby45 wrote:
Sat Aug 01, 2020 11:26 am
Entrepreneurship is very risky. You have 0 diversification. For years most entrepreneurs will need to reinvest all proceeds directly into the business at the expense of building a Boglehead portfolio.

I started a business 10 years ago when I was around 30 that has been successful. After many, many years (7-8) of reinvesting all profits back into the business I shifted to pulling profits out of the business. I now invest profits in a Boglehead fashion- low cost index funds, auto invest monthly, never sell, four fund portfolio. I do that because I got to a point where I needed to diversify and not have 100% of my net worth tied up in the business. I did not want to have some business catastrophe happen and be 40 and broke and nothing to show for it. Due to good cash flow from business I have been able to build up decent portfolio since I made that shift a few years ago- one much higher that I could have achieved had I remained an employee somewhere.

My Boglehead portfolio was built by undertaking what seems to be very anti-Boglehead activities- namely putting all of my money and effort into the single endeavor of the business (non diversification), seizing an opportunity I saw (timing market?,) and attempting to trounce market returns (with an investment of $50k and a few years of blood sweat and tears I built a multi-million dollar enterprise.) It was a binary game that I could have lost- through hard work and healthy bit of luck I won that game.

I feel a Boglehead philosophy would see entrepreneurship as far too risky. Statistically the best bet financially is probably to become a high paid professional and climb the ladder and invest using Boglehead philosophy; however, I think choosing to be an entrepreneur was one of the best decisions of my life. Not only financially as the business generates money I would never have made as an employee- but in satisfaction and lifestyle.


How do you square that? It takes money to make money and I have been able to generate the cash flow to invest by taking a massive risk- perhaps being a little less Bogleheadish in your 20's is the way to go?

Thoughts?
"Statistically the best bet financially is probably to become a high paid professional and climb the ladder and invest using Boglehead philosophy"
I have found that it is risky to be in a higher paid job during the larger economy swings and that it leads to unemployment or underemplyoment quite often.
"It takes money to make money and I have been able to generate the cash flow to invest by taking a massive risk"
I have never had the impression that you need to take 'massive' risk to start a business. Sure you then make all the decsions and are aware of many risks that you would not know about as an employee - but they are still there

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Re: Is entrepreneurship anti-Boglehead?

Post by megabad » Sat Aug 01, 2020 11:40 am

I think entrepreneurship in the narrow definition that you have laid out is perhaps not consistent with the diversity aspect of Bogleheads. This has nothing to do with entrepreneurship as a whole though. You can start a business and still have diverse investments, you just chose not to do it this way (which is fine and dandy). A great many very wealthy people have done the same thing. If you continued to live your life this way, investing all of your assets in one narrow business, I think it would be hard to argue you were a Boglehead (but you may be very rich).

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Re: Is entrepreneurship anti-Boglehead?

Post by oldfort » Sat Aug 01, 2020 11:43 am

Having most of your net worth tied up in a single, illiquid, nano-size business is anti-Boglehead. A good thought experience is if a business similar to yours was publicly traded, what percentage of your net worth would you want to invest in this single, likely penny stock? Bogleheads as a group tend to be risk averse. If you are going to be an entrepreneur, selling off a stake to outside investors can allow you to be more diversified.

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Re: Is entrepreneurship anti-Boglehead?

Post by SB1234 » Sat Aug 01, 2020 11:48 am

If you consider that bogleheads is basically striving very hard to be average. Then yes entrepreneurship is basically anti-boglehead.

But if you consider bogleheads focus on cost, then it is not, because in any business the focus on reducing cost has to be relentless.

I think the boglehead way to entrepreneurship is through a side business while still maintaining your full time job.
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Re: Is entrepreneurship anti-Boglehead?

Post by oldfort » Sat Aug 01, 2020 11:56 am

firebirdparts wrote:
Sat Aug 01, 2020 11:30 am
HOWEVER, understand that Boglehead investing is not risk aversion. Not at all. You take the proper amount.
There is a lot of risk aversion in Boglehead investing. The main reason not to invest in individual stocks isn't to avoid trading fees, which now can be close to nothing, but to eliminate the risk of under-performing the market. There's a lot of risk aversion in the board in general: see the threads about SWR, the umbrella insurance threads where people worry about million dollar lawsuit verdicts which are about as rare as lightning strikes, the trust threads which worry about lawsuits which might happen after they're dead, or the goldbug/crypto threads worrying about hyperinflation.

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Re: Is entrepreneurship anti-Boglehead?

Post by nisiprius » Sat Aug 01, 2020 11:58 am

No, of course not, and that seems like a tendentious title (like the paper from an active investment firm, "The Silent Road to Serfdom: Why Passive Investing Is Worse Than Marxism.")

The Bogleheads investment philosophy is about how to invest the money that you decide to invest, however you've obtained it. And it's understood that "investments" refers to investments outside of your personal life and career.

For example, the Bogleheads philosophy does not prohibit you from going to college and paying tuition--it does not say that you to put every penny into index funds instead of into college tuition.

It doesn't tell you how much to invest (in, e.g. securities at a brokerage account). It does speak to making realistic projections of how much retirement income you might expect to get from those investments. So if you put zero into them because you want to devote every penny to growing your own business, then you can count on getting zero from those investments and you must be prepared to depend on your personal business in your retirement.

Within the investment account itself, Benjamin Graham referred to "defensive" versus "entrepreneurial" investors (in securities). His book, The Intelligent Investor, was primarily about "defensive" investing. Certainly, the Bogleheads' philosophy corresponds to what Graham called "defensive" investing, and I think it would be fair to say that the Bogleheads' philosophy is opposed to "entrepreneurial" securities investing. But not to entrepreneurship otherwise.

In other words, take your entrepreneurial risk, but take it outside your retirement savings account.
Last edited by nisiprius on Sat Aug 01, 2020 12:09 pm, edited 3 times in total.
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Re: Is entrepreneurship anti-Boglehead?

Post by Kenkat » Sat Aug 01, 2020 12:01 pm

I think one of the Boglehead tenets if you will is not to take uncompensated risks. Broad, diversified portfolios are preferable to individual stocks because most studies show that you are not adequately compensated for taking the risk of individual stocks by superior returns.

In the case of stating a business, you are certainly taking risk but I think you could make a strong case that you are compensated for that risk by the rewards of a successful business, coupled with bankruptcy and other laws that provide some downside protection if things don’t work out.

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Re: Is entrepreneurship anti-Boglehead?

Post by oldfort » Sat Aug 01, 2020 12:08 pm

nisiprius wrote:
Sat Aug 01, 2020 11:58 am
No, of course not, and that seems like a tendentious title (like the paper from an active investment firm, "The Silent Road to Serfdom: Why Passive Investing Is Worse Than Marxism.")

The Bogleheads investment philosophy is about how to invest the money that you decide to invest, however you've obtained it. And it's understood that "investments" refers to investments outside of your personal life and career.

For example, the Bogleheads philosophy does not prohibit you from going to college and paying tuition, on the grounds that you should put money into index funds instead of tuition.
I don't think the distinction holds. Mark Zuckerberg's career was tied into FB, yet it would be bizarre to argue his shares of FB aren't an investment.

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Re: Is entrepreneurship anti-Boglehead?

Post by Presintense » Sat Aug 01, 2020 12:13 pm

FIby45 wrote:
Sat Aug 01, 2020 11:26 am
Entrepreneurship is very risky. You have 0 diversification. For years most entrepreneurs will need to reinvest all proceeds directly into the business at the expense of building a Boglehead portfolio.

I started a business 10 years ago when I was around 30 that has been successful. After many, many years (7-8) of reinvesting all profits back into the business I shifted to pulling profits out of the business. I now invest profits in a Boglehead fashion- low cost index funds, auto invest monthly, never sell, four fund portfolio. I do that because I got to a point where I needed to diversify and not have 100% of my net worth tied up in the business. I did not want to have some business catastrophe happen and be 40 and broke and nothing to show for it. Due to good cash flow from business I have been able to build up decent portfolio since I made that shift a few years ago- one much higher that I could have achieved had I remained an employee somewhere.

My Boglehead portfolio was built by undertaking what seems to be very anti-Boglehead activities- namely putting all of my money and effort into the single endeavor of the business (non diversification), seizing an opportunity I saw (timing market?,) and attempting to trounce market returns (with an investment of $50k and a few years of blood sweat and tears I built a multi-million dollar enterprise.) It was a binary game that I could have lost- through hard work and healthy bit of luck I did not..

I feel a Boglehead philosophy would see entrepreneurship as far too risky. Statistically the best bet financially is probably to become a highly paid professional and climb the ladder and invest using Boglehead philosophy; however, I think choosing to be an entrepreneur was one of the best decisions of my life. Not only financially but in satisfaction and lifestyle.


How do you square that? It takes money to make money and successful entrepreneurs are able to generate significant cash flow to invest by taking a massive risk- perhaps being a little less Bogleheadish in your 20's is the way to go?

Thoughts?
I agree that entrepreneurship is very rewarding. I disagree that the boglehead philosophy conflicts with entrepreneurship in any way. I personally find traditional employment to be more risky than entrepreneurship.
Last edited by Presintense on Sat Aug 01, 2020 12:18 pm, edited 1 time in total.
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Re: Is entrepreneurship anti-Boglehead?

Post by Sandtrap » Sat Aug 01, 2020 12:15 pm

Entrepreneurship is "part" of an overall comprehensive wealth building long term financial strategy that includes:

Maximizing and diversification of income stream.
Tax Optimization via sheltering, etc, etc.
Asset diversification (IE: physically held R/E, etc)
Etc.

Some might view those who are for or against entrepreneurship as: (what I've heard over the decades)
(No right or wrong, POV from either sides, everyone's different)

Lacking guts
Playing safe
Living defensively
Needing predictability, safety, security, and regular day's off and vacations
Needing conformity to thrive
Thinking and living inside a box
Guaranteed pay check, job security. (employee)
VS
No guts no glory
Willing to take a chance for substantial wealth
Good enough vs more than enough
Needing autonomy to thrive
Thinking and living outside of the box
No guaranteed paycheck. No job security. (owner)

Entrepreneurship is not "Anti Boglehead", if it is sensible, well thought out, deliberate, and incremental, etc.

**What is "Anti-Boglehead":

Gambling and risk with assurance of loss (Lost Vegas, Day Trading mostly, Market timing)
Ventures without fore thought and sensibility, replete with stupidity (Get rich quick, make money easy, etc)
Anything that is a "Hail Mary Pass".

IE:
If you are a pharmacist and want to open a drug store or speciality compounding pharmacy. Great!
If you are a pharmacist and want to buy a chain or run down coin operated car washes because you feel you can "make it work". Huh?

If you are a structural engineer working in a gov'munt job and want to branch out into a private consulting business with hopes of it growing in profits and need such that you can quit your gov't job. Great!
If you are a structural engineer and want to take out a huge HELOC to get into "house flipping for quick wealth" because it works great on TV. Huh?

If you work at a generic job with marginal pay and want to go to night vocational welding certification school, and business school, part time to upgrade your non career and with eventual hopes of opening a chain of muffler shops. Great.
If you work at a generic job with marginal pay and want to get rich and retire quickly by investing in the market or index funds, but you don't want to work more hours or change your job. Duh?

j :happy
Last edited by Sandtrap on Sat Aug 01, 2020 1:27 pm, edited 2 times in total.
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Re: Is entrepreneurship anti-Boglehead?

Post by FIby45 » Sat Aug 01, 2020 12:16 pm

[/quote]

I don't think the distinction holds. Mark Zuckerberg's career was tied into FB, yet it would be bizarre to argue his shares of FB aren't an investment.
[/quote]


Agreed. At this point I would still say 90%+ of my netnworth is the value of my business- it's seems the same as having 90% of your equity investments in one comapny, and 10% indexed.

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Re: Is entrepreneurship anti-Boglehead?

Post by Fallible » Sat Aug 01, 2020 12:44 pm

FIby45 wrote:
Sat Aug 01, 2020 11:26 am
...
I feel a Boglehead philosophy would see entrepreneurship as far too risky. Statistically the best bet financially is probably to become a highly paid professional and climb the ladder and invest using Boglehead philosophy; however, I think choosing to be an entrepreneur was one of the best decisions of my life. Not only financially but in satisfaction and lifestyle.

How do you square that? ...
The Bogleheads' philosophy is about not taking too much or too little risk, a judgement call that is needed to wisely handle money, whether as an entrepreneur or an investor. As both, would you agree with that?
"Yes, investing is simple. But it is not easy, for it requires discipline, patience, steadfastness, and that most uncommon of all gifts, common sense." ~Jack Bogle

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Re: Is entrepreneurship anti-Boglehead?

Post by oldfort » Sat Aug 01, 2020 12:47 pm

FIby45 wrote:
Sat Aug 01, 2020 12:16 pm

I don't think the distinction holds. Mark Zuckerberg's career was tied into FB, yet it would be bizarre to argue his shares of FB aren't an investment.

Agreed. At this point I would still say 90%+ of my netnworth is the value of my business- it's seems the same as having 90% of your equity investments in one comapny, and 10% indexed.
If you want to split the difference, you could sell off a stake in the business to angel investors, while continuing to draw a salary from the business.
Last edited by oldfort on Sat Aug 01, 2020 1:04 pm, edited 2 times in total.

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Re: Is entrepreneurship anti-Boglehead?

Post by Drfriede » Sat Aug 01, 2020 12:57 pm

I started a business at around the same age. Over the last five years or so, my business took on its own gravity and began to pay out dividends in excess of anything I could get in the market. With that being said, the proportion of my business To my net worth has shrunken as I put more money into my other investments. I have a feeling your business and net worth will act in in a similar fashion as time goes by

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Re: Is entrepreneurship anti-Boglehead?

Post by RocketShipTech » Sat Aug 01, 2020 1:08 pm

50% of my income is directly tied to the price of a single stock. Because of this, my income has more than doubled in under two years.

Rewind back to two years ago when I was deciding between these two job offers:

1. $200k, all base salary
2. $200k, $150k base and $50k stock

It’s obvious which job offer a good Boglehead should take, and I’m grateful every day I’m not a good Boglehead.

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Re: Is entrepreneurship anti-Boglehead?

Post by FIby45 » Sat Aug 01, 2020 1:28 pm

OP here.

Here is another major difference.

Rough numbers here...

If you follow Bogleheads investing strategy (index, diversify, allocations, etc) over the last 90 years or so over no 20 year period would you have lost money.

9 out of 10 business fail in the first five years. Very often w 100% loss of investment.

That type of investment does not seem in line with Bogleheads philosophy.

PS- so as not to be confused- I am not arguing against Boglehead investment recommendation... I now follow it for the most part... Just discussing whether entrpreneurship is intrinsically at odds with Boglehead philosophy. Seems so to me.

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Re: Is entrepreneurship anti-Boglehead?

Post by oldfort » Sat Aug 01, 2020 2:20 pm

RocketShipTech wrote:
Sat Aug 01, 2020 1:08 pm
50% of my income is directly tied to the price of a single stock. Because of this, my income has more than doubled in under two years.

Rewind back to two years ago when I was deciding between these two job offers:

1. $200k, all base salary
2. $200k, $150k base and $50k stock

It’s obvious which job offer a good Boglehead should take, and I’m grateful every day I’m not a good Boglehead.
Right, tax considerations aside, the default Boglehead advice would be to sell your company stock/options immediately upon vesting.

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Re: Is entrepreneurship anti-Boglehead?

Post by RocketShipTech » Sat Aug 01, 2020 2:29 pm

oldfort wrote:
Sat Aug 01, 2020 2:20 pm
RocketShipTech wrote:
Sat Aug 01, 2020 1:08 pm
50% of my income is directly tied to the price of a single stock. Because of this, my income has more than doubled in under two years.

Rewind back to two years ago when I was deciding between these two job offers:

1. $200k, all base salary
2. $200k, $150k base and $50k stock

It’s obvious which job offer a good Boglehead should take, and I’m grateful every day I’m not a good Boglehead.
Right, tax considerations aside, the default Boglehead advice would be to sell your company stock/options immediately upon vesting.
I’m not even talking about holding vested company stock, which I largely don’t do.

I’m talking about having a large portion of your income come in the form of single company stock, which is inherently anti-Boglehead, even if you sell it off immediately

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Re: Is entrepreneurship anti-Boglehead?

Post by nisiprius » Sat Aug 01, 2020 3:10 pm

1) Well, this is "Investing Advice Inspired by Jack Bogle" and Jack Bogle was a successful entrepreneur. Who invested most of his money in Vanguard funds, although quite a lot of it was in the actively managed Wellington Fund.

2) I think one must distinguish between a) being an entrepreneur, and b) investing your money in someone else's enterprise. Being an entrepreneur is great if you have what it takes, and missing out on it might mean missing your calling. Investing in someone else's enterprise--not as a partner who treats the business as their full-time job, just someone who puts money in and hopes to get money out--is, well, completely different.

3) I think the "Boglehead philosophy" basically has to do with "choosing a portfolio of securities," and that's really the scope of it. I'm not personally fond of trying to take everything that exists and regarding it as an asset--one's business, the present value of one's future Social Security benefits, the tuition expense of ones' spouse's MBA that is expected to lead to a higher salary--and trying to find the tangent portfolio on the efficient frontier. It's pretty much how you invest in stocks and bonds, and the philosophy is that to do that you might as well use a simple portfolio of a small number of low-cost index funds.
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Re: Is entrepreneurship anti-Boglehead?

Post by smitcat » Sat Aug 01, 2020 3:37 pm

FIby45 wrote:
Sat Aug 01, 2020 1:28 pm
OP here.

Here is another major difference.

Rough numbers here...

If you follow Bogleheads investing strategy (index, diversify, allocations, etc) over the last 90 years or so over no 20 year period would you have lost money.

9 out of 10 business fail in the first five years. Very often w 100% loss of investment.

That type of investment does not seem in line with Bogleheads philosophy.

PS- so as not to be confused- I am not arguing against Boglehead investment recommendation... I now follow it for the most part... Just discussing whether entrpreneurship is intrinsically at odds with Boglehead philosophy. Seems so to me.
"9 out of 10 business fail in the first five years."
50% of small business are still in business after 5 years. And these 'number' statistics include so many single operators like landscapers, home flippers, delivery companies, ebay traders etc that turn over their companies as a rule.
The stats are just not that bad for well planned out business's.

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Re: Is entrepreneurship anti-Boglehead?

Post by oldfort » Sat Aug 01, 2020 3:49 pm

smitcat wrote:
Sat Aug 01, 2020 3:37 pm
FIby45 wrote:
Sat Aug 01, 2020 1:28 pm
OP here.

Here is another major difference.

Rough numbers here...

If you follow Bogleheads investing strategy (index, diversify, allocations, etc) over the last 90 years or so over no 20 year period would you have lost money.

9 out of 10 business fail in the first five years. Very often w 100% loss of investment.

That type of investment does not seem in line with Bogleheads philosophy.

PS- so as not to be confused- I am not arguing against Boglehead investment recommendation... I now follow it for the most part... Just discussing whether entrpreneurship is intrinsically at odds with Boglehead philosophy. Seems so to me.
"9 out of 10 business fail in the first five years."
50% of small business are still in business after 5 years. And these 'number' statistics include so many single operators like landscapers, home flippers, delivery companies, ebay traders etc that turn over their companies as a rule.
The stats are just not that bad for well planned out business's.
Getting bogged down in stats misses the larger picture. If the OP could turn around and sell his company to someone else tomorrow for $3M, he's in a very similar position to someone who chooses to invest $3M(90% of their net worth) in a single micro-cap stock. I suppose there might some tautology about how well run businesses have good investment returns and if they don't have good investment returns, they weren't well run.

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Re: Is entrepreneurship anti-Boglehead?

Post by mrlan » Sat Aug 01, 2020 4:05 pm

oldfort wrote:
Sat Aug 01, 2020 11:43 am
Having most of your net worth tied up in a single, illiquid, nano-size business is anti-Boglehead.
Lots of people running their own businesses aren't tied up in a single, illiquid, nano-sized business. A typical pattern is the business owner is doing something else to earn money such as consulting or having an FT job while running a business on the side. Or they have a spouse with a FT stable job which generates household income, health insurance, etc.

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Re: Is entrepreneurship anti-Boglehead?

Post by oldfort » Sat Aug 01, 2020 4:14 pm

mrlan wrote:
Sat Aug 01, 2020 4:05 pm
oldfort wrote:
Sat Aug 01, 2020 11:43 am
Having most of your net worth tied up in a single, illiquid, nano-size business is anti-Boglehead.
Lots of people running their own businesses aren't tied up in a single, illiquid, nano-sized business. A typical pattern is the business owner is doing something else to earn money such as consulting or having an FT job while running a business on the side. Or they have a spouse with a FT stable job which generates household income, health insurance, etc.
The OP said 90% of his net worth was tied up in the business.

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Re: Is entrepreneurship anti-Boglehead?

Post by AerialWombat » Sat Aug 01, 2020 4:27 pm

I don’t see how they are at odds. They are very different endeavors.

About 45% of my accounting net worth is tied up in a tech startup I co-founded and provided all the working capital to for nearly two years before some VC money trickled in. Over 25% of my paper net worth is tied up in rental property equity. Those are purely entrepreneurial endeavors, to which my ISP simply doesn’t apply.

My investable assets, the smallest chunk of my net worth, are invested very conservatively my BH standards, but still more or less in line with BH principles.

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Re: Is entrepreneurship anti-Boglehead?

Post by smitcat » Sat Aug 01, 2020 4:57 pm

oldfort wrote:
Sat Aug 01, 2020 3:49 pm
smitcat wrote:
Sat Aug 01, 2020 3:37 pm
FIby45 wrote:
Sat Aug 01, 2020 1:28 pm
OP here.

Here is another major difference.

Rough numbers here...

If you follow Bogleheads investing strategy (index, diversify, allocations, etc) over the last 90 years or so over no 20 year period would you have lost money.

9 out of 10 business fail in the first five years. Very often w 100% loss of investment.

That type of investment does not seem in line with Bogleheads philosophy.

PS- so as not to be confused- I am not arguing against Boglehead investment recommendation... I now follow it for the most part... Just discussing whether entrpreneurship is intrinsically at odds with Boglehead philosophy. Seems so to me.
"9 out of 10 business fail in the first five years."
50% of small business are still in business after 5 years. And these 'number' statistics include so many single operators like landscapers, home flippers, delivery companies, ebay traders etc that turn over their companies as a rule.
The stats are just not that bad for well planned out business's.
Getting bogged down in stats misses the larger picture. If the OP could turn around and sell his company to someone else tomorrow for $3M, he's in a very similar position to someone who chooses to invest $3M(90% of their net worth) in a single micro-cap stock. I suppose there might some tautology about how well run businesses have good investment returns and if they don't have good investment returns, they weren't well run.
If one person of a couple has a business and invests the profits in a fairly typical manner then you have two incomes and a growing investment portfolio.

000
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Re: Is entrepreneurship anti-Boglehead?

Post by 000 » Sat Aug 01, 2020 5:02 pm

oldfort wrote:
Sat Aug 01, 2020 11:43 am
If you are going to be an entrepreneur, selling off a stake to outside investors can allow you to be more diversified.
Likely to actually increase risk -- unless one is divesting a majority share -- due to e.g. shareholder lawsuits.

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Re: Is entrepreneurship anti-Boglehead?

Post by 000 » Sat Aug 01, 2020 5:02 pm

Entrepreneurship isn't anti-Boglehead, but many Bogleheads are anti-Entrepreneurship.

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vitaflo
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Re: Is entrepreneurship anti-Boglehead?

Post by vitaflo » Sat Aug 01, 2020 5:25 pm

Not every business needs a huge amount of capital to get going or to make good profits, so it's entirely dependent on the business. I started as a consultancy which required very little (<$10k) of capital and turned it into multiple 6-figures per year quite quickly. I used that to fund a software startup with again less than $10k and again turned that into multiple 6-figures per year (though that one took a few years to get going). Most of the "cost" of these businesses was just my time.

I'm sure if you're wanting to build a restaurant or try to fund the next Facebook or something you'll have a lot of costs. And I personally would never try those endeavors for the same reason you point out, too much risk. But there are a lot of business ideas that don't always require a ton of money to get started.

Of course I'm not going to be able to sell my businesses for mutli-millions. But I didn't start them to do so, I started them to make me more than a salaried position would while allowing me to be my own boss. Mission accomplished. The best part about sweat equity is you have a lot more control over it than any equity you buy on the stock market.

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FIby45
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Re: Is entrepreneurship anti-Boglehead?

Post by FIby45 » Mon Aug 03, 2020 6:36 pm

oldfort wrote:
Sat Aug 01, 2020 3:49 pm
smitcat wrote:
Sat Aug 01, 2020 3:37 pm
FIby45 wrote:
Sat Aug 01, 2020 1:28 pm
OP here.

Here is another major difference.

Rough numbers here...

If you follow Bogleheads investing strategy (index, diversify, allocations, etc) over the last 90 years or so over no 20 year period would you have lost money.

9 out of 10 business fail in the first five years. Very often w 100% loss of investment.

That type of investment does not seem in line with Bogleheads philosophy.

PS- so as not to be confused- I am not arguing against Boglehead investment recommendation... I now follow it for the most part... Just discussing whether entrpreneurship is intrinsically at odds with Boglehead philosophy. Seems so to me.
"9 out of 10 business fail in the first five years."
50% of small business are still in business after 5 years. And these 'number' statistics include so many single operators like landscapers, home flippers, delivery companies, ebay traders etc that turn over their companies as a rule.
The stats are just not that bad for well planned out business's.
Getting bogged down in stats misses the larger picture. If the OP could turn around and sell his company to someone else tomorrow for $3M, he's in a very similar position to someone who chooses to invest $3M(90% of their net worth) in a single micro-cap stock. I suppose there might some tautology about how well run businesses have good investment returns and if they don't have good investment returns, they weren't well run.
This is my point.

In addition- I do understand entrpreneurship comes in many flavors and degrees. If you do one freelance job under the banner of an LLC are you an entrepreneur? I guess you could say so but that's not what I'm talking about.

As a rough outline, I'm talking about a person that starts an enterprise risking a not insignificant portion of their own capital, relies on that enterprise for the majority of their financial well being for a period of time, and is not a w-2 elsewhere.

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bottlecap
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Re: Is entrepreneurship anti-Boglehead?

Post by bottlecap » Mon Aug 03, 2020 6:48 pm

No. But lots of entrepreneurs invest their spare cash in their businesses and thus are underrepresented here.

JT

smitcat
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Re: Is entrepreneurship anti-Boglehead?

Post by smitcat » Mon Aug 03, 2020 6:49 pm

FIby45 wrote:
Mon Aug 03, 2020 6:36 pm
oldfort wrote:
Sat Aug 01, 2020 3:49 pm
smitcat wrote:
Sat Aug 01, 2020 3:37 pm
FIby45 wrote:
Sat Aug 01, 2020 1:28 pm
OP here.

Here is another major difference.

Rough numbers here...

If you follow Bogleheads investing strategy (index, diversify, allocations, etc) over the last 90 years or so over no 20 year period would you have lost money.

9 out of 10 business fail in the first five years. Very often w 100% loss of investment.

That type of investment does not seem in line with Bogleheads philosophy.

PS- so as not to be confused- I am not arguing against Boglehead investment recommendation... I now follow it for the most part... Just discussing whether entrpreneurship is intrinsically at odds with Boglehead philosophy. Seems so to me.
"9 out of 10 business fail in the first five years."
50% of small business are still in business after 5 years. And these 'number' statistics include so many single operators like landscapers, home flippers, delivery companies, ebay traders etc that turn over their companies as a rule.
The stats are just not that bad for well planned out business's.
Getting bogged down in stats misses the larger picture. If the OP could turn around and sell his company to someone else tomorrow for $3M, he's in a very similar position to someone who chooses to invest $3M(90% of their net worth) in a single micro-cap stock. I suppose there might some tautology about how well run businesses have good investment returns and if they don't have good investment returns, they weren't well run.
This is my point.

In addition- I do understand entrpreneurship comes in many flavors and degrees. If you do one freelance job under the banner of an LLC are you an entrepreneur? I guess you could say so but that's not what I'm talking about.

As a rough outline, I'm talking about a person that starts an enterprise risking a not insignificant portion of their own capital, relies on that enterprise for the majority of their financial well being for a period of time, and is not a w-2 elsewhere.
I still do not understand ...what are you asking then?

RocketShipTech
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Re: Is entrepreneurship anti-Boglehead?

Post by RocketShipTech » Mon Aug 03, 2020 6:50 pm

bottlecap wrote:
Mon Aug 03, 2020 6:48 pm
No. But lots of entrepreneurs invest their spare cash in their businesses and thus are underrepresented here.

JT
This behavior seems to prove the OP’s point.

What is the difference between investing in your business vs buying your company stock? And if the latter is anti-Boglehead why not the former?

oldfort
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Re: Is entrepreneurship anti-Boglehead?

Post by oldfort » Mon Aug 03, 2020 7:53 pm

RocketShipTech wrote:
Mon Aug 03, 2020 6:50 pm
bottlecap wrote:
Mon Aug 03, 2020 6:48 pm
No. But lots of entrepreneurs invest their spare cash in their businesses and thus are underrepresented here.

JT
This behavior seems to prove the OP’s point.

What is the difference between investing in your business vs buying your company stock? And if the latter is anti-Boglehead why not the former?
Fundamentally, it's not. That's why to the extent your company offers a choice, the Boglehead would want to maximize the comp in the form of salary/cash bonuses and minimize the percent of comp in the form of options/equity.

000
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Re: Is entrepreneurship anti-Boglehead?

Post by 000 » Mon Aug 03, 2020 7:54 pm

RocketShipTech wrote:
Mon Aug 03, 2020 6:50 pm
bottlecap wrote:
Mon Aug 03, 2020 6:48 pm
No. But lots of entrepreneurs invest their spare cash in their businesses and thus are underrepresented here.

JT
This behavior seems to prove the OP’s point.

What is the difference between investing in your business vs buying your company stock? And if the latter is anti-Boglehead why not the former?
Better to have a concentrated investment you control.

texanghost
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Re: Is entrepreneurship anti-Boglehead?

Post by texanghost » Mon Aug 03, 2020 9:59 pm

Not inherently.

I view entrepreneurship as a career decision separate from personal investment philosophy. I'm sure there are quite a few entrepreneurs on this forum even. It's a high risk but high reward career, similar to if you were paid on commission or something. I wouldn't say that a salesperson couldn't follow the Bogleheads philosophy if 50% of their compensation was variable.

On the other hand, if the entrepreneur is 50 and cashing out their only retirement assets to start a risky business, I would say that that is not very Boglehead-like. I would say the same thing about someone cashing out to pay for any other gamble, really.

I guess the principle would be to keep business and personal finances separate to the extent possible. This isn't always possible depending on your situation, but you can say that about any investment philosophy.

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Bluce
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Re: Is entrepreneurship anti-Boglehead?

Post by Bluce » Mon Aug 03, 2020 10:30 pm

To the OP:

Don't overthink it. I've been self-employed since 1985; I will be 70 in a couple of weeks and still working because I enjoy it. But being self-employed is irrelevant IMO. I've never followed anyone's philosophy in my life besides my own, which I absorbed from my Depression-era father.

All I did was live below my means, started a SEP in 1990 and maxed it out every year, and invested beyond that in a taxable account.
"There are no new ideas, only forgotten ones." -- Amity Shlaes

smitcat
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Re: Is entrepreneurship anti-Boglehead?

Post by smitcat » Tue Aug 04, 2020 7:12 am

smitcat wrote:
Mon Aug 03, 2020 6:49 pm
FIby45 wrote:
Mon Aug 03, 2020 6:36 pm
oldfort wrote:
Sat Aug 01, 2020 3:49 pm
smitcat wrote:
Sat Aug 01, 2020 3:37 pm
FIby45 wrote:
Sat Aug 01, 2020 1:28 pm
OP here.

Here is another major difference.

Rough numbers here...

If you follow Bogleheads investing strategy (index, diversify, allocations, etc) over the last 90 years or so over no 20 year period would you have lost money.

9 out of 10 business fail in the first five years. Very often w 100% loss of investment.

That type of investment does not seem in line with Bogleheads philosophy.

PS- so as not to be confused- I am not arguing against Boglehead investment recommendation... I now follow it for the most part... Just discussing whether entrpreneurship is intrinsically at odds with Boglehead philosophy. Seems so to me.
"9 out of 10 business fail in the first five years."
50% of small business are still in business after 5 years. And these 'number' statistics include so many single operators like landscapers, home flippers, delivery companies, ebay traders etc that turn over their companies as a rule.
The stats are just not that bad for well planned out business's.
Getting bogged down in stats misses the larger picture. If the OP could turn around and sell his company to someone else tomorrow for $3M, he's in a very similar position to someone who chooses to invest $3M(90% of their net worth) in a single micro-cap stock. I suppose there might some tautology about how well run businesses have good investment returns and if they don't have good investment returns, they weren't well run.
This is my point.

In addition- I do understand entrpreneurship comes in many flavors and degrees. If you do one freelance job under the banner of an LLC are you an entrepreneur? I guess you could say so but that's not what I'm talking about.

As a rough outline, I'm talking about a person that starts an enterprise risking a not insignificant portion of their own capital, relies on that enterprise for the majority of their financial well being for a period of time, and is not a w-2 elsewhere.
I still do not understand ...what are you asking then?
In the origninal post...
"I started a business 10 years ago when I was around 30 that has been successful. After many, many years (7-8) of reinvesting all profits back into the business I shifted to pulling profits out of the business."
If you reinvested all profits back into the business how did you live for the past 8 years?

columbia
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Re: Is entrepreneurship anti-Boglehead?

Post by columbia » Tue Aug 04, 2020 7:14 am

No.

Running a business is not investing; it’s a job.
If you leave your head in the sand for too long, you might get run over by a Jeep.

smitcat
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Re: Is entrepreneurship anti-Boglehead?

Post by smitcat » Tue Aug 04, 2020 7:39 am

texanghost wrote:
Mon Aug 03, 2020 9:59 pm
Not inherently.

I view entrepreneurship as a career decision separate from personal investment philosophy. I'm sure there are quite a few entrepreneurs on this forum even. It's a high risk but high reward career, similar to if you were paid on commission or something. I wouldn't say that a salesperson couldn't follow the Bogleheads philosophy if 50% of their compensation was variable.

On the other hand, if the entrepreneur is 50 and cashing out their only retirement assets to start a risky business, I would say that that is not very Boglehead-like. I would say the same thing about someone cashing out to pay for any other gamble, really.

I guess the principle would be to keep business and personal finances separate to the extent possible. This isn't always possible depending on your situation, but you can say that about any investment philosophy.
Excellent answer- perhaps the OP would get a better idea by reading the Bogle Wiki here:
https://www.bogleheads.org/wiki/Boglehe ... philosophy

sschullo
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Re: Is entrepreneurship anti-Boglehead?

Post by sschullo » Tue Aug 04, 2020 7:44 am

Anti Boglehead?
Of course not. I respect entrepreneurship. It was never my experience, but my family back in Wisconsin have their farming businesses and have done very well. My nephew and his wife built an empire hiring 15-20 employees milking 900 cows for years now with a trucking business too. My nephew who is not college educated is one of the shrewdest people I know. If you are business-minded and love it, go for it. Bogleheads is on a different path as we are about investing with low cost fully diversified portfolios, and to stay the heck away from most financial advisers.
You might be a candidate for the F.I.R.E. or F.I. community. I am sure you know that they get together and share what they are doing, after their day jobs. They are all about entrepreneurship because they do not want to work for someone else.

Best of fortunes,
"When nonbusiness people rely on others to make investment profits for them, they are expecting a kind of result for which there is no true counterpart in ordinary business affairs." | B. Graham

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