5 of the best books I read in 2019

 

1. Range – David Epstein.

Range is my 2019 winner. It was the best book I read last year, and one of my favorite books related to personal development ever. By range, Epstein refers to a set of broad experiences, inputs, interests, experiments, etc. In a world that values specialization and highlights the ‘10,000-hour rule’ (which says you must dedicate 10,000 hours to something to achieve mastery), Epstein argues that hyper-focus is actually not the path to success, far more often those who have range win. Epstein encourages us to pursue hobbies and interests, to be unafraid of making a change, to never feel behind, and not because life is more fun that way, it’s actually a more effective way to live. I can’t recommend it highly enough, read Range.

2. Atomic Habits – James Clear.

There are few personal development/self-improvement books that I consider must-read, but Atomic Habits is one of them. James Clear notes that winners and losers have the same goals, what sets them apart is their systems (habits). Humans operate by default and we relentlessly fail at improving ourselves because we fail to address our default behaviors. Goals are fine, they help give direction, but only our systems can take us where we want to go. Clear guides us through how habits operate and how to make meaningful and lasting changes by changing our defaults. It’s a fascinating and fun read, and one that has had a profound impact on how I think about behavior and pursue change.

3. Factfulness – Hans Rosling.

Hans Rosling made it his life’s mission to reinform commonly help misconceptions about our world. He penned Factfulness as he battled the cancer which would eventually take his life. Through ten chapters he addresses ten fascinating topics that we routinely misunderstand (world population, poverty, bias, etc.). He emphasizes the fact that the world can sometimes be bad, while still being significantly better than it was before. By offering clarity, thoughtfulness, and objective facts, Rosling helps us to see things they way they are. It’s occasionally mind-bending, which is a good thing, and always enjoyable.

4. Born a Crime – Trevor Noah.

Born a Crime is an autobiography. Trevor Noah takes us through his wild, funny, and unlikely childhood in one of the more engaging books I’ve ever read. It’s at times hilarious (I literally laughed out loud more than once), sentimental (his relationship with his mother is remarkable), thoughtful (interacting with apartheid in South Africa), and ultimately a completely rewarding read.

5. Billion Dollar Whale – Tom Wright.

Billion Dollar Whale consistently made my jaw drop as I read it. The story is absurd, unbelievable, scandalous, incredible, and completely true! It’s about a young Malaysian fancier/businessman (Jho Low) who cons billions of dollars from the Malaysian government in a stream of devious business deals and spends it on some of the most extravagant partying the world has ever seen. The story involves Hollywood actors and actresses, world-leading finance companies, even the president of the United States. Another interesting part of this story (as if it wasn’t interesting enough) is that it hasn’t concluded yet. Jho Low is currently a wanted man hiding out, most believe, in China, but is certainly still active. In fact, his team of lawyers aggressively campaigned to ban Billion Dollar Whale from being sold, and succeeded to keep the book off British bookshelves for a year! Truly, a remarkable read.

Reading books will change your life

jaredd-craig-HH4WBGNyltc-unsplash.jpg

If you hope to instill any change in your life this year, let me recommend a reading habit.

Books are amazing things. They’re a portal into a different way of seeing the world. Often the most important things holding us back from doing or being something we want to do or be are our own thought ruts. The way things and situations occur to us is foundational to the way we will interact with them. An example: the gym occurs to me as an intimidating place and every time I set foot inside I feel uncomfortable, so the chance that I’ll consistently go to the gym is close to zero. The gym isn’t inherently intimidating or not intimidating, it’s obvious that many people there are quite comfortable (here’s to you guy flexing in the mirror). But how can you build a habit of going to the gym? You’ve got a serious mental racket running in the back of your mind. Well, the answer is to change how the gym situation occurs to you, or to put it more normally, think about the gym differently.

This is where books come in, books can change the way we think. Books offer a different perspective, a new point of view. They force us to think critically and differently than we would by default. They let us interact with new ideas and thoughts that have been all the way thought through (or least most of the way thought through). They’re great for learning, sure, but more importantly, they open up our minds. A book might not make the gym suddenly seem less intimidating, but it could begin dislodging some of your bad thought ruts, it could start shifting how you occur to yourself. Start a reading habit this year. Start small and don’t stop. It might just change your life.

Year-end investor review

frank-busch-PzifgmBsxCc-unsplash.jpg

We made it, another year is in the books and everyone has an opinion on where the market is going. My line of work involves me adamantly advising people not to try to predict markets, but even I have an opinion about what might happen in the future. Thankfully, there’s a difference between having an opinion and making a poor investing decision.

So where are we now? We’re coming off of a historically great period of market returns, especially in the category of U.S. large growth companies (the S&P 500, which happens to be the category we almost exclusively hear about in the news). Since U.S. large growth companies have faired well, so have investors, because the vast majority of investors have the majority of their investments in large U.S. growth companies. That’s great news right now. But it’s also a problem.

Large growth companies are historically one of the poorest performing asset categories in the free market. This holds in performance data going back one hundred years, but it also makes sense a priori. Large growth companies are inherently less risky than small and value companies, they stay in business longer, they seldom go bankrupt (it happens, just not as often), and their prices don’t fluctuate as significantly. Small companies are often younger, less established, and more susceptible to tough markets. Value companies are often distressed and sometimes never recover. These small and value companies default more often and their prices are more volatile, they’re riskier.

You’ve heard the principle, risk equals return. That applies here. It makes sense that as entire asset classes, small companies and value companies outperform large growth companies by a significant margin over time because their additional risk brings additional return. The fact that large growth companies have performed so well over these last ten years is great, but it also means that at some point we’ll see these returns balance out. Now, I would never pretend to know which asset classes will perform better or worse next year, that’s a fool’s errand which we refer to as ‘market timing.’ But I do know that most years will favor a diversified portfolio that leans toward small and value asset classes instead of a heavy weighting towards large growth companies. Next year the most likely circumstance is that you’ll be happy to have left your large growth company portfolio to get into a more diversified situation, which, incidentally, is true at the end of every year.

So the obvious question is how to diversify with a lean towards small and value companies. I’ve covered this before, but total market index funds won’t help you here, because of cap weighting total market funds are invested almost entirely in large growth companies. Index funds have become very popular over the last 20 years and, while they’re certainly an improvement over active funds, they’re inherently flawed. To get into an ideal portfolio takes an advisor committed to the academics of investing utilizing structured funds (a solution to the index fund problem).

Take the opportunity to review your portfolio as we head into the new year. The returns may look great, but that doesn’t mean you’re in a great portfolio.

iPad Pro and commitment issues

mark-duffel-U5y077qrMdI-unsplash.jpg

I’ll be completely honest with you, my audience. I love my iPad Pro, it’s what I’m using to write this very post. But, in the two months I’ve been using it my commitment hasn’t been 100% unwavering. I’ve checked Apple’s refurbished website (maybe the best place to buy a laptop, full stop) for MacBook Pro options more than once. I’ve read several reviews of the new 16 inch MacBook Pro, and I questioned my friend about his with a noticeable uptick in enthusiasm. I’ve even used my iMac more than I expected, although with lackluster results (have I mentioned how distracting those things are?). The point is, working from an iPad Pro is a large adjustment, and sometimes I just want to go back to my comfortable place wasting time on a MacBook Pro. Here’s what I’ve realized, the feelings aren’t bad and it doesn’t mean I’m going to buy a MacBook Pro.

It’s normal to feel a little nostalgic for the old way of doing things. And it takes time, more than a week or two, or maybe even a month or two, to get comfortable with a new setup. But I’ll say this, after a while, it does get more comfortable. The question of whether my feelings of nostalgia are rooted in some flaw in the iPad Pro or in my own addiction to familiarity is slowly being revealed as the latter. All that stuff I wrote about the focusing power of the iPad Pro? It still rings true. All the capability and portability are still there. I still get more of my most important things done on my iPad Pro, it has forced me to work more intentionally.

So I guess this is my thought: when you commit to something, you probably have to commit to it for more than a few weeks. Change isn’t easy but it’s often better. My iPad Pro experience falls right in line with other good change initiatives, not always comfortable, but ultimately moving me in a better direction.

Your 401k account is probably loaded up in the wrong asset class

 

timj-EJ4qfFp1g8Q-unsplash.jpg

401k accounts good and bad. They’re mostly good because they provide an avenue for people to save and invest money for their future, but there are some things to watch out for.

Good stuff:

  • The main benefit of a 401k is that it allows you to invest qualified money. You could just invest money on your own, but investing in your 401k accounts means that you get some significant tax advantages (no capital gains on the growth of your investments and an income tax break). The same advantages apply to IRA accounts, but 401ks include two other significant advantages.
  • Many employers offer a matching contribution. For example, if you contribute a certain small percentage of your income (say 5%), the employer may kick in an additional small percentage into your 401k account (say 4%). That’s free money, and you should definitely take it.
  • 401k contributions are capped at $19,000 per year by the employee, employer contributions can exceed that. IRA contributions are capped at $6,000 per year. Not all of us are maxing out our qualified retirement accounts, but the larger cap offered by 401k accounts is certainly an advantage.

Bad stuff:

  • 401k accounts offer a limited number of investing options, and they’re almost never great. 401k Plan sponsors (employers) are typically concerned with one thing when choosing a plan: cost. If the plan seems expensive it will be harder to explain to the board, regardless of the value or benefits of the portfolio and the advisor.
  • Your money is locked up for as long as you work at the company. You’re stuck with the options available and you can’t move the money elsewhere unless you leave or retire.
  • Investors have little to no help deciding which funds or options to use within the 401k so they end up in default options, which are usually target dated funds. You may have seen these funds that end with a future year, like 2045, which you’d be in if you were expected to retire sometime around 2045. A target dated fund is not the worst investment you could be in (which isn’t saying much) but it’s far from ideal. A target dated fund will load you up in U.S. large growth companies (essentially the S&P 500), sprinkle in some international large growth companies, and decide what percentage of your money should be in bonds based on the target year. Unfortunately, in the history of the market, large growth company asset classes are among the lowest-performing of any asset classes over time. A target dated fund is usually made up of index funds (along with their inherent problems) so at least it’s not active, but it will sacrifice large amounts of return over time because of its poor diversification.

Don’t be afraid to use your 401k account, especially if your employer offers a matching contribution (again, free money). But if you’ve obtained the maximum matching contribution, think about investing additional money into a better portfolio through an IRA. Unfortunately, your 401k is probably loaded up in the wrong asset class.