Uncategorized – Frequency Severity

Growing Fruit Trees To be Wealthy

Investing is much like growing a fruit tree. All the principles needed for successful investing are also present when growing a fruit tree. Starting with a sapling fruit tree is very similar to investing a small amount of money and energy initially into an endeavor that will deliver returns that grow every year for many years into the future.

Delayed gratification

Delaying gratification means forgoing all or some of the instant reward redeemable right now so that an even greater reward at a future time. When planting a fruit tree sapling, we must wait a few years for it to mature and bear fruit. However, when it does mature and starts bearing fruit, it will do so at a slow rate initially, and increase exponentially for many years until it fully matures.

This can be compared to investing a small sum of money right now which won’t be redeemed for many years. In the early years of our investment, the principal won’t have generated very much interest. However, as the years pass, the magic of compound interest delivers exponentially larger amounts of money as the years pass. At this stage, some of the interest being generated can then be withdrawn without disrupting the revenue being generated unduly.

Risk
Doing some research into the selection of our fruit tree is very important. While the monetary amount we are investing is not too important, the time we are investing and our result at the end of that investment in time is very important. Imagine for example we invest six years growing a cherry sapling to fruit bearing maturity. We taste the fruit in the sixth year expecting to have some deliciously sweet cherries to enjoy but are shocked to taste a tart and almost inedible cherry instead. We didn’t conduct adequate research into the cheery variety. Now we are twelve years behind our goal of having an annual cherry harvest; the six years already invested and another six needed to grow the correct cherry type. Even more, if we are sure we select the correct variety, some varieties will deliver a better yield that others.

This is the same in our investment selection process. Protecting against the risk of permanent loss of our principal is of utmost importance. There are many factors to consider at this stage, and countless investment vehicles to chose from; for example government issued bonds, money market ETFs, to investing in individual company stocks. The option chosen will depend much on our timeline for redeeming the investment and our risk appetite.

Nurturing

When we are confident that we have the correct cherry variety, we must now plant and maintain it so that it to position us for the best probability of success. This mean putting it into the correct soil, providing nutrients, protecting it from pests, and making sure it has adequate water.

Like our cherry sapling, once we’re as certain as we can be that we’re not going to suffer permanent loss of capital with our investment, our next job is to position ourselves for the highest possible rate of return. Factors such as tax and commissions and fees paid to brokerages and intermediaries can make a huge difference in the mature years of an investment to the return. Therefore, selecting tax efficient investments that have a low commission and transaction cost are highly desirable. We also need to pay attention to the likely returns that the investment will provide. This is balancing our need for the safety of the principal with our certainty over the rate of return the investment will provide. Is it worth risking the safety of the principal for another half percentage point? Certainly not! But there are common sense measures we can take to make sure that we’re beating inflation, legally maximizing our tax burden, commission expenses, and fees while invested in an instrument that will confidently deliver over the long term, even if volatile in the short term (think the S&P 500).

I look forward to diving deeper into all of the aspects written in this article in greater detail, but for now, start planning how you’re going to grow that fruit tree!

Desire is a function of dissatisfaction

Have you ever had the desire to purchase a product or service. You feel it’s going to make your life so much better, so much so that you need to have it. Now that you feel that way, your current state is somewhat inadequate.

If you hadn’t seen that product or heard about that service, would you feel the same way? If you don’t go ahead with the purchase in that moment, and wait for a week or two, will you feel the same way? Speaking from my own experience, the desire passes, and the sense of inadequacy does too.

Superficial desires like this generate a sense of dissatisfaction, giving us a sense of inadequacy until we attain that thing. But even when we attain it, the sense of satisfaction is short lived and the phenomenon repeats itself, where we want the next thing to improve our life.

In these circumstances, the key to achieving satisfaction is delaying gratification. If one doesn’t desire something to improve their life, then they don’t feel they already have the tools to attain satisfaction.

So then, what does bring joy to our lives? Distinct from a readily finished thing, the process of working to attain something and improving your knowledge or condition in some way during the process generates happiness and satisfaction. While these can also be desires per se, the process required to achieve them, and the long-term value delivered generate sustained happiness. Examples of this are learning, a physical exercise program and completing a project involving any mix of cognition and skill.

We’re also mainly social animals, with varying degrees of introversion and extroversion. Studies show that even the most introverted of us are still happier being around other people. The life insurance mortality tables indicate that loneliness has a negative impact on longevity that is comparable to smoking. Just like achieving something through effortful growth, growing relationships generates satisfaction and happiness. Speaking for myself, people can be difficult. We have moods, humors, varying degrees of empathy, and different interests. Growing relationships with people is a skill, and learning to read other people’s emotions, be empathetic and benevolent are skills that time and effort to develop. Perhaps a good approach is to surround yourself with other that have similar value, though not necessarily similar interests, and work at growing friendships. These scenarios are where the whole is truly greater than the sum of the parts.

All of this is a long-winded way of saying that receiving attaining things that didn’t require any effortful endeavor will result in a repetitive pattern of feeling inadequacy and short-lived satisfaction. Learning to delay gratification in these circumstances is the key to avoiding this. This is only contradicted when the thing desired will remove a significant hardship in life. Think getting a cataract removed or getting back factuality of some function following an injury.

Focusing on attaining things through effortful endeavor involving learning, accomplishment and improvement will deliver sustained satisfaction and enduring acquisition of knowledge and skill.

Developing our relationships again requires effortful endeavor with the added benefit of spending time with people that share needs, desires, humor and passion.

So the TLDR summary → Delayed Gratification + Effortful Growth + Developing Relationship = Happiness