The Scipionic Circle 82: The Complexities of Wealth and Contentment, Limitations of Predicting the Future, and The Invisibility of Wealth
The Scipionic Circle 82: The Complexities of Wealth and Contentment, Limitations of Predicting the Future, and The Invisibility of Wealth
The highest form of wealth is the ability to wake up every morning and say, 'I can do whatever I want today.'
Hello, friend.
Welcome to another issue of The Scipionic Circle — I hope you find something of value.
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Food for Thought
I. Recognizing ‘Enough’: The Psychological Complexities of Wealth and Contentment
"The highest form of wealth is the ability to wake up every morning and say, 'I can do whatever I want today.'
"People want to become wealthier to make them happier. Happiness is a complicated subject because everyone’s different. But if there’s a common denominator in happiness—a universal fuel of joy—it’s that people want to control their lives.
"The ability to do what you want, when you want, with who you want, for as long as you want, is priceless. It is the highest dividend money pays.
"Angus Campbell was a psychologist at the University of Michigan. Born in 1910, his research took place during an age when psychology was overwhelmingly focused on disorders that brought people down—things like depression, anxiety, schizophrenia.
"Campbell wanted to know what made people happy. His 1981 book, The Sense of Wellbeing in America, starts by pointing out that people are generally happier than many psychologists assumed. But some were clearly doing better than others. And you couldn’t necessarily group them by income, or geography, or education, because so many in each of those categories end up chronically unhappy.
"The most powerful common denominator of happiness was simple. Campbell summed it up: Having a strong sense of controlling one’s life is a more dependable predictor of positive feelings of wellbeing than any of the objective conditions of life we have considered. More than your salary. More than the size of your house. More than the prestige of your job. Control over doing what you want, when you want to, with the people you want to, is the broadest lifestyle variable that makes people happy.
"Money’s greatest intrinsic value—and this can’t be overstated—is its ability to give you control over your time. To obtain, bit by bit, a level of independence and autonomy that comes from unspent assets that give you greater control over what you can do and when you can do it.
"A small amount of wealth means the ability to take a few days off work when you’re sick without breaking the bank. Gaining that ability is huge if you don’t have it.
"A bit more means waiting for a good job to come around after you get laid off, rather than having to take the first one you find. That can be life changing.
"Six months’ emergency expenses means not being terrified of your boss, because you know you won’t be ruined if you have to take some time off to find a new job.
"More still means the ability to take a job with lower pay but flexible hours. Maybe one with a shorter commute. Or being able to deal with a medical emergency without the added burden of worrying about how you’ll pay for it.
"Then there’s retiring when you want to, instead of when you need to.
"Using your money to buy time and options has a lifestyle benefit few luxury goods can compete with.
"There is a name for this feeling. Psychologists call it reactance. Jonah Berger, a marketing professor at the University of Pennsylvania, summed it up well: People like to feel like they’re in control—in the drivers’ seat. When we try to get them to do something, they feel disempowered. Rather than feeling like they made the choice, they feel like we made it for them. So they say no or do something else, even when they might have originally been happy to go along.
"When you accept how true that statement is, you realize that aligning money towards a life that lets you do what you want, when you want, with who you want, where you want, for as long as you want, has incredible return." — From The Psychology of Money: Timeless Lessons on Wealth, Greed, and Happiness by Morgan Housel.
II. Understanding Unprecedented Events and the Limitations of Predicting the Future
"The problem is that we often use events like the Great Depression and World War II to guide our views of things like worst-case scenarios when thinking about future investment returns. But those record-setting events had no precedent when they occurred. So the forecaster who assumes the worst (and best) events of the past will match the worst (and best) events of the future is not following history; they’re accidentally assuming that the history of unprecedented events doesn’t apply to the future.
"Nassim Taleb writes in his book Fooled By Randomness:
"'In Pharaonic Egypt … scribes tracked the high-water mark of the Nile and used it as an estimate for a future worst-case scenario. The same can be seen in the Fukushima nuclear reactor, which experienced a catastrophic failure in 2011 when a tsunami struck. It had been built to withstand the worst past historical earthquake, with the builders not imagining much worse—and not thinking that the worst past event had to be a surprise, as it had no precedent.'"
"This is not a failure of analysis. It’s a failure of imagination. Realizing the future might not look anything like the past is a special kind of skill that is not generally looked highly upon by the financial forecasting community.
"At a 2017 dinner I attended in New York, Daniel Kahneman was asked how investors should respond when our forecasts are wrong. He said:
"'Whenever we are surprised by something, even if we admit that we made a mistake, we say, ‘Oh I’ll never make that mistake again.’ But, in fact, what you should learn when you make a mistake because you did not anticipate something is that the world is difficult to anticipate. That’s the correct lesson to learn from surprises: that the world is surprising.'"
"The correct lesson to learn from surprises is that the world is surprising. Not that we should use past surprises as a guide to future boundaries; that we should use past surprises as an admission that we have no idea what might happen next.
"The most important economic events of the future—things that will move the needle the most—are things that history gives us little to no guide about. They will be unprecedented events. Their unprecedented nature means we won’t be prepared for them, which is part of what makes them so impactful. This is true for both scary events like recessions and wars, and great events like innovation." — From The Psychology of Money: Timeless Lessons on Wealth, Greed, and Happiness by Morgan Housel.
III. The Invisible Nature of True Wealth
"Money has many ironies. Here’s an important one: Wealth is what you don’t see.
"My time as a valet was in the mid-2000s in Los Angeles, when material appearance took precedence over everything but oxygen.
"If you see a Ferrari driving around, you might intuitively assume the owner of the car is rich—even if you’re not paying much attention to them. But as I got to know some of these people I realized that wasn’t always the case. Many were mediocre successes who spent a huge percentage of their paycheck on a car.
"I remember a fellow we’ll call Roger. He was about my age. I had no idea what Roger did. But he drove a Porsche, which was enough for people to draw assumptions.
"Then one day Roger arrived in an old Honda. Same the next week, and the next.
“'What happened to your Porsche?' I asked. It was repossessed after defaulting on his car loan, he said. There was not a morsel of shame. He responded like he was telling the next play in the game. Every assumption you might have had about him was wrong. Los Angeles is full of Rogers.
"Someone driving a $100,000 car might be wealthy. But the only data point you have about their wealth is that they have $100,000 less than they did before they bought the car (or $100,000 more in debt). That’s all you know about them.
"We tend to judge wealth by what we see, because that’s the information we have in front of us. We can’t see people’s bank accounts or brokerage statements. So we rely on outward appearances to gauge financial success. Cars. Homes. Instagram photos.
"Modern capitalism makes helping people fake it until they make it a cherished industry.
"But the truth is that wealth is what you don’t see.
"Wealth is the nice cars not purchased. The diamonds not bought. The watches not worn, the clothes forgone and the first-class upgrade declined. Wealth is financial assets that haven’t yet been converted into the stuff you see.
"That’s not how we think about wealth, because you can’t contextualize what you can’t see.
"Singer Rihanna nearly went bankrupt after overspending and sued her financial advisor. The advisor responded: 'Was it really necessary to tell her that if you spend money on things, you will end up with the things and not the money?' You can laugh, and please do. But the answer is, yes, people do need to be told that. When most people say they want to be a millionaire, what they might actually mean is 'I’d like to spend a million dollars.' And that is literally the opposite of being a millionaire.
"Investor Bill Mann once wrote: ‘There is no faster way to feel rich than to spend lots of money on really nice things. But the way to be rich is to spend money you have, and to not spend money you don’t have. It’s really that simple.’
"It is excellent advice, but it may not go far enough. The only way to be wealthy is to not spend the money that you do have. It’s not just the only way to accumulate wealth; it’s the very definition of wealth.
"We should be careful to define the difference between wealthy and rich. It is more than semantics. Not knowing the difference is a source of countless poor money decisions.
"Rich is a current income. Someone driving a $100,000 car is almost certainly rich, because even if they purchased the car with debt you need a certain level of income to afford the monthly payment. Same with those who live in big homes. It’s not hard to spot rich people. They often go out of their way to make themselves known.
"But wealth is hidden. It’s income not spent. Wealth is an option not yet taken to buy something later. Its value lies in offering you options, flexibility, and growth to one day purchase more stuff than you could right now." — From The Psychology of Money: Timeless Lessons on Wealth, Greed, and Happiness by Morgan Housel.
Quotes to Ponder
I. Napoleon on steadfast brilliance:
“A genius is the man who can do the average thing when everyone else around him is losing his mind.”
II. Hermann Hesse on personal Integrity:
"It is not for me to judge another man's life. I must judge, I must choose, I must spurn, purely for myself. For myself, alone."
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Thank you for reading,
Matthew Vere