Shades of Gray – Samhain 2021

 

I recently had an online encounter that set me thinking about trust, integrity and someone’s word. I posted a summary of it on Facebook which generated some feedback which revealed how many of us interact in anxious, stressful times. Increasingly we long to see our world as wholly black and white. I find the world more nuanced, more Celtic, full of banshees and black dogs whose cries can be difficult to interpret.

 

My tale begins at Kitten*Con: Tactical back in September. During the weekend, I read a couple articles and watched some related videos on using a series of commercial wargames as models to simulate how some current potential international conflicts might play out. Mainly these exercises, run by the likes of Rand or other strategic think tanks, serve as training for military officers and their civilian counterparts for what to expect and to highlight possible deficiencies in strategy and tactics as well as in equipment, training and/or logistics. They are complex real-world problems with consequences rooted in realpolitik.

 

The main article I ran across, in Forbes from a few years ago, laid out a scenario the US has struggled with since just after the Cold War ended and the Berlin Wall fell. Basically, how would we handle a series of simultaneous regional conflicts. In this case, they involved Russia seizing the Baltic countries (ala Crimea 2014) at the same time China forcibly attempted reunification with Taiwan while unleashing its ally/proxy North Korea upon the south to muddy the waters, to tie down US assets, and/or for its own territorial gains. It’s a nightmare scenario with our current NATO, Korean and Taiwanese alliances and commitments.

 

Foreign policy has long been an area of interest to me. I have often debated over coffee with a defense contractor friend (who was formerly in the Navy) how some of these scenarios might spin out. As I wrote about earlier this year, these problems interest me because I see complex wargames as problems I can solve. Or at least give a good go. They help me understand how the world works and the limitations of US power and influence.

 

The exercise Forbes wrote about used a set of commercial wargames published by GMT called the Next War series. I have long been aware of these games. I own two of the five already, Poland and India/Pakistan. Over the summer and into the fall, intensifying provocations by China against Taiwan got me interested in Next War: Taiwan.

 

That game (published in 2014) was out of print. GMT, as with many of its more popular games, planned to issue a second edition. That required receiving enough pre-orders to justify the cost of a second printing. This is pretty much their risk reduction business model, which many other wargame manufacturers have emulated. Normally, once they got enough pre-orders (incentivized with a significant discount off the retail price), they would send the files to their printer after making any adjustments to the rules and graphics from errata and clarification to the first edition. That process might take a year depending on the rest of their production pipeline.

 

One small problem. Covid-19. As you may have guessed, their printing facilities, like many other companies, are in China. Between the pandemic shutdowns and continuing supply chain disruptions, GMT’s production schedule ground to a halt over the summer. I mean basically a full stop. They, like many other retailers, had crates of games waiting to be loaded onto cargo ships in Chinese ports. And because GMT is not a big game company like, say, Asmodee, they regularly get bumped out of production and shipping schedules around the time of GenCon, the Essen Game Fair, and again at Christmas. Reading GMT’s monthly newsletter, it looked like the totality of circumstances could backlog a second printing of Next War: Taiwan by a year at the very least. Likely more.

 

These problems have a few readymade solutions. First, I looked on Amazon to see if anyone still had a copy laying around a warehouse. No joy. Then I checked my favorite independent reseller out in Oregon, Fine Games for Players and Collectors. No luck there either. I glanced at eBay but the prices there were exorbitant ($400 for a $90 game). Fortunately, there was one more place to look, the marketplace on Board Game Geek.

 

On the Saturday night of Kitten*Con, I scanned BGG and found a copy of Next War: Taiwan for sale. $100 including shipping. Like new. I wanted to think about it for a bit to ensure this wasn’t a cognac-induced impulse buy (which has NEVER happened). I figured I had time. Games on BGG don’t usually disappear that fast. And yet, when I went back the next morning, the listing had already been snatched up.

 

The more articles I read over the weekend, the more videos I watched, the more I thought about it, and the more headlines of Chinese overflights of Taiwan I saw on my newsfeed, the more I was confident I wanted to explore this game. So, post-Kitten*Con, I began checking BGG every week. From the marketplace history, it looked like a copy of the game might crop up every month or two.

 

Low and behold, one did near the end of September. Good price. Punched but in Good condition. Standard shipping. PayPal. 19 positive reviews on the seller, none neutral or negative. Check, check, check. So, I added it to my cart.

 

The process on BGG is pretty straightforward. When you check out, you don’t actually buy the game at that moment. You just put a reserve on it and the listing comes off the marketplace. The seller gets notified you want the game. S/he has three days to respond. Then s/he sends you a notice with the cost of shipping (if not included) and where to send payment. Finally, if all goes well, your game ships within a few days. Easy-peasy.

 

At least that’s the way it’s supposed to work. The first two parts of the process went fine. I got notified through the BGG messaging system that the seller had seen my desire to buy and would get back with shipping and his PayPal account. Which he did within a day. I sent payment right away. The next day, I received an email saying that the game had shipped along with a tracking number. Great.

 

Until I scrolled further down the message. Where the seller mentioned oh-by-the-way that ten counters would be missing because he wanted to keep them. Wait, what? I started a fervent search of all the messages I’d received so far. There was no mention of this in the listing. Nor when the offer was accepted. Nor when he gave where to send the payment. Only after it was shipped with a tracking number which meant the box was already in the USPS system.

 

But in that message, he said he’d send them if I really wanted them. He listed exactly what they were. So off to GMT’s site to do more research. Turns out Next War: Taiwan has a scenario that combines with Next War: Korea using four land-based US counters and six upgraded air counters that had been included with Taiwan. Next War: Korea was still in print and on my wishlist to pick up sometime in the near future.

 

I responded back, yes, I would like those counters. I was not particularly happy about having this sprung on me at the last minute but kept everything professional. I think I said something about the “complete game as sold.” I got back a message that basically said, Oh, ok, I’ll send them. But I am going out of town. For a week. Tomorrow.

 

Uh, really? Ok, now my alarm bells are beginning to sound off. Some polite back and forth later I got increasingly suspect information. The counters are in another box (Korea). That I loaned to a friend. Who is going to Denmark as soon as I get back.

 

By now, those alarms had become a three-alarm fire. What in the actual was this guy up to? Was he holding the counters for ransom? Was he going to ask for additional shipping? Was he really just clueless or was he truly unscrupulous? I couldn’t even begin to comprehend. This very much sounded to me like someone making excuses and running out a clock. So once again to the internets to do some research to figure out where I stood.

 

First, I look up to see exactly what various conditions mean on BGG. Without belaboring it, a game in Good condition is supposed to mean played once or twice, minor wear, and all components present. In fact, missing components makes the BGG condition Unacceptable (two grades lower), which they very clearly state should not be sold on their marketplace. Ok, so far, so good.

 

Turns out that BGG has a dispute process. But because they are only a facilitator, it’s a bit toothless. They will mediate between the buyer and the seller to reach an accommodation. They have the ability to ban as seller (or a buyer) from the site. But they specifically tell buyers not to expect to get their due. So basically, caveat emptor.

 

I know our Visa also has a dispute process of 60 days (a long time to run out a clock). I’ve used that before though not with this particular (new) card. But I’ve read it is complicated by using PayPal because of the way the charges are listed on the card. But Visa, like BGG, takes a dim view of mis-advertised merchandise.

 

So off to PayPal to see what they can do. This one is more interesting. Their clock is 180 days to notify them of a dispute through their Purchase Protection program (which appears to be automatic as long as you list the payment as a purchase, rather than sending money to friends or family). After a dispute is filed, you have another 20 days to make a claim, during which they also attempt to mediate a solution. I know how serious they are from reading about small businesses who have had their funds frozen and sometimes pulled back after that 180 days (which makes their accounts receivable a bit of a nightmare).

 

But I’ve also dealt with PayPal enough to know they can be dicey in communication and in protocol. I currently have a credit card perma-banned from their site for having deleted it once too often from my account (btw, the magic number is 3). Although they say that nowhere in their terms of service. But they steadfastly refuse to reinstate it for “security reasons” even a decade later. Yeah.

 

In the interim, the game box arrived at my door. Which set off a full inventory of counters (over 600) based on images from BGG, because none of what I’d heard from the seller up to then sounded sketchy as hell. Yup, ten counters short. The ten counters listed. It didn’t help that he had misaddressed the package by hand which the post office kindly corrected.

 

More polite but firm back and forth later (including an address correction), I finally get a shipment date for the counters, although the seller is obviously annoyed with me by this point. Dredging up my best professional email skills, I tried to be calm and collected. I didn’t rant or get rude or issue a threat, just asked for a “firm” date so we could both put the transaction to bed. Which he seemed to be take as a personal slight to his integrity. Uh, yeah, ok.

 

That shipment date is three weeks away. Much longer than I want to spend with what should have been a simple purchase in the wind.

 

By now my inner voice was screaming at me. For whatever reason, my anxiety had ramped up to raging at something just short of an existential crisis. I kept waking up, sorting through options and contingency plans, desperately trying to figure out how to resolve this issue without escalating the situation inappropriately (and thus compromising a possible resolution), but without getting taken, and without losing my shit.

 

As I have mentioned in other essays, I sometimes haunt game stores (and since the pandemic online sales) as a reward to alleviate stress. My wife buys yarn. Other friends buy electronic gadgets or motorcycles. I buy games. I draw comfort from them, from proving to myself again and again that I can still learn something complex and new. The controlled conflict of wargaming relaxes me, mostly because I see it as an exploration not a competition, which not everyone understands.

 

Believe it or not, I am generally conflict-averse for a variety of reasons, most of which center on how I grew up. I prefer to settle things amicably. Which often leads people to underestimate me and my resolve, which they take as sign they can bully me. But from a variety of experiences, I also know how to settle disputes through conflict as necessary. I am reasonably good at it. We’ve had a new water heater installed for free, out of warranty, by a national retailer after I (professionally) went to war with them. We’ve received a $3000 refund from of a national AC company for a four-year-old unit they mis-installed after I started a very minor social media campaign against them (without signing their required NDA). I convinced our cable company to run a hundred yards of new line behind the house without charge when we got into a dispute over their signal quality. Though I score that one as a draw as we canceled service when they still couldn’t fix the underlying issue because they were incompetent and didn’t know how to ground their cable.

 

So, I was pretty sure I could handle this dispute if I had to. I just didn’t want to and wouldn’t like to. I try to only use my powers for good. But once the leash is slipped, it’s game on. Hope for the best but prepare to burn the motherfucker down.

 

The problem is that you never know who you are dealing with on the other end of the equation. This guy had my physical address. Was he the type of gamer to SWAT someone as a resolution strategy? Seems extreme but it’s been known to happen for less reason. I had no idea and no desire to find out.

 

And that was just one of many scenarios my mind spun out in the middle of the night. Thankfully, the email address was to a junk account that I don’t use for much other than online purchases (i.e. not traceable back to social media accounts), and easily discarded if necessary.

 

As I mentioned, my anxiety was pretty much running to the redline by then.

 

Like I said in Kintsugi, I’ve been taught that if you feel bad, you’ve done something wrong. Even though my wife reassured me that I hadn’t. But by this point, I felt awful. I wished I’d never poked my head out of my pandemic bunker. Wished I’d never logged onto Board Game Geek. Wished I’d never heard of this game. Somewhere, somehow, I was convinced I’d done something wrong. While I could eat $75 without it breaking the bank, I really didn’t want to, nor did I feel I had to. So, I tried to walk a fine line until I saw how all this played out.

 

And that was before my wife booked an emergency trip to see her mother one final time (for whom hospice had been called in) only to have her pass while my wife was in the air. Which put all of this mostly to sleep while I supported her. Mostly.

 

As the promised shipment date approached, my contact had gone dark as had I. But that didn’t mean all was quiet on this eastern front. My mind was constantly writing and rewriting the messages I anticipated having to send, to the seller, to BGG, to PayPal. Chipping away at individual words, replacing them with others, substituting them back. All without putting pen to paper (or fingers to keyboard), because I was afraid if I actually committed the words to a message that I would want, almost need to use them. So, kind of an iterative Obsessive Composition Disorder. Much like my normal mode of writing only with scarier inner voices who weren’t nearly as entertaining.

 

So yeah, I was a bit of a mess, trying to hold together my composure by self-mediating with superglue and strapping tape with minimal success.

 

Then a day before the deadline, a message arrives. The seller was going to his friend’s that day to pick up the counters. Terse. But fine. Slightly comforting. Later that day, another message. Equally as terse. A USPS tracking number and an estimated delivery date. This time I said I would let him know when the package arrived.

 

Now I felt a little more confident and began to relax. Four days later, the mail arrived. I interrupted the Facetime call I was on to go grab it. I popped open the envelope to find a sheath containing the missing counters. After the call, I verified they are indeed the right counters via the images on BGG.

 

Then I sent an email, letting the seller know they’d arrived and looked good. I also said my wife and I were looking forward to exploring this game, especially given recent events overseas. And I again thanked him for his effort. Even though this was a self-inflicted wound on his part, which I tactfully didn’t mention.

 

I figured that would be the end of it. So, I posted my much shorter summary of the experience on Facebook to vent. Over the next couple hours, I got a lot of advice to ding the seller with a negative review on BGG for a variety of reasons.

 

Which I had decided not to do although I did understand why opinions might vary. The way I saw it, he did (eventually) make it right on the timeline he promised after the back and forth, which didn’t require my shepherding him. Which is all any official dispute process through BGG or PayPal would have done.

 

As well, when I’d dinged a bookseller over a purchase for similar reasons about a decade before on a similar but different marketplace, he causally stated he would just trash my rating as a buyer (which is a real thing, btw). At which I laughed and wished him good luck as I closed out my account.

 

In this case, straightening it out was a hassle and an anxiety-inducing pain. But in the end, no blood, no foul. Not worth more drama, even as a PSA. This had already been more stress than I was looking for in buying a game that was supposed to be a reward. Which is why my future purchases will likely be through Amazon, a manufacturer like GMT, or Fine Games, not independent third-party sellers. Because you never know who you are dealing with or what assumptions they’ll make.

 

I get that all of this was my reaction, and so to a large extent my issue. My mind raced away from me. Although, in its defense, I have known individuals who would settle disputes with noisy Hispanic neighbors by threatening to call immigration (without knowing their status). I’ve known individuals who would threaten the same with child services or the IRS in similar circumstances just to turn someone’s life upside down because they’d pissed them off.

 

As I said, I know my reaction sounds extreme. But so is finding out that one of the Jan. 6 Insurrectionists lives a couple blocks away (and was recently rearrested for DUI boating while he was supposed to be under house confinement). Never mind locals straying toward confrontation and violence over who is or isn’t wearing a mask. It’s all fun and games until real-world news stories slap you in the face. People can be bizarre and vindictive. Witness Gamer-Gate.

 

But for me, this level of anxiety was new and generally not the kind of behavior I expect in a major appliance. Perhaps understandable given the circumstances of the past few years, and yet still disconcerting.

 

That evening, after the post-crisis drinking had begun, I noticed another little red 1 on my email icon again. A final message from the seller, a response to my last email. Reluctantly and with trepidation, I opened it.

 

In the message, the seller spontaneously apologized for his assumption about the counters. I hadn't brought that up in any of our previous communications. I got the sense someone may have pointed out to him how his actions might have been perceived. So maybe he had learned something. At any rate, that apology neutralized much of the sour taste from the encounter.

 

As I said early on, you never know who you are dealing with. Sometimes they surprise you.

 

Even with the sirens sounding in my head, I had resisted escalating the situation until I knew without a doubt that this individual was actually being dishonest, even as I stressed over that possibility and plotted out scenarios of what to do should that get borne out. While I still have trouble comprehending the particular decisions made, he was generally honest (though not up front). A set of unique circumstances and perhaps bad decisions conspired leave a distinct impression with me. One that, thankfully, ended up being wrong.

 

Or so I choose to believe. Because it’s easier and likely healthier than walking away from the encounter with a deeply ingrained sense of cynicism. Experience teaches us. But experience and instinct aren’t always right, especially under stress. Something that I need to remember as I continue to navigate this world with all its grayscale inhabitants, from dark to light.

 

The black dog howls. Sometimes it’s a warning. And sometimes it is just trying to woo the moon.

 

 

© 2021 Edward P. Morgan III

Choices – Samhain 2020

 

Back in June when the first of the Black Lives Matter protests kicked off, a friend of mine reminded me of an incident that happened between high school and college. At the beginning of the year, I hadn’t intended to write about this one. In June, I committed myself to adding it to the queue.

 

As you might remember from “Homelessness”, that summer I was living on my own in an apartment, paying my own way with the suddenly full-time fast food job I had. I’d worked in that restaurant part-time for over two years.

 

My work history started when I was 16. A friend convinced me he could get me a job as a dishwasher at a local steakhouse where he was a busboy. It paid minimum wage. I wasn’t cut out for kitchen work. I lasted three weeks. I can still smell the miasma of wasted food piled in the thirty-gallon trash can set next to my station. I still feel the scalding plates burning my damp, uncalloused hands. I don’t know how another friend held down that same job for several years, but all due respect to anyone who can.

 

I quickly moved on to a local fast food restaurant where many of the students from my high school worked. That job was less strenuous and physically demanding. Somehow, I managed to score a position as a cashier rather than a cook, which was more than unusual. This was the early 80s. Girls worked up front, boys in back. I guess I was nonthreatening to the customers.

 

In general, I wasn’t bad at it. I showed up for my shift on time and worked when there was work to do. I could keep track of orders and could count out proper change. When things got slow, I looked for things to keep me busy, like cleaning windows in the dining room, which no one ever did. I was good enough that I eventually worked the drive-thru, which was reserved for only the best and fastest frontline crew.

 

The biggest drawbacks were that I earned a special “student” wage (below minimum) and that I came home smelling like grease. But otherwise, not the worst job I’ve ever had. In fact, other than unpredictable lunch and dinner rushes, and the occasional batch of buses that rolled through, it was a pretty easy gig, at least nights and weekends.

 

Easy enough in fact that some rainy nights we struggled for things to do even after our shift supervisors had sent home any extraneous crew. One of those nights, one when the owner’s son wasn’t working, after we’d done all the cleaning and pre-closing prep we could, an interesting conversation ensued with a supervisor. I’ll call her K.

 

I have no recollection of how it started. I just remember her saying to a number of us standing around, “Have you ever noticed we don’t have many black people working here? Ever wonder why that is?”

 

Sadly, I really hadn’t. There was one black guy from my neighborhood who usually worked frontline, just like me. Tall, about the same thin build. Non-offensive. But he was the only black person I worked with regularly.

 

One of my coworkers offered, because they don’t really eat here.

 

Which was and wasn’t true. Our cliental was predominately white but our restaurant was situated just across the tracks from the black community where two friends lived. We had black customers, just not as many as that proximity might indicate.

 

Another coworker piped up, because none of them apply?

 

That earned a dark glare from K. Oh they apply all right. I take their applications all the time.

 

Maybe they just aren’t qualified, someone said.

 

K sneered. Like what unique and essential skills do a bunch of high school students like us have? Scooping fries? Counting change? We were all teenagers. I think by this time K was out of high school but only just.

 

So, are you saying the owner is prejudiced, someone asked pointedly?

 

A kind of hush fell as we awaited her response. The owner was a city councilman and community business leader. Ours wasn’t a city where open racism was tolerated. This could be a pretty serious allegation. One that might cost a job.

 

K hesitated. I’m saying he keeps three sets of files for applications. Three very separate files.

 

Come on, I said. Really? Not sure if I believed or disbelieved.

 

In Florida, in the 70s and 80s it was hard not to encounter someone who was prejudiced. But my classmates and I had grown up in integrated schools. Sure, we had bussing and racial tensions, but this seemed like a throwback to a much different time from the 60s, which to a seventeen-year-old was ancient history.

 

At that point, K let the conversation drop. I could tell she was agitated that we hadn’t believed her, that we didn’t immediately see what she had seen. She also seemed cautious that she might have said too much. But later that night, just before we closed, she hauled me and another coworker into the office. Because she opened and closed the restaurant, she had keys. All the keys.

 

Close the door, she said. Which was a trick because this was a tiny office, barely big enough for a classic gunmetal grey office desk with drawers, a file cabinet and a chair. One of us did.

 

She unlocked and pulled open the built-in file drawer in the desk. She fished out three sets of file folders filled with applications and laid them on the desk, one from the front, middle and back of the drawer.

 

She opened the first set. These are the applications of people he would definitely hire. Take a look at them.

 

We did, not sure what we were supposed to see. One of us said that.

 

Look at the addresses, K said.

 

Then it stood out. Most of them from my neighborhood or the one right next to it.

 

She nodded, then opened the second file. Ok, these are people he might hire if he needs to but won’t if any of the people in the first file are still available.

 

We looked at them. Addresses from various neighborhoods all over the city.

 

Finally, she opened the third file. These are the people he will never hire.

 

My coworker looked at the addresses and didn’t recognize any of them.

 

I did, almost every one of them, and said so. As I mentioned in “The 2 O’clock News”, the Public Housing Authority had an unimaginative streak, naming streets and avenues for letters of the alphabet or numbers. Another handful of streets were named for flowers.

 

K asked us pointedly, what does that tell you?

 

I wasn’t sure what it told me. My mind tried to concoct scenarios that would justify what I was seeing, but I didn’t quite believe them. At the same time, I didn’t want to believe K either. I liked working here. I liked the people I worked with, although the owner was intimidating. I didn’t want anything to spoil that. And yet, seeing it right there in ink on paper made an impression.

 

K put the files away and relocked the desk drawer.

 

If you think he’s prejudiced, why do you work here, my coworker asked.

 

Because I need this job, she said.

 

Which confused me even more. Then why point it out, I wondered. K was clearly upset by what she’d noticed and needed to share it. I’m still not sure exactly why.

 

As far as I know, that conversation was never repeated again. I didn’t talk to anyone else about it. I just filed the information away and began looking at work interactions with a new set of eyes. At heart, I am an engineer, an applied scientist. I had suspicions but I wanted proof. So I watched and waited.

 

Fast forward an indeterminate number of months to the end of the summer I described in “Homelessness”. As I said, by then I was living in my own apartment, paying my own bills based on working days full-time, in the kitchen now, at this minimum wage job. Lunch was where the restaurant made its money. That and the recently added breakfast menu after a new fast food chain had bought our previous chain out. Forty hours a week of this work was both mind-numbing and much harder, especially working backline because the frontline supervisor, now the owner’s wife, didn’t cotton to males working her registers. At this point, I didn’t have much choice.

 

Toward the end of the summer my best friend, who lived in public housing, started complaining that his busboy job at the steakhouse I’d worked at before had started to go south. He’d asked to train as a waiter but the manager had refused. I think they’d also tried to restructure the way tips were shared by the wait staff with the busboys (which was supposed to be 10% of their tips but rarely was). Without those tips, the job didn’t make much economic sense as base wages were $2.01/hour. Like me, my friend needed the job, in his case to help support his household and pay for college.

 

One of the few advantages of working at this fast food joint was that a recommendation went a long way. If you were a marginally competent employee, it was trivial to get your friends hired.

 

So, I told him, if you need a job, I can get you a job where I work. We need people right now.

 

Really?

 

Sure, no problem. Just put me on the application as a reference. That’s the way it works.

 

He stopped in the restaurant the next evening and submitted an application to the night manager, who looked it over and took it noncommittally. We’ll let you know.

 

The owner did all his own interviews. Honestly, I don’t remember if he asked me about my recommendation. If he did, I know I reinforced it with as much positive information as I could.

 

Either way, my friend got a call for an interview. This should have been pro forma. The interview I had been through certainly was, as had every other one I’d heard of. It was basically a meet and greet followed by when can you start.

 

Or so I thought.

 

As it turned out, when my friend showed up, I had been just sent on break. Or I might have just finished my shift if I’d opened, as I often did at that point. Either way, I’d grabbed something to eat, so I was sitting out front at a small table about ten feet away from the booth where my friend and the owner talked. Not so close as to be able to hear every word, but close enough to witness what transpired.

 

As I ate, I kept stealing glances at their table. The owner’s back was to the counter so he couldn’t really see me. My friend could but he wasn’t looking. He was focused on the interview. Because I couldn’t hear, I was trying to read his body language to gauge how it was going.

 

At first, things seemed to be going well enough. Questions were asked and answered, the application consulted, more questions. My friend looked calm and poised, ready and capable. I started to relax. It would be really cool to work with him, and maybe have a schedule where we might get to do more together when we had time off.

 

Somewhere in there, my attention must have wandered. The next thing I knew, the owner shot up from his seat, yelling “Don’t tell me how to run my business!” And stormed off into the back. I looked at my friend. He looked just as stunned as I was. Like the few customers in the dining room were. Like all the counter help was. We were all like what the hell was that. None of us had ever witnessed anything like it. I certainly hadn’t in the two years I’d worked there.

 

I went over to the table where my friend was slowly gathering up his things. I asked him what happened?

 

He thought the interview had been going well. Then, the owner had asked him a pretty standard interview question. What do you bring to the business? That was a question I definitely don’t remember being asked, or hearing about anyone who was. But my friend was prepared and had done his homework, so it hadn’t thrown him. He was in the process of answering it when… Boom.

 

I’d seen his defeated expression on too many occasions, somewhere between crestfallen and resignation. At school, at businesses we frequented, by then at bars, where the black guy with the white guy was singled out for a little special attention, hassled for some minor thing. When the Rockledge cops would stop us and ask us what we were doing when we walked in my neighborhood at night. The time someone had rear-ended his car, driving us into the car in front of him, then hit and run. It took a nice white couple who had chased the car and returned with a partial license plate number to convince the officers that we’d been rammed into the car in front of us by the impact that gave us both whiplash and totaled his car. Or the time the deputy had pulled him over and told him in no uncertain terms to get “this piece of shit car off my road” when my friend was on his way to work. Or the time I’d gotten berated by my own father when I had brought a number of friends to his place to visit, at his encouragement, but failed to disclose that one of them was black. Or a year later, when my by then former girlfriend’s father told my friend that if he was coming around alone to see his daughter, he’d have to knock at the back door.

 

Imagine having that ore worse directed at you every day. No matter what you accomplish or who you become. No matter how much you prove yourself. (It is not a contest, Sadly, I know plenty of women and other people who could share similar or more horrific stories based on similar uncontrollable personal characteristics).

 

There was always context and subtext to these encounters, but I knew what was going on with all of them. If nothing else, because I listened to things that were said when my friend wasn’t around.

 

He didn’t have to say another word. I understood what had happened, too. I just hadn’t wanted to quite believe it because I liked this place and a lot of the people in it. But I did.

 

That late-night conversation with K in the office with the three sets of files came flooding back. As did every other troubling behavior I had noted since. The jokes, the looks, the postures and attitudes, and the tolerance of it in others. I’d been exposed to more of it on days than nights and weekends. As I said, you couldn’t grow up in Florida from the mid-60s to the early 80s and not encounter people who were prejudiced, even flat-out racist, no matter how hard they tried to disguise it. In that short time I’d never seen anything quite so crystal clear. I’d seen the teenaged equivalent of derelicts and degenerates hired on no more than an employee’s recommendation, without a twenty questions interview. White teenaged derelicts and degenerates.

 

One word sprang to mind that seemed to capture my boss’s interpretation of the situation. A word I’d heard many times before although never directed at me, because why would it be. But I wonder if it had been directed at K, or at least its implication, based on her assertiveness and her gender, not her race.

 

Uppity.

 

Ok, there’s a second word following that one in this case, but I’ll leave it to your experience or imagination to fill that one in.

 

I saw red. Deep, bloody, raging, aortic red.

 

I told my friend I would catch up with him later. I might have even seen him to the door. When I turned back to the employees’ entrance, I am sure my face was set. I knew what I had to do. I ignored the questioning looks from my coworkers behind the register. I marched straight back to the office when the owner was standing at his desk, annoyed at my interruption as I appeared in his doorway.

 

“Consider this my two-week notice,” was all I said.

 

He nodded perfunctorily like he was expecting it. And yet he was obviously still irritated as he shuffled applications on his desk.

 

I started to turn away without another word. Then he glared up at me, clearly feeling the need to say something.

 

“I’m not racist, you know,” he stated pointedly. An assertion, not a question.

 

No, I didn’t know. And I hadn’t brought it up. I guess I didn’t need to. It struck me then as now as an unintended confession. But I didn’t say anything. I just leveled an unbelieving gaze at him and left.

 

As I said earlier, I needed this job. I had bills to pay. But I didn’t need it bad enough to lay it on someone else’s back. Not like this.

 

I finished out the next two weeks, avoiding the owner where I could. The last morning that I was supposed to go in I just blew off. I was eighteen and didn’t figure I owed him. Petty revenge, but there it was. I still knew people on the night shift who would hand me my final check without question. Which they did.

 

The odd thing was, I didn’t feel good about quitting, I didn’t feel proud of it. I didn’t even feel like it was the right decision. For me, it hadn’t been a decision at all. It’s what I did because it’s what you do. Because it was right. Because there are times in the face of blatant wrongs like that, you have to stand up to be counted. And you sort out the consequences later.

 

It wasn’t a decision; it was a choice.

 

But I can’t say I wasn’t angry for having to do it. Not angry because my friend or the world put that expectation on me, because they clearly hadn’t. Angry at being put in the situation by other people’s unenlightened, benighted bigotry. Angry at a society that continued to allow it to exist. Angry that most people claimed we’d gotten past that and had moved on. Clearly not.

 

That anger stayed with me through my engineering career through the late 90s as I watched minorities and women treated with sometimes equal contempt, though by then more passive-aggressive and better disguised. But present nonetheless, sometimes in official corporate policy. Part of the reason I left engineering when I had the chance was that I couldn’t take the predominantly Neolithic attitudes in defense contracting.

 

But it wasn’t only there. In the 80s and the 90s I had micro-aggressions directed at me personally, both purposefully, mistakenly and inadvertently, at both work and school. In the early-2000s I ran across distinct anti-Semitism from an unexpected quarter, not disguised at all. Thankfully, it wasn’t as virulent as the first time I ran across it, twenty-five years earlier. It was just the first I’d heard it that direct in a long time. Which shouldn’t have surprised me much with the more subtle racism and sexism sometimes overlaid with it. Or in the 20-tweens when I had someone defend and justify using the n-word to me.

 

None of which is meant to say I am flawless. As I said, I grew up in the South, though at the time in a more moderate county (although perhaps not now). I made my mistakes and had to learn from them. There are distinct actions and attitudes that I am not proud of. I am certain I have contributed to other people’s pain. All I can say is that I’ve tried to learn from the experiences. Learn and listen.

 

Everything I’ve written so far might seem like ancient history. In writing these essays, I draw on my own experiences to make them relatable. Those I can speak to the accuracy of where as more contemporary events, I cannot always. But I can use my experiences to weigh them.

 

Let’s fast forward again to June this year when my friend reminded me of this incident. It wasn’t that I’d forgotten about it. I’ve told the story a handful of times before. I just hadn’t intended to write about it this year. What I think spurred me most was that my friend’s own brother hadn’t heard about this incident, though I might hazard a guess he knows about it now. The sad thing that says to me is that this incident might not have cracked my friend’s top ten so might not have been worth sharing, though it was worth his remembering nearly forty years later.

 

And in truth, he and his brother and his mother taught me more about their world than I could ever repay directly. They granted me a glimpse inside their lives, with patience and understanding. One small piece of a larger puzzle. An experience not everyone is fortunate enough to get. All I can do is pay the insight forward. Or try.

 

Here’s the thing. When people are as hurt and angry, as wounded as they’ve been during the recent demonstrations and protests, if you choose to refuse to consider their grievances, if you choose not to listen to why, if you choose to let their emotion overwhelm your empathy, you do so at your peril. That anger isn’t going to go away, not until the situation changes. And the situation absolutely must change. It’s what equality, equity and equanimity demand.

 

Now you can choose to believe things have changed since, say, the 60s or 70s, which some of you may not remember. Even since the 80s when this incident took place. They have, but likely not to the degree you would like to think. Don’t pat yourself on the back and say the work is done. It isn’t. Don’t rest on your laurels unless you never intend to open your eyes again.

 

Especially in the past four years as naked racism, misogyny, antisemitism, homo- and xenophobia built upon a well laid and layered anti-diversity, anti-immigrant foundation has come back into vogue. In truth, that culture of hate never went away. It was just barely suppressed enough to where our society might show some modicum of disgrace when it reared its ugly head in public. We as a nation, as a united people, have chosen to no longer feel that sense of shame.

 

When a sitting President dog-whistles to white supremacists very publicly, not once but twice and then denies knowing who they are, when he calls out the regular military to clear protesters from a public park for a photo-op, when he and his Administration promote and support a vigilante who murdered protesters, when armed militias who are his direct supporters twice shut down a state legislature that was in session after his “Liberate” message, when the President threatens to have the leaders of the opposition party indicted, when he will not commit to a peaceful transition of power, when his allies and party leaders largely remain silent out of political expediency, we take one step closer to another Tulsa, another Rosewood, another Dozier School for Boys.

 

Preventing that comes down to the choices we each make in this life. Or in three days, the choices we will make. If not for yourself or your family and friends of color then for your wives and daughters, your children and grandchildren, for anyone else you know in situations of unequal, institutional power. Make your choice as if their lives depend on it. Because sadly, they just might.

 

 

© 2020 Edward P. Morgan III

Seeds of Change - Investments

Ok, you’ve slogged your way through the preliminaries and the warm-up bands. Now it’s time for the headline act. This is the one I suspect you’ve all been waiting for. I hope you have your cross-trainers on, or a comfortable pair of hiking boots, because we’ve got a lot of ground to cover.

But first, it’s story time again.

Let’s set the Wayback Machine for just a decade ago. It’s the darkest days of the Great Recession. The market has fallen off a cliff. Money markets almost broke the buck, which most people didn’t know. No one knew if the banks would completely unwind as they had nearly 80 years before. Many were content to let it happen with no idea what that would mean. Fear was the dominant animal spirit prowling the trading pits, preying on the weak and leaving their blood pooled upon the exchange floor as a warning to others.

I remember the day in 2008 when the Dow Industrial Average dropped 777 points. I turned to Karen at dinner and said, now’s the time to get out, wait for the bottom, jump back in and make some money. Because no one knew where it was going or how long it would last, she preferred to ride it out like most experts always advise (generally good advice). We make joint decisions, so we sat. And we knew we’d still be buying in through her 401k all the way down so wouldn’t completely miss the opportunity.

But as the carnage continued, I started getting edgy.

I’d been investing since we first got married. As I mentioned in a previous essay, for a long time we’ve contributed to various retirement accounts, both 401ks and IRAs. But we also had a side account that I alone managed where we’d dumped some of my excess money from when I was still an engineer. It, like everything else, had hemorrhaged roughly half its value.

As I listened to the debate on Too-Big-to-Fail raging through the halls of power, I spotted a potential opportunity. I marked the three Big Banks on a watch list. I identified stocks we owned that I could sell, ones I didn’t think would bounce back quickly, mainly consumer companies.

Then came the day CitiBank fell below $1 a share while the normally fiscally responsible party seemed content to let it (and the economy) fail just to damage their political rivals. It felt like the world was ending. Everything was unravelling.

But I suspected there was money to be made.

So, I pulled the trigger. I cashed out some investments in that side account and dumped it all into Citi, placing a heavy bet that sanity would return.  It took a long, sleepless, panic-fueled month, but reason finally prevailed. Fairly quickly, my little side bet jumped to three times what I’d bought it for.

I cashed out, knowing it wouldn’t last, but I didn’t stop there. I’d already identified a couple Dow stocks with price-to-earnings ratios (P/Es) down around 8 (the historic average for the S&P is around 13). So, I immediately dumped the proceeds into them. A year later, those investments were up another 30%. In a year my initial investment was now worth four times what I’d started with. Pretty neat.

I continued making changes as I spotted opportunities, desperately trying to make up our loss. Our potential reversal from 2007 was still fresh in my mind, as it would be until we were five years out.

So where did all that get us?

Well, from the depth of the Great Recession to a year or so ago, the S&P 500 was roughly 3.5 times higher than its market bottom. Karen’s 401k paralleled that (so not a bad choice on her part to hang tight). Our IRAs were slightly less because we’ve been slightly more defensive with them.

And my side account? It was worth 7 times what it was when I placed that little bet. So if you were wondering whether I’m qualified to write about this, I’ll let that serve as my resume.

But once again, I’ll invoke my mantra. I am NOT a trained professional, so DO NOT attempt this at home.

What I am is an empiricist, and likely an extremely lucky one.

Our accounts divide into three unequal pots, each managed by a different guiding principle. Pot 1 is Karen’s 401k equivalent. That gets managed by a philosophy of indexing and compound interest. Pot 2 is our IRAs (including my 401k rollover). That gets managed by our financial guy who is a trained professional. Pot 3 is my side account, stocks and mutual funds. I’m its financial guardian.

Each year, I evaluate which philosophy has performed better. And I’ll probably be content to gather data for a long time to come. To me, it’s just amusing to see how it plays out. Yes, I have a strange sense of humor.

Let’s start with Pot 2 because I think it is the least instructive.

We are on our third financial guy. The first came highly recommended, a reputation that seemed to be borne out until he lost his assistant and a number of mistakes and oversights began to appear. So, we transferred our accounts to financial guy number 2, who was also recommended and closer to home. We could have sit-down conversations with him instead of just talking over the phone. As he prepared to retire, he transitioned us to financial guy number 3. We’ve had him for over a decade. We sit-down with him once or twice a year.

Financial guys are good and bad. Good in that they know more about the markets and various investment schema than I ever will. Bad in that sometimes they push things I don’t fully understand. My general rule is that if I don’t understand it, I don’t invest in it no matter how much money there is to be made. That comes from experience. While we’ve never gotten involved in anything particularly sketchy or Madoff level too-good-to-be-true, we have occasionally had some extra icing layered on our cake. Those empty calories haven’t always worked out, though fortunately those pieces were small. So now I take a firmer hand and do more self-direction. But our current financial guy likes a balanced approach so I always listen to his advice. He’s still in the race.

Now Pot 1 is pretty boring. In investments, that’s a good thing.

Remember way back in the first essay when I talked about average S&P returns? Of course, you do because I haven’t stopped harping on them since.

In a couple previous essays, I touched on the power of compound interest but haven’t formally called it out. Compound interest is my bestest friend. It’s my soulmate. It’s the kumquat Haagen-Dazs to my Kareem Abdul-Jabbar.

I’ve pointed out that the power of compound interest has been the workhorse of our financial plan and execution, making time and money work for us. You have seen how this has paid off in the way we paid our mortgage down. And again, when I mentioned how much money a small annual tax credit could add up to over time. It really is the key to the F.I.R.E movement.

Here’s a little rule of thumb to help you remember how it works. I learned it as the Rule of 7/10, (aka the Rule of 72).

Basically, if you take an initial chunk of money, say $1000, and invest it at 10% (the average S&P 500 returns) it will double every 7 years. You can work this out on a calculator. Enter 1000, multiply it by 1.1 seven times. What do you get? You should get 1948.72 (or just under $2k). Now clear that, enter 1000 and multiply it by 1.07 ten times. You should get 1967.15 (or again, just under $2k).

So, it works both ways. If I want to double our money, I should invest it at a 10% interest rate for seven years, or at a 7% interest rate for ten years. It really is that simple.

Ok, but it’s not. Because I’ve been lying to you all along. That 10% return rate on the S&P 500? Yeah, as I’ve alluded to before, it’s not really 10%. It is on paper (so be careful with that axe, Eugene). But capturing those paper gains is somewhat of a chimera.

Why?

First, because even most S&P 500 index funds have management fees (or sales charges and commissions, or a few other hidden gems). Finding one with a 1% overhead is pretty good (you can find better in exchange traded funds, ETF, but 1% in mutual funds is the standard). So now our 10% (really 9.8%) is down to 9%.

Next up is the big bear: Inflation. For those who don’t know, inflation means your money won’t be worth as much in the future as it is right now for a variety of reasons that I won’t get into. But remember when you were a kid and candy bars cost $0.25 in a convenience store? Well, I do. And they were huge. Now they cost, what, $1.25? Ok, I don’t know how much they cost but a lot more at any rate. The same candy bar or smaller, likely made from the same or cheaper ingredients on the same machinery. That’s inflation.

Over the past hundred years in the US, inflation has run at roughly 3% a year (3.22% from 1913-2014). 3% doesn’t seem like all that much until you multiply it out like we did above and come up with something like 20 times what you started at (3.22% nets you 22.75 times over that 100 years). Which means that’s how much more money you would have needed to start with 100 years ago to have the same theoretical buying power now. It does get more complicated than that, but it’s a good working number.

Inflation is a beast.

Thankfully, for the past decade inflation in the US has only run at 2%. Though interest rates have also been at historic lows, too, which is good or bad depending on whether you are borrowing or saving. But I also remember when inflation hit double digits in the 80s (14.5%), when interest rates were also double digit (11%). I always work with the average for planning purposes and hope for the best.

What does that mean? Well, it means I have to slice off another 3% from our theoretical returns just to keep afloat with the same spending power, leaving me now with 6% returns. Just under the easy rule of 7/10, and more like 12 years to effectively double which is almost, but not quite, double the 7 years we started at.

And that’s before paying any capital gains (taxes) which we may or may not owe depending on our income and situation at the time we cash them out.

Now you begin to see where all those little matching funds and tax advantages come into play. Daddy’s little helper. That and a lot of cognac.

And yet, there is still almost no better game in town than an S&P 500 index. In Pot 1, we have access to other index funds (a small-cap index, a corporate bond index, an international index and a safe government bond index), all of which have extremely low management fees. As well, there are lifecycle funds that balance all those different indexes based on how far we are from retirement.

As a very quick rule of thumb and aside, it used to be that financial experts recommended you have your decade of age stashed in bonds or other safe investments. In your fifties, that would be 50% of your funds in bonds. I’ve seen a number of variations on this rule, more and less aggressive depending on your timeline, assets and risk tolerance, as well as different mixes that include real estate, international and value funds. More recently, I’ve seen an interesting scheme where keeping a 60/40 split between stocks and bonds and rebalancing annually might be the best to keep afloat and limit any downside carnage. I have to look into that more.

In essence, the closer you are to retirement, the more conservative you want to be. As we’ll get to in a moment.

We generally buy a mix of S&P, Small-Cap and International every paycheck (in that weighted order), though sometimes we park a significant percentage in the safe bond fund to preserve what we have. The buy strategy provides us cost averaging, meaning when the market dips, we get funds cheaper, and when it’s high, they are move expensive, which tends to average out throughout the year without us having to think about it. We tend to want to control how much or how little is at risk at any given moment through how much we park in the safe bond fund, though many people we know use the lifecycle funds to do that so they don’t have to think about it (which I recommend). Different criteria.

On to Pot 3. Daddy’s playground.

You got a taste of what I tend to do above. I am not above taking calculated risk. That’s because the purpose of this pot is a little different than the other two. But more on that in a minute. 

In general, I am a value shopper. I look for opportunities based on stocks (or assets) that are beaten down. I am not really good at spotting trends like an online friend who I sometimes trade ideas with. She has her finger on the pulse of society and is in tune with where it’s going in a way that I’m just not good at.

What I am better at is spotting opportunity. In general, I follow Warren Buffett’s advice: When others are fearful, be greedy; when they are greedy, be fearful. I’ll give you a few quick examples. Often, they involve stocks that are getting beaten down in the news cycle or ones that have fallen out of favor.

The first example goes back to the nadir of the Great Recession. I started thinking through what the long-term consequences might be. One was that consumers would likely become more frugal. Which meant they were more likely to buy and sell secondhand. I figured eBay might be a good pickup. I already owned some eBay, so I knew a little about their business. They had three prongs. First, the auction site. Second, an app called Skype which was supposed to support the auction site, but they could never make work. And third, a little payment outfit called PayPal, which drove more profit than the auction site and they eventually spun off. I knew that last one folded into the long-term trend of internet economy. eBay was beaten down at the time like most consumer stocks. While eBay has only doubled in value since the Great Recession, the PayPal spinoff is now worth eleven times what it started at from the spinoff. A tidy profit.

A better example might be from just over two years ago. After the 2016 election, all the FAANG stocks started taking a beating (Facebook, Apple, Amazon, Netflix, Google/Alphabet). Most of their CEOs had made an enemy in the President-elect intentionally or not. Their stocks plummeted. I believed they were oversold because the incoming administration had very little influence over their businesses, so near the bottom, I picked them up. In the intervening two years, they are up an average of over 70%. That beat the market average significantly, even after the carnage late last year.

Now just like I’m a value shopper, I also pretty much stick to a buy and hold philosophy. Which means I don’t turn over stocks frequently. I prefer to hold them and let them grow. Sometimes this works out, sometimes not. With a little company called Skyworks (which bought up a company called Alpha Industries which I’d bought in 2001), this has definitely worked out (to the tune of nearly twenty times return on investment). Not getting out of GE at its peak (not knowing they were lying in their accounting), cost me though I still walked away with profit. Not so with Carbo Ceramics which followed oil prices through their spontaneous boom and surprise collapse, though I didn’t lose much either.

In general, I’ve been fortunate in that technology stocks have led the way for the bulk of my investment career. Technology is something I understand, so it’s easier for me to see its implications. One of the reasons I picked up GE (aside from its low P/E, which is often but not always a good marker of value) was that it had captured a great deal of the market on wind turbines, like 70%. Even in 2009, I could see a future in alternative energy. I’ve considered Tesla if only for its battery tech, but Elon Musk is bat-shit crazy.

You get the picture. Basically, in this account I played to my strengths and background, and got lucky that it paid off over time. Though the initial learning curve to get there was at times pretty steep (which is why I don’t recommend it).

Ok, three pots of money. Each of them with a different philosophy and a different purpose.

The purpose of Pot 1 (Karen’s 401k) is to provide long-term income through our retirement. The purpose of Pot 2 (IRAs) is to bridge us from initial retirement to claiming Social Security. And Pot 3 (stocks and mutual) is a combination of bridge money, emergency money (ala 2007) and fun money in retirement. Because Pot 2 is the slow runner of the group with the highest fees, it will get tapped first.

Somewhere in here, we may have lost sight of the plot. The goal has always been financial independence and early retirement. But what does that even mean?

It means having enough money to do what we want when we want to. How much is that? Well it’s different for every person. You can find all manner of advice on that online.

But here’s where all the tedious accounting you’ve slogged through in the past bunch of essays begins to come together. Because we have a budget, we know exactly what how much money we are living on right now, not just a snapshot, a long-term, running average. Because we live debt-free, that average is well below our means, which has fueled the three accounts above. Because we have a disciplined mindset and live simply, we don’t need as much as others and can likely enjoy our current standard of living indefinitely. Because we’ve planned, we are hedged against uncertainty with both insurance and emergency funds. And should a deeper uncertainty arise, we can find other discounts and reductions if we have to. As well, we have an emergency maintenance fund for the house, and the house itself as a double-emergency fund should we need it.

But hopefully we won’t.

Because we’ve gone through the budgeting process once again, only this time looking forward rather than back.

We know from our Social Security statements what our benefits will be at various ages we might claim them. In general, we intend to defer claiming our benefits until the latest possible date because the government gives us an 8% bonus for each of three years past our full retirement date that we do so. Always take the free stuff.

We are also both very lucky in that our jobs had pensions. Karen’s is better than mine. We know what those benefits are and when they come online. We also will have access to her health insurance at the same premiums she would pay as an employee.

Now once we add all that up, then subtract off our expenses (which I’ve expanded to cover things like taxes and insurance premiums which aren’t accounted for automatically in retirement), I find we are completely covered. In fact, we’ll likely get a raise. And maybe a travel fund if we have anything left over.

Which only leaves getting from here to there now that Karen has retired early. Here is where the above accounts come into play.

Remember back in the first essay, I mentioned additional healthcare costs in retirement? That’s what Pot 1 is mostly dedicated to. It could be a little, it could be a lot. There’s no way to know exactly how or when the dice will fall.

Pot 2 (IRAs), as I said above, is bridge money. Unfortunately, that bridge money can’t be touched (without a lot of hassle or penalty) until the owner is 59.5. That’s still a few years away.

Which is where Pot 3 (stocks and mutual funds) comes into play. I can withdraw from that freely as long as I’m willing to pay the capital gains (taxes) which really isn’t much right now for people like us because, as I’ve said, we don’t make a lot of money.  Fair or unfair, it’s the way the cards lay out.

None of which answers how much we really need. So, it’s time for another rule. The 4% Rule (aka The Bergen Rule). That basically says you can withdraw 4% from a pot of money each year (adjusted for inflation) and have a great chance that your money will outlive you. So basically, in an average year, we need a 7% return to make it work. Tough but doable.

Given that again, we know our expenses (with or without any supplemental income depending on the scenario), all we need is roughly 25 times whatever that income gap is each year (1/.04). Which Pot 2 and Pot 3 cover from now until various other guaranteed income comes online (like Social Security). In fairness, there’s a bit of a spreadsheet that goes with all this, but you get the drift.

But all of this comes with a really big, huge, caveat. Order of Returns.

You can tell by the caps this one is important.

Ok, in an average year you know by now the S&P returns 10%. But you also know there is no such thing as an average year. The thing is, the timing of those down years can be really important.

I don’t have numbers handy, but let’s play a little thought experiment. Let’s say I add up my Soc. Sec. and my pension (lucky me) and then deduct my expenses and find I have a $10k annual gap. Ok, no problem. By the 4% Rule, I know I need to have $250k prepared to earn 7% a year (likely in some combination of stocks and bonds). But I’ve planned and saved and overengineered so, lucky me again, I have $300k eager to go to work. And I retire…

…in July 2008. Right on the cusp of the Great Recession.

By July 2009, my $300k suffered a drive-by, though not quite as bad as the S&P because I diversified. Which means I only lost a little less than a third rather than over half. Which means at the end of my first year of retirement, I now only have $200k. Which is less than the $250k I need to generate the income to fill the annual gap. In fact, it leaves me with a $2k/year shortfall if I withdraw at safe returns. I either need to cut my expenses, find a new source of income, or take greater risks with my investments.

And if I’d started with less and lost more? Potential nightmare scenario.

In an alternate scenario where the year before I’m going to retire, the Great Recession hits, I could likely delay retirement, save a little more and let my investments recover before I pull the trigger.

In another alternate scenario, let’s say for the first nine years of my retirement, my investment beat the returns they need by 4%, then give back that 40% (so an average wash). By the time the crisis hit, I would have $427k in my account (compound interest) which then gets chopped to $256k after the carnage. Hey, as long as I had let that extra money sit, I’m still afloat, with a tiny amount of room to spare.

Long story short, when the professionals have run through both theoretical and real-world scenarios, they find that once a retiree falls below that line of what they need in annual income, they don’t tend to recover. Which means many outlive their money instead of their money outliving them.

Order of returns matters.

To mitigate that, experts recommend that you maintain 2-3 years of reserves in cash (or very liquid assets with guaranteed resale value, i.e. savings bonds not 10-year Treasury bonds) to cover your expenses. In our case, that would be the gap between Karen’s pension (and supplemental) and our expenses. That theoretical $10k in the example above. On average, when a bear market (a 20%+ decline) lasts 18 months to 2 year before it recovers to its previous levels. Three years gives you a cushion. Which might be a little less if you reinvest any dividends (which would be bought at a reduced price). What all that means in practice is that you don’t have to sell assets at a loss in a crisis; you just spend your cash and replenish it when the market recovers. You ride it out. Time and patience solves most problems. This emergency cash fund negates Order of Returns in all but the worst-case scenario.

Which for me might have been if I’d stepped away from engineering in 2008 rather than 1998. Yeah, 2000, 2001, 2009, those years kept me up at night. Thankfully, we came out the other side at least in as good shape as we entered. But we remain vigilant.

Now that the seeds are planted, we can only wait to see what grows. But the trick to financial independence, whether to pursue a dream or with the goal of retiring early, is that you and only you are responsible for tending the garden. So be sure to choose the instruments with which you tend its rows wisely.

© 2019 Edward P. Morgan III