2 O’clock News - Spring Equinox 2020

When I was growing up, friends and I occasionally played D&D in a sporadic free-fire zone. Not out of any sense of desire or excitement. Rather because that’s where our best, most imaginative DM happened to live.

My friend lived in public housing. I’m sure a few of you are now nodding your heads as if that explains everything and is all you needed to hear. This was in Cocoa, Florida, not Cabrini-Green outside Chicago. But that didn’t mean there weren’t issues most of the players in our gaming group had never dealt with before, or likely since.

First and foremost was the 2 o’clock news.

Being in high school, we tended to keep late hours. Many of us worked part-time in restaurants, so our weekend free-time rarely overlapped. When it did, we would sometimes game late on a Friday night. Often, we would game at my friend’s place because his was the most warm and inviting, and tolerant of our odd, extended hours.

His family’s unit was on the end of the row which meant it faced two streets, with a common green space behind it between their row of apartments and the next row over. All the streets in this section of the neighborhood were named with either a number or a letter, which even then struck me as either unimaginative or contemptuous. When I’d first met my friend, he’d lived in a slightly larger unit in a slightly better section where the street was named after a flower. His family had been forced to move when his sister had moved out. The family was apprehensive about the new area as it had a worse reputation than where they had been. To my middle-class ears, that trepidation spoke volumes.

Still, theirs was a place I could drop by unannounced at midnight, as long as I followed two simple rules. First, rap softly on the back door to see if my friend or his brother was still up. Second, step back and to the right, into the light his mother’s bedroom window looked out onto and wait until I saw the curtain move. That meant she’d identified who I was. I’d been told in no uncertain terms there was a loaded .45 on the other side of that curtain so not to mess around. His mother had a well-earned reputation in the neighborhood that meant she could guarantee that no one would mess with the random white boys who darkened her door at all hours. Her precautions stemmed from how she’d earned that reputation. But that’s a story I may have already told.

One particular Friday night, the stars had aligned. All of our merry band of adventurers had piled into my friend’s tiny living room. It was just large enough for a couch and a coffee table with a couple chairs dragged in from the kitchen. Most of us were content to sit on the floor. Behind the couch was a head-height window that looked out onto the street facing the front door.

This Friday night was unusual. For whatever reason, we’d gotten started early, something like seven or eight o’clock. Which meant my high school girlfriend was with us. She had just recently joined our group and was only an intermittent attendee. While the rest of us had been hanging out here for years, public housing was a completely new experience for her.

Once we started playing, our exact location didn’t matter. It wasn’t quite the large dining room table most of us had started around but we held our character sheets in our laps or rested them on notebooks. We rolled dice on the coffee table or the floor. Little did some of us know that this was good practice for when we moved into college dorms a year later. By those standards, this location was palatial.

I don’t remember the adventure we were on, or even who was running it. I’m pretty sure it wasn’t me. All I remember is that we’d all gotten into character and were enjoying each other’s company. We knew we didn’t have much time as my girlfriend had to be home by midnight. Our surroundings faded pretty quickly as the fantasy world sprang up in our minds.

Sometime around 11:30, in the middle of what we knew was likely our last encounter of the evening, we heard first one sharp bang outside followed by a couple more. Pop. Pop-pop.

I was sitting on one end of the couch, another friend on the other, my girlfriend between us. Without even looking up from our character sheets, both he and I slid to the floor to get our heads below window level like synchronized swimmers diving underwater. Nothing new, nothing that needed comment. Almost no one else reacted except for a quick instinctive glance to check that we all had cinder block between us and the street. We knew the routine.

My girlfriend didn’t. She immediately turned and popped her face into the window, peering in the darkness outside intently, scanning the street for what had just happened.

“Were those gunshots?” she asked.

My friend at the other end of the couch and I again reacted simultaneously. We turned in tandem and each grabbed a different shoulder, physically hauling her below the window.

“Yes, those were gunshots,” we confirmed in stereo. That it wasn’t really a good time for prairie-dogging went unsaid.

The friend whose living room we were in casually added, “I guess the two o’clock news started early.”

The rest of us just nodded sagely and turned back to our characters. We knew we’d just been granted a little bonus time. Then we noticed that my girlfriend’s face had gone somewhat ashen.

“Uh,” she said uncertainly, beginning to pack up her character sheet and dice, “I think I’d better go.”

We all just smiled and shook our heads, not realizing that she hadn’t been through this drill before. Like walking into Mordor: one doesn’t simply wander outside in the middle of the 2 o’clock news.

Like many people, we all worked the kind of jobs that got paid on Fridays. As did the people in my friend’s neighborhood, many from regular, low-wage jobs, some from public assistance. Like any working-class neighborhood entering a weekend, that meant people had a little jingle in their pocket to unwind from the stresses of the week with a little alcohol or other mind-altering vice of their choice.

But unlike our middle-class neighborhoods where most people preferred to get their party on behind closed doors, this neighborhood was more social. People liked to hang out on stoops and in driveways, catching up on the week’s events. Picture a southern version of Irish Boston, or Italian New York, or any other somewhat closed community of your choice.

And like people everywhere, once tongues were well lubricated, people began to gossip. As their filters wore off and their self-censoring inhibitions disappeared, rumor and inuendo began to fly. Like the worst kind of high school whispers behind the bleachers or in the bathrooms most of us are familiar with.

My friend said you could learn everything you needed to know about what had gone on in the neighborhood during the week just by listening on any given Friday. Who was into what, who was fighting with who, who had cheated which deal, whose kids had broken into what car, who had good drugs or bad, who had a new job, who was back on public aid, who was in or out of jail, and who was sleeping with who. Kind of like a PSA meets CNN Headline without any of that pesky double source confirmation. Think Fox News.

Sometime after midnight, the long knives came out from old grudges or new grievances that had been stropped to razor sharp. Inevitably, tempers flared when someone crossed a line until someone else decided it was time to issue a few retaliatory warning shots, which often brought the street party to an end. Often, but not always. That crescendo usually came around 2 a.m. just when the juiciest bits of gossip were being served.

The 2 o’clock news.

“You’re stuck here for the duration,” I informed my girlfriend. “We may as well keep playing. It could be a while before things clear up outside.”

“What do you mean?” she replied with a mixture of suspicion and incredulity. “Won’t someone just call the cops?”

We all looked at each other uncertainly. How to explain that we weren’t in Kansas anymore. Or in her parents’ Indiana where they literally shot prairie dogs from the front porch for entertainment.

My friend stepped in to salvage us. Someone may or may not call the cops. Likely not for a variety of reasons if no one had gotten hit. Even if someone called, CPD wouldn’t arrive for at least half an hour, after they rounded up a couple two-man cruisers from more important duties. They didn’t waste much patrol time in his neighborhood. If they didn’t just do a drive-by, they would likely hassle everyone indiscriminately. No one would talk to them, at least that night. If they did, it might end up as a community bulletin next week. But in general, very few people trusted CPD, who at the time had a well-earned reputation for being racist, indifferent and heavy-handed. Kind of a rock and a hard place situation.

Once my girlfriend figured out that we weren’t trying to scam her into breaking curfew, she settled down. We convinced her to call her parents and tell them she’d be an hour late. That we were in the middle of something. Generally, our parents only wanted to know where we were, when we’d be back and that we were safe. In our minds, she was definitely that. As long as she waited for the street to clear. Which it would in about an hour, one way or another.

When it did, we would all escort her to her car, and convoy her out of the neighborhood if she wanted. Hell, I could drive her father’s truck and have someone ferry me back. That was extreme. In an hour people would have calmed down and gone to bed. The excitement was over. Again, this was Cocoa not South Central. We were just waiting for the all clear, which was a little more art than science.

She eventually called her parents and we kept playing. But by then, the game spell had been broken. When we disbanded for the night, we admonished her not to tell her parents exactly what had happened fearing she wouldn’t be allowed into my friend’s home again in daylight or in darkness. She didn’t listen, with predictable results.

But that’s not the point of this story.

At a party a couple months ago, a friend and I got talking about gun control.

When I told this friend that I had been in neighborhoods where guns were necessary to protect yourself because you couldn’t rely on the police, his immediate answer was, “Sure, but don’t export it.”

I found that statement troubling but didn’t pursue it. It was a holiday party after all.

But that answer niggled at me. The longer I thought about it, the more I found it to be the worst kind of pearl-clutching privilege (and in general I despise that word). To me, it implied that we just need to keep that over there, wherever there is. Those poor neighborhoods. Not in my suburbia. Or god forbid my exurbia.

Ok, that’s probably more than a bit unfair.

This was not what you would call a safe neighborhood. My friend didn’t. It was a poor neighborhood. It grew out of a legally mandated, segregated neighborhood. This was a neighborhood where the annual MLK parade drew angry KKK protestors on the way in and the way out. A neighborhood where many of its students were bussed to distant elementary and middle schools but couldn’t get proper funding or maintenance for their own schools within walking distance. A neighborhood where the cops were more likely to hassle you for the state of your car as you drove to work than to protect and serve. A neighborhood where if you called said cops, they might or might not show up in a timely manner for what most neighborhoods would consider pretty serious crimes. Or if they did alone, on a very bad day, they might find themselves trussed up in a closet by a local drug dealer who would then issue very serious threats against whoever called. A neighborhood where you could be working your second job restocking a walk-in freezer in a convenience store and emerge to find your cashier freaking out because she couldn’t remember how to open the register while someone was screaming at her and pointing a gun at her face.

Do I want to export all that to my neighborhood or any other?

Obviously not. In fact, I don’t want it to exist at all. But I know it did and still does. And likely will in places for the foreseeable future.

It’s not about exporting it, it’s about correcting it, one piece at a time as we are able. But as we do so, those of us inclined to do so, we need to remember there are unique circumstances which we may not share, understand, or really be able to relate to. And yet they are real and must be taken into account.

It only took our circle of friends a couple years to become inured to the situation. The 2 o’clock news had become normal to us, not even particularly threatening. Just something that made you slide to the floor without comment and keep going with whatever you were doing. But we were young and we were tourists, only visiting on evenings and weekends. We may have internalized it but we didn’t live it, not 24-7-365.

So, what do you do with that?

Here’s the thing. I witnessed my friend’s family struggle. I caught all the veiled prejudice and not so silent judgement directed their way growing up, some unenlightened, some very purposeful, all of it unrelenting. I also heard the tales of the levels of bureaucracy they were up against on any given day. That’s not an excuse. It’s a reality. One that you and yours have hopefully never seen.

What we call Welfare isn’t a monolithic, overarching program. There are dozens of federal, state, and local agencies, each with their own bureaucracy and regulations. To give you an idea, there was federal housing administered by a local authority (not free, supplemented down to your income level), programs for winter heat (but not summer AC), various nutrition programs (including SNAP, WIC, free and reduced lunches), pre-k and kindergarten programs, public assistance (what we call Welfare with various limits and restrictions), mandated busing (for his neighborhood, not mine) plus all manner of other social services (some of which you do not want to run afoul of if they show up at your door).

Those are just the ones I can think of off the top of my head. Each program was intended to address a specific problem. But no one had an advocate to ensure they were being treated fairly, or even received any benefit they might qualify for. Everything was DIY and OJT. Most of it is Byzantine by design to discourage people from accessing the aid they need.

I’ve just barely scratched the layers of intertwined complexity. There is no way to fix it all at once, not by passing a single piece of legislation or addressing a single aspect of the problem. We’ve been trying for fifty years with only moderate success. In the context of gun control, there is no one-size-fits-all answer for my friend’s mother that would have made her safe.

Did owning the gun make my friend’s mother safer? You can bet your life it did. When that curtain moved at midnight, I knew she was dead serious because of the stories she or her sons had shared with me. She and her family had been threatened by some very sketchy people in her life. People she rightfully feared, with no one to protect her. But I also knew I was safer in her house than I sometimes was at home.

In short, my friend’s situation was bigger than the 2 o’clock news. Addressing that alone works at the symptoms, not the underlying condition.

So, as we try to untangle this situation, and many other hot-button issues in this country, we need to be mindful that our solutions do not to make the problem worse for people just trying to get by. Because some of them are unlikely mentors. Like my friend’s mother and brother have been for me. Without a doubt, I would not be the same person without them.

And that, my friends, concludes this very middle class, suburban, equinox edition of your 2 o’clock news. I am Noddfa Imaginings, and you have found sanctuary.

© 2020 Edward P. Morgan III

Switching Sides - Imbolc 2020

Recently, I’ve been thinking about an early experience in my engineering career. Specifically, about teambuilding and leadership, and how it relates to the events I’ve seen unfold within the federal government over the past several years.

I was hired at my former company as a systems engineer, part of a team that would integrate various hardware subsystems and software in a new, networked communication system for the US Navy. The program was somewhat unique at the time as it used rapid development and prototyping.  Which meant in my first two years with the company, we had to field and demonstrate two iterations of this data delivery system, the second to be temporarily deployed aboard a pair of Navy cruisers to test.

Those two years were hell. Not because of the deadlines or engineering challenges, though there were plenty of both. Not because of the mandatory unpaid overtime or the steep learning curve. No, it was hell because of other people.

Up to this point, the company had been primarily known for its hardware design. This was one their first major software driven systems. Not to say there wasn’t cutting edge hardware involved. There was. A phased array antenna springs to mind. But in the end, the big push would be getting the hardware and software to play nice to create a network.

Normally, that would have been the job of the Systems Engineering team. In a standard development cycle, we would have written the requirements and specifications of the system based on the contract, handed them off to the Hardware and Software teams and overseen their implementation, integrated all the pieces into a final working system, tested it, and deployed it for final certification and signoff. If all went well, we’d get to do it again, and again, until we had a fully functional system ready to be deployed throughout the fleet.

Like most plans, this one did not survive first contact with the enemy. In this case, the enemy was within.

The director in charge of this project, the man whose baby it was, was an old hardware designer, an engineer born and bred in the heyday of heroic defense contracting in the 60s with all that implies. Think a mildly toned-down version of Mad Men. I was familiar with the archetype. My father was cut from the same engineering cloth. I’d heard all his stories along with those of the older generation I worked with in my first job. By the late 80s, defense contracting had transformed like the rest of society, only somewhat more slowly.

I quickly developed the impression that, to this director, software was an add-on. A fad that just wouldn’t go away. Real engineering was done on breadboards, not in code. And Systems Engineering? That’s where real engineers were sent to die. At best, they were good for doing the scut work that real engineers had neither the time nor inclination to do, things like documentation, fieldwork and final testing. Ideally, all done after the hardware engineers had moved on to bigger and better projects.

Adding to the dynamic, I got the sense this Director firmly believed all engineering was a trial by fire. To mix several metaphors, cream rose to the top. For everyone else it was sink or swim. Mentoring and instruction was for literal pussies.

By the time I dropped into this organization, it was already divided into three armed camps, Hardware, Software and Systems, each occupying its own floor of the off-campus building the project was housed in. The cafeteria was balkanized into territorial cliques worse than any I’d seen in high school, table by table with jeers flying between. The work environment was a toxic brew of insults, undercutting and inter-team rivalry. Not the good-natured ribbing that all team sports seem to breed. No, this was the kind of interservice rivalry that nearly ground World War Two to a halt in the Pacific theater before FDR intervened to put an end to it.

We had no FDR, only a Trump who seemed to thrive in the entertainment of this environment with the hedge of protecting his favored hardware engineers. They were allowed, if not encouraged, to distribute but not necessarily endure the abuse. Most of their team leads sat outside the chain of command. They did not answer to the hardware manager or up through Program Management but to the Director himself. The definition of prima donnas.

Again, these weren’t the kind of locker room, “boys will be boys” antics I’ve never really had any use for or seen as productive. I mean the kinds of behavior HR, the company’s Ethics Department and the EEOC take a vested interest in, or are supposed to if they are doing their jobs.

In the best case, if we asked a question or explanation of a hardware engineer or design lead, we were simply ignored, flat out. I mean like elementary school: I don’t see or hear you so you don’t exist.

In the worst case, we were insulted with impunity, directly to our faces. We didn’t have the intelligence or IQ to understand, never mind critique any hardware engineer’s design. And by critique, I mean troubleshoot and point out when it wasn’t working. As in, our job. My degree in Electrical Engineering? A worthless piece of sheepskin not fit to wipe a designer’s ass. Race, religion, gender? Nothing was off limits. Who was sleeping with who and how, who grew up where and why they were traitors not citizens (which we all had to be to get a clearance), racial or ethnic slurs. Every day for almost two solid years.

Anything reported up the chain, even to program management, died at the director, dismissed as the whining of incompetent engineers.

Like grade schoolers everywhere, we adapted to our situation. We endured and deflected the attacks, defending the vulnerable where we could. We sussed out who might be willing to exchange information, and who might be willing to act as proxies or mouthpieces to get problems solved. We developed networks of contacts with the few outsiders who might talk to us or answer questions but only if the cool kids weren’t around.

When hardware engineers refused to supply the basic design documents we needed to debug the system, things as fundamental as up-to-date schematics and interface documents, we resorted to clandestine, nighttime raids. We searched workbenches, riffled desks, broke into file cabinets, and illicitly obtained combinations to cypherlocks to gain access to private labs. We made copies of everything we needed, down to the designers’ notebooks, all of which showed up in our lab without preamble or explanation.

Remember, as the Integration team, our job was to make this system work so that everyone could get paid.

But that’s all just background to what this essay is about.

At the end of the two-year, dual prototype cycle, the hardware was mostly set. The next phase, the phase where the true money of the contract was to be made, would end with the system being deployed throughout the Navy. That was fundamentally a software design effort, not hardware. But in order to preserve the expertise in the overall system, key hardware leads were transferred to Systems late in integration as design efforts were winding down. These were the people the company wanted to keep but didn’t have any new contracts to absorb them directly.

One of our problem children, a hardware engineer I will call Kevin (not his real name), got transferred to Systems approximately two months before we were scheduled to deliver units to the field for testing. The leadership of his team was taken over by his second, a hardware engineer whose arrogance was matched only by the mediocrity of his design. A man who had adopted the worst superior schoolyard behaviors of his prima donna boss without even a minimal level of competence. If anything, Kevin was a master of ambiguity, mouthing the right words to the right people to imply cooperation without actually following through. His second had all the subtlety and nuance of the sidekick to a bully.

Kevin’s lab was one we’d broken into. We’d acquired the combination from a former Systems colleague who’d been given access for related work. We’d pillaged it mercilessly, though not maliciously. We’d stolen and copied every scrap of documentation we could find. But rather than concede defeat and embrace a veneer of cooperation after discovering we held the informational keys to his tiny kingdom, he changed the combination to the door and refused to give it out. By then, we didn’t really care as we had enough information to piece together what we needed.

Needless to say, there was some uncertainty and trepidation the first day he showed up for duty in our lab. He was senior to all but the integration lead and one or two others on our team.

That day, like most days, Kevin was cheery, which I took to be part of his passive-aggressive nature for deflecting criticism. He asked what we were working on. Well, we’re debugging the digital part of your subsystem as it turns out, trying to get it to communicate to another terminal without success. What are you seeing? This, we gave him snapshots from a digital systems analyzer. Hmm, that doesn’t look right. Let me see the schematics. Hey, these are two revs back. Before we could address that comment, he says, you know what, I’m going upstairs to tell the new lead of my team to get his ass down here right now, and bring updates to these schematics.

And off he went. Within fifteen minutes, he dragged his former second to the lab, then proceeded to berate him publicly, telling him to get the problem fixed, in the exact tone and words just a week before he would have directed at us for bothering anyone on his team about a perceived problem. He was still an asshole but apparently now he was our asshole.

We all just stood there looking at each other, stunned, wondering what the hell had just happened. It was surreal.

This wasn’t one-off behavior. He did the exact same nearly every day for next six weeks. It didn’t matter if he was talking to members of his previous team or other engineers in Hardware. Except the other prima donna hardware design leads. There he softened his tone to something more like a smug satisfaction of pointing out an issue with their design, like he was keeping score.  But he used his contacts to update our documentation to the most current all the while.

The situation struck me very much like he was a professional athlete who had been traded. As soon as he was transferred, Kevin was playing for his new team, using all his talents to help that team to win, in the way he defined winning. As if it was all a competition to him. As if he honestly believed that abusing an engineer publicly was what we were doing when we filed problem reports during debug. His personality and tactics hadn’t changed, just the team he plied them for. Very much like he had changed jerseys, but continued to play full speed, full contact, now with his former team as his opponent.

Which a month or so later became even more surreal when he submitted his resignation and two-week’s notice. Come to find out, the moment he was transferred to Systems (which he viewed as a demotion and betrayal), he started looking for a new job, which he quickly found. So, the whole time he was abusing his former team members and Hardware compatriots, he knew he wasn’t going to stick around.

To him, this was all just the way you did business, the way things were done. Was it personal? Absolutely it was to anyone on the receiving end, because Kevin and his kind went out of their way to make it so. To him, that month was just a fun way to turn it around on his former colleagues, almost as if to demonstrate what it might have been like if Systems team had been staffed by competent (read ruthless) engineers. Like him.

He could have ridden out his last couple months without contention or rancor, just eased into a new company, a new chapter of his life. But looking back, I am convinced that he knew no other way to act. No, that’s not quite right. He knew. I could see that. He just wouldn’t voluntarily choose to use that knowledge even for a few weeks. Somehow that would have diminished him.

So why have I been thinking about him lately? What dredged up all this in my mind?

Until recently, I hadn’t really witnessed a repeat performance of Kevin’s behavior, not to the extent or the intensity I remember from those two years.

It strikes me that right now Kevin’s last name could be Pompeo or Mulvaney, or half a dozen others who, while in Congress, have completely switched positions. They, also, value team over institution. All the perceived injustices they went at hammer and tongs while in Congress during the previous Administration, they currently deflect. Executive overreach, lack of oversight, obstruction, corruption, criminal activity, any perceived misconduct they railed against as Congressmen, they now defend as prerogative and privilege. With the same tactics, the same lies, the same personal attacks and abuse they used before, whether directed at their peers or their subordinates in the departments they control. They would rather burn down the government than lose a fight, regardless of what’s right or wrong, regardless of what’s best for the country. While ignoring or compartmentalizing the irony and hypocrisy of their own actions. Bullies led by a bully.

To them, like Kevin, it’s all a game. And like any game, if you play, you play your damnedest to win, by any means possible, no matter the cost, not matter the carnage you leave behind. It’s an elaborate, lifelong fraternity hazing constantly paid forward only because you can. In the end, if you are talented enough, or powerful enough, or have influential enough friends, you will never be held accountable for your actions. Or for the damage you cause the overarching organization whose interests and employees you are supposed to be looking out for. It’s all about the individual or the small-t team, not the institution or the greater good.

It’s the rest of us downstream, and our government, and our democracy itself, that will pay the price when they move on to bigger and better gigs as the lobbyists they’ve so long lobbied against. Leaving the next Administration to clean up the morass they’ve dug deeper. In part because the easiest way to win in their minds is to undermine the institutions they swore an oath to uphold, then demand that they be blown up precisely because they no longer function. A Machiavellian strategy to its core.

As I said at the beginning of this essay, all this represents a fundamental failure of leadership, in this case at the very top, as much as any individual moral or ethical deficiency.

But valuing party over country always does. And there’s no correcting that. At least as long as these individuals remain in power.

© 2020 Edward P. Morgan III

Chance and Community Chest - Charity

When I was in college, whenever I had extra money, I’d fold up a bill into a little square, a $20 or a $5, and hide it in my wallet. When I was short on money, I would sometimes find my little cache which provided a nice bonus to tide me over to the next cash infusion. I still remember the rush of surprise finding that bill tucked deep into a corner of my wallet. Like past me had bequeathed future me a gift, for which I was always grateful. And I always tried to pay that money forward when I had it to the next impoverished me, as well as share with those around me when I could.

The gift economy was an important part of my college career. As I said earlier, my grandmother gave each of her grandchildren in college a small annual gift as spending money. She had gone to college in a time when it wasn’t common for women so she knew from experience how much that meant. I was always grateful, as I was for any gift certificates I received. My aunt, a librarian, usually gave me one to a favorite bookstore for my birthday. The four or five novels a year it allowed me to buy were invaluable to me.

Reading these essays, you might be under the mistaken impression that we think that we bootstrapped this all by ourselves. We did not. As I said in the first essay, we have been very fortunate. We have received gifts and inheritances. What we might have done differently than other people was that we put most of that found money to work rather than splurging on ourselves.

We didn’t create this little bubble universe we live in from whole cloth, but we did tailor it to our tastes.

When I was younger, I had the naïve philosophy, based on scattershot experience, that money would come to me when I needed it. Not when I wanted it, when I really needed it. I remember so many times in college having unforeseen gifts or bonuses or found money I’d squirreled away save me from a repair bill on my car or allowing me to pick up an extra book I didn’t know I needed for a class.

Oddly, while I believed in it, I never relied on it. I also had the firm New England Congregationalist philosophy that the gods help those who help themselves. I was never fully willing to commit my destiny to random chance though sometimes that random chance favored me.

And sometimes it didn’t. The Greeks were right: the gods are as capricious as a teenage girl shopping in the mall with a purse full of hand grenades.

But I also believed, and still do, that if you give back where you can, the universe is a little more likely to turn a kind eye upon you. Maybe that’s just some primitive, animistic sociology.

Over the years, we have contributed to charities, organizations and individuals. In the past few years, our gifts have gone directly to individuals in need to avoid the overhead of organized administration. Those have generally been special circumstances we don’t much discuss for a variety of reasons.

I’m not here to talk about that. You all have your favorite charities and ways you contribute to them that work for you.

If there is a theme to this series of essays so far, it is the proverb, “Waste not, want not.” I know, I’m supposed to be a writer. How utterly cliché.

For many people I’ve known, that proverb translates into hoarding everything they’ve collected in their lives and not being able to part with any of it because one day they might want it (“File it under ‘I’ for I might need that someday”). Most people I’ve met have a hard time letting physical items go. Cleaning out their closets is a struggle of blood, sweat, toil and tears, often quite literally. Somehow, they get bound up emotionally with the circumstances of how they acquired whatever it is they hold in their hands.

For whatever reason, I am not generally cursed with that psychic entanglement. Perhaps in part this comes back to my belief in the power of simplicity.

Other people I know incorporate that adage by selling any of their excess existential largesse secondhand. I would never advise against it for someone who needs the money and has the time. For us, and many others, that often just becomes an excuse to defer and delay. We have chosen a different path.

About twenty years ago, we noticed that our closets, cabinets and cupboards had gotten full, mostly with detritus we’d collected over the years. In Florida, we are not blessed with attics and basements to store life’s excess bounty, most of which we never looked at or used but somehow couldn’t part with.

Once upon a time, moving on a regular basis provided the perfect opportunity for winnowing. Often what we could carry with us was enforced by the size of the car we drove, the truck we could rent, or the number of friends we could feed to move it all with us. Once we nested in the same location for ten or more years, those enforced opportunities vanished. And the detritus accreted into a kind of historical sedimentary rock. In the deepest closets, it seemed to be on its way to metamorphizing.

For a long time, I’ve had the philosophy that I needed clear pathways to move through my home. My general rule is that I should be able to place my clenched fists against each other at my solar plexus and still be able to navigate the house without hitting my elbows, which for me is just about the width of an open doorway. As well, I’ve found my mind functions better when everything around me is neat, clear and organized.

Our clutter hadn’t yet overflowed into the walkways, though some furniture we’d acquired in our early post-college days was somewhat awkwardly placed.

So, over the course of a staycation, we went room by room, collecting all the things we no longer used. I took a brutal eye to everything I touched. Need, want, nice-to-have transformed into used frequently, rarely or not at all. Was anything worn, damaged or obsolete? Were the items with sentiment attached to them truly irreplaceable or just associated with well-worn memories that would never go away? Were we ever going to get around to that deferred project or repair? How many were impulse buys I never should have made?

Nothing in the house went untouched except the cats. And even their toy box got raided.

I became like Genghis Khan on a mission, slashing and burning everything in sight. My decisions were instantaneous and brutal. I entered a fugue state. By the time I reawakened, we’d filled up half a bay in the garage. Who knew we could stash away so much stuff in what wasn’t really an overly large house with a dearth of closets?

That stash sat in the garage for a bit while we decided what to do with it. A few items got hauled back in, a few others that had been on the fence went out. But 95% of it stayed exactly where it was.

In the end, we donated everything still functional to a no-kill pet shelter than ran a thrift store to fund its operations. Anything they wouldn’t take that was still useful went to Goodwill. The books, DVDs and CDs, we gave to the public library which runs their own bookstore to supplement their acquisition budget. Anything that wasn’t useful got set out at the curb. Some of it disappeared before the trash guys came around, either as metal recycling or someone else’s reclamation project.

The funny thing was, when we were done, we felt both exhausted yet lighter. When we walked around the house it was like the scales of our existence had fallen from our eyes. We noticed the things we’d kept and appreciated even more because there was less to clutter up our view. We quickly found didn’t need or miss the excess.

Now we do this every year. While we never filled up that large a space again, in the earlier years we generated more than we thought could still exist. Things we couldn’t part with one year were often easily let go the next. Our goal was to move out more than we brought in.

For us giving all those unwanted items to charity made it easier as we could envision our island of misfit toys making someone else a little happier and benefiting an organization we believed in along the way. Win-win-win.

That belief and visualization meant we could clear out faster, let more go and move on with our lives while hauling around less baggage. Like a caged bird scenario, I sometimes believe that if the universe really wants me to have something, it will come back to me. I know that sounds a little metaphysical, but it works for me. In the intervening time, 99% of what we let go, I haven’t missed. Of the hundreds of items I’ve given away, I can count on one hand the ones I remember and regret.

There’s an interesting psychological principle at work here. People, in general, feel better with less clutter. In both children and adults, studies have shown that the fewer choices an individual has when making a decision, the happier they are. Fewer, not none (3-7 is optimal). Too many choices, whether in entertainment or available flavors of jam, tend to paralyze us in indecision rather than liberate us.

Of course, there is also an evolutionary principle pitted against that. Most people can’t let things go because they are convinced that they might want them again in the future and not be able to find them. We are wired not to pass up resources even if we don’t need them at the moment.

For most people, finding the balance can be difficult. I am probably blessed in that, for me, it’s not. I often ask myself, how many pairs of shoes can I wear? How many dress shirts do I need? How many cars can I drive? The list goes on. I find it to be a useful exercise.

Uncluttering our lives meant we could more easily see our goal. We could rule our stuff rather than our stuff ruling us. Simplicity multiplied in having less maintenance to do on existing items, along with less stress over doing it or losing them. And less cleaning. All of which freed up more time to do the things we wanted or thought were important. It also freed up living space. Donating our excess to charity paid dividends for us. It was always an integral part of the process.

Give back in ways large and small and the universe will give back to you. I fundamentally believe that no matter how it strange it sounds. Some of that reflects back to the Three Treasures of Taoism: Charity, Simplicity and Humility.

Some of this philosophy has extended down to my writing career.

Back in the 90s, I frequented a Taoist internet forum. I have been fascinated with the philosophy since college and enjoyed reading insights and interacting with similar people there for years.

Slowly but inevitably, the site became unstable. Christian evangelicals decided to colonize our forum from their sister site, first under the auspices of understanding which quickly transformed into proselytization and finally into open warfare. In case you don’t know many Taoists and Zen Buddhists (who preferred our company to the predominately Theravada Buddhists who frequented their forum), this is a neat trick to pull off. Somehow, we allowed it to happen.

Anyway, sometime after 9/11, the individual who ran the forum shut it down, due to those and other issues. A couple daughter sites sprang up run by former members. I frequented one of those for a little while. There I ended up in a discussion with a woman I didn’t know about creative works and people who were poor.

At the time, the music sharing controversy was still running at full steam. The free economy hadn’t yet transformed into the gig economy in the wake of the Great Recession. The mantra that information wants to be free had just begun to echo, along with all the implications of that on anyone who held a copyright (which were seen in these circles as the stamp of ownership by the corporate beast).

Which was pretty much the direction I saw this conversation headed as it unfolded, which didn’t sit well with me.

I’ve known people who make their living from the sweat of their creativity. Not the big, splashy names that in music had the backing of major labels, but smaller indie names most people had never heard of. People who write their own songs, print and market their own CDs, setup and tear down their own equipment and loaded it into the van they drive to the next gig themselves. People who if they sold a thousand CDs at an appearance were having a really good night. People with mortgages and bills to pay, struggling to keep a fingerhold on the lowest ledge of the middle class. People who earned their money.

The equivalent description applies to the vast majority of writers I’ve met, most of whom will never be Stephen King.

Anyway, I got the sense that this woman was mostly self-rationalizing her own behavior of taking works to enjoy rather than paying the artist their due so they could keep creating (like many others I’ve met). And I said as much.

But still, I listened. Because, as I mentioned in other essays, I’ve known people who lived in poverty. I have more than an inkling of what their lives can be like.

And something in that conversation must have resonated. Because just after I started Noddfa Imaginings, when the Great Recession struck, I decided that I would give back to people by not charging them to read what I created. By then, I easily could have, at least the better stories. Self-publishing was not a difficult process. It still isn’t.

I’ve known the numbers of this business since the beginning. When I left engineering, the average advance on a first science fiction novel was $2-3k. A novel generally takes a year to write. You can do the math. And that was before the publishing industry started into full collapse, though it’s stabilized to some extent since. 

I’ve told people all along that getting published, while a nice indicator of success, wasn’t essential for me. I didn’t need the money. This decision seemed like a natural extension of that principle at the time.

Even as the economy has recovered, I haven’t gone back on it, though I do sometimes reconsider. Perhaps that just means I am still looking for some external validation. Most writers or creative types aren’t in that position. There is a persuasive argument to be made that giving away works for free devalues not just the works but the artists. Though I suspect art endures not for payment but for its own sake. At the same time, it’s nice to be able to eat. The starving artist stereotype is a trope that’s been way overplayed.

Setting up a lifestyle where I could afford to make that decision started with living debt-free by paying off the house. I understood the implications of compound interest, both positive and negative depending on which side of the equation we were on.

I am guessing some of you are wondering how any of this essay relates to the others. That’s easy. There is a point when enough is enough. I don’t need more stuff I’ll never use. Which means I don’t need a bigger house to store it all in, or a bigger car to haul it all around. Which means I don’t need a high paying job to maintain it all.

As well, for me, it was always about remembering the initial goal, not fixating on the process. Our goal was financial independence, living a dream and retiring early so we could do the things we enjoy. Which has never been to have bigger, better or shinier toys than anyone else. It was never about having more. It was never a contest or a race.

As I’ve said, I don’t spend as much time managing our finances as people might think. I could spend a great deal more time min-max each decision and investment for the highest return. I’m not sure what the purpose of that would be. My goal was to be a writer (“Dammit, Jim, I’m a wordsmith, not a hedge fund manager!”). But I do have an affinity for numbers and a certain intuitive predisposition to working them.

One final story. When we made an offer on the house, I already had a handle on the compound interest tables I’ve mentioned. We really wanted the house, but it fell just outside our price range. We knew it had been on the market for a while and had dropped in price once or twice because the housing market had softened. So, I ran some numbers and came up with a strategy.

First, I looked at what the owners had paid for the house five years earlier, which was in the paperwork of the listing. I subtracted off a 10% down payment, which was standard at the time. Knowing roughly what the interest rates were five years before, I calculated what they still owed. I then added in a rough estimate of their selling commissions and fees, and compared that number to what they were asking which was significantly more. I took the difference, subtracted it off of what they needed to break even and said that should be our offer.

Karen was dubious about my strategy. She really, really wanted this house. So did I. But once I explained the numbers and the psychology to her, she agreed to go along. We submitted our offer and gave them 24 hours to reply, knowing full well it would be rejected. But we didn’t want to give them time to think.

I was counting on, and received, a counter-offer, also with a 24-hour ticking clock. What I anticipated was a back and forth that would end somewhere south of the asking price, hopefully near the midpoint. What I got was a final price with a caveat that it was take-or-leave. The number? Within $1000 of the exact number I’d calculated they needed to break even. We didn’t pause when we heard it, just said we’d take it which I think surprised everyone involved.

As I said at near the beginning, knowledge is power. That calculation shaved roughly 12% off the asking price, putting it back on the border of our initial budget. After all these essays, that number should ring a bell. I’ll leave it as an exercise for the reader to determine how much interest that might have saved had we paid the mortgage to completion. Of course, we took a risk, but that risk rested on solid calculations and psychology. It paid off.

And if it hadn’t? I’m sure we would have found another house, one we’d be just as happy with today.

I know I am fortunate. I have always been goal-oriented. A disciplined mindset is a part of my personality. Because of my engineering background, things like tracking expenses in a backward-looking budget come naturally to me. I was exposed to the people who could explain the power of compound interest and the power of paying down debt. My experience told me to never pass up an opportunity or a discount, at least a real one. Planning and organizing are second nature, as is trying to repair or maintain what I have. Spotting opportunities in the market is mostly intuitive. Letting go of things so that others may benefit from them does not cause me existential pain.

I was doubly-fortunate that I had a spouse who encouraged me and was willing to follow where I led even when our lives became uncertain, knowing all this experience gives us a huge leg up now that she’s retired. We’ve been through all the major decisions and planning sequences before, though not all the variations and subtleties on the theme. And we’ve picked up a few tricks and tips in case things slip sideways.

Hopefully, now, you have, too.

I started this process with a goal. I wanted to become a writer. But my overdeveloped sense of responsibility said I couldn’t just dive into the pond without mapping out the waters. So, I came up with a plan. I crafted a budget and tested it against the way we live. I adapted my mindset. I paid off my debts. I changed my lifestyle, my accustomed manner of living. I invested, not just for my future but for our futures. And with perhaps an equal mixture of skill and luck, it paid long-term dividends, some of which should last for the foreseeable future.

Planning, patience, simplicity and discipline. For us, that’s what financial independence is all about. It’s how I’ve been able to live the dream of writing for over twenty years.

Now, some of you might be thinking that I benefited from all this more than Karen. After all, writing was my dream, not hers. She was the one still working.

A few points to consider. First, this was always a path she encouraged me to take, sometimes quite vigorously before we even had a plan. Second, it was my excess salary, which until quite recently was still higher than hers, that put us in this position. Third, as I said early on, ideally before executing this plan, I would have found another job in engineering elsewhere in the country, likely in the Pacific NW. She didn’t want to leave her job here or move that far. And finally, while we make joint decisions, it is my planning, research and financial stewardship that sees us through each year.

When Karen had the opportunity to retire early last year, she chose not to take it because she still enjoyed her job. Her longstanding dream was to be a geologist studying hurricanes and coastlines with the USGS. Sometime between then and now, that changed. She retired in August after 30 years of Federal service that she likely wouldn’t have reached had I stayed in engineering. The locations of my best jobs and hers didn’t coincide. She got to live her dream, too.

In short, we have both contributed to and benefited from this path. Your mileage may vary.

But the reality is this: Many people with different talents, proclivities and predispositions can do what we’ve done. Some of you already have, perhaps even better. I would never say ours is the only way or even the best way. It is just one way. Many paths, one mountain.

Which brings me full circle to something I said in the very first essay. Part of the reason I wrote this series was to give back, or perhaps to pay my good fortune forward like that folded bill tucked inside my wallet. If anything in these essays helps even one person get a single step closer to their dream or goal, that’s reward enough for me. But all I can do is help and maybe guide through example. The rest is up to you.

The thousand-mile road begins beneath your feet. Godspeed and safe journey.

© 2019 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