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CHAPTER 1
Reflect Before You Race
Ten years before I wrote this, my employer lost the majority of its funding and I lost my job. I had a wife and two young children. We were partway through major renovations on the 104-year-old farmhouse we lived in, near a tiny town in rural Illinois. I didn't have a college degree, family with money, or an employment backup plan. We had recently spent most of our savings on materials for our home renovations. We had two or three thousand dollars to our name.
I didn't have enough money to invest, but I still got to be an investor. I got to decide how to use the resources I had, including my time.
The first investment decision I made was to become self-employed. Instead of hitting the streets to look for a new job, I stepped down the wooden stairs to the basement of that old farmhouse. I ducked under a beam at the bottom of the stairs, swept cobwebs away from my face, and looked around. It was creepy. The walls were old cinder block that someone had since sprayed with a green coating to keep water from seeping in. There were still plenty of slimy drip trails on the walls, with green algae that almost matched the coating. And it was cold.
I used one side of the old coal bin for one wall of my new office. A kitchen table from the 1950s became my desk. I moved my computer from upstairs, and connected it to my dialup Internet modem. I wired a light fixture overhead, plugged in a space heater, and hung plastic drop cloths around three sides of the space to keep the warm air close. Total budget for my new office: $0 up-front and $0 a month.
Believe me, my first day sitting down at that desk was not filled with feelings of pride and self-assurance. I didn't even tell my friends what I was doing. I didn't want the embarrassment of explaining that it didn't work out.
I knew I wanted to support my family, stay productive, and build interesting things. I knew I was long on time and short on cash. I knew the highest-paying skill I had developed up to that time was computer programming. That day I searched the Internet for postings from small business owners offering to pay for custom software development. I actually did a small project for one of them and earned $59. I'd written software as a job before and made more than $59 in a day, but this was different. For the first time I owned the long-term value of the client relationship — and, much more importantly, I owned the copyright to the software I created. I wasn't just trading my time for cash to pay my bills for another day. I was building long-term value into something I owned. This incredible privilege of owning what I was building came to me courtesy of capitalism, and my willingness to take an emotional risk. That's it. It didn't cost me any money.
I had no idea, nor even a wish, that what I started building would lead to dramatic personal change and multi-million-dollar financial results. I did have just enough clarity about my bigger picture to guide the investment decisions I made that day.
Bring the Future Into Focus
At its core, investing is the practice of choosing your present actions intentionally to produce the results you want at a later time.
This is unnatural. We humans tend to reach for what we want now, and we find it difficult to look ahead to a later time. The present, with all its sensory experience, feels much more real than the future, which can only be imagined. We are not naturally investors. We are wired to prioritize short-term survival, not to maximize long-term results.
Sound investment thinking has totally different DNA. It's always looking ahead. It habitually imagines the future while making present decisions. It's always acting like the future is just as real as the present, because it is.
How are you at looking ahead? Try it with this scene.
A nurse, the smiling one in daisy-printed scrubs, guides your wheelchair down the hall, through the TV lounge, and outside the double doors. It's a warm day, perfect for sitting on the long, shaded, wooden porch.
She parks you at the far end and leaves you to the quiet afternoon. You're turning 100 tomorrow.
Wind chimes and sparrows provide background sounds as you reflect on a century of being alive. You worked hard. You met so many people — most forgotten, some that still make you wince a little, and some whose faces are bright and clear among the crowd.
Whom do you hope will be here tomorrow for your birthday party? You're told there will be a speech by your oldest friend. As you stare out across the lawn, you wonder what she'll say about you. How will she summarize a life of nearly infinite moments, decisions, and words? Accomplishments? Regrets? What do you hope she leaves out?
If you had a pen and paper handy, you could write some highlights for her. Tell her some things you don't want left out of your story. Maybe you'll just write the entire speech out for her, to make sure the story of your life is told the way you want it to be. Alas, you've nothing to write with, and your story has already unfolded in a million scenes.
You have the choice to live every day of your life as though you are writing that speech. You get to choose every action you take and every word you speak between now and the end of your life. Think bravely about what you want that speech to say, and live with purpose every day so that speech will be true. Intentionally author your legacy.
All your time taken together makes up your life. During your life you'll make a lot of choices about what to trade your time and your money for. Authoring your legacy on purpose is intentionally investing your time and money, on a whole-life scale.
Connect Each Piece to the Bigger Picture
You have the opportunity to act intentionally on the grand scale of your whole life, and at every smaller scale. With each smaller piece — perhaps a project, a relationship, or a hundred dollars — you can consider the outcome first. Intentionally choose the actions that are most likely to produce the outcome you want for that piece, and for that piece's part in the bigger picture.
Pieces come in all types and sizes. Here are some examples. Each list starts with a small piece and progresses through the bigger pieces it is part of.
And three more:
[TABLE OMITTED]
How you stack your own cascades of intentions is a highly individual thing, based on what you value most. You might invest your money to achieve early retirement, whereas your neighbor invests hers to realize a dream of self-employment. You might build a relationship at work to ease your loneliness, while your co-worker builds a relationship at work to seek a promotion. The best decision for each piece is the one that's most likely to line up with what you want for the bigger picture.
"What you want" need not suggest selfishness, using people, or anything else that conflicts with your values. Your values and ethics are part of what you want, too. Hurting someone to get what you want isn't what you want if you value respect and generosity. Perhaps you want to live out your faith, give more than you receive, or put others ahead of yourself. If so, acting on purpose for the results you want will not conflict with those things because those things themselves are the results you want. Choose your present actions to bring about those things you truly want. Build what you value most into your bigger picture.
A few years ago I was visiting Ethiopia. I was there to learn about what creates and alleviates poverty. During my visit I was invited to meet with the staff and leadership of a nonprofit school. It was a hot and dusty summer afternoon, and classes had just let out for the day. Our hosts shared little cups of syrupy-sweet, charcoal-roasted espresso with us, and we all sat down to have a conversation. They had asked me to talk with them about planning and strategy.
I felt we needed to have a shared understanding of the school's reason for being before we could have a meaningful conversation about plans and strategy. The bigger picture would give us a light to hold the pieces up to and see where they fit.
Well aware that I was a newcomer and an outsider, I was in no position to share my opinion, or even have one. So I started asking questions. "What do you do here at the school?" Most of the teachers were shy. One brave young woman said the obvious, "We teach children reading, math, music ...?" "What motivates you to get up every day and walk to work in the hot sun to do this?"
"We want the students to do well," they told me. "We want them to pass their exams and qualify for high school and college." They still seemed nervous about giving the wrong answer.
"And what motivates you to work hard at helping those students do well? Why?"
It was quiet in the room. Nobody answered for a minute. Then the principal of the school, an older man, said quite softly, "For a better Ethiopia." And that was it. I saw a deep love of country on the face of every person there. That was their bigger picture. "A better Ethiopia" was the legacy they wanted to leave.
That set the stage for a wonderful conversation about planning and deciding at the piece level, so the pieces might someday add up to that bigger picture they believed in.
Begin your foundation for sound investing with clear intentionality from the biggest to the smallest scale. It is impossible to define the ideal outcome of any single piece, even a financial investment, apart from the bigger picture of what you want. In order to be consistently intentional, you must connect the pieces into your bigger picture.
When I coach an entrepreneur on a business he or she wants to launch, I usually start with questions about the bigger picture: What's your ideal outcome from this business? Do you want to work here for a long time? Do you want to build it and sell it? How does this business fit into what you want your life to be like? The answers to questions like these influence decisions about corporate structure, financing, hiring, marketing — all of it. Every piece connects to the bigger purpose for the business, which connects to the bigger purposes of the entrepreneur's life. Going forward with those purposes disconnected or misaligned is a recipe for misery later on.
The day before I wrote this section I decided how to invest some money. This cash was sitting in a bank account earning nothing. I could have left it safely there, but I didn't. I didn't need that cash in reserve. I knew I wanted to earn more than zero on it because I always want to use all my resources as productively as I can. Why? One of my big intentions for my life is to leave this world a little better than I found it. Investing my resources productively so they grow helps me fulfill that intention. I had other, more immediate objectives, too. I knew that my plan was to do a business acquisition soon, and I'd need that cash then. My ideal outcome was to invest that money in something that would likely earn a good return and allow me to take that money back out in a few months. I bought a combination of stocks and bonds that fit the criteria that came from using my bigger picture as a guide.
Wait — the Bigger Picture Is Unclear
Maybe it's hard to describe what you want for a given piece of your life, work, or investments. It's probably harder still to connect it to what you want for each bigger piece above it. Maybe that chain from little piece to big legacy gets foggy somewhere in the middle. When you begin to organize the pieces into a bigger picture you'll find conflicts and contradictions between what you want for each piece. At best, parts of your bigger picture will be unclear and uncertain. That's life without a crystal ball.
It's not easy to reach clarity and alignment about your bigger picture. Nobody can hand you a personal values statement and life plotline summary. You have to figure them out in a process over time. Improving the clarity of your bigger picture is a lifelong pursuit.
There are two pitfalls here. One is winging it without taking time to reflect on the bigger picture. This leads to false starts, backtracking, and wasted resources. The other is getting stuck waiting for perfect clarity you'll never get. This leads to stagnation and wasted time. Fortunately, there is middle ground between perfect clarity from here to forever, and wandering aimlessly in confusion.
We know more than nothing and less than everything about our bigger pictures. Inability to see all the way to the horizon is no reason to fly with your eyes closed. Take time to reflect and bring your bigger picture into view as best you can. You will make far better decisions this way than if you wing it with no map at all, and you'll get far better results than if you sit and wait too long.
Many of the distant foggy parts clear up as you engage, take action, and move forward. With your best rendition of your bigger picture in mind, make the decisions that you deem most likely to lead to the results you want.
Effective investors make intentional decisions while at the same time dealing with uncertainty.
Watch Out When You've Lost the Bigger Picture
When you aren't guided by your vision for the bigger picture, you'll be vulnerable to undesirable influences on your investment decisions.
You might be tempted to default to the opinions of others. Don't lean on a stock tip, an opinion article, or the advice of someone who may not know what your investment goals are. You need a clear intention for the outcome to check recommendations from others against.
You might find yourself going along with what others want you to do: your family's vision for your career, the mutual fund your investment advisor wants to sell, or the business decisions that feel safest to the people closest to you. Some people have your best interests at heart, and some don't. Either way, it's a big mistake to default to someone else's game plan because your own vision is foggy. Your job as an investor is to decide. Don't abdicate your role as an investor by letting someone else make your decisions for you.
Imitating the crowd is another dangerous default behavior. All the people buying stocks during 1999's bubble couldn't be wrong, could they? Yes. Crowds do irrational things when it comes to investing time and money. If you follow the crowd you'll get average results, at best. You need your own compass that's not swayed by what everyone else is doing.
Doing what feels easy, familiar, or safe is a constant temptation. Your brain is wired with a strong priority to keep you alive. Sometimes the best investment decision, the one that fits your bigger picture, feels risky. Your brain doesn't realize that failed investments aren't life-threatening. Pay attention to your emotions and understand what they are signaling, but don't choose something just because it feels safe. You need a clear plan based on your bigger picture to guide your decisions more purposefully than your emotions alone can.
Clarity about what you want also provides motivation and resolve to do scary things, unpopular things, tiring things, boring things. Clear future vision helps you do things that don't feel good or easy or comfortable at the time.
Think Beyond the Obvious Answers to What You Want
Maybe we don't have to look far to know what we want. This is a book on investment. Don't we all simply want more money? Inside of almost all of us, it's deeper than that. Before we jump into strategy and tactics, here are some thoughts on money as a goal,
For the first part of my life I was relatively poor, then I had a middle-class income, and in recent years I've experienced an unusual level of wealth. Money is a wonderfully flexible resource. I've found wealth to be useful and worthy of attaining. The flexibility it gives me in what I trade my time for is precious to me. Having wealth also increases my opportunities to keep learning, inventing, and taking risks on new things. And it enables me to pay forward the kindnesses and generosities I've received in ways I couldn't do otherwise.
Some of the people I grew up around view wealthy people with suspicion and judgment. My sense after experiencing a wide range of income levels is that fear and envy, not realistic insight, were the source of those views. I have not found their views to match the reality of my experience.
Wealth is a powerful lever. Like a long crowbar, it can be used to do more than the strength of one person could otherwise do. If a wealthy person is authoring a legacy of hurting others, their wealth is a lever that can help them do more of that. If a wealthy person is authoring a legacy of generosity, innovation, or defending the vulnerable, their wealth is a lever that can help them do more of that. Wealth can be used to accomplish an astonishingly wide range of things, from destruction to building, from indulgence to philanthropy, from collecting stuff to enabling relational experiences. I want to make differences that matter while I'm alive. Some differences are hard to make, and I want the most powerful levers I can get.
(Continues…)
Excerpted from "Investing With Purpose"
by .
Copyright © 2016 Mark Aardsma.
Excerpted by permission of Red Wheel/Weiser, LLC.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
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