Book Review: The 4-Hour Workweek

During my five hours of "mechanical delays" on United Airlines this weekend, I read "4-Hour Workweek" by Timothy Ferriss. While I would view some of the book's suggestions as a little impractical, in a way Tim's ability to think outside the box and dream outrageously is what makes the book an inspiration. Despite thinking there is no way I could do some of what this guy suggests, I did find myself thinking about a lot of other things that I could do beyond what he suggested. The four key principles I took from the book were as follows:

1) Dream big-- its ok! Chase those dreams.
2) Retirement is not a dream.
3) When you aren't on track to fulfill your dreams, change direction. This can be scary, but often the costs are way less than you think.
4) Global arbitrage isn't just for corporations. You can benefit by outsourcing some of your work or at least capturing the arbitrage on vacation in low cost geographies (too bad the dollar has weakend so much since he first published the book in early 2007).

At the end of the day I'd say this book was a good read. It will force you to evaluate your life and determine whether or not you are living by the golden rule of happiness: "Do what you enjoy."

Making Some Bets

Well, I decided to make some bets today. I am putting new capital to work in several mutual funds including: RRPIX, MINDX, EUROX, and JARFX.

This will leave my current allocation of funds not invested at my employer as follows:
FNMIX - 3.9%
MAKOX - 11.4%
MINDX - 12.2%
EUROX - 12.2%
RRPIX - 19.6%
JARFX - 20.3%
CASH - 20.4%

The rational for the new buys is as follows:

RRPIX -- this is a 125% inverse of the 30 yr. treasury bond fund. I think inflation will tick up here over the next year or so to between 4-6% and expectations that the fed will raise rates will increase. People will sell 30 yr. treasuries as a result.

MINDX -- I like India long-term. The 20% sell-off this year represents a good opportunity to start investing in that view.

EUROX -- I also like Eastern Europe long-term. Russia still cheap given the move in oil. This fund has big bets in Russia for now. I hope the managers will allocate to other Eastern European countries as Russia gets more expensive.

JARFX -- I like this divesified international fund. Driven by a team of stock pickers, this fund keeps sector weightings that match the index. It has consistently generated alpha since its launch in 2005.

CASH -- I am keeping plenty of ammo in case there is another flight to quality (as I think there likely will be) so I can add to all of these purchases.

In case you are wondering why I buy mutual funds and not individual securities (since I pick equities professionally for a living) the reason is simple: The trading restrictions at many investment firms are very stringent (including mine). If I have a good individual idea I am obligated to put it in my fund for investors. Because I don't pull the trigger on any of the individual mutual fund holdings (the fund's manager does), I am allowed to trade the funds freely under our compliance policy. I do generally eat a fair amount of my own cooking (i.e. allocate the majority of my liquid capital to the fund I work at) because I think it aligns my incentives with our investors'.

Is the Inflation Beast Coming to the U.S.?

I think there is a high likelihood that inflation is coming to the U.S. in a bigger way over the rest of 2008. So far there is little evidence of serious inflation. Indeed for the first 3 mos. of 2008 the CPI ticked up at only a 3.1% annual rate. After a 4.1% increase in 2007 this doesn't appear to be too alarming. But, here is why I think inflation may tick higher. First, the Fed just injected a bunch of liquidity into the economy (by drastically cutting interest rates) and that tends to drive inflation. Second, with oil at $125 I think we should see that creep into the cost of many goods. Finally, with the dollar weakening and many of our goods coming from outside the U.S. I would expect many finished goods consumers buy to creep up in price. Goods from China in particular where the government is letting the Yuan strengthen should become significantly more expensive in dollar terms over the next few years.

There is not a lot you can do about inflation. You can hope that your wages will increase at the same rate as the goods you buy, but my guess is they won't. The only thing I can really suggest is that you save a little more than usual. Why? Because as things get more expensive you may need to tap into that savings to buy goods that are still quite affordable now. Furthermore, if inflation does rear its head then the Fed is likely to raise rates to put the breaks on it. If the economy is not healthy by then it may slow further as a result of higher interest rates. If that happens there may be higher unemployment and if you are one of the unfortunate ones to experience downsizing you will need that extra savings. Something I am thinking of doing (I still haven't pulled the trigger yet) is buying an inverse long bond fund that will hopefully benefit if inflation takes off. I have a hard time believing investors will accept 1% or lower real yields on long-term treasury bonds for too long . For those of you wondering
"real yield" means the yield after taking into account inflation -- for instance the "nominal" yield on the 10 year treasury note is 3.77% today, if inflation is 3.1% then the "real" yield is a paltry 0.67%. If inflation takes off, I think that bond yields will also likely rise (and the bonds themselves will fall) so the inverse long bond funds should perform quite well.

How much is YOUR free time worth?

I went to the full-service car wash today. This is the first time I have ever done it since there were a lot of automatic washes in Denver and then I usually would just vacuum by myself. However, here in Dallas there are very few automatic washes (it must be because they allow hose washing which Denver didn't for several years due to water restrictions). So anyway, I decided to go to the full service wash for the first time ever here in Dallas. I took both of our cars. Each car took 20 minutes and cost me $20 per car. Had I done this myself "for free" with a hose wash it would have taken me at least 3 hours. Inherently then I have decided that my free time is worth at least $40/2.33 or $17 per hour. In reality I think I paid even less for my free time because I was able to read a book (something I wanted to do) while I waited for them to wash my car. I probably saved 2.75 hours of "free time" by paying to have the cars washed at a net cost of $14.54 per hour. The whole thing got me thinking though, what is my free time worth?

This is no easy question to answer. The simple mathmatical answer is that free time is probably worth at least your annual net after tax and work-related expenses income/the number of hours per year that you work. For instance if you make $75k per year net of taxes and work 40 hours per week, then on a per hour basis your time is worth 75,000/52*40 or about $36/hour. You can use this calculator to get a more complicated answer that states your leisure time in terms of the number of hours you work to get an hour of free time and how much you are paid for those work hours. However neither of these approaches seem like a wholly satisfactory answer because for most people they really couldn't choose to work 3 more hours on a Sunday (when I had my car washed) and make an extra $108. It seems that different hours of the week should carry a different value. Likewise the marginal value of certain hours is high while for others it is low. For instance if you are sleeping four hours per night then an extra hour of sleep is probably of high value to you. But if you are sleeping nine hours per night already an extra hour of sleep is probably not worth that much to you.

However, the confusion doesn't stop there. You then have to factor in intangibles. For instance, I have been reading a lot of books about being a dad since I have a little miss Armchair on the way. One word of advice that hit home with me was the reality that when a father is on his deathbed he rarely says "I wish I had worked more," but he often might say "I wish I had spent more time with my children." So then how do I value time I will spend with my daughter knowing that it is time that I will never have the chance to spend with her ever again? What is the opportunity cost of working, washing the car, or mowing the lawn instead of participating in my daughters first word, first step, first whatever?

The bottom-line is that I need to think about all these questions and come up with my own way to value my free time. After thinking about it though the $14.54/hour I just spent on the car wash to buy some free time sure seems like a good deal!

If you have thoughts about how you value your free time please share them in the comments.