InvestED: 27- Dharma and Being Mindful About Money

We were supposed to talk about dividends this week, but decided to talk about the concept of dharma and finding purpose in the things that we enjoy doing. We also discuss the difference between making a promise to yourself and setting goals. Investing starts with making a promise to yourself to do it.

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Listen on Stitcher Radio HERE

In Episode 27 You Will Learn

  1. What does it mean to be “mindful” when talking about money and investing?
  2. You need to find what works for you. Whether it comes to exercising or investing, just find what works for you.
  3. The power of promising yourself something vs. making a goal to do something.
  4. When you promise yourself to something, nature moves to help you in ways you can never image.
  5. Dharma and doing exactly what you were meant to do.
  6. One of the ways that you can tell that you’re doing what you were meant to do is that you’re the best in your field at it.
  7. Creating a source of wealth beyond a salary brings freedom. How do we get there?

Show Notes

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On the InvestED podcast, Phil and his daughter Danielle shine a light on the successful investing strategies that gurus like Warren Buffett have used for 80 years. Listen in for a great stock market education on basics, learn how to invest on your own, and follow along with real-time examples and investing tips from week to week.

  • Ken V

    This episode hit home. I am retiring this year at the age of 49. For 2 years I have been asked numerous times what I was going to do? I began asking myself this question last November. I began looking for different options for something that I would love or at least like to do. Lo and behold an e-mail arrived from Phil about the workshop. I had seen him in Buffalo, NY at a get motivated arena presentation. I went to see Rudy Guiliani and Colin Powell. Joe Montana was also there. Phil’s presentation got me to go to a Invest tools class. I began to do some research but let it go and did not follow through. This was 2006 or 2007. Well anyway I decided to try to go to the TI class. I did all of the prep work given and went to Georgia for the class. This has ignited a fire and I have been totally engrossed with Rule 1. I have talked both my kids and their spouses along with 4 other people into attending the class. I enrolled in the options class and am nearing the end of that. The Rule 1 rules and philosophy just make sense to me. So thanks Phil, Jeff, Nancy, Earl, JP and of course Michelle and Melissa for doing this. You have helped me find what I am going to do next. I am going to take my retirement account to new heights and live a very comfortable rest of my life. Keep up the good work it is greatly appreciated!

    • Garrett Woolley

      Hey Ken V!

      Awesome! Some of the bloggers may not be familiar with Nancy, Earl and JP from the TI Seminars. They’re super nice people and working hard at helping others learn Rule #1 Investing. I’ve shared a few good laughs with them and hope to meet them again soon. We’ll be spending some time in Florida over the winter season and the TI seminars are just a short Southwest Airlines flight away.

      If someone saw my retirement account today, they would probably think I’m insane with all the “red” from unrealized losses…mostly because of my ZINC holdings.

      So I’m not bragging about any great ROI here. I usually call myself a “successful failure!” And I use the blog to share most of the worst things that happen to me in my Rule #1 Investing.

      But what I’ve learned over the years surrounding myself with Phil, Jeff and like minded Rulers is to stay rational, know the story and know the VALUE.

      You can screw up a lot on Meaning, Moat and Management…but MOS is where you save yourself.

      I’ve also learned that Capital Allocation is something just as important as the 4M’s. We don’t teach that too much and I always think it should be emphasized how to build yourself into a position…or when to cut your losses and get out of a position…something I failed to do when ZINC tanked below my basis after my initial “load the truck up” price around $13.00…boy was I wrong! I’ve since lowered my basis buying more at the $2.50’s and $4’s.

      There was a time when I would have been freaking out over losses. I’m not doing that nowadays. Partly because I can wait 20 years.

      And after many years of investing, I pretty stick to a few companies – Stuff I’ve studied in the past. After several years of following BP, Exxon or Panera or whatever…you just keep kind of buying and trading around them.

      Also, sometimes Rulers think “diversify” is a dirty word. I don’t. I’ve got about 1/3 of our retirement portfolio invested in large apartment complexes mostly in Texas right now. Fortunately, those are doing outstanding.

      So enjoy the journey. Let me tell you right now – you will have losses. And they can happen very, very quickly. There’s nothing wrong (in my mind) with just allocating 80% to 100% of your portfolio in the S&P 500 and getting out based on “The Tools.” That can keep you safe. Maybe not rich, but safe. I’m doing that with my wife’s 401K.

      You’ll learn great Rule #1 Investing Fundamentals in Jeff’s course. Have fun, work hard and get your money’s worth for your investing education.

      To Your Wealth!
      Garrett

      • Ken V

        I am moving to Kissimmee, Florida 12/1/15. If you are going to be anywhere near there, would like to meet you and see the rest. Hoping to make it back to TI in the spring/summer to help others. Let me know.

  • Garrett Woolley

    Howdy Rulers…I disappeared for a week. Lots to catch up on the blog, but Montana’s larch pines have turned their needles yellow and the mountains are calling! Larch is one of the rare pines that actually turn from green to yellow and then drop their needles. They grow back in the spring. The mountains look like fire-stick matches.

    We took advantage of the $2.50 ZINC prices and it appears for the moment we can all breath a sigh of relief that zinc prices aren’t going to plummet.

    We have a nice little unrealized profit on ZINC shares along with those $2.50 PUTs that expire in June 2017 and some quick Nov $2.50 PUTs that were just a screaming deal with the volatility.

    So while we are enjoying a fairly nice reduction in basis on our ZINC shares in one retirement account (because we bought more at $2.50) we are enjoying a nice little profit in another non-retirement account because I started that new position.

    We’ve got a backhoe in our Montana yard right now moving dirt and boulders to do some landscaping and it’s nice to know the few thousand that it’s costing us to get that done could be paid from the unrealized ZINC profits. But I’m not planning on selling!

    That’s what makes this stuff awesome…when you can have some money in a non-retirement account for stuff you can use today to change your life and bring more memories and experiences.

    Lots of dead trees to clear some trails behind us with the ol’ chainsaw. So that’s where I’m heading next. Got a few miles to cover. This way we can go mountain biking while taking in the beautiful fall colors!

    Hope you’re all having a blessed Fall. For us in our new home up in the rockies, this is the most beautiful fall I’ve ever experienced.

    Life is good and we’re so very grateful to be here. I hope you all are finding something beautiful where you are with these incredible fall colors. I love this time of year!

    To Your Wealth!
    Garrett

    • Rule1

      Yo, Garrett. Glad to see you are putting in your quality blogging time – it’s always great to hear from you. Hopefully you’re blogging from your hotel room and not the cockpit. 🙂
      I would just make one amendment to your comment about “losses.” We don’t really think of our stock going down in price as a “loss.” It’s really a “drawdown.” It’s only a loss if you SELL the stock for less than you bought it for. I’m saying this, not for your sake because you get it but for others sake.
      By definition, the way a Ruler tranches into a stock as the price goes down, we will have a “loss” on our first tranche or purchase. That’s what we want to happen so that we can buy more shares at lower prices and lower our overall cost basis.
      So we should all just get use to having “red” numbers on our positions as the market goes down and we load up. Then we wait out the problem getting solved and some day, the stock will double in price in one year.
      We just have to make sure we are loading up on “wonderful companies!”

      • Garrett Woolley

        Rule1,

        Hello! Sounds like someone I know posting that! And yes, blogging from the hotel room at the moment!

        I TOTALLY agree here with you. As always, a few thoughts:

        Ahh, yes so the word…”drawdown” vs “loss” or what my portfolio actually says which is “unrealized losses”….What’s the word that comes to mind? EUPHEMISM – “a mild or indirect word or expression substituted for one considered to be too harsh or blunt when referring to something unpleasant or embarrassing.”

        I think of it as reducing basis as opposed to a “drawdown” as you mentioned.

        You did, Mr. Rule1, hit the nail on the head with your last sentence which was “We just have to make sure we are loading up on “wonderful companies!”

        And this is where I want to share some thoughts from personal experience and listening to other Newbie Rulers around the globe.

        How many times have Newbie Rulers loaded up on the “NOT so wonderful companies” ?

        I’ll raise my hand first!!! I’m guilty….Thought I knew something and turned out I was wrong.

        In Rule #1, Phil writes that the CEO’s number one goal is Capital Allocation.

        I think this needs to be taught. If Newbie Rulers are going to start taking responsibility for their own investing, they need some Rule #1 Guidelines here…with and without Options Strategies.

        First, my perception is that generally, Newbie Rulers aren’t allocating their portfolio correctly to minimize risk. They see an opportunity and load up too soon.

        We’ve got to teach a better way to do this. Newbie Rulers need a set of rules that guide them into building a position into a company.

        I summarize that with “You’ve got to begin with the end in mind”

        Here’s what I’ve learned to do from my mistakes.

        Each person is different with their goals and earnings potential so nobody should take this as advice.

        Personally, I try to keep my investments around 1/3 Real Estate, 1/3 stocks and 1/3 cash&gold. I’ve avoid the bond markets just because I understand stocks and real estate better. As opportunities arise, I may be more heavily allocated towards one sector than the other. But this is the middle ground for me.

        Suppose for simplicity, our investor has $100,000 in his Self-Directed IRA (which would allow him to purchase real estate investments)

        I might suggest to my lovely wife that we invest as such:

        $35,000 in various real estate projects with no more than $20K invested in each one.

        $35,000 in Rule #1 Wonderful Companies.

        $15,000 in cash/cash equivalents (for what I call “targets of opportunity – trading, safety cushion, Risky Biz…whatever.

        $15,000 in Gold/Silver – hedge against currency devaluation and crisis.

        This approximate allocation works for my goals. It’s nothing that is taught. It might be stupid for some and impossible for others. But I sleep at night.

        And right now, we’re more heavily weighted in Cash than usual as we “Got out” of the S&P 500 in September within two “mutual fund 401K type” retirement accounts based on “The Tools”

        Now that we’ve managed some our our risk by diversifying across Real Estate, Rule #1 Wonderful Companies, Cash, and Gold/Silver, we’ve minimized some of the financial damage we may have caused ourselves by stockpiling into a Rule #1 Nightmare.

        The next thing we need to do is figure out how we’re going to allocate our simulated $35,000 of capital into our “Rule #1 Wonderful Companies”

        How many companies should this Newbie Ruler invest if all he has is $35,000? One? Two? Three? Four? Five companies?

        Does our Newbie Ruler invest all $35,000 into one company?

        Or does he invest about $8,000 and see what happens to the price? Does he use an option strategy?
        If he chooses to invest in more than one company, how much for each? How is he going to tranche into building that position?

        Newbie Rulers have to BEGIN with the END in mind and then start allocating from there.

        This is were he needs a set of Rule #1 Capital Allocation Guidelines to assist him. Maybe his own, maybe one from a Rule #1 Financial Advisor.

        So, we’ve diversified a lot here. Some Rulers might say, “We don’t diversify! Diversifying is for people who don’t know what they’re doing!”

        I think not!

        If I am doing my own investing then I am my own Rule #1 Financial Advisor and CEO, I have to take responsibility for this. Who is going to teach this? We don’t want to see good people lose all they’ve earned before they understand the real risks involved here.

        To Your Wealth!
        Garrett

        • Jeremy Aldridge

          Hi Garrett – Regarding “Rule #1 Capital Allocation Guidelines”, Phil teaches those in the most recent 3-day workshops. How to appropriately diversify your portfolio, how many companies to invest in (somewhat depends on how awesome the MOS/PBT is), how much to invest in each company, how to tranche in over time, etc. I can post the information here if that would be appropriate.

          • Garrett Woolley

            Great! Someone must have been listening to me! 🙂
            I haven’t been to a workshop in a long time. Mostly just staying in touch via Phil’s other resources for his students and of course the blog. Not sure what Phil’s rules are for sharing information from the workshop on the blog. But I’m confident Phil reads everything here and if he didn’t want it posted, he’d take care of it.

            To Your Wealth!
            Garrett

          • Jeremy Aldridge

            Ok, well I’ll go for it then and we’ll see if it gets deleted 😉

            First off, depending on how much time “Newbie” has left until retirement, $35K is not likely going to be enough to sufficiently ramp up in her target time frame. She should consider studying and learning about options trading and/or scavenging for OPM (Other People’s Money) until she can get to a portfolio size of at least $100K. She should then cap that account and keep it going as a wealth generator, putting all future returns and savings into a separate account for long-term investing.

            This is one of the first harsh truths based on confronting the mathematical realities of calculating “Your Number” for retirement. It of course varies based on Newbie’s age and ability to save and her desired future income, but if she currently has $35K to invest and wants to retire in 10 years, it doesn’t matter how many Wonderful Companies she finds. She needs to kick it up a notch and light them on fire.

            Assuming all that’s in place then, a good portfolio balance would consist of 70% Rule One Companies (“Gotta Retire”), 20% Rule One Options (“Gotta Grow”), and 10% Risky Biz (“Gotta Play”). Like I mentioned before though, if she wants to accelerate the process (and most people will need to), then the short-term options account should have a minimum balance of $100K before the other accounts get funded. So some valid configurations might look like:

            $50K total: $0 long-term / $50K short-term / $0 risky

            $200K total: $90K long-term / $100K short-term / $10K risky

            $500K total: $350K long-term / $100K short-term / $50K risky

            $1M total: $700K long-term / $200K short-term / $100K risky

            Once the overall portfolio gets into the millions and/or retirement approaches, then stability becomes a higher priority than growth, and it’s time to consider further diversifying into a more “all-weather” package that might include real estate, annuities, equity bonds, bond ladders, precious metals, etc. These can of course be used earlier with smaller accounts as well, especially in self-directed IRAs, as long as the overall targeted growth rate can be maintained.

            In terms of what to put in the long-term account, Newbie should seek out up to 10 Wonderful Companies that are on sale, each consisting of around 10% of the portfolio. Here are some general guidelines:

            For WCs 1-5: 50% MOS, <6 yrs PBT

            For WCs 6-8: 50% MOS, <3 yrs PBT

            For WCs 8-10: 50% MOS, <2 yrs PBT (aka keep in cash)

            There's also a third valuation option known as Yield on Adjusted Basis. This is calculated by summing stock buybacks, dividends, and derivative profits for each year and dividing them into the previous year's adjusted basis. A good goal would be to achieve a 20% YOAB in 5 years.

            Once a Wonderful Company that's on sale has been identified, Newbie should 'tranche' in. A guideline would be to use four tranches on average, with each one being 25% of the total investment, which in turn is 10% of the portfolio. For the first tranche, the stock might quickly recover so Newbie should just buy some shares to lock them in. For the second and third tranches, she should sell ROPs that are around 10% OTM. Targeted expiration dates could be anywhere from a few months to multi-year LEAPS, depending on whether she thinks the stock has hit bottom or will continue to go down for some time. She can even sell them ITM if she wants to get put shares right away. The ROPs simulatenously schedule future stockpiling as well as reduce basis on already owned shares. For the fourth tranche, if possible she should try to buy shares after the "Event" is over and the stock is on it's way back up but still in the Green Buy zone. And if the company is really an amazing deal, she might choose to expose herself to a fifth tranche by selling more ROPs.

            It's very important to note that not all 10 companies in the long-term account will appear at once. Rather, in an ideal scenario, they will get laddered in at a pace that matches the growth of the account from earned income and options cash flow. In other words, if Newbie has $100K in the short-term account and $10K in the long term, she should try to find one or two Wonderful Companies to invest the $10K in, and not immediately 10 companies for $1K each. Keep in mind that a single Wonderful Company involves a significant amount of work to identify, track, and maintain. As the portfolio grows, so does Newbie's experience. Eventually she might wind up with 7 WCs in a $700K long-term account within a $1M portfolio. She could even consider reducing to 5 or 6, but the abolute max allocation for a single WC is 40%.

            While doing all this, Newbie needs to keep an eye on the macro context as well. That is to say if the entire stock market is tanking, then it would be wise to be more picky and hold off longer before fully loading up on a Wonderful Company. Whereas if the market is roaring along and this is a narrow isolated event, then Newbie should hurry up and get some shares before the fear subsides. It's these types of ancillary considerations that make the "rules" harder to define and explain, because as much as we'd like things to be black and white, there's always some amount of judgement involved. Nuanced situations like "I know we said to do X, but in this case you should do Y instead, because of Z" can be frustrating while trying to learn.

            It's also important for Newbie to remember Buffett's "20 slot" punch card analogy, which says that if proper scrutiny and diligence are being applied, she should only find about 20 truly good opportunities in her entire investing lifetime, or in other words one every few years. Keeping that in mind should cause her to question whether she really did just find 5 of them in last week's Wall Street Journal.

            As Rulers our progress comes in relatively quick spurts. The catch though is that we don't know exactly when those spurts will happen, so we can't stack them back to back. Rather, we have to be content sitting around for long periods of time doing absolutely nothing. (I hear that's hard for some people, but luckily I excel at it 😉 So in other words, we might sit in cash or hold a wonderful company that doesn't go anywhere for 2.5 years, then all of a sudden Mr. Market wakes up and it doubles for a 100% return in 6 months. That then gives us a nice 26% CAGR over those three years, and probably adds a year to our lifespan by not having to continually stress about what CNBC says our mutual funds are going to do next week.

            Our brains are wired to measure progress and be conscience of the passage of time on the scale of hours, weeks, and months. Investing however requires thinking in terms of years or tens of years, which is what makes Rule One concepts relatively simple to explain but suprisingly difficult and counter-intuitive to implement. (I've always thought that the Ents from LOTR would make excellent Rulers 😉

            Invest With Care,
            Jeremy

  • David Dixon

    This is one of my favorite episodes so far. It takes time to find out what works for you. Trial and error. Personally, I think I am starting to get it. I’m really interested in what you have to say about the dividend producing businesses in the next episode.

  • Carin Koegelenberg

    does anybody know how to hire an online couch to help further with investing rule one way

    • Bradlewski

      Hi Carin.
      The best way to learn Rule#1 Investing is to attend one of the upcoming workshops. Hurry because they fill up fast.

      • Carin Koegelenberg

        Hi Bradlewski, I have already attended a workshop and is going back in November, I really need help with options and ways to build up cash flow, that part was just a short part of the weekend and I need help with this, for instance for rut is it going to be a bear spread now that market is going down.

        • Bradlewski

          Hi Carin.
          Thanks for the info.
          Certainly, we can help you with that.

          Question: Have you spoken with your coach from the workshop about this?

          Also, If you are concerned the RUT will go down, a BCS (Bear Call Spread) may be the better choice.

          Next, as I am prompted to say, this board is not the place to discuss options because they are an advanced subject.

          Additionally, Phil teaches PTL (Phil Town Live). This may help you as well. Contact: info@ruleoneinvesting.com

          There are many RULERS that can help you.

          Also, you can go to my website and send me an email:
          http://bimllc.org

          Hope this helps

          • David Wang

            Bralewski, Thank for your post, very helpful. I am new ruler, wants to do BPS and BCS, if I can not monitor the expiration day whole day, if probability dropped to 70%, can I put stop order to execute the order and get out of the options? I called Ameritrade, they do not have stop loss order for this kind of options, how about IB?

          • Bradlewski

            Hi David Wang.
            If you are using the RUT. This is a European style option.http://www.investopedia.com/articles/optioninvestor/08/american-european-options.asp

            So, you need to buy it back to close it. Meaning your BTO becomes an STC and the STO becomes a BTC. Also, use the 70% trigger when you set it up and you can do nothing. There are also ways to roll it. Either way has costs. As a new RULER, learning which exit to take is very important.

            On monitoring the trade. You can set up an alert (text/email) to mitigate. Maybe put it in at 75% due to volatility in prices.

            Ask your broker about these.

            Hope this helps

          • Josh

            yes you can do that type of stop with td. i do it all the time.

          • David Wang

            Hi Josh, thanks for the info. When you put stop loss trade there for BPS, do you just put there on the expiration date only or just for the whole month, if probability drops to 70% you out of the position at any day of the month? do you actually put RUT strike price there to stop loss or brokerage allows you to put probability 70% there? I am new, and got burned before, so I need to understand everything first.

      • Kg

        Just letting you know that I have read just about every one of your comments and responses on this message board. You have a fascinating approach and I respect the wealth of information you share. You are very knowledgeable and it shines through that you are a brilliant investor. Thank you for your comments; particularly on the story of HHI. It hit my radar in Aug. and I have loved the process of understanding and “digging a canyon” with this company.

        Seeing the Equity Program in place and having another 10 DAY SHUT DOWN is going to be interesting between now and the Nov. earnings call.

    • Rule1

      Hi Carin,
      You should get in touch with Michelle, at support@ruleoneinvesting.com – she can put you in touch with someone who could give you some 1:1 help if you want.