A friend asked me if I had any rules for investing, not necessarily in stocks but in other things, and I said that I didn't have hard and fast rules, but thought about it more in terms of principles. What are those principles, she asked? Well... I didn't quite have an answer ready.

I've thought more about it and decided to put it all in one place publicly.

First, I divide investments into "risk" and "no risk" categories. You could argue that everything has some risk, but I consider the no-risk investments to be things where, in my estimation, there is less than a 2% chance of loss. This is arbitrary and subjective, but for my investments there's a pretty clear cut line.

Investments that fall into this category would be CDs, fixed rate return stuff like BlockFi USDC coins, and investing in a friend's real estate development where he pays me a fixed return.

My friend Michiru was very excited about a new thing that some of her Japanese friends had brought to San Francisco. It was called a "puzzle break room" and her description of it made absolutely no sense to me. She kept insisting that I would love it and that I absolutely had to go, but I only reluctantly agreed to go when she wrangled a free ticket for me.

She was right. The hour where I tried and failed to solve the puzzles went by in a flash and I was left wishing there was another one that I could do immediately.

Fast forward five or so years and I've probably done at least one hundred puzzle games. I've done over fifty in Budapest alone. When I'm with my other escape game friends we set fastest time records a good 20% of the time or so.

Escape games are absolutely one of my top few favorite forms of entertainment, and the problem I now have is that it's hard to find good ones that I haven't done in the cities that I visit. You would think that after doing so many I would have seen everything, but the truth is that almost every game I do has some element that I haven't seen before, often many of them.

A friend and I were discussing food. I told him that I didn't care about food, and he laughed and said that I cared more about food than anyone he knew. I am so obsessed with ingredients and quality and wouldn't eat at a lot of restaurants.

I thought about it and realized that he was right. I do really care a lot about food. I try to learn about what goes into it and how it's made and I have very strong opinions on both of those things for a wide set of foods. I probably wouldn't voluntarily eat 95% of the items outside of the meat and produce aisles of the grocery store.

And yet... I still feel like someone who doesn't care about food. When I'm by myself in the US (and even most of the time when I'm not) I eat the same exact thing every day. A small bowl of nuts at 4pm, Chipotle at 6pm. I love those foods, but if they went away I'd just substitute them with something else and carry on. In my mind, someone who really cared about food wouldn't do that.

A month or two after I began quarantining for Coronavirus, someone commented that the virus must have really impacted me. No, I said, it didn't have any big effect on me. Then I thought about it more and realized that it destroyed my main business, my wife's career, and my entire lifestyle of traveling all the time.

For the past few days I've had a spring in my step. Why? Because I'm writing some tax-loss-harvesting and rebalancing software, of course.

Yesterday, as I was coding, I realized how monotonous the code I was writing was, but how much I was enjoying writing it. It was a strange combination. I don't always love coding, and the monotony does get to me at times.

I thought about why that was, and I realized it was because I had become fascinated with portfolio optimization. I was really curious about how it worked, how different strategies would affect results, and what would happen to my hypothetical portfolio once I made the changes.

On a smaller scale, I had become fascinated with how to program the algorithm. Do I sell over-proportioned positions first? Do I tax loss harvest first? If I don't have enough cash left to buy a share of the most under-proportioned stock do I hold the cash or buy the second most?

Partially because of my previous two posts about managing your finances like a billionaire and because of the obvious impact of of coronavirus on CruiseSheet, I've gotten a lot of emails recently around money and finance. I realized that there's one missing piece that I may not have talked about much before, but which may be valuable to readers.

We all have infinite ways to spend and invest our money, and since it's a finite resource, it's important to make sure that it's managed in a way that will bring maximum benefit (whether to us personally, our families, the world around us, etc).

I think most people do a pretty bad job of this. They have no idea why they're saving money (and thus usually don't save much), and they spend money like everyone else spends money, gaining only accidental overlaps with what would benefit them most.

The way I manage and spend my money is based on two fundamental principles (which could change over time as my preferences change, and are not the same as they were 5 years ago)

This is a continuation of last week's post. Read it first or this won't make much sense. One clarification from last week that several people pointed out is that my definition of Beta was too simple and a better definition is that Beta is the reward you get for taking risk. The end result is the same, though: diversify your risks to receive a somewhat steady reward while having the risks counteract each other as much as possible.

I also realized that I probably should have waited for this post before inviting comments, because several people pointed out why you wouldn't want to lever up in the current climate, which I address here.

Preserving Money

I was starting to understand the blueprint for managing finances. You want the most balanced portfolio possible, so that you can that add leverage to maximize the return for any given risk tolerance. As I delved into these portfolios and saw their historic performance, the graphs looked a lot more palatable than the index fund graphs that had previously turned me off.

These past couple weeks represent the biggest shift in my understanding of personal finance in many years, maybe even decades. Things that never made much sense to me (and which I dismissed as foolish) now make a lot of sense, and my own plan for how I manage my finances has changed drastically. I also have a much greater understanding of what is happening in the economy (for example, why the stock market is so high when things are going so poorly).

It all started with Mark Zuckerberg. I read online somewhere that he bought a 6 million dollar house and got a mortgage for it. Why would you get a mortgage for a house when you're a billionaire?

This led me down a rabbit hole and made me realize that extremely rich people treat personal finance in a fundamentally different way than you and I do, and that their approach can be scaled down and used by normal people like you and me (if you're a billionaire and I have offended you by calling you a normal person: sorry).

Debt

I've been asked a lot recently about how I manage different priorities and how I translate those priorities into day-to-day actions. It's always a good question, but with many of us finding ourselves less distracted with travel and entertainment, the question is more relevant than ever.

Let's go through a quick exercise to help solve this problem in real-time.

First, write down the areas of your life that demand your attention or those in which you would like to make progress. A simple version might be

1. Work2. Fitness3. Relationship4. Social Life5. Learning

I've been studying Japanese tea ceremony for a little over a year now. The way you learn is by watching people who are better than you, trying to imitate them, and then receiving corrections from your teacher.

There are dozens of types of tea ceremony, but the simple ones you do as a beginner last for about 15-25 minutes, depending on how many guests you have and how quick you are. In that time you perform dozens of steps, and most of those steps have a lot of nuance to them, so you may have gotten a certain amount of water from one container to another, but you may have done it all wrong.

In that way, it reminds me a lot of ballet. There is a precisely correct way of doing everything, and even if you do it for years there is still room for improvement on even the most rudimentary movements.

At first I thought that I was great at it, because I received very few corrections. Then as I got better I realized that teachers usually only correct a couple of the biggest mistakes so that you have something to focus on. Like so many other subjects, you constantly realize just how incompetent you were just a few weeks ago.

As I mentioned in my last post, one of the things I did recently was move Sett to a new server. This is a task that I had every reason to do five years ago, but had been dreading and putting off. It was never that urgent, wasn't moving me closer to any major goal, but most importantly it just sounded like a miserable project.

The most daunting part of it all was that all of the software that Sett relied on was horribly out of date. I was two major versions of PHP behind, and each of its 5-10 dependencies was certainly either obsolete or out of date. Of course, as time went on this disparity became even greater, making me even less likely to want to do it.

At first this cost me about $170 a month, then I finally downgraded our server (but used the same image) to save about $40 a month. Overall, it probably cost me about $10,000 to not move servers! Even greater than this cost is the constant burden of knowing in the back of my head that I should move it and having to make the decision of whether or not to do the work.

Finally, in quarantine, I decided to take a stab at it. I resolved to spend half a day working on it and reassessing from there. If it was going to require too much of a rewrite I would try something else. It was hard to know exactly how long it would take, but it felt like a 5-7 day project to me.