Some Thoughts on Time

When you go to a doctor’s office and they show you a scale from 0 to 10 and ask how much pain you’re in, they nev­er ask how long you’ve been in pain.

I was inter­viewed for my first pod­cast. The Gentle Art, a week ago, and it was post­ed last night. While not focused on the book, we talked about the book a bit.

We opened the con­ver­sa­tion talk­ing about time, and I used my pain anal­o­gy to high­light how time is often miss­ing from how we think about solu­tions to prob­lems.

For exam­ple, one would imag­ine that a “lev­el 3” pain that goes on for six months feels quite dif­fer­ent than wak­ing up in the morn­ing with a bad headache.

Doctors aren’t the only ones who ignore time. Financial peo­ple do too.

Start Young!

Common wis­dom dic­tates that we should start invest­ing when we’re young. In our twen­ties, along with start­ing our first job we’re to also start sav­ing for retire­ment.

Forgetting for a moment, most human’s inabil­i­ty to think long term over the span of a few years, let alone decades. There isn’t any mea­sure­ment that rewards length of time you’ve been invest­ing.

That’s not exact­ly true but talk­ing in absolutes helps make the point that’s valid regard­less. There are some met­rics that incor­po­rate time but they’re not com­mon, in par­tic­u­lar “yield on cost.” Yield on cost is a mouth­ful though. It doesn’t quite roll off the tongue and it isn’t obvi­ous what it means. In fact, it’s almost off-putting as it sounds like it requires math to fig­ure out.

I’ve recent­ly lost my job (and found anoth­er). in that gap between the cer­tain­ty of being employed, there was a lot of uncer­tain­ty. Nothing I could have done finan­cial­ly could have pre­vent­ed that uncer­tain­ty if I had only start­ed plan­ning when the “employ­ment event” hap­pened (my com­pa­ny was acquired).

It was only because I had a dis­ci­pline of invest­ing over decades that I was finan­cial­ly secure enough to be casu­al in my job search. To allow me to pick the “best job” not the “first job” that came along.

Human Behavior Matters More than Math

That suc­cess vs the uncer­tain­ty doesn’t get mea­sured though. In gen­er­al, when it comes to invest­ing (and prob­a­bly oth­er things as well), the time peri­od doesn’t come into play with the met­rics we track.

And why are met­rics impor­tant?

Metrics are impor­tant because we are what we mea­sure. Metrics moti­vate the desired behav­ior. I talk about this a lot in my book. In fact, if you ask me what my book is about (why is my book dif­fer­ent than the oth­er mil­lions books about div­i­dend invest­ing) I’d respond:

The Elephant in the Room Has a Paycheck is first­ly about cre­at­ing a sto­ry that new investors can inter­nal­ize, and then pro­vides met­rics to align actions tak­en to desired behav­ior.

For exam­ple, most advice says “don’t look at your state­ments.” WTF?! Seriously, I read that and hear “stay une­d­u­cat­ed.”

Do you want to stay une­d­u­cat­ed about mon­ey?

They tell you not to look because they pro­mote the wrong met­ric (how much you have saved). You don’t want to not look — you want to look at some­thing oth­er than port­fo­lio val­ue. And, that some­thing should be famil­iar so that you have a frame­work for under­stand­ing it and incor­po­rat­ing what it means into your life. (In the tech space, we call this being mod­u­lar… the idea that a prod­uct can be great, but if it doesn’t fit into the customer’s life in a mod­u­lar way it becomes dif­fi­cult to get cus­tomer adop­tion.)

The Elephant’s Paycheck and Raises

In the book, I choose the div­i­dend pay­out total as the main met­ric. It’s “mod­u­lar” — mean­ing, under­stand­ing a “div­i­dend pay­check” is some­thing any­one can under­stand eas­i­ly (any­one who works knows what a pay­check is and means to them). The chal­lenge with that the over­all pay­check can be small at first, and it’s hard to get excit­ed by a few dol­lars… which means we want to look at per­cent­ages. A $2 raise, not so excit­ing. A 15% raise… whoa! That’s a big raise. (Want a raise every month? Who doesn’t?)

And back to my orig­i­nal point: how do we mea­sure the impact of time on an invest­ing habit? I renamed “yield on cost” to “actu­al yield” (to be dif­fer­en­ti­at­ed from “cur­rent yield” which is the yield at this moment in time).

Let me share an exam­ple. I buy a share of stock that pays a 3% div­i­dend for $10. That means is pays ¢30 a year in div­i­dends. Lets say time goes on, and the div­i­dend dou­bles to ¢60 while the stock price dou­bles to $20. Current yield is still 3%. But, you didn’t start with $20 (the cur­rent stock price). You start­ed with $10. You’re receiv­ing ¢60 on your orig­i­nal $10 invest­ment. That’s 6%.

Or, said dif­fer­ent­ly, if you put away $10 today… in time (if things pro­ceed as I out­line above), you’ll be earn­ing 6% on that invest­ment.

That’s a met­ric that incor­po­rates the val­ue of time, and rewards (emo­tion­al­ly) a long-term invest­ing dis­ci­pline.

I’m only part­way through the pod­cast episode, but you should lis­ten to the whole thing. And share it (please).

And, if I’ve got your atten­tion, you can either buy my book or take my free email course (which cov­ers a lot of the same stuff as the book but with­out the sto­ry­line).