Three Things: February 22nd, 2024
I am contributing to a weekly writing format my colleague Adam has used for years called “Three Things.”
“Three Things” is a regular commentary for clients and other interested folks to recap the things that stood out to us in the previous week. We try to find inspiration from current events, articles, videos, images, and anything we can tie into a financial planning or investment tip.
If there are any topics you’d like covered, or you spotted something interesting that you’d like to share, shoot me an email at david@hardingwealth.com.
We hope you find the topics insightful, let’s get into this week’s topics...
Today we’re riffing on compounding hippos, expectations & the NBA dunk contest, and nutrition studies.
Thing #1: Compounding Hippos.
Let’s kick this off using an animal my son thinks is hilarious, a hippopotamus.
In the 1980’s the Colombian drug lord Carlos Escobar bought four hippos and shipped them to his large estate in the Magdalena river basin, outside of Medellin, Colombia. These original four hippos thrived, and after Escobar’s death in 1993, they escaped the untended wildlife sanctuary he built and made their way to Colombia’s Magdalena river basin.
These four hippos (3 female, and 1 male) did not stay four hippos for long. By 2023, the Colombian government mapped 133 hippos along ~13,000 square kilometers of river. The invasive (and completely innocent) hippos have no natural predators and began dominating and wreaking havoc on the delicate river ecosystem they were brought into.
In late 2023, Colombia announced a proactive government program to begin euthanizing and relocating the “Cocaine Hippos” as they have been dubbed.
This is a drastic and controversial measure, but the Colombian government understands the concept of compounding. While it took almost 40 years for the first 133 hippos to get here, the next 133 hippos will arrive much much faster. Their population models show the likelihood of ~1,500 hippos by 2040.
The Colombian government is going to extreme lengths to interrupt that rate of compounding population growth. It is the blue line they are terrified of.
Luckily, hippos are not the only thing that compounds.
In my case I want my newsletter writing skills to compound and for you to find these topics increasingly more useful. And in your case you probably want your investment returns to compound.
The two controllable components of compounding are amount and time. We all have different quantities of both. If you have a small amount, you will need more time.
But progress requires us to start. Start writing a newsletter, start exercising, start eating right, start saving, and start investing.
Then, to get to compounding results, we simply continue. Incremental change is a powerful force. Tiny steps forward, like four hippos in a giant country, can eventually have a massive impact.
The late Charlie Munger said, “The first rule of compounding is to never interrupt it unnecessarily.”
Once you have started your investment journey, and you have crafted an appropriate portfolio based on your unique life and investment beliefs, your remaining task is to simply avoid unnecessary interruptions to compounding.
Here is a quick list of forces that interrupt the compounding of your investments:
Market timing
Fees
Taxes
Chasing shiny objects
Making bad decisions
Our job, for all of our clients, is to help them minimize the things that interrupt compounding unnecessarily.
So, this weekly writing has become my new “thing” I’m working to compound. I’m interested in what your “thing” is. Is it a new skill, hobby, job, interest, or goal? I can encourage you that whatever it is, just get started.
Thing #2: Expectations & The Dunk Contest.
One author I pay attention to is Morgan Housel. His book, Psychology of Money, is on my Mount Rushmore of personal finance books. If you haven’t read it, let me know, and Harding Wealth will send you a copy.
Housel recently released a new book, Same As Ever. It's a book of stories about what never changes in a changing world. I’ve been reading my way through this book, taking it slow, and doing my best to sear the lessons into my brain.
The third chapter: Expectations & Reality, starts like this.
“Your happiness depends on your expectations more than anything else. So in a world that tends to get better for most people most of the time, an important life skill is getting the goalpost to stop moving. It is also one of the hardest.” (p. 25)
Earlier this week, I put the kids to bed, came out to the living room, and turned on the NBA All Star Slam Dunk Contest.
As a lifelong basketball fan, I’ve gotta say, I think the dunk contest sucked this year. The word “embarrassing” is the descriptor word I heard the most in the post contest commentary the next day.
My reaction to the dunk contest was a great example of a continually moving goalpost. The skill, creativity, and execution of the contest has increased over time. But my expectations have increased by just as much, if not more.
Here’s a thought experiment that can highlight this.
Imagine with me that it is the year 1984. The NBA is having its first dunk contest. Let me set the 1984 vibe.
The first Macintosh computer went on sale
Interest rates are at ~10%
A gallon of gas costs $1.10
Prince’s “When Doves Cry” is atop the billboard 100
I show up with a time machine, and pluck you from your home and bring you to the 2024 dunk contest.
Do you think you would be disappointed?
I believe it would blow your freaking mind when 6 foot 2 inch Mac McClung jumps over 7 foot 1 inch Shaquille O’Neal for the reverse jam like he did this past weekend.
We think we want newer, greater things. But most of the time, that’s not what we actually want. We want to feel the gap between the thing we expected and what actually got delivered. That’s what drives our happiness.
That is why having realistic expectations is so crucial to having an enjoyable life. Because you can take the good and bad, as they happen.
I’ll leave this where Housel finishes his chapter.
“Wealth and happiness is a two part equation: What you have and what you expect/need. When you realize that each part is equally important you see that the overwhelming attention we pay to getting more and the negligible attention we put on managing expectations makes little sense, especially because the expectations side can be so much more in your control.” (p. 35)
Thing #3: Nutrition studies
https://www.wsj.com/health/wellness/healthy-diet-nutrition-study-national-institutes-of-health-42d81da3?st=kyo15s63oirp2q3&reflink=desktopwebshare_permalink
The National Institutes for Health (NIH) is running a study that will cost $190,000,000 to help the government figure out what you should eat.
Nutrition guidance seems like it should be black and white. Eat this, don't eat this. But it turns out it’s not that simple.
“Scientists agree broadly on what constitutes a healthy diet—heavy on veggies, fruit, whole grains and lean protein—but more research is showing that different people respond differently to the same foods, such as bread or bananas”.
One reason for the ambiguity is that nutrition research is extremely hard to do. Long study dietary research is difficult to conduct because it intervenes with study participants’ lifestyle and habits, which are influenced by human nature.
Which is a fancy way of saying people are unreliable.
It is extremely difficult to get study participants to commit to a strict diet for a long period of time, with little oversight. And if you use obtrusive oversight, you can run into something called the Hawthorne effect, which is when people modify their behavior because they know they are being watched or studied.
To combat unreliable data, participants in the NIH study will be wearing glasses equipped with a miniature camera that is activated when they chew. Some will also use a special toilet paper receptacle that will collect stool samples of participants.
The trouble with nutrition studies is the same trouble you get when you ask someone about their personal investment returns, which is that people often don’t accurately report what they eat (earn).
Your friend who hit it big on that small biotech stock conveniently forgot to mention the 12 others which went to zero. Your uncle’s big win by owning Apple stock is far less impressive when you pair it with the Boeing he’s been holding onto tightly.
Winners get discussed, losers get hidden away.
I hope this has helped your outlook on money.
Until next time,
David Young, CFP®
Advisor @ Harding Wealth
*For informational purposes only. Does not constitute investment, tax or legal advice.
Footnotes:
I first came across the story of the “Cocaine Hippos” while reading Rubin Miller’s investment blog Fortune and Frictions. I encourage you to check out Rubin’s full article. His blog is solid.
https://www.fortunesandfrictions.com/post/cocaine-hippopotamuses
https://graduate.rice.edu/news/current-news/hippos-colombia-what-do-them
https://www.wsj.com/health/wellness/healthy-diet-nutrition-study-national-institutes-of-health-42d81da3?st=kyo15s63oirp2q3&reflink=desktopwebshare_permalink
