Multivariable Investing

Do not be intimidated or made to feel a fool, for I myself am a fool and what I am about to write about is not nearly as difficult to understand as this made up title might lead you to think.

First, some background. Yesterday, I listened to this conversation between two particularly smart, particularly stoic Austin-dwellers, Tim Ferriss and Ryan Holiday. I have read one book from each of them, The 4-Hour Workweek by Tim, and The Obstacle is the Way by Ryan, and I recommend them both with the former having had a greater impact on me personally. In their recent conversation, Tim and Ryan broach the subject of investing as much more than a framework through which one can make money, but also as one through which people can make better decisions in life. This is what prompted my writing for today.

The title multivariable investing is intended to define a world of investment decisions in which the input is of a different nature than the output. In other words, there are both apples and oranges involved, as the idiom goes, and a bunch of different berries as well. A simple example is an investment of time (the input) for money (the output). Most people make this investment everyday, or at least 5 days a week. They put in their time to a job that will pay out their money. Oversimplifying the situation, their time is their initial capital, the job is the investment, and their money is the returned capital, or the total capital that is generated by the investment of the initial capital in the given investment opportunity (their job). Of course, their are skills that are grown and relationships that are developed and otherwise, but like I said, this is an oversimplification on purpose.

Now, if one is to also assume that the universe of investment opportunities for one’s time is comprised solely and in its entirety of the universe of traditional job opportunities, then the best investment of time would be the traditional job opportunity with the highest expected rate of return. Using the prior example, let us assume that the variables in the investment are still restricted to time in for money out. In that case, the job opportunity (the investment opportunity) that pays the most money (the output) per unit of time (the input), represents the best investment. In reality, it is not quite so simple because, as I mentioned in this previous post, time, like most things, becomes more valuable as it becomes more scarce (i.e. the more hours you work, the more valuable time becomes). Still, for the sake of getting where I am going, let us continue to assume the situation is as simple as described.

The question that I really want to get at is how in life to think about multivariable investing when the universe of traditional job opportunities makes up only a very small fraction of the universe of total investment opportunities, and the multiple number of variables is not just two (time & money), but far greater. This is much closer to reality. Professional investors frequently talk about the term AUM or Assets Under Management. Their assets are dollars and it is fairly simple for them to calculate the returns on their investments and to track their performance by their rate of return over time. As humans investing assets of our own, this is a much more complex and difficult task. We have many more kinds of assets under management than only dollars. We have time, money, health, effort, energy, and emotions, to name a few.

The question then is how can we think about investing the number of different assets that we have under our own personal management when the number of different assets that can be returned by our investments are equally numerous and often (if not always) coexisting on both sides of an arguably infinite number of equations that are available for our consideration in the form of investment opportunities, otherwise known as decisions. We make countless decisions everyday, investing time and money and otherwise while hardly thinking (and more often not thinking at all) about what we are putting in and what we expect to get out of a given investment. I do not mean to suggest that this is a problem, for a life spent wholly thinking about how to spend it does not sound like a life well spent at all.

Still, I do believe it is worth spending some time thinking about how we are investing our many assets, and most notably, our time itself. In case it is not abundantly clear, I have invested a good amount of time over the last few months considering how I want to spend and invest my time now and in the future, because I believe thinking about it and experimenting with it will be well worthwhile. I wrote about why I quit my job as an investment banker a few months ago, and it had to do a lot with my conviction and faith in my prediction that following my interests for up to a year would yield greater overall returns in the long run than would a third year in my old job, the returns of which were disproportionately made up of the money category and the total merits of which I figured I could probably regain after a year if I wanted to (by getting my old job back). I have since invested more time in my relationships and my health, in learning, writing, and traveling, among other things, and as I am now getting used to having less scarcity in terms of my time, I find that I am more excited by opportunities to invest a larger amount of it in one or more pursuits that I am increasingly confident will be time and effort well spent.

I have not hardly cracked the surface on how many considerations there are to be had in this subject. The question that I have raised is really no smaller than that of how one should spend a life. Ultimately, barring any exponential developments in the captivating science of human longevity, and assuming there is no Superman living among us, everyone who lives one day dies. So, in terms of investing time, money, or otherwise, the personal and individual return in the end will be zero. There may be no assets under management in the end, but I do not believe that it is a zero sum game. The investment of one’s life in pursuits that return more broadly than only back to one’s self may be a good place to pick up at another time. The concepts of saving and spending in addition to investing are also things that I am thinking about which may be worth further consideration as well, but I feel that I have invested enough time writing for today. If you have read this far, I hope that you feel that your time invested was worthwhile. The more of you who do, the more that mine was.