spectralshift

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I'll repeat the same advice I got when I approached my doctor friends about anxiety.

Look for a clinical psychologist (language issue: I'm Canadian, not positive it is identical in the states) that has experience/specializes in anxiety issues. This was recommended after I'd done a physical - basic blood work and such - but it doesn't sound like you have anything that would be related to physical issues.

The general feel I got was that it takes a bit of work to tailor a solution to your specific situation/triggers and doing it yourself, with your own biases (which are likely to be severe in the area of your anxiety) getting in the way of any kind of self-diagnosis or self-help. Your anxiety attack, if that is what it is, sounds severe enough to seek help.

I didn't think utility mattered at the start, but the numbers get so large so fast that it probably should. So the first issue is identifying if you are theoretically optimizing (max value in min time) or satisficing. Optimizing is simple - always invest when +EV exists/sell when -EV exists. Even if you ruin 99% of the time, you'll average the highest returns (1 - note below on actual optimization).

The only reason this is complicated is because of the second issue; the risk of ruin. This issue is actually minor in a normal random walk situation.

I've simulated a few rules and assumptions to validate the argument. Since this leverages timing, even a negative average rate of return in the underlying shows a very high rate of return for the strategy. http://imgur.com/a/ZrH6g for a quick snapshot. There are a few issues that I didn't bother to fix (namely with compound rules of holding onto stock), as the effect differs in only a minor way. For reference, actual mean should be about 1.0002, but I've only shown 0.9, 1, and 1.1.

The issue becomes more complicated if you stop assuming a normal model. The risk of ruin increases dramatically for any probability of major loss. To mitigate this risk, simply have a trading rule that prevents that risk from materializing, ie: don't buy if this risk exists, sell if it does. There are lots of ways, both technical and not, to implement this rule. I ran it as a maximum of the sum of negative impact (probability x loss) using two distinct normal distributions (emulating a binary market choice, each with their own distributions). It works, which means the proper technical approach would be even better.

In general, the rule is simple; buy when the average return is positive, hold until it the average return is negative, sell when return is negative. To protect against the risk of ruin, reject any major possibility of loss; eg: do not trade when there is a high SD (or a lumpy negative distribution).

(1) Actual optimization is pretty complicated. All of the above assumes that you get the information and make the transaction immediately. However, true optimization would involve compensating for random walks away from the information you know to be true on the assumption that it would return to the mean. For instance, with the knowledge of the actual range you could break the "buy and hold" strategy below certain thresholds, such as if the stock random walked much higher/lower than would be expected (eg: bought expecting an average of 1.05 -> random walked to 1.10; sell at 1.10 as it is probable to return to 1.05 by end of day).

I get a very different result when I run these numbers. I'm not from the UK so I may be interpreting the tax rules incorrectly, but here's the logic chain I used to model it (year one, so that it can be duplicated and logic verified);

  • If I invest 100,000 and pay the .5% stamp, I actually invest 99502.49
  • Dividends for the year would be 1990.05, of which I lose 746.27 to tax, leaving 1243.78 for reinvestment
  • Expected capital gains would be 4975.12 (99502.49 * 0.05)
  • Reinvesting the dividends of 1243.78 loses 0.5%, leaving 1237.56
  • Expected value at end of year 1 is 105715.2 (99502.49 + 4975.12 + 1237.56)

At the end of year ten, I expect 182334.10 in my account, which I then sell/crystallize.

The amount of tax I would pay is based on the "adjusted cost base" (google couldn't answer what term is used in the UK, but basically the amount paid for the shares). I work this out to be 118275.5, essentially buying the dividend-reinvested shares at the expected 5% growth rate during the 10 years. I then subtract the total stamp taxes paid, which I work out to be 580.43. This gives me a tax burden of 182334.10 - 118275.5 - 580.43 = 63478.17. I then deduct the 11,000 capital gains allowance. This results in a tax payment of 52478.17*0.28 = 14693.89.

Final net value of the sale is therefore 182334.10-14693.89 = 167640.21

In real terms, this is 134996.70, or a real rate of return of 3.2%

I believe the major difference in our numbers comes from the tax rate on gains.

In terms of sensitivity, I get a return of 4.84% with zero taxes (dividend and capital gains), whereas an increase to 9% (each div and cap rates at +1%) expected return gives 4.2%. This is under the assumption of the worst possible tax rates and scenarios (full sale at maximum rates). There are lots of timing methods to reduce the tax impact.

Granted, this is based on my knowledge of Canadian taxes, but I verified the UK equivalents as best I could and the differences are primarily in the stamp taxes. Most of the data is from https://www.gov.uk/tax-sell-shares/work-out-your-gain (and the related links).

Interesting! Did you make any further progress? I personally see a great deal of value in this kind of risk identification. A lot of risks are not easily solved (eg: just buy insurance!) or properly quantified (eg: accident insurance protects me from income loss!).

Generally it seems that any organisation system is highly personal as there are many individual kinks to be worked out such that there is almost no way to have a holistic system apply to everyone. Also, the vast majority of people are not interested in these kind of things, I think.

This seems very true to me and now seems like the largest factor. That combined with it being a horrendous amount of work, although I believe that may be because there is no foundation to draw on.

Also the whole thing is overwhelming. When I tried to do stuff like track my budget I ran into the problem that I would need to type in every damn receipt I got. (...) so I abandoned it for casually taking a look at my accounts and estimating how long it could last.

I can relate to this very well. I did write down every expense for almost 4 years but it was just too much work. It was never really useful either, which is surprising given everything I've read about budgets/etc. It may of helped get my wife and I on the same page, however, so I don't regret doing it.

I'd argue that this is the reason for having an overall umbrella. Why did we attempt to do this? Because we should? Because we wanted a specific answer? Does it require that kind of data? Most people who run a budget (including old me, before I got lazy!) did it because... we did. I liked the data. But it didn't feed into anything, didn't answer any important questions and didn't seem to influence my behavior.

On the other hand, if I needed to know if I can save enough in time to travel to Europe for 4 weeks... that's important to know! But it has nothing to do with a traditional budget (just cashflow), which I can do in ~15 minutes a month, if I organised myself to do it. (1)

Back to the overall umbrella/management system - the "why" should sit at the top. I do it because I need to plan for certain things, which cascades down to having a "budget" to a certain level of detail. Instead we seem to do it from the bottom up, resulting in making "perfect systems". The idea drives it rather than the actual need. There is no "good enough" in that approach. It's "cool", not effective. Maybe that's what I'm trying to define. A management system is meant to be effective, whereas we pick up a lot of good and cool ideas and try them out.

I actually have a story about that. The year was 2006 and I was heavily motivated to change my lifestyle. I'd just moved in with my then GF. We decided that we would track all our expenses (this was a good idea at this stage in the relationship, since we decided to merge finances more than normal), but further breakdown our grocery bills into nutritional groups. I have a nice table of how much I spent on meat, dairy, vegetables, grains, sweets... Talk about a lot of work. Interestingly enough, I got $29.55 in bottle returns. Anyway, I had the data but it did nothing. 50% of my food budget was still eating out. I still ate the same. Great idea, tremendous amount of work, accomplished very little.

(1) It'd be a four component thing - cash float, credit cards, direct withdrawals and paycheck.

You might be interested in the book Getting Things Done.

Much appreciated, I'll take a look!

This allows you focus on things you're doing in the moment, without worrying that you're forgetting a bunch of things you still need to do.

I think this is a large part of it, but it seems like a subset of what I'm thinking about. This is a great answer if someone came up to you and asked "how do you get things done?", and it is a pretty broad planning approach. Even better, those who use a similar system can talk about their approach, ideally sharing ideas and "best practices". Even when I googled the book, I got thousands of hits that would help me - tools, blogs, reviews. To use corporate speak, this would be a set of policies, processes and guidance... complete with workflows. It fits perfectly (this comment pending me actually reading the book!).

what I struggle with is that there doesn't seem to be anything above this. Most companies have some sort of management system that would give context to the process.

To give a corporate example applied to real life, most people don't really evaluate risk in their own life. Here at LW and such we talk about existential risk, but I'd still guess that very few have disaster supplies or plans for much more likely events (this is from recent talks triggered by http://www.shakeout.org/ ). My wife and I talked casually over dinner about earthquakes and realised this is a non-trivial problem that probably should be taken seriously. Getting home, walking long distances, bridges, what to do if our apartment isn't structurally sound or flooded, where to meet/wait if communication is impossible, what to do in winter with no heat.

The same applies to a lot of other risks - robbery, fire, financial, accidents, sickness...

Each of those can be dealt with tasks that would be governed by the GTD process, so I think it's a big part (it is either done or not!), but I feel like there is this missing umbrella that binds these things together. There seems to be a lot of social gains to it as well. Talking about disasters with our friends would lead to some pressure on them to prepare, as well as share how we would do it and possibly find shared solutions.

Example above could be replaced with less extreme examples, like how you store your files/pictures/etc or do your household budget.

This may be long for a stupid question... and it's not really one question... but it seems like a safe first post kind of place! It has just been on my mind a lot the last few months.

I was recently doing a review of my workplace's management system and used personal life examples to demonstrate why the management system is (/would of been) effective. Instead of convincing anyone else, I convinced myself my life would be better off if I had a personal management system.

I've googled high and low and found nothing that I could draw on. The amount of self-help and motivational books I waded through though... that was impressive. I find it particularly interesting that it doesn't seem present regardless of culture, even for procedure-heavy ones like Japan and Korea (at least in business) or more direct/rigid like Germany. Life just happens and you muddle through.

After putting pen to paper, I realised many "deficiencies" in my own life. I don't have a records "policy" - my files are on hard drives, NAS's, couple of clouds and a drive in a bank deposit box. I have no idea how many copies of my tax returns are floating around out there. I used to track expenses, but when I wanted to see my cashflow I realised I had no data for the last 2-3 years. I recently had to run out and buy some cleaning supplies because I ran out - that sums up my inventory system. That's a major barrier to cooking at home. I'm not sure what I have for emergency supplies either. I certainly don't plan (schedule or monitor) activities in my life at all. Risk management? I think my household insurance auto-renewed but not 100% sure.

Yet, I'd be considered decently organized among my peers. That seems terrifying.

Life isn't a project, or a company, but I think the "management system" approach would be beneficial because;

  • It engages system 2 thinking, resulting in (presumably) better plans

  • It allows optimization though sharing and iteration (assuming some common approaches develop)

  • It helps communicating and being held accountable, least for a certain set of relationships

  • It helps manage change, like the move from portable drives to cloud storage, or changing insurance coverage

  • It increases transactional memory, where you can put trust into a system to avoid having to keep a mental maps (of files, of money, of contingencies)

  • It allows outsourcing since the process is relatively well defined, such as to (virtual) assistants or maid services (I believe it'd be a net economic boom)

  • It can help be pro-active, like staying in touch at regular intervals - both prompting and prioritizing (more to do with how you approach life)

However, my prior is that almost no one does this. The most I've seen are individual components - some people run very good household budgets. It just doesn't exist as an overall framework.

Why? Is it because it doesn't work and/or isn't a suitable approach? A lack of definition to "life" to structure around/optimize towards? Is it more emotional, not giving up control and flexibility? Not taught/not socially acceptable? Does System 1 not bother with it, leading to failure?

--

I've spent some time working on this but it's tough and I'm really not sure the effort would be worthwhile. The trigger to take it seriously was a long chain of events that led to a life achievement list. It's still in brainstorming mode, but getting huge and it seems to me that I need to put a lot more effort into optimizing for it.

Just to be clear, a lot of the answers I have gotten in person have been along the lines of "pick what you want and focus on it". I think it misses what I'm trying to convey - how do you manage everything you don't focus on? Why do you do things a certain way? I want to know what to do with my copy of my taxes next time I file. I want to do it because I should and I want to know why I should. The system offers an imperative, built on the foundation of having thought it out and deciding "this is how it should be".