The Value and Difficulty of Contrarian Thinking
Now that I am semi-retired and enjoying the daily benefits that being financially independent (at least for the short-term) encompasses, I have the opportunity to be involved in our kids’ activities at a much more detailed level than ever before. As noted in the log for Day 1 of this experiment, I’ve had the luxury of spending time during these lazy summer days sitting at the pool watching swim team practice, or often just letting the kids play to pass the time. (Note: I have a new-found understanding and respect for the often-heard laments of stay-at-home parents regarding how difficult it can be to fill the days when the kids are home from school in the summer.) One of the fascinating by-products of this increased involvement in the minutiae of the kids’ activities has been the prolonged exposure to other children and their parents, and the opportunity to see some of the details of how they live their lives. For some reason you get a more intimate and accurate sense of the attitudes and behaviors of the people around you when the setting is a Tuesday afternoon at 2 pm as opposed to a Saturday afternoon when the whole neighborhood is there. During my five weeks of exposure to this world, I have observed in detail elements that are shocking to me—mostly the approach to raising kids and spending money—and the experience has served as a reminder of how contrarian many of the Joe Freedom Household’s core values are by comparison to most of our peer group.
The Art of Raising Children
Almost immediately after immersion into this setting I began to notice our contrarian views regarding the discipline and raising of our children. We live in a relatively affluent area, and should be well-accustomed by now to seeing the children of our peers do whatever they want. But nevertheless it has been breathtaking to witness how many times a day the children in this group start a sentence with the words “I want ….” It has been even more spellbinding to see how often it is delivered on command by their parents. Very shortly after I became a regular at the neighborhood pool events (where the children that were “regulars” recognized me), other people’s kids began asking us for the things they desired—they had been trained over the course of time that any adult in their field of vision was a facile tool to deliver their every desire. I have often found myself in the somewhat awkward position of having to either say “no” or “you need to ask your mommy,” since most of their requests were for things that we would have flatly refused our children if they had asked—which they didn’t, at least not until a few weeks into the summer. This situation has reminded me of the (heart-breaking) story I’ve heard regarding the silence experienced in orphanages in third-world countries. The infants that are only weeks or months old don’t cry because they have already learned that no one responds. The opposite effect is in play here. Obviously kids are always going to need to ask adults for things that they can’t get or do for themselves, but it has been clear from the nature and volume of these requests that this group has been taught “ask and you shall receive.”
At times the parents will put up something of a half-hearted fight—maybe offering up an initial “honey, you shouldn’t do that” only to cave in to the demand in short order. There is typically never any doubt how the debate will conclude. The end result is that all obstacles are removed from each child’s path each day, and every desire is quickly fulfilled. As I witness this it is easy to understand why the parents think that they are just helping their kids, but I simply cannot get my head around how they fail to comprehend that in the long-run they are in reality handicapping them. By refusing to let our kids face challenges on their own (and often fail), by trying to prevent every scraped knee, by shielding them from the harsh reality that the world is a tough place, our (affluent) society is inhibiting the development of the traits necessary to independently thrive. (Note here: this is not to imply that we get all of these things right or that we have mastered the art of raising children; we haven’t.)
Not surprisingly, our peers’ attitudes and philosophy regarding child-rearing yields similar results for their consumption and money management behaviors. There is not a lot of discipline on display here. For the frugally minded, witnessing the daily consumption carnival is akin to seeing someone repeatedly scratch a chalkboard. It is apparent that every trip to the grocery store yields a new bonanza of “treats” and indulgences. No desire—however outlandish or superficial—is ever left unfulfilled. Now if you have enough money to live like this in perpetuity—and to fund your kids’ lifestyles in this manner in perpetuity—that’s one thing. I’d still argue that raw unchecked hedonism is a bad thing in and of itself, but that’s a different discussion. And for many of the individuals and families that I’m discussing here, while they do likely currently earn high incomes, I’m fairly certain that the money supply will not outlast the demand—certainly not for the kids’ lifetimes. And thus the parents views and behaviors regarding money will ultimately deprive the kids of a true understanding of the value of money (unless they learn it somewhere else on their own, but why should they?). Since we are sharing significant amounts of time with these folks in relatively close quarters at the neighborhood facilities, we are often confronted by our kids with questions like “why don’t we get the chocolate dipped organic sugar puffs cereal to eat with our red velvet cake Oreos?” Explaining the long-term value of contrarian thinking to a 5-year-old is an effort in futility.
The “Brexit” Vote
In the midst of struggling through these weeks of stark contrarianism the so-called “Brexit” vote took place (whereby the UK decided via referendum to exit the European Union) and the masses of individuals that make decisions that move both the US and European stock markets promptly lit their hair on fire. The broad US market as measured by the Vanguard Total Stock Market Index ETF (VTI, which we use as our domestic equity index fund) fell 4.25% in the two trading days after the vote; the broad international equities markets as measured by the Vanguard Total International Stock ETF (VXUS, which we use as our international stock index fund) fell 7.01% during those two trading days. Who in the world are these people (or the institutions that they control) that decided that their equity holdings were worth 7% less than the day before the vote? While many of these market participants undoubtedly have a polished and reasoned economic explanation for this action, I believe that at the sub-conscious level this type of behavior is driven largely by herd mentality. “Everyone is going to sell if the vote is to leave, so I should too.” (OK, another equally plausible catalyst for this type of behavior is the need to trade on every tidbit of news in order to generate transaction fees.) If you thought like a contrarian and bought VXUS after the two-day swoon, you would already have earned a quick 2.36% on your money.
But don’t misunderstand this as an endorsement of a short-term investment horizon. It would have been terribly difficult to predict that the bottom would have been reached after two trading days (rather than three … or four). That’s part of the reason why I’m a buy-and-hold, long-term in investor. Timing the markets for short-term gain does not work for the vast majority of investors–even professionals. And I feel pretty confident that notwithstanding all of the Brexit-vote noise (and whatever event-du-jour moves the markets next week), the additional sums that I have moved into VXUS this year as part of our routine portfolio rebalancing strategy will be worth a lot more in 10-20 years when I need to tap them to buy groceries, and that the Brexit panic will prove to be just one more mostly
forgotten example of how the crowds get it wrong most of the time. Whatever happens to the share price between now and then is irrelevant.
When I started investing in earnest roughly 16 years ago and trying to work my way out of my entrapment chamber, index investing itself was a contrarian view. Like many novel and valuable contrarian ideas, index investing went through a period of being mocked and vilified, to gaining traction, to now being accepted in many circles as the smartest and simplest investing approach going. See JL Collins’s new book The Simple Path to Wealth for an excellent and intelligent tome on the power and simplicity of index investing.
Early Financial Independence and Contrarian Thinking
Living a lifestyle calculated to achieve early financial independence is a form of extreme contrarian thinking. It requires thinking for yourself and getting to the right answer for you; of looking at our culture’s pervasive hyper-consumption value system and saying “no thanks.” It will be easier for some than others to live an early-financial-independence (read “frugal”) lifestyle while surrounded by hyper-consumers. For example, Mrs. JF is more impacted by the lifestyles of our peer group than I am, and thus she has to do a bit more conscious work to remind herself why we think and behave as we do—we value freedom more than stuff. Amazingly many more—the herd—will never even see the FI-contrarian lifestyle as an option, and are thus unwittingly committed to a lifetime trapped in work. But for those of us that are comfortable taking a contrarian view, it can lead to a different and beautiful place.