What's Next?

Technology as well as phases in our lives tends to move in S curves. We start out slow. The Wright Brothers Flyer had a top speed of 30mph. It took six years before the Bleriot VI moved the bar to 47 mph. Then things started improving rapidly. In less than ten years WWI aircraft could fly at over 200 mph. In the 1930s all metal monoplanes broke the 400 mph barrier. However, that was just about the end for piston engine, propeller driven aircraft. Certain hotrod versions of WWII fighter planes cracked 500 mph, but they were not practical aircraft. It took a new technology, the jet engine, to start the curve over at a new higher level. Now it seems the practical limits of jet aircraft is about Mach 2.5. Yes, I know about the Mach 3 SR-71, but the Air Force has retired those incredible machines. They just aren’t cost effective when compared to satellite technology.

Likewise, as we start a new phase in our lives or learn a new skill, it takes some time to master the basics. Then once we understand the fundamental principles, our proficiency increases very quickly, until we finally begin to push against the inherent limits found in that body of knowledge. We begin to stagnate, relearning the same lessons over and over again. Finally, if we are lucky, sometimes we will once again begin the learning process anew, sometimes at another level. Some call this process, “the learning curve.”

I learned to fear and avoid debt, at my mother’s knee. That skill set has served me well. For most purchases, I successfully used the save and pay cash method. When I needed to take out a mortgage in order to buy a home, I paid it down as fast as possible. Avoiding debt and learning to live on less than I earn has served me well, but it wasn’t enough to take me to the next level. So, I set out to learn the basics of value investing. That too has worked well. Even in tumultuous times, a diversified portfolio of profitable companies that pay a dividend supported by a reasonable cash flow seem to do OK, but I am at that point on the learning curve where considerable effort is not increasing my knowledge as quickly as in the past.

Here is where the analogy with technology begins to break down. There is a point when practicing piano, a martial art, or dance where the student sees very little progress, even given a great deal of effort. Continuing to practice even when there is no discernable improvement is often the ingredient that separates the run of the mill journeyman from the master.

I will continue in the practice of frugality. After all it is the engine that generates the money I use to build my portfolio. From time to time I am tempted to increase my holdings with borrowed money, but that is dangerous. I know a brilliant entrepreneur who was once had a net worth somewhere in excess of $50 Million. In the recent Real Estate crash he lost more money than perhaps a hundred ordinary people might earn in 20 years because he was playing with borrowed money. Today he is fighting a serious cash flow problem, trying to hold on to what is left of his properties. He can’t sell them because he owes more than they are worth. It is the problem that roughly a third of American homeowners face, multiplied by a thousand.

I will continue to manage my investments to the best of my abilities. I will also continue to study, hoping to find something to jump my performance to another level. If I find it, I will share with you my readers.