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A True Asset Sets Time Free
Anything that steals time is a liability. Being intentional about the way we spend our time starts with investing in ourselves.
Daniel Lancaster
October 07, 2024
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“Wealth eludes most people because they are preoccupied with events while disregarding process. Without process, there is no event.”
― M.J. DeMarco, The Millionaire Fastlane
NEWS
What Happened Last Week
The International Longshoremen’s Association went on strike Tuesday, affecting ports across the East Coast. The strike ended Thursday when they reached a temporary agreement.
Iran launched ~200 missiles into Israel as a direct response to the assassination of Hezbollah leader Hassan Nasrallah.
Services PMI rose well above expectations in September, which indicates the services industry in the US is in expansion mode.
Manufacturing PMI remains in a slump, indicating contraction.
The US economy saw better-than-expected job growth in September, far above estimates and well above the 12-month average.
Investor expectations are high as investors interpret positive signs for the economy, according to the AAII Investor Sentiment Survey and Fear and Greed Index.
How I See It
We see positive things happening across the economy. But remember, the economy and stock market do not always mirror one another!
Stocks move on the difference between expectations and reality.
Good news for our economy is that the costly port strike did not last more than three days.
Escalation in the Middle East did not create much reaction from stocks. While regional conflict can cause very short-term market reactions, it generally takes a much more global event to affect GDP on a scale that causes a bear market.
The job growth is a welcome sign which offers further hope that we may avoid a recession this time around.
But remember, this is widely known information! Therefore, there is widespread optimism, and that shows itself in the high price of market values.
Optimism can go on for a long time, even years, so it’s not an indicator that this market cycle is nearing its end. But it is something we want to watch closely in the year ahead.
PARADIGM SHIFT
A True Asset Sets Time Free
“Every day, people sacrifice their time for tiny nuggets of wealth, where time is the liability and not the asset. Anything that steals time and doesn’t have the power to free time is a liability.”
-MJ DeMarco (self-made millionaire and author of The Millionaire Fastlane)
I admire this definition of an asset.
Because this expands the definition even beyond the investment world.
A major point that DeMarco makes in his book is that self-education is an extraordinary way to eventually set yourself free. At our fingertips today, we have access to any information ever produced and preserved by the human race. And that means we can learn any skill, any knowledge, at any time!
Four excellent places to start are LinkedIn Learning, Coursera, Udemy and Skillshare.
But by no means are you limited to these! There are far more niche skills which can be learned from independent creators and other professionals.
We live in the age of information, but so often we take it for granted. We have so many options that we often forget the value of ongoing education.
For a time, this may be used to climb the corporate ladder.
But with the right type of targeted learning, you can eventually gain the knowledge that will be the greatest asset you may have ever owned. And that asset can set you free into either an early retirement or an entrepreneurial endeavor that sets your time free.
Famed investor Warren Buffett echoed these thoughts in an interview with Forbes:
“Ultimately, there’s one investment that supersedes all others: Invest in yourself. Nobody can take away what you’ve got in yourself, and everybody has potential they haven’t used yet.”
FINANCIAL TOOL
Treynor Ratio
This is an equation that measures the following:
How much reward has an investor received in relation to the amount of market risk taken?
This is similar to last week’s financial tool: the Sharpe ratio. But it’s different.
The Treynor ratio specifically shows investors which investments have generated the greatest reward for each unit of added market sensitivity (called “systematic risk”).
Treynor Ratio =
Return of the portfolio – (Risk-free rate)
Beta of the portfolio
A beta of 1 means that the portfolio has historically moved 1:1 with the market it’s tracking. A beta of 1.3 means it has moved $1.30 for every $1.00 that the market moved, on average. And so on.
A higher beta indicates bigger movements up and down in relation to the broader market, while a lower Beta indicates less movement.
Example:
Investment A
Averaged 10% over 3 years
Beta of 1
Investment B
Averaged 11% over 3 years
Beta of 1.3
If we say the risk-free rate is 5%, then:
Treynor Ratio
Investment A: 5.0
Investment B: 4.6
What this tells us is that even though Investment A made a lower return, the unit of return per unit of market risk was actually higher than Investment B.
In other words, A achieved better results when adjusted for risk.
It’s sort of like saying, I’d rather pay $1 for one apple than $2.60 for two apples. Even if I’d prefer to have two apples!
Weaknesses in this method of risk-reward comparison include:
This ignores unsystematic risk (which becomes important if there is high concentration in any one company). It assumes a well-diversified portfolio.
This only measures past numbers which are not indicative of what they will be in the future.
Next time you’re comparing investment returns, consider using the Treynor Ratio to estimate if you’re likely overpaying with risk for the achieved return.
HERE’S HOW I CAN HELP
FUTURE RESOURCES ARE IN THE WORKS!
You will have access to in-depth digital courses in the very near future. These will cover everything from strategic budgeting to advanced investment strategies.
Basically, you will learn step-by-step how to practically apply financial strategies in a comprehensive way that will allow you to transform your life far before typical retirement age.
In the meantime, check out this inspiring book which emphasizes entrepreneurship as a "fastlane" to wealth, focusing on creating scalable businesses and leveraging value to achieve rapid financial success. It's a powerful read for aspiring entrepreneurs looking for unconventional strategies to break away from the 9-to-5 grind and build wealth quickly.
The Millionaire Fastlane by Joel Greenblatt
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