“Act as if You will be Fired Tomorrow” – the Impact of Capitalism on Family, Career, Society, and Trust

In the last few months I have been really busy. A lot of my work is mainly stakeholder management and project management. It can be very stressful but at the same time it can be rewarding because you produce something very tangible at the end.

The routine of work sometimes depresses me because it feels meaningless. The financial year is over, so I will need to prepare my tax return soon. This has its upsides because I get to see how much passive income I have received. Last year I made about A$20k in passive income, which works out to around A$1666 per month (US$1200 per month). (According to most digital nomads, passive income of US$1000 per month is enough to retire in Chiang Mai.) However, I don’t feel that US$1k per month is enough. Now that I have reached this milestone, I feel more secure in my job because, if I were fired the next day, I could simply fly to Chiang Mai and retire. Approximately two years into my job, there was a large restructure of the organisation. I saw colleagues being fired and legally abused. This experience taught me at an early age that the job you have (even a government job) is precarious and not secure. It was devastating seeing colleagues with family responsibilities and large mortgages being fired. In my opinion, this experience, coupled with witnessing the divorce of my parents, have shaped me greatly. These were hard moments but I got through these moments stronger, and thankfully none of these incidents affected me. They affected others, but because I witnessed these incidents, I was able to learn from them. The key lesson is the importance of acting as if you will be fired the next day. Whenever I walk into the office, I act as if I will be fired. I do not take my job for granted. I structure my life as if I will be fired and live accordingly. If I am not fired and make money, that’s a bonus. 

Marriage and career are similar in that, if you don’t handle them correctly, you will be in a position of dependency. My mother is a traditional woman. She cooked and cleaned and tended to the household. She was loyal. However, my father cheated on her. Many people ask me what I think about the incident and what I will do, almost expecting me to disown or become angry at my father. But I was too numb to really do anything. When I really think about, even though my father cheated with another woman, I begin to realise that my mother shares some blame because she made herself dependent on my father. She thought she was doing the right thing. Traditionalism seems like a good idea. Most people, when they are unsure of what to do, do what has always been done, which is the allure of conservatism. It provides an easy default answer. The problem is that what has been done in the past does not always work, especially when the world today is very different to the world centuries ago. Today we live in a highly capitalist individualistic society. As Margeret Thatcher said, “There is no such thing as society: there are individual men and women, and there are families.”

quote-there-is-no-such-thing-as-society-there-are-individual-men-and-women-and-there-are-families-margaret-thatcher-29-25-01

However, Ms Thatcher was wrong. The quote should be: “There is no such thing as society or family: there are individual men and women.” Society is just an aggregation of individuals, and so is a family. A family is simply a mini-society. Thatcher was a political conservative and as such felt compelled to accept capitalist ideology without understanding that capitalism and traditional family values are incompatible. Under a capitalist system, it is each man for himself, and family is an expense and liability. This explains why, as countries become more and more economically developed, family structure changes from extended family to nuclear family and now the nuclear family is breaking up into pure individualism. Under pure communism, the community, country, or people is the family. The nation is the family. However, as market capitalism is introduced, this family breaks down gradually. The next phase of capitalism will be technocapitalism, which will make the world far more individualistic. Whenever I see families, the children are on their smartphones, disengaged. In fact, often the parents are on their smartphones as well. Everyone has separate lives. Everyone is an individual, and this individualism is enhanced by technology.

So while family was important in the past, those days are over, and we must adapt to the changing times. The same applies to career. In the past, it was normal to have a job for life, but such an idea goes against free market capitalism because businesses should have the freedom to hire talent that benefits them, and so under pure capitalism you should only be hired insofar as you are profitable and if you grow older and your productivity deteriorates, the ideology of capitalism would state that you should be fired unless your experience and wisdom compensates sufficiently. More rights for businesses to fire workers as well as more private sector and contestability principles being applied to government jobs has made jobs more precarious over time. The idea of an employer being almost like a family is starting to diminish under the weight of individualism.

As such, the best approach is not to be suckered by the delusion of the sacredness of collectivist fantasies such as family, nation, or organisation. You are just an individual. You are expendable. You may be divorced, fired, or betrayed at any moment. You must expect that and you must prepare for it.

The solution is as follows:

  1. live a minimalist lifestyle in opposition to consumerism
  2. minimise all obligations, not just financial obligation (e.g. debt) but also non-financial obligation (e.g. social norms, obligations to family and friends, etc)
  3. diversify your investment portfolio
  4. live off passive income.

Ultimately, it comes down to trust or lack of trust in others. These recommendations address the risk of trusting in others. If you live a minimalist lifestyle, your distrust is in business whom you believe will try to profit off your impulsive desires. If you minimise debt, you do not trust that your the source of income to pay the debt will continue forever. If you keep people at arms distance, you do so because because you recognise that anyone can betray you at any moment for their personal gain. You diversify your investments because you cannot trust any one investment to perform well. You live off passive income because you cannot trust your job to provide for you, and you cannot trust your body to always be young and agile enough to provide value to an employer.

In an individualistic world, the only person you can trust is yourself, so you structure your life so that you never need to trust anyone.

My Thoughts on “The Big Short”

Yesterday I was watching a movie called The Big Short and it’s an awesome movie about the GFC. The movie makes me wonder about whether we are in for another financial crash. Stock and property markets went down about 50% in America and most countries around the world, but since then central bank injections of cash seem to have restored everything.

This movie blames the property crash on subprime loans, but at the end of the day subprime lending popped the entire American housing bubble. The bubble was there in the first place, and the bubble was in property, not just subprime property but also prime property, which is why property prices in the US fell across the board.

This movie also really exposed how corrupt and fraudulent the financial system is. The biggest injustice of all, in my opinion, is that investment banks created these toxic assets (CDOs, etc) and then when they were worthless they simply did a deal with the government to unload it onto the government in return for printed money (or bailout money). This pretty much means the banks can do whatever they want knowing that if things go wrong they can simply get the government to bail them out. If you or I started a cafe and the business failed, the government will not bail us out. However, this does not apply to bankers, the holders of capital. Capitalism, therefore, does not apply to capitalists. Bankers can create bubbles, create bad assets, and then sell these assets, and if everything goes wrong they can just tell the government to take it off their hands. There should be no bailout, and those who held CDOs should have been left to learn the errors of their ways. By bailing them out, you only reward bad behavior.

Looking at it this way, the banking industry is simply an arm of the government. Banks are simply government business enterprises.

The original view was that if the government prints money to buy these toxic assets off bankers, this would cause inflation, but these toxic assets are usually highly leveraged, and more debt actually increases the amount of the money in circulation, which is inflationary. As debt prices go down (e.g. there is a debt bubble that pops) then this means the expectation is that loans will not get paid, and the amount of money in circulation goes down, which is deflationary. The government printing money simply restores the money supply back to original levels. 

How to invest

My investing strategy is pretty simple. I’ve been focusing mainly on dividends and looking at funds that provide low volatility. The perfect ETF on the ASX, in my opinion, is Betashares’s HVST, which has a double-digit yield and pays monthly. It also uses derivatives to lower volatility by selling futures when volatility is high. If the market crashes, I’m sure this fund will go down, but it won’t go down that much, and while everything is rosy, this fund will produce great dividends, which is awesome.

If there is a GFC 2, I expect to take a hit. My net worth will go down, but I have been loading my portfolio up with funds that are designed to be low volatility (such as HVST) as well as other defensive investments like gold mining ETFs (ASX: GDX) as well as bond funds, and so if my net worth goes down, it won’t go down much, and when the market bottoms, I will definitely be plowing as much money as possible into leveraged ETFs expecting the government to print money to restore the economy. While the market is likely in bubble territory now, it’s also a good idea to keep debt levels low because a major risk when there is a market crash is that a margin call will be triggered. Keeping debt low reduces the risk of this happening. Furthermore, as the market bottoms, if your debt levels are low, you have more ability to take on more debt to invest when the market bottoms, which means you can leverage into leveraged ETFs and achieve “double leverage” to magnify your returns once central bankers start firing up the printing presses.

Bottom line is that at this stage you should load up your portfolio with defensive assets, e.g. cash, bonds, gold, as well as “smart beta” low-volatility ETFs, but don’t go all into these defensive assets because it’s almost impossible to determine when a bubble will pop. As they say, a market can stay irrational longer than you can stay solvent, so often when a bubble is formed, it’s often best to simply ride the bubble and make money, but always have a plan to protect yourself if the bubble bursts. There must be a plan B.