Financial freedom

Why Hitting Rock Bottom Is The Best Thing That Can Ever Happen!!

THE IMPEDIMENT TO ACTION ADVANCES ACTION. WHAT STANDS IN THE WAY BECOMES THE WAY — MARCUS AURELIUS

Hitting the rock bottom would mean facing any type of adversities in life and it is not easy for anybody to face adversities. But stoic philosophy teaches otherwise as I began this post with a quote by the famous Roman emperor Marcus Aurelius. The stoics guides us that adversities are the greatest opportunities in life. Again that could really be true when we remember all the adversities that has happened in our own lifes but in hindsight.

Am not delving further into philosophy. Now time for a physics concept that we have all learnt. That`s Newton`s second law of motion which states that the rate of change of a body’s momentum is equal to the net force acting on it. Hold this thought for a while.

Am an investor and am going to explain how to benefit from this concept of handling rock bottoms. I love this work of investing because it is multi-disciplinary by nature. Now if we apply these concepts in Investing, there can be huge wealth created. But how?

George Soros is definitely the best investor the world has ever seen whose fund generated an average annual return of 30% over a 30-year period from 1970 to 2000.Though am not a fan of the billionaire investor Soros who pocketed $1 billion by betting against the British pound in 1992, I have always followed one of his quote in my investing process which goes by “The worse a situation becomes the less it takes to turn it around, the bigger the upside”.

But what happens when investors face the worst situations? Most common human reactions are panic and extreme fear during adversities in the markets. When markets hits the rock bottom, that is exactly the point of extreme pessimism and lowest expectations. When the expectations are the lowest, it takes a small trigger of positive impulse (net force) to turn around and the upside could be biggest, if the law of momentum sustains.

Consider Meta (Facebook) stock that saw the most dramatic devaluation in November 2022 as the stock hit the rock bottom of $88. The whole Wall street community called it the end of social media giant. Now that was really the rock bottom and it took few harsh measures from the management to turn it around and the stock saw the highest upside. Meta stock went up 3X in 6 months !!

The Only Way is Up

The good news is, once you’ve hit rock bottom, you know you can’t possibly go any lower. You realize the bottom is actually a great springboard from which to push yourself up. This is true whether its in investing or any other aspect in life. So next time we face any adversity, the point where we feel our weakest, just understand this -> things can only change for the better. The only way is UP !!

Biggest wealth in life is ‘ ‘..A complex puzzle I solved

Why do we work? What is the purpose? The most common answer would be – to make money for a living or to pay bills. To offer a better life for our family. We always have that next car or house we want to buy. We always have the next role we are vying for in our work. Materialistic upgradation in life and higher positions in the work/ society are often confused as our growth.

Recently in an interview, Elon Musk was asked what advise would he give to youngsters and he said “‘Try to be as useful as possible to the rest of society‘. Follow your passions in a way that can benefit other people.”. But this doesn’t answer it all. There is a big missing piece that Elon didn’t address.

I was constantly seeking this missing piece in the puzzle since I started working in a corporate. It took me a decade or two to complete that puzzle and here is what I learnt. And that is the Big idea am talking about. What is the best advice I would give to a younger myself?

The Big Idea is – ‘Choose Freedom’

Sam Zell the real estate billionaire investor is somebody I had learnt a lot, listening to his interviews and book. But recently I was listening to founder podcast by David Senra who had a chance to meet Sam Zell. He speaks about different lessons learnt from Sam Zell in this podcast : https://lnkd.in/e6UvvwYi . Its a must listen one and the podcast itself is worth subscribing to.

But what really resonated with me was this same idea that he speaks about – “Go For Freedom”. This is what David posted on Twitter about this idea directly coming from Sam Zell.

“Go for freedom.

Freedom allows you to control what you work on

If you control what you work on then you can work on what you love.

If you love it you will do it for a long time.

If you do it for a long time you will get really good at it.

Money will come as a result.”

Nobody could have said this better! So finally, what is the solution to the whole puzzle?

Choose Freedom. When you have freedom, you have the power to choose the work you are passionate about, that you think has an impact and be purposeful to the rest of the society. Choosing freedom also helps us to be happy most of the times.

Think over it. ‘Freedom’ is the ultimate happiness in all aspects!!

Now choosing freedom over money or status is not an easy game for human beings though!

Looking Rich Vs Being Wealthy

We all use 2 words ‘Rich’, ‘Wealthy’ interchangeably to describe people who have a lot of money. Lets look at the below pictures and hold your thoughts. For a minute we will conclude that the guy in the first picture as filthy rich and second as a middle class person trying to meet ends. Cant blame us “what is exhibited will only be sold“, isnt it?

Society evaluate your wealth based on the car your drive, house you live in, watches you wear, the vacations you take, the corporate title you hold, the school your kids go to and so on. A person driving a $15,000 used car but owning assets worth $5 Million is considered broke whereas a person driving a $100,000 car and living in an expensive neighborhood but with a net worth of $150,000 is considered rich. Human beings are susceptible to social influence and validations from our evolutionary days and we will always strive to maintain a social identity.

I heard this funny quote somewhere recently, not sure who said it ““We buy things we don’t need with money we don’t have to impress people we don’t like.” There is a fundamental difference between what is perceived as wealth (external) and what is a true wealth (internal). People looking to get wealthy should understand why they need that wealth? is it for materialistic reasons or is it inner happiness? It might not be our natural wiring to seek the latter, but we can change our mindset through practice.

True wealth could be any of the following combinations in our life:

  1. Freedom to do the work we love everyday
  2. Ability to support causes that we really care about in the world
  3. Good house with a lot of loving family members
  4. Pursue new passions whenever we want like learning to sing, preparing for a hike, learning golf etc
  5. Great healthy body without illness (not six pack !!)
  6. Loving to travel around and create great memories

And it could be luxury cars or even houses, nothing wrong with that. But that has to be affordable well within your means. A person with a sound financial networth of $10 million can easily buy a $500,000 car might be perfectly ok. But for 95% of common people who do a job to make a living should prioritize being wealthy than trying to look rich. This means deferring gratitude and buying things when it is well within our means. Especially avoid taking debt to buy things to appear rich in front of the society. We sell our future by 20 or 30 years when we take debt to cover these expenses.

Let me recommend a great book for reading over weekend covering this topic in detail if you have not read already. Its called The Millionaire Next Door: The Surprising Secrets of America’s Wealthy by Thomas Stanley and William Danko.