This week’s letter is about taking the time to consider the long term implications of our current choices as well as offering some insight into how I approach my personal planning.
The photo above has me thinking about some additional adjustments to my TT position - I will be tinkering this winter!
If you haven’t been to the Alternative Perspectives page in a while then you might enjoy two articles from Coach Kevin Purcell. The most recent was a thought provoker for me and very enjoyable.
2009 Boulder Camp – I am very happy to confirm Joe Friel and Bobby McGee as guest coaches at our Summer Triathlon Camp. Joe and Bobby have been instrumental in my athletic career and share more than fifty years of collective coaching experience.
As a reminder, the camp will run from July 20 to 25, 2009. By letting you handle your accommodation and morning meals, we have been able to set the cost at a very affordable $1,250. This camp is open to all abilities, all-distances and will have a balanced focus between skills development, triathlon training and athlete education. To confirm a slot, please drop me an email.
Two book recommendations for you: FIASCO is a great read about structured products and investment banking – it fits with my observations from a career inside the financial services industry.
Website Optimization is a good read for anyone that runs a web driven business, or brand. The book made me realize how little I know -- lots of easy ways to improve the reach of my writing. I read the book with pen, paper and a high speed internet connection. I approached the read like a "workbook" taking notes and making changes to my website outline.
I was walking around Edinburgh this week and noticed that it is impossible to see a credit crunch. The buildings don’t know who owns them, or the prices that we place on them. That realization settled me down at the start of a very busy week. The UK faces challenging economic times.
My trip to Scotland confirmed suspicions on the state of my personal NAV. Long time readers may remember that I sold my UK property exposure in 2005/2006 and used a portion of the proceeds to help establish a Scottish residential property developer. While the development business is stable, the market outlook for sector is weak.
I’ve seen a big reduction in the upside component of my personal portfolio and a stack of paper profits went up in smoke. My marked-to-market net worth went down significatly in 2008. No wonder investment banks are looking for a way to avoid reporting the true market value of their illiquid securities. It was a (very) good thing that I am not personally leveraged -- I would be toast if I was a hedge fund.
Interestingly, prime residential rents are way up in Scotland. We have seen a 50% increase in our portfolio yields over the last three years and, I suspect, there are more rental increases to come. The upward yield shift gives comfort to our bankers (in a time when they aren’t hearing a whole lot of good news).
We haven’t seen any evidence of forced selling by developers. This could change if the main lenders take a hard line but, to date, all the key participants seem content to sit-it-out until market conditions improve.
Times like this are potentially volatile because if everyone is doing nothing then there is substantial downside risk if assets (at the margin) are forced through the market. Prices always move at the margin and, in a thin market, the actions of a few can impact the balance sheets of the many.
The Tri Biz
Over the last three years, my largest single expense category has been “triathlon”. In 2005, I downsized my sources of triathlon revenue to create space for a big increase in my financial consulting business. The net cost of doing that was probably on the order of $100,000. I suspect that is a much smaller cost than many athletes bear when they downsize work commitments to focus on qualifying for World Champs. A single year off as a doctor, investment banker or CEO can cost a multiple of my figure.
I’m fond of saying that the easiest way to increase net income is to reduce personal expenditure. I remind myself of this because the consumption treadmill is a seductive trap, constantly marketed to us through the media.
In my annual review, I look at my expenses (current, projected, core and surplus) as well as my revenues (current, projected, downside, potential). I would encourage you to do the same.
Why? Because we always underestimate the large effect that small changes have over the time lines of our lives.
$33K per annum, for seventeen years, at 4% is $782,000.
By taking action to eliminate my net triathlon cost (today), I can finance my unborn daughter’s college education (tomorrow). Of course, all this is contingent on not spending the money elsewhere, or being miserable with the change. We can take cost control too far.
For me, starting a business helps spending discipline. My accountant tells me that the IRS will "help" further by disallowing losses if we lose money for three consecutive years. As well, I have considered bringing in a financial partner to create social, and profit, pressure. There are a lot of benefits to 100% ownership (see Raising the Bar) but I also benefit from having obligations to people I respect.
My game plan for personal expenditure control:
***Focus on the training camps that I am hosting Tucson (April); Epic France (June); and Boulder (July). Last year, I attended nine training camps and only one made a positive contribution to Gordo Incorporated.
***Consolidate the best of my writings into a single location for you (the reader) to access easily. The best marketing lesson from my triathlon experience is “give away good information for free”. Helping people is fun and creates massive goodwill. I have a stack of content spread between five websites. My content is underutilized and tough to access.
***Place my library within a website where I will be able to combine: (a) my coaching skills; (b) my writing skills; and (c) my enjoyment of helping people learn from athletics.
My financial consulting business has (effectively) total concentration with a single client. I am a big believer in the value of concentration (and the illusion of diversification). However, small things matter over long timeframes… one, or two, additional relationships will make a difference.
The benefit of my business model is it fits with my desire to main freedom of location and schedule. Commitments given to clients limit my freedom of occupation (somewhat), but I love working and there is a fair exchange.
An up-coming letter will discuss (in detail) my current personal portfolio strategy. While my outlook hasn’t changed, my portfolio structure changed (due to those paper profits evaporating).
The Truly Precious
There are clear requirements to a long term focus on elite athletics. These requirements have associated costs that can increase over time.
Financial – outlined above.
Structural – to run well in triathlon, I need to maintain a high level of annual run volume. Having spent most of 2007 walking around my house in fluffy slippers (to comfort bruised feet), I know that the required level of volume is wearing my feet out.
Emotional – I don’t know about you… but I am not a whole lot of fun from three to eleven weeks out from a key competition. I used to get around this by living alone in the spare room of a fellow endurance athlete, or hibernating upstairs at my house in Christchurch. The IronMonk-gig worked for athletic performance but lacked in terms of emotional well-being. I have increasingly found that I can’t be the husband I want be while spending 20 weeks a year on the knife edge of human endurance.
Monica is so completely loyal that she’d back me for another five years of relentless focus. She respects me too much to offer the soft option of backing off to please-the-wife. I didn’t truly understand the brilliance of doing that for your husband until this year. If you are married to somebody like me, it is the best way to ensure peace of mind in your man. I’ve got a couple buddies that have managed the freedom but haven’t (yet) found their peace. Don’t think that I’ve necessarily found any!
Addicts come up with all sorts of ways to justify their actions. Generally, I am only able to fool myself for five to fifteen years at a given vocation. Increasingly, I find better and better things to focus on. Fatherhood represents another opportunity for self-knowledge.
I have been truly fortunate to have the opportunity to spend much of the last decade living as an elite athlete. It has been a tremendous experience and worth all the overtraining, financial costs and other occupational hazards. I rarely regret the past, even my mistakes and “hard times”.
One of the main hazards of objective decision making is caused by a combination of consistency bias, overvaluing what we own and overweighing sunk costs. “I have given up too much to change course” is a common thought pattern that can skew clear judgment. There are also tremendous social pressures that we place on each other to remain consistent in approach. We have an in-built bias against “flip-floppers”. This is a bit odd in a world where most of our key decisions are made against a background of incomplete, and changing, information.
I have always enjoyed “doing what it takes” and, I suspect, that most obsessed folks are excellent at getting the job done. Seeing this trait, could be why Monica likes me to have a project. Too much idle time leaves me short on endorphins.
It’s an interesting time for me. With my sport, increasing costs are reducing my enjoyment from doing what it takes. Frankly, I’d rather be a world class person than a world class athlete. I am fortunate to have been exposed to role models that manage to do both.
Since 2004, I hoped that winning Ironman Canada would give me a fairy tale ending. Just like Monica, Life doesn’t appear to have offered me an easy way out.
Back next week,
I'm enjoying my last afternoon in Southern Arizona. Tomorrow, Ben (from the February Snow Farm camp in NZ -- in photo above) and I will head north to Phoenix. Then on to Flagstaff and a repeat of the Canyon run. Monica warned me not to be a hero and JD's advice was to PB by "one second" so... I think my pals are telling me not to fry myself when we head to Phantom Ranch on Tuesday.
Next week, we follow the same route back to Boulder with one modification -- inserting a ride from Cuba, NM to Los Alamos, NM (the long way via Jemez). We drove that road to end our April trip and the climbing is too good to miss. Back-to-back centuries from Farmington to Los Alamos will put the final touch on my preparations for Epic Italy.
Dr. J was trying to figure out why the camps are so much fun and decided that the best aspect is the fact that we offer every camper an opportunity to challenge themselves on each day. You don't have to take the offer but it is there. Sharing those sorts of experiences with people is a lot of fun for us. We'll be running the Tucson camp again next spring as well as adding a mid-summer camp in Boulder. The camps tire us out but it is a "good tired" and provide me with a role to play as I age.
Come along next year and you can benchmark yourself against my Mount Lemmon time -- I do well on anything uphill over 20-miles...
Here's a summary of the key articles that made it through my media filter this past week. Given that I was training an average of five-hours-per-day with the campers... you probably heard even more than me...
***Declines in median prices of over 20% in Sunbelt and Southern Californian locales.
Looks to me that both Mood and Money are heading down. Financial historians note that the property market is like a giant aircraft carrier... slow to turn but, when it does, tending to overshoot fair value.
I suspect that everyone in America knows someone that has had their house repossessed in the last year -- that is going to color all of our judgment as we hear more of these stories.
Towards the end of last year, I recommended that aspiring homeowners get their Net Asset Statements and Revenue/Expense budgets in order. Have you done this? In order to position yourself to take advantage of potential buying opportunities you need to have your financing, and finances, in order.
We are thinking about buying an investment property (not second home). Here are my criteria:
***Climate opposite to Boulder, CO
Sound like a good deal? It does to me -- perhaps a bit "too good" for this stage of the cycle. To hit those numbers I would need a vendor to accept 15-40% less than their current asking prices. However, having done my homework, my bid price is 10% less than the most recent deal that actually completed and therein lies a tip...
Figure out what an asset is worth to you, prior to anchoring with the price expectations of the vendor
This is important all the time but even more essential in a declining market with constant negative information. By figuring out a price at which you are "unlikely to be wrong" -- you have a much better shot at being right over the medium- to long-term.
What are the signs that a target market might be poised for a large correction?
Potential buyers are building in expected price declines -- no one in the nation is expecting prices to rise. Most owners are holding depreciating assets -- we all HATE holding depreciating assets. At some stage, vendors will sell to remove the pain of a thousand paper cuts.
If you rent with a view to buying then negotiate strongly on early termination provisions -- the more Blue Chip your profile, the more aggressive you should be on all terms.
The ability to complete quickly will be seen as highly attractive by sellers. Vendors are going to get increasingly keen.
On the corporate lending side, I have not yet seen credit contraction in line with the capital that has been written off by the financial sector. I suspect that the front line banks are current preparing strategies for how they will deploy, preserve and recover capital over the next 12-18 months. When we start to hear about rising corporate bankruptcies then we will know that we've moved into that phase of the credit crisis.
Here are three things that I keep hammering into myself when I'm thinking about making an investment:
#1 -- I don't "need" to do deals (doing nothing is OK)
Be prepared, attractive buying opportunities will present themselves to educated investors.
Until next week,
I've been a little jet lagged this week and took the opportunity to write up some thoughts on an alternative periodization approach. It's what I've been using for myself, and my crew, over the last few years. I'll explain the approach more fully in the Second Edition of Going Long. Joe and I will be working on the update this Fall and it should hit the stores in 2008. While the core of the book will stay the same, we have enough new information to merit a re-write. The second edition will be supplemental to the first -- an extension, rather than a replacement.
I read in The Economist that viagra could help reduce jetlag when flying East (no joke). Don't think I'll try it but it did make me smile.
The top end of the UK housing market is cranking along -- no signs of the slowdown that I was reading about this week in the US market (Toll Brothers). I've been thinking about the main drivers of the persistent boom in top end pricing -- declining long term interest rates, plenty of global liquidity and strong executive salaries in the financial - legal - accounting - insurance industries. The banks are offering very large mortgages to the right sort of buyers - up to 10x pre-tax income. On my trip, I've heard of multi-million, 100% loan:value mortages.
Edinburgh is seeing multiple pre-qualifed buyers competing on houses worth in excess of $3 million. This is a completely new situation. Five years ago, one of our companies was the first buyer to pay over $2 million for a townhouse -- today that same property is worth over $4 million ($6 million post-renovation). Too bad we sold that one! If you want to read about some seriously large housing appreciation then research the performance of the top end London market. In dollar terms, the last three years have been truly amazing.
Interestingly, the top end yields are reasonable in London, better than Edinburgh. I expect that we'll see significant rental growth in our key Scottish markets. For our highest quality product, we have seen rents move by 20-40% over the last 12 months. That's a big move for a sector that saw flat rents from 1998-2004 and isn't the experience of the broader market.
At a micro level, the market is being driven by an increasing number of top end buyers/renters. These clients are looking for high quality in locations that (by their nature) will always be cramped for supply. Combine that with a (well placed) reluctance to undertake their own refurbishment projects and you have a situation were the best properties earn a premium return.
By "best", I'm referring to the top 0.1% of the market. We stick to the most desirable properties to ensure full occupancy and high liquidity. We want to able to rent and/or sell in any market situation because an illiquid portfolio with empty properties can kill you in a downturn.
It's been a very interesting trip for me.
One of the challenges of using a traditional periodization model is that the cycles of volume don’t always fit with the realities of your life. Put another way, when you use a table to determine your training schedule, you are typically doing either too little, or too much. Of these two situations, “too much” is the most risky.
What follows is an approach that I’ve been using with my athletes for the last few years. The traditional approach to periodization that we used in my book (Going Long) is both proven and effective. This letter seeks to provide you with alternative ideas that have helped many of my athletes achieve greater consistency and satisfaction with their training.
Here are the key concepts:
1 – the Basic Week approach maximizes training consistency over multiple months and seasons. By aiming for a “little less” each week, you will achieve more over the long run.
2 – your Weekday training is determined by the reality of your life situation, primarily your obligations to work and family.
3 – your Weekend training is split between an Endurance Day (typically Saturday) and a Family Day (typically Sunday).
4 – The training on your Endurance Day shifts based on your experience, fitness, goal event and the time of the year. You progress the nature of this day gradually and in harmony with daylight, climate and your fitness. Early season the purpose of this session is to build “endurance”, the ability to complete your desired race duration. As the season progresses, you shift your focus towards “fitness”, the ability to perform across your desired race duration.
It is typical for novice athletes to focus on “endurance” for multiple season. I spent many years with endurance as my main (nearly, sole) focus. An endurance athlete never graduates from focusing on steady-state stamina – it is the fundamental component of athletic performance.
5 – On your Family Day, place the people that support your athletic goals first. This increases your emotional harmony and gives you a break from athletics. It also has a positive athletic benefit because you arrive at work fresh on Monday – keeping you employed (!) and increasing the quality of your Weekday sessions.
6 – By agreeing a training schedule with all key players in your life, you remove the constant struggle to “squeeze in” and “juggle” training sessions. You have an agreed structure that you’ll repeat for the rest of your life. This is a holistic approach that fits your training into the larger goal of a successful lifestyle.
When you set-up your Basic Week keep the following tips in mind:
1 – aim for a Basic Week structure that you can complete “no sweat” forty weeks per year. You want to have a structure that enables you to outperform on a weekly basis. This is an important part of building credibility with yourself.
2 – while the timing structure of your week should remain the same, ensure that you vary your training protocol (what you do in each session) every six to eight weeks. Your fitness will progresses from variable overload applied consistently across many years.
3 – twice a year, insert a period of unstructured training. At the end of your season take 2-8 weeks of unstructured training and in the middle of each year at 1-2 weeks of unstructured training. The closer you move to your maximum potential and the greater your athletic success, the more recovery you will need to insert into your year.
4 – every three weeks back off on the training load, even (and especially) when you think that you don’t “need” it. You are playing a long-term game where athletic fatigue creeps into the body very gradually.
5 – use benchmark testing to track your progress. Remember that multiple month plateaus are common; the rapid progression of the novice athlete is not the typical experience of a veteran to our sport.
Your ultimate athletic development is determined by your athletic consistency, not the nature of your toughest sessions. Protect your consistency and your fitness foundation; these are the keys to reaching your fullest potential.
Hope this helps,
I’ve spent the last two weeks in Naples, Florida. In case you aren’t familiar with Naples, it is in the south west corner of the state. The old part of the city is beautiful and there are long white sand beaches on the Gulf Coast side.
This morning, I went for a spin around the best part of town, riding past what must have been $2 Billion of real estate assets. Beautiful landscaping and meticulously kept gardens made it a serene setting for an easy ride.
Having done a little market research on the top end of the local real estate market, I have noticed a large implied land premium that is built into high end properties down here. This struck me as risky given:
** Most of the properties lie between 3-7 feet above mean sea level;
While the governor’s brother is in the White House, I imagine that the state has a get-out-of-jail free card. However, that’s not always going to be the case and I can see a scenario where federal taxpayers get “re-building fatigue” for folks that want to live in low lying lands on the Gulf Coast.
I didn’t look into property yields but imagine that this is a situation where the “rent or buy” equation swings towards rent. The exception probably being a condo purchase if I was going to use the place extensively and it was a small part of my portfolio.
Of course, I am willing to fly to New Zealand or Australia for weeks at a time. From a property investment point of view, I like the markets of Tasmania and the South Island of NZ over the next 10-25 years.
If you live in the Northeast USA then you can’t exactly fly to Nelson, NZ for your Easter vacation. So, I can see the attractions down here in Florida. It’s a very beautiful part of the world.
Anyhow, I plan on using the US Gulf Coast as a leading indicator on how global warming might impact property values. If you are in your sixties then this probably doesn’t impact you all that much. As an investor under 40, it is a consideration for me.
Last week was seriously hot and humid here. It was an excellent reminder of the challenges of tropical training. I slipped back into the lessons that I learned in Hong Kong.
I’ve been reflecting on the training program that I subjected Baron to in late 2004 before Hawaii – his in-race meltdown was completely my fault (sorry buddy). It is a good reminder that coaches must continue to “do” in order to be able to successfully advise their athletes. I’ve spent thousands of hours in hot weather training and failed to remember what I’d learned. By writing it down now, I hope to do better next time.
To know, but not to do, is not to know.
My hydration rate is creeping up to 1.5L per hour now and that is for training prior to 10am. I’m still losing weight through the workouts even at those intake levels.
Reflecting on my personal hydration challenges as well as my Kona training camp, it amazes me how Molina was able to go 8:31 in Hawaii. He doesn’t do well in the heat at all. I think he told me once that his secret was to get in 8:11 shape.
Personally, I have another theory – fatigue management. Many coaches and most athletes think that endurance sports are about over-coming pain – believing that the magic elixir lies in developing superior pain management. Articles, and training programs, that are built on pain are highly popular because they appeal to athletes’ (misplaced) biases.
Pain management is likely a factor for traditional endurance sports of 2-120 minutes duration. Beyond six hours, I think it swings greatly towards fatigue management.
In my experience, we are fatigue limited, not pain limited. When we slow, our brains are shutting us down because they are tired of being tired. Well paced ultra-events simply grind the psyche down. Certain athletes learn how to cope with, and train their ability to endure, extreme fatigue.
The goal of fatigue management being to completely remove the emotive brain from the decision process of whether to stop, go, speed up or slow. That is my experience of “athletic flow” and a key component of the bigger picture that lies behind my preferred approach.
More on that, perhaps, at a later date.
Back to Florida… between 10am and 5pm, we can only do light cycling or swimming. The local pool at the Y is geared towards aqua-jogging so real swimming isn’t an option there. M made friends with the head swim coach so we now have two hours of long course swimming available 4x per week. That’s a big bonus because that pool has a reasonable temperature.
I have a half finished piece of behavioral psychology / decision making. I have another easy day on Sunday so, perhaps, I’ll get a chance to finish it off.
Right now, it’s back to work.