This past weekend, Avi Family was invited to a Valentine-day party in our neighborhood. Folks at the party were the usual gang of local Indian families from our small town in the suburbs of Seattle. The hosts put together a fun event, especially the balloon-dance, where by couples hold an inflated ballon in between them and dance. There were drinks, good Indian food, activites for kids and general banter. After a few drinks the discussion amongst men in the group vered towards personal finance and investing. In particular, the advantage and disadvantages of keeping track of net worth, which got me thinking.

Tracking net worth is natural part of life for folks on a journey towards FIRE (of any flavor). It is however not at all obvious, what the benefits and the cost are for diligently tracking one’s net worth. I therefore thought it would be a fun exercise to summarize some of the pros and cons (if any) of tracking one’s net worth.

Musing

This past weekend, I spend most productive hour-and-a-half listening to Charlie-Munger speaking at the Daily Journal annual meeting. Below are few excerpts from the meeting

• On Tesla and Elon Musk– Elon Must is peculiar. He may over estimate himself but he may not be wrong all the time… I would never buy it (TSLA), and I would never short it
• On China– Expressed optimism on china, saying no one has taken a big nation forward so fast, creating enormous period of growth and prosperity…  Also thinks China companies are growing faster than ours (American)
• On Adjusted EBITDA– Highlighted the proliferation of EDITDA (earnings before interest income depreciation and amortization) as a profit metric as another sign of wretched excess. In the same vein he expressed his dislike for investment bankers using EBITDA, calling it bull-sh** earnings
• On stock markets– The current stock market is not as crazy as the nifty-fifty or the tech bubble of late 1990s
• On inversion– You dont think of what you want, you think of what you want to avoid and invert
• On Moats– Old classic moats are disappearing rapidly. Its probably natural part of the modern economic system that moats are disappearing rapidly

The full video is avaible on CNBC

A few charts that I found intriguing in my readings from last week

• Bull markets are not easy– It is a common refrain nowadays that we are experiencing the longest period of bull-run in the markets over a century. However, as the chart below highlights, it has not necessarily been an easy ride

• Birth Premium to investment returns– Fascinating chart put together by Michael Batnick, showing market trajectory overlayed over various generations . It goes to show the year one is born and therefore period when one starts investing probably by itself is a big driver of investment returns over ones lifetime. Another interesting observation, it seems there is a nice periodicity to the charts, with markets alternating between uninspiring returns in a given generation to booming in the next. Gen X folks have had it bad. They were born in an era of peak inflation and struggling equity markets, and when they came off age to invest, we saw two of the biggests draw down events of the century– the tech bubble and the housing bubble. Millenials on the other hand seem to have been born with a golden spoon in mouth.

Pros and Cons of Tracking Net Worth

Given the proliferation of FIRE and blogs related to the topic, its not difficult to compile a list of pros for net worth tracking, with articles such as: 9 convincing reasons why you should be tracking your net worth and blog articles such as: the benefits of tracking your net worth. So what are some of the benefits that I see:

• Provides a guide-post to anchor big-expense. My past self could never have fathomed the courage to spend over 40 grand on the purchase of new vehicle. However, the decision was made easy for AVI family, when the numbers were looked through the lens of net worth and judgement drawn on whether it is a worthy and affordable expense
• Source of inspiration/gratification on reaching a milestone. I have set myself a goal of achieving my FI number as soon as I possibly can and the act of calculating net worth each month and observing it trending towards the coveted FI goal is most inspirational
• Forces one to be mindful of investments. No one enjoys loosing money, more so when every penny of the funds are diligently tracked. Keeping track of numbers automatically invokes a sense of fiducial responsibility towards money and has allowed me on several ocassions to curb the urge to trade for quick short gains at the cost of massive downside risk.
• Debt management. Net worth has two components, assets and debt. A sure fire way to increase net worth is to reduce debt and tracking net worth also forces one to track debt and there is no pleasure in the world than to see debt tending towards zero. Diligent tracking of net worth also forces one to be mindful of any new debt burden.

All good, so whats not so good about net worth tracking

• Becomes an obsession: Like anything good in life, when indulged in excess can cause grave harm. The obsession with growing net worth can produce decisions that one could regret over the long-term at the cost of living a life! I have made a very concious decision to pursue fat-FIRE as opposed to the frugal path of FIRE lifestyle. Living a good and meaninful life does not cost much and while pursing the path of wealth is noble, it should not come at the cost of sacrificing quality time with friends and family
• Leads to anxiety: Constantly thinking of net worth and money can produce unnecessary anxiety and can interfere with normal living. Not to mention the time sink that diligent tracking of net worth requires.

I can really think of no more cons to tracking net worth. As the saying goes, “if you dont know where you are, then you dont know where you are going” tracking net worth is certainly an indicator of where one is heading towards in the journey of life long wealth building.

Video/Book/Article/Audio for the Week

• Blog: History is only interesting because nothing is inevitable, a fascinating article on the state of affairs of the peoples of America two years prior to the great depression of 1929. No one, absolutely zero folks forecasted the decade-long depression.