Reflections on a world turned upside down

Everything seems very uncertain right now (credit)

A mild fear seems to stalk the lands as of present. An undercurrent of uneasiness. If you haven’t been living under a rock for the past few months then you’re well aware the Coronavirus is upon us and is working it’s way through the world. I hope you are well prepared (and I don’t just mean the toilet paper stockpiling) and your friends and family are well and will remain that way.

I’m not going to comment on whether the UK is prepared enough, or the response so far or even on the idiots buying up all the toilet roll at your local supermarket. I’ll instead focus on the financial aspects and the time we will likely all have to pause and reflect while under self-imposed or forced quarantines.

Risk tolerance

It was only a few months ago I was 100% in equities following the general advice of The Savings Ninja and MMM that “I’m young and don’t need no damn bonds – I’ll easily have time to recover from any falls”. I can’t remember exactly when but I came across this very thoughtful post from Monevator and reassessed my thinking. Not long afterwards I made the decision to shift my separate pots of money into a more bond heavy portfolio, like below:

Bonds / Equities distribution around December 2019

To say this random article turned out to be very helpful is an understatement! Many thanks to the Monevator crew, but I can only attribute this shift to pure luck. I hope I am able to use it well in the future. However, I can also confirm that even with my portfolio down about 9% overall I’m not panicking and I’m sleeping pretty well, so I apparently found an okay level of risk tolerance for myself. I am of course aware it could go way further down too though!

If you’re wondering why the SIPP is so bond heavy, I was taking advantage of a transfer in offer to a provider and it was then sitting waiting for Vanguard to open their own SIPP, which was delayed… I’d half forgotten about it, oops. Luckily it’s only a small part of my portfolio.

When being irrational is rational

I think there gets a point where the irrational acting people reach such a critical mass that not joining in with them could, rationally, leave you worse off. While fortunately my wife and I have enough non-perishable food that we could last a few weeks by default (we buy rice and pasta by the 10kg bags as standard), it was eye opening to wander down the various aisles at our local supermarket and see all the bare shelves.

Pasta? Gone. Rice? Gone. Bottled water? Gone, except the Dasani brand stuff (nobody ever wants that!). Something at the back of your head does start to prickle and make you wonder if you’re not the rational one and should pick up an extra large box of Weetabix just in case…

Within the FIRE blogosphere, there has also been a wave of “my equities are higher than ever!” and “bonds are a drag on returns!” with only perhaps Ermine and Monevator sounding the gong of “steady on folks, this can’t last forever!”. But going against the grain is not easy and I felt much inner turmoil watching other bloggers post record 20% returns in the year when I took some risk off the table and settled for my meagre ~15%.

Exploring volatility

I picked up a copy of Antifragile by Nassim Taleb from my local library to read while work is likely to have some downtime and I’m only about a quarter through it. I want to do a full review on it in a later post but I have to say I’m gaining a new perspective on how I view the world. Though I do think he bashes lecturers a bit much. I may also read Black Swan at some point, one of his most famous books.

If I were a super active investor it would be intriguing to apply an estimate of volatility to the current Coronavirus crisis. Will the UK end up like Italy in two weeks? Is the FTSE 100 going down further, hitting the lows of the 2008 Financial Crisis? How does Brexit factor into all this? Should I invest in loo roll manufacturers? Will the drop in oil price have an effect on all the above and will it be positive or negative? That last one is probably negative for me, the electric car was sort of a hedge on higher petrol prices, heh.

Of course the correct passive answer is to carry on carrying on. I’ve upped my contributions a little to buy in while things are a little lower but I don’t have a large surplus of cash I can just throw into the market right now and I won’t be shifting my bonds into equities until there’s a 5% increase or decrease on one or the other which hasn’t happened yet (though we’re getting close).

GBP version of VWRL as of 13th March 2020

It is worth pointing out that even with the fairly big global drops in stock markets, we’re still nowhere near the prices available back when I first started investing in 2016. I had bugger all cash to spare then but those small amounts are still doing pretty well compared to now. Keep everything in perspective when it comes to your portfolio. If you’re under 50, then you’ll probably be fine – both in terms of time to recover and due to the virus. If you’re coming up on retirement age then you should be heavier in bonds to reduce your volatility before draw-down and take extra care out there in the world.

Nothing will happen and then everything will

The problem with diseases like the Coronavirus is that they spread exponentially and us humans are only really good at thinking linearly. Take this as an example:

A lily pond starts with a single lily leaf. Each day the number of leaves will double, so 2 leaves on the second day, 4 leaves on the third day, etc. If the pond is full on the 30th day, on which day is the pond half full?

Have a think before you click through to the answer. It’s obvious once you stop and think about it, but our brains are trained to do linear processes by default. Your retirement plan is somewhat based on this exponential growth as well as you go into the longer term with compound interest or returns. Each year extra you work and can build up your funds gains you far more than the previous year due to new money being added and also compounding. Even if you spent all your money in that extra year working, you would still (likely) have a higher retirement income, just from the extra returns!

Compound 5% return over 30 years, starting with a £100,000 portfolio

Here an extra year of waiting from 29 to 30 years would net you an additional £19,601 whereas waiting an extra year even at the half way mark of 15 to 16 years only nets you £9,900 more! For the same amount of time! Now let’s look what happens when we’re dealing with the Coronavirus which has seen infection rates of nearly 200% a day:

The rate of growth per day if 1 person infects 2 people every day

If humans are bad at dealing with small values of exponential growth, then we’re really really bad at understanding high numbers of exponential growth. And as such, nothing will happen for a while and then it will happen all at once. Thinking in this way is hard, but I’m glad that there are people much smarter than me who have the knowledge and experience to deal with this outbreak.

My own workplace has just informed us that we’re not to travel to client site anymore, which seems a wise move. It also make it feel just that little bit more real. Stay safe out there folks, and go wash your hands!

Thoughts on doing something difficult

Having survived a difficult challenge – I had to make some notes (credit)

Hello again and apologies for not writing much in the month of Feburary.

Contary to popular rumours, I have not won the lottery and retired in the Bahamas (alas), I have just been extremely busy preparing and undertaking a massive exam at work. The prize? The “You’ve made it in this company” certification, where you start getting taken seriously for lead technical roles and the pay grades start bumping up rapidly. Also the option of being taken seriously for contracting occurs, as if you have this certification, you have a known set of skills which are very “marketable” to a potential client. Wish to claim this grand prize for yourself? Well nobody said it was going to be easy…

To protect my anonymity and the company I work for I won’t be going into specifics of what was in the exam, just an overview, but what I really want to talk about is how to prepare yourself for doing something very difficult. It could be an exam, that new exercise routine you’re planning, that big presentation you have coming up, or anything really where you’re less than 100% confident you’re going to smash it.

My own challenge

So what was I up against in this challenge?

  • Two 3 hour exams, fortunately multi-choice, unfortunately bloody hard with trick questions and barely enough time to complete them all
  • An interview with a long-standing technical lead answering obscure questions to products you’ve probably never used before
  • And the biggie: a 7 day continuous system build. It’s basically a 168 hour exam question. You start with a blank slate and build everything defined in the scenario question.

Put off yet? Only 1 in 3 people pass this process on average.

Starting at the beginning

The exams are simply knowledge checks. You’re tested on the contents of certain courses provided by the company. You’re expected to know quite a bit of this stuff just by simply doing your day to day job and learning the idiosyncrasies of how the software does certain things. Some of these are well known, others are not.

So I rocked up feeling pretty confident with myself, with pages of hand written notes and diagrams and all that good stuff you learn at University. I’ve been working at this company for several years now in big projects and am regarded well technically for developing and fixing things big and small. It can’t be too hard right?

Oh, bollocks. Is that a 45% fail grade on my exam?!

Ahem. After eating some humble pie, an additional week of study (and doing all the test exercises, extra external readings, talking with someone who’s done the exam previously and asking the product team why the hell does it work that way), and not wasting an hour of set study time I go for the exams again.

How the hell is 65% not a passing grade?!

Turns out it’s 70% oops. Which leads me to my first point.

#1 – You will fail. Repeatedly.

Roughly what I looked like after the first exam (credit)

Unless you’re one of those top 0.1% of people who can take on any task and make it look effortless, you will fail. A lot. Perhaps you underestimated the size of the task. Perhaps your abilities really just aren’t good enough yet. There’s no shame in it. Eat the humble pie, thank yourself for the experience and accept you need to grow. We all start at ground zero; it’s up to you to start the climb up.

Fortunately, you can improve! One of the most amazing things about humans is our ability to share knowledge and experience. Once you’ve identified a weakness, you can take steps to minimise and correct it. I wasn’t being thorough enough in my studies and got a wake up call. My corrective actions, while not leading to a pass the second time bumped up my score significantly. I went from feeling “holy crap I don’t know if I’ll be able to beat this” to “argh I was just a few percent off a pass” in a week. You’ve only truly lost when you give up.

Oh, I passed the third time by the way!

#2 – Make a plan and stick to it

The interview was more of the same. The key part I want to talk about is the 1 week build from hell. I’m used to working to tight deadlines. I’m used to people asking for the world yesterday and demanding it be delivered to last week. I’m used to to-do lists running several miles long all marked “Critical”. And yet I knew this would be the hardest challenge to me.

Why you ask? This 1 week build is a time management test. And I’m not great at that.

The one advantage I have is that the build scenario has a defined number of questions and you’re told what each question is worth e.g. one may be worth 20% and the other 40%. Armed with this knowledge and the ability to do basic maths, I plotted out rough time slots for each part of each question based on roughly how many hours i would have based on this percentage. The key is to then stick to those times! Speaking of which…

#3 – Check your progress against your plan

Get a timer – use your phone if it won’t distract you and check it regularly. It is frankly astounding how fast time goes when you really don’t want it to. Setting aside 3 hours to do a design document and finding out you’re two-thirds through the time and you’re only half done definitely puts you in panic mode and has the wonderful side effect (for me) of focusing my mind very firmly on the task at hand! Which leads to…

#4 – You have no time for perfect

Tick tock, tick tock (credit)

That bit of code that you know you could do better but is a bit janky now? It won’t get fixed, don’t kid yourself. The goal is ‘good enough’ and if you have the time, improve that to ‘slightly refined’. Perfect takes an inordinate amount of time. I’ve started applying this logic to my exercise routines as well – I’m not going to do every single workout perfectly and some days I’m going to just be off my game. The fact I’m doing it to the best of my ability given the constraints is enough.

Of course, the examiners in my case aren’t expecting a full bells and whistles build. They are expecting a working functional build though. The fact I even made it through the whole exam without collapsing into a caffeine-fuelled coma is a testament in itself. I know of other people who threw in the towel on day 4-5 because they just couldn’t picture the end result or messed up their first couple of days spending too much time on ‘nice-to-have’ features which weren’t that important to the end result.

#5 – Get feedback so you can improve next time!

People are generally a really nice bunch and are willing to help you if you only ask. Where possible, ask them to review your work. That week-long build I did? I failed.

However, I qualified for a “re-build” which meant I was given an additional day to improve the build but the pass mark went up. As a bonus though, I received some valuable feedback on suggested areas of improvement which made planning out how to make the most of my 24 hour grace period a lot easier to determine what to focus on.

And having just submitted my updated build a couple of days ago… I now play the waiting game to find out if the above advice was any good to myself!

EDIT: A last-minute update!

Not one day after I drafted the first ‘ready to go’ version of this post, I am happy to report that I have passed my exam! Time to work on that promotion speech! Woohoo!