THE FINANCIAL PHILOSOPHER

Procuring Freedom With a 'Razor'

What does a medieval philosopher, simplicity and a "razor" have to do with freedom?  I'm so happy that you asked!

July, for most of you in the United States, may bring to mind the thought of freedom (in addition to the summer heat) as Americans observe Independence Day.  While many of us think of those things that have made our freedom and independence possible, less of us think of those things that actually take away our freedom and independence.

Freedom means many things to many people, almost to the degree that the word's meaning is abstract.  What represents freedom to one may represent enslavement or subjection to another.  More commonly, those things most considered to be liberating and/or productive have paradoxical consequences.  Today, therefore, I would like to call to mind some things that may be inhibiting your freedom, but perhaps you may have first thought of as liberating or productive.

"Entities should not be multiplied unnecessarily." ~ Sir William of Ockham (c.1288 - c.1348)

Why add complexity if it is not necessary?  Sir William of Ockham certainly agrees.  Who is Sir William of Ockham?  He is credited with the principle of Occam's Razor (or Ockham's Razor), which "recommends the selection of the hypothesis that introduces the fewest assumptions and postulates the fewest entities while sufficiently answering the question."

With regard to the "hypothesis" of how to lead a fulfilled and meaningful life, I submit that simplicity is one of the greatest virtues in this pursuit.  For example, if you reduce your daily activities to half the current level and are able to maintain the same or greater level of meaning and fulfillment, then Occam's Razor says to do so!

Let's consider some of the means of procuring freedom, in the spirit of Occam's Razor, via the pursuit of simplicity, viewed through the lens of personal finance:

• More choices often lead to less decisions, poor decisions or no decision at all.  While some choice may be good, more choice is not necessarily better.  With regard to personal finance, social research has shown that more investment choices in a 401(k) plan has led to lower participation on the part of employees.  How many investments do you need?  If you are a mutual fund investor,  the benefits of diversification will more likely diminish than increase beyond eight or ten funds.
• Allocation of Attention:  Most of us are familiar with investment assets, such as stocks, bonds and cash; however, we tend to forget an asset that may be more important -- our attention -- which is certainly one of the only assets where we can control performance.  Much like the allocation of a portfolio of investments, you should allocate where and how your attention is spent and determine if your information sources are adding to (or reducing) simplicity in your life.  What adds value?  What adds complexity?  What takes time away from your priorities?  Do you need cable tv, video games, newspapers, magazines, cell phones, or blogs?  If so, to what degree? 
• Align who you are with what you do:  This is the essence of freedom.  Do you enjoy what you do?  How much time do you spend on activities that you simply do not care to do?  Why are still doing them?  How soon can you minimize or remove them and increase the time and energy spent on things you enjoy -- your priorities?  Essentially, an increase in time spent on activities you enjoy will reduce time available for activities you do not enjoy; thereby increasing your freedom.
• Outsourcing:  Do you enjoy researching investments and planning your finances?  If not, hire a financial adviser.  How much is your time worth?
• The definition of terms:  Define the word productive.  If anything can slice needless complexity out of your life, this may be the most simple and effective strategy to do so.  To define what productive means to you, simply make a short list of the thing(s) you wish to produce.  Is it time with family?  Is it time to write the book you've always wanted to write?  Is it money for a well-deserved vacation?  Is it money or materials for a charity?  While you're at it, define a few other terms, such as wealth, strength, weakness and happiness.
• Turn down the noise:  One thread running throughout this post may be the idea that conventional wisdom has more influence on the "average person" than is healthy.  Media sources, educational institutions, parents, and other social influences are constantly trying to tell you how to act, what to study in school, what career to pursue, where to invest your money, which car to drive and what things bring you most happiness.  Only YOU should choose these things.  Tune out (or significantly turn down) outside influences and simplify, simplify, simplify...
• Beware of 'Luxury:'  I'll simply quote Socrates here:  "Luxury is artificial poverty."
  

To end this post, I'll add one more thought from the book I'm currently reading, Walden, by Henry David Thoreau, perhaps one of the greatest teachers of simplicity that ever lived (not to reduce the value of our friend, Sir William of Ockham)!

Most of the luxuries, and many of the so-called comforts of life, are not only not indispensable, but positive hindrances to the elevation of mankind.  With respect to luxuries and comforts, the wisest have ever lived a more simple and meager life than the poor.  The ancient philosophers, Chinese, Hindoo, Persian, and Greek, were a class than which none has been poorer in outward riches, none so rich inward.

What are your thoughts?  Do you have examples of procuring freedom via simplicity?  I'd love to hear of them...

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Related Post: 

Mind vs. Brain Part II:  Priorities, Pursuits & Productivity

Suggested Reading: 

Walden, or, Life in the Woods

The Paradox of Choice: Why More Is Less

What would Thoreau think of Twitter?

I'm currently reading Walden by Henry David Thoreau.  I'm also considering the use of Twitter.  The thought of both do not seem to harmonize.  But can they?

Last night, I read the chapter called, "Solitude."  It seems as if Mr. Thoreau stepped into my mind and gave me the answer to my question, "Should I use Twitter?"

Here is the "response" from Mr. Thoreau:

Society is commonly too cheap.  We meet at very short intervals, not having had time to acquire any new value for each other.  We meet at meals three times a day, and give each other a new taste of that old musty cheese that we are.  We have had to agree on a certain set of rules, called etiquette and politeness, to make this frequent meeting tolerable and that we need not come to open war.  We meet at the post-office, and at the sociable, and about the fireside every night; we live thick and are in each other's way, and stumble over one another.  Certainly less frequency would suffice for all important and hearty communications. (emphasis added)

Of course the use of any tool or the consumption of any product or service is a personal choice; however, some choices are generally better than others.  Perhaps there is a case for balance?

People I know and respect use Twitter; however I remain skeptical of its value and place in my life.  Certainly, any given person's decisions are not prudently made on the basis of one particular philosophy or point of view; however, Thoreau's case for simplicity and necessity is famously solid... and it appeals to me personally...

What value have you found with Twitter?  What are its drawbacks?  Can Twitter and simplicity harmonize?  Of course, the first answer might be, "It depends," but should my mind remain open to Twitter?  Why?

What are your thoughts? 

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Quotes on Contentment

Walden , by Henry David Thoreau

Thoreau Image by Shannon

Thoughts on Taoism, Rip Currents and Market Cycles

Success in any endeavor will likely emanate from a core philosophy, which is then carried out by specific actions or, in many cases, inaction...

"Thus what we gain is Something, yet it is by virtue of Nothing that this can be put to use." ~ Lau Tzu

A significant piece of a core philosophy, if you've not already noticed, that is implicitly and explicitly employed here at TFP, is the Taoist philosophy that may be expressed in modern terms, such as "less is more" and "going with the flow," which are woven into to the profound Taoist respect for nature:

• The pliable reed bends in the strongest of winds, the hardened tree breaks.
• The weak does not contend and so no one in the world can quarrel with it.
• The high and low incline toward one another; therefore the lowest position is the strongest -- the ocean is stronger than the rivers because it is in the lowest position -- all rivers flow to the ocean.
• The weak becomes the strong; however the strong becomes the weak.  Without the one, there would not be the other. 
  
• Everything has its natural cycle and there is no changing this cycle; therefore it is not wise to go against nature -- one should flow along with it.

"In the world there is nothing more submissive and weak than water.  Yet for attacking that which is hard and strong nothing can surpass it." ~ Lau Tzu

I enjoy teaching my two young sons about nature (and life) when we visit the beach, which is only eight minutes from my house.  Living on the coast of South Carolina, my favorite metaphor for passivity (not fighting nature -- going with the flow) is the ocean, specifically rip currents.  Water is inviting and provides peace and comfort, yet its strength is tremendous and worthy of great respect.

As the immediately preceding quote from Lau Tzu suggests, water will (sooner or later) break anything that rigidly stands against it; however, offering no resistance to it almost guarantees survival... 

Take a look at this illustration of a rip current from Howstuffworks:

 

Unfortunately and tragically, the immediate panic reaction of the uninformed swimmer is to swim directly toward the shore  (seen at the bottom of the image) -- where there is perceived safety -- yet this is the most dangerous escape route.  The safest escape is to swim away from (or perpendicular to) the shore -- the least likely of routes the uninformed swimmer would consider. 

Swimmers do not drown as a direct result of the rip current itself -- they drown from the exhaustion of unknowingly going against nature -- and in some places in the U.S., more people die each year in the face of rip currents than from thunderstorms, hurricanes and tornadoes combined.

"Wall Street never changes, the pockets change, the suckers change, the stocks change, but Wall Street never changes, because human nature never changes." ~ Jesse Livermore

Bringing the point back to the nature of financial markets, the unknowing investor can suffer tremendously by acting as if the markets are not cyclical -- as if history does not rhyme -- as if "things are different this time." 

The truth is that markets will always revert to the mean -- what goes up, must come down and vice versa -- and the denial of this is where investors make their most fatal mistakes.

The quiet but powerful message delivered by ancient philosophy, whether it is Western or Eastern, is that human behavior does not change.  If Lau Tzu observed and warned of greed more than 2500 years ago, then a reasonable person may assume that human behavior is not likely to change any time soon. 

The rip currents of financial markets, and life itself, will claim many casualties as a result of inexperience.  This inexperience, however, is not equivalent to a lack of academic knowledge -- it is a lack of self-knowledge, humility, and a lack of respect for nature -- it is the lack of willingness to bend like the reed.

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Suggested Reading: Tao Te Ching (Penguin Classics)

Related Post: Mind vs. Brain Part II: Priorities, Pursuits & Productivity

Related Page: Quotes on Contentment