Don’t Be Your Worst Enemy: Self-Inflicted Wounds Are The Worst

Don't be your worst enemy: Self-inflicted wounds are the worstA self-inflicted wound is so sad. Unlike financial blindspots, where you can plead ignorance for your actions, a self-inflicted wound is a willful and always a harmful action that puts you in a worse off situation than before.

As the markets tumble, it’s worth highlighting some self-inflicted wounds that could have prevented this fall. We’ll also learn about other common self-inflicted wounds that may derail one’s journey to financial independence.

Remember, the easiest way to never saying, “if I knew then what I know now,” is to simply listen to people who’ve been there before.

Examples Of Self-Inflicted Wounds

* Jerome Powell, telegraphing more rate hikes in 2019. Despite the S&P 500 already correcting 12%+ from its highs in 2018, Jerome decided to raise rates again on Dec 19, 2018, and telegraph another two rate hikes in 2019. Although the market was expecting the Dec 19 rate hike, it had lowered its expectations for any further rate hikes in 2019 to less than 25%. As a result, broader markets went from +1.5% to down ~2% that day, further deepening the sell-off.

Jerome could have taken a wait and see approach to help restore some investor confidence by pausing in December or providing more dovish language for 2019. Alas, he decided to keep stubbornly moving forward in spite the carnage and the expected carnage. Due to pride and a $100M+ net worth, he feared being viewed as a puppet to Trump. Now, he will be viewed as one of the most reviled men in the world as millions of investors suffer financial loss. He has hurt his reputation, his family’s reputation, and lost friends in the remaining years of his life. Do you really think his rich friends at the country club are going to give him the time of day next time he pops in for an Arnold Palmer? Of course not.

If the downturn worsens, corporations will be forced to stop hiring and start firing. It’s one thing to lose money in your investment portfolios. It’s another thing to lose money and also lose your job. The livelihoods of millions of people are at stake from Jerome’s refusal to simply take a pause and see what the next quarter’s economic data reveals.

It doesn’t matter whether you think what JP did was right or wrong. The end result was a collapse in the financial markets in the ensuing days. If you had any stocks, you lost big.

* Companies that completely change their business model overnight. Zillow is one of the biggest tech disappointments because it could have revolutionized the way we buy and sell homes by significantly lowering transactions costs. But 14 years after its founding in 2004, real estate commissions are still around 5%, while the internet has compressed downward every other fee known to man.

The reason why real estate commissions are still so high, despite Zillow and the internet, is because the real estate industry has a powerful lobby group, and Zillow’s main advertising revenue comes from real estate agents who advertise their services or listings on Zillow. Therefore, Zillow isn’t willing to hurt their customers’ bottom lines while also trying to take their money.

You better believe that if transaction costs dropped down to a fixed rate or a lower commission percentage average, many more properties would sell. Yet, the industry stubbornly holds on for dear life, thereby screwing itself in the process as fewer transactions occur.

But the real shocker about Zillow is its decision to get into the home flipping business of buying and selling homes. They’ve also bought a mortgage lending business at what appears to be a late stage in the real estate cycle. Their ultimate goal is to use their data to try and lowball some desperate seller who has imperfect information and sell their house to another sucker with imperfect information for a nice profit.

What made Zillow interesting as an investment was its asset-light business model. However, due to what I imagine is FOMO caused by a private company called Opendoor, which raised lots of money to get into the home flipping business, Zillow has decided to follow suit this year.

Who was the genius at Zillow who decided that after a 60% – 100% rise in property prices in just six years, that now is the time to use the company’s balance sheet to buy and sell expensive assets? Going from an asset-light business to an asset-heavy business has destroyed the company’s valuation. It’s now Redfin’s turn to shine.

* Bad politics. We know that most politicians on both sides are egomaniacs who are primarily focused on obtaining and maintaining power for themselves. There are countless examples of political corruption that occur every year in every country at the expense of the people they are supposed to represent. It is truly fascinating how millions of people continue to get duped by such people.

The CEO of FedEx, which reported disappointing results and slashed 2019 earnings and revenue guidance summed bad politics up perfectly,

“This is very, very important, and I’ll just conclude by saying most of the issues that we’re dealing with today are induced by bad political choices, I mean, making a bad decision about a new tax, creating a tremendously difficult situation with Brexit, the immigration crisis in Germany, the mercantilism and state-owned enterprise initiatives in China, the tariffs that the United States put in unilaterally. So you just go down the list, and they’re all things that have created macroeconomic slowdowns.”

* Not properly managing your burn. Although the startup failure rate is high, due to inexperience and irrational confidence in their product and market opportunity, a large reason for their failures is the inability to properly manage their monthly burn (expenses).

For example, during a podcast interview, the founder of a food delivery startup called Bento admitted he did not realize he spent $70,000 more than expected (30% – 40% more) one month. As a business owner, I find that very hard to imagine.

Another example is a virtual assistant company, whose CEO fired 400 of its employee via e-mail overnight after “suddenly” discovering the company had run out of money. The CEO mentioned there had been no finance guy keeping an eye out on the numbers until it was too late.

Running a new business is extremely difficult, no doubt. I salute all those who’ve had the guts to try. It’s imperative that all startups and all businesses frankly, focus more on profitability, and less on growth at any price as the economy slows.

Related: Career Advice For Those Joining Startups: Sleep With One Eye Open

* Giving up on the cusp of success. I cannot believe how many people give up before the going gets good. I’m referring to the constant job hopping after just one or two years because things aren’t just perfect. I’m talking about quitting the side hustle after 10 months because it’s not generating enough money for your liking. The longer you last, the more lucky breaks you will have!

There is no closer correlation between effort and reward than in the blogging world. This correlation is one of the main reasons why blogging is one of today’s best businesses. One of the main reasons why people hate their jobs is because they feel that no matter how hard they try, they’ll never get ahead. With blogging, the more you write, the greater your traffic.

No matter how much revenue I generated for my previous firm, it was never enough because I had to subsidize money-losing businesses. I understood the importance of being a team player, but after 13 years, I figured I should strike it out on my own instead of staying and complaining.

Despite having such a tight correlation in the blogging world, so many people quit before a year is up. But it takes 6 – 24 months to be found by the community and by search engines. Once you get through that initial cavern of silence, things start getting better and better due to increased organic traffic and a growing audience.

It’s like not spending a small fortune to watch a movie at the theatre when it first comes out. Once you patiently get through the initial hype, you’ll have a new movie to watch on DVD or streaming practically every week at a low fixed cost.

Why give up when you can keep on going?

* Quitting instead of getting laid off. A baby panda dies in the forest every time someone quits his or her job. I have seen countless examples of people who have quit their jobs only to sorely regret their decision because their colleagues who didn’t quit got laid off with a nice severance package months or sometimes days later.

Even worse than quitting your job without a severance is quitting your job without a severance, plus having little money and nothing else lined up. The master severance negotiator is able to successfully negotiate a severance, take time off, and have a new job ready to go before his or her severance runs out.

In a downturn, the ability to find another job at a salary you want will become more difficult. Therefore, it is imperative that you leave with as long a financial runway as possible.

* Thinking you just can’t lose. Whenever you think you just can’t lose is usually the time when you lose the most. My personal example is buying a Lake Tahoe vacation property in 2007 the year after earning the most I had ever made in my life. I was second-year VP and felt like the sky was the limit for my career. Of course, the financial crisis happened and I ended up losing 100% of my 20% downpayment and then some because the condo declined in value by over 40%.

Ever since that fateful misstep, I’ve had to do a lot of self-reflection before taking more risk outside my normal parameters. I suggest you give yourself a gut check as well whenever you are feeling extremely swell.

* Harassing someone in the workplace. If you are discovered harassing someone in the workplace or worse, especially if you are more powerful, your reputation will be destroyed in a nanosecond. It doesn’t matter how much good you provided to the world over the decades, you will be tarnished for life.

There is no coming back for men like Charlie Rose, Matt Lauer, and Les Moonves. There is definitely no coming back for guys like Harvey Weinstein and Bill Cosby. I am sure they would donate all their fame and fortune to get back their reputations. Even more devastating than their lost reputations is the dishonor their actions inflicted upon their respective families.

* Social media time sinkhole. Think twice, speak once. But for some reason, folks over social media continue to speak twice and not think at all! Spewing incredible nonsense on social media has a great way of coming back to haunt you. We are living in a hypersensitive world. There’s no upside in offending anyone anymore. Even comedians, whose goal is to find humor in the offensive, are getting thrashed.

Keep your time spent on social media to a minimum. Besides, Facebook is reading and sending all your private messages to other companies in order to sell you more ads anyway. So why bother?

* Being an insufferable a-hole. Sooner or later, all of us will need a helping hand. But if you’ve treated people poorly in the past or have always decided to take, take, take before ever giving, nobody will come to your rescue.

Adopt the good habit of giving as much as possible without any expectations. Treat your staff as well as you would treat your most prized customer. Fight to pay for the bill. Do your best to let go of any jealous or hate you have for someone else. It’ll only end up eating you up inside.

People will never forget your act of kindness and will go out of their way to return the favor one day.

Don’t Be Your Worst Enemy

On your road to financial freedom, you want to try and minimize your self-inflicted wounds by thinking logically. Consistently try to hit singles and the occasional double, instead of always trying to go for the home run. If you want to go for a home run, do so with 10% or less of your investable net worth.

I’ve seen too many people make a small fortune and lose it all because they didn’t manage their risk parameters properly. Be wiser by making sure your asset allocation fits your risk profile.

The self-inflicted wound I’m trying to deal with at present is working too much and stressing about how to manage FS and my investments when I would be happier taking it easy and spending more quality time with my family.

If only the good times could go on forever. Alas, tougher times are ahead.

Readers, what type of self-inflicted wounds have you caused? What are some self-inflicted wounds that you recommend others be aware? Featured image is by http://www.pejac.es/seppuku/.

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