20 September 2007

Year End Review 2007

Shortly, I will be on the road to Santa Cruz. I am looking forward to the weekend with Brant and Mark. Questions, fears and a persistent desire to spend time alone in nature. I don't expect anything fancy from the guys but their calming presence is useful for clear thinking.

This is an interesting period for me because I have huge energy, both mental and physical, but... I sure get tired if I try to 'train'! On the mental side, I am ready for short bursts of activity (like blogging) but am struggling with getting much sustained work done, such as the second edition of my book.

Before this week's letter, a reminder that I'll be speaking at a USA-Triathlon Clinic, in Colorado Springs. First weekend of November. If you want to learn practical tools for making a living from sport (running, cycling, swimming, triathlon) then this is the clinic for you. The speakers have helped build many successful coaching business and will be sharing how they go about it.

Also, if you watch Mat's blog then he'll link up an interview that we did with Chris McDonald, Ironman Kentucky champion. Look there on Monday. The interview is great. Thanks to Chris and Marilyn for dropping by the studio.

Key things that I was reminded of:

***athletes that are going to do well at elite IM get to the top of the AG ranks quickly. There is a very rapid early performance progression -- then you have to start "training". Chris, Clas and I -- it took each of us two years to get into low 9-hour shape (mid-9s for me). Clearly some athletes have an edge getting down to that point (Kona Qualifier shape).

***for the men especially, a massive capacity to absorb (not merely do) work is a universal requirement. Chris' 2006 season is not for the faint hearted! Nearly all the top guys have done some large, sustained volume at some stage. Chris is unique in that he hasn't (yet) faced deep overtraining.

***there is value in taking yourself far, far beyond your comfort zone -- the pathway from which performance flows isn't clear to me -- mental and well as physical, perhaps

***expect extreme financial despair and hardship along the athletic path -- you are making a decision that will result in a permanent reduction in your financial stability // folks in their early 20s are not equipped to think this through to their 40s, 50s and beyond

***you will face bleak periods where you want to quit; you're also likely have some great days

***even as an Ironman Champion, your athletics (alone) will have you living below the poverty line. You'd better really enjoy training and actively/immediately develop alternative income sources.

It's worth a listen -- remember that Chris "made it" farther than most of us will achieve in our athletic careers. He is an 'outlier' and your mileage will vary -- the average elite retires broke (but fit and with a nice tan) when they can no longer cope with the financial stress.

Head to the Planet-X website on Monday. They should have an MP3 and PowerPoint presentation that I did on Training/Racing with Power. I went into a lot more depth than the IronmanTalk podcast. Many thanks to Mat/Alan/Brian/Rebecca for their help in creating this for you.


Since I left Hong Kong at the end of 2000, I’ve operated on a year that runs October to September. Most years, Ironman Canada sits as the center of my athletic universe and, at times, the center of my total universe. As a result, September is a time for reflection and planning.

When I fail to achieve a goal (such as winning Ironman Canada), there is a temptation to radically change things. Reading my writing from the first few days after IMC I can see this pattern. However, before one considers what didn’t work, it is worth considering what did work. So I have spent some time thinking about the following:

***What worked this year?

***What changes might enable things to work even better next year?

***What held me back this year?

***What changes are required for continued personal growth?

***Did I give my previous plan every chance to succeed?

***What do I enjoy doing?

Notwithstanding all that, there are deeper considerations to be made prior to tackling the issue of athletic success. To bring these issues into focus I’ve asked myself:

***What did I achieve in the last year? Specifically, what are the items that will have a long term beneficial impact on my life?

***If the next twelve months were similar to the last twelve months then would I be OK with that?

***What items need my focus to make personal progress over the next twelve months? More specifically, how do I want to focus my personal development activities over the next year?

Given my high level of effectiveness and satisfaction, there are a lot of things working in my life. In seeking to improve performance on a single day (August 24, 2008) – I don’t want to impair the quality of the other 364 days of my year.


I’m going to share my thoughts on the answers to the questions but, within this article, “my thoughts” are the least important aspect. Why? Because they are merely my answers.

I’d encourage you to seek, then ask, the right questions of yourself.

In my consultancy practice, my clients receive the greatest value when I ask the right questions -- not when I give the most forceful answers.

I need to constantly remind myself of the above point because giving answers soothes the ego. Of course, the uncertainty of the outcome of our own questions is what makes life fun.


My greatest success this year was making one lady feel loved. I was helped by the fact that she has a kind disposition, patience and high self-esteem (guys, look for these traits in a wife). I’ve greatly leveraged my ability to achieve by strengthening the person closest to me.

Once you have the right people around you, spend your time strengthening them and assisting with the achievement of their goals -- your efforts for others will multiply when they come back to you.

JK asked about learning to say "no" to folks. For me, success is about getting people around us to say "yes" to our goals, rather than telling them "no" to their desires.

How do we do that? #1 -- we focus our time on the highest return items for those in our inner circle. #2 -- we communicate our personal mission clearly and simply. #3 -- by supporting those close to us and communicating our goals // we give them a stake in our mission. Finally, we hold ourselves to the absolute highest standards possible -- we must be working harder (and happier) than anyone in our circle. If we want to lead then we must hold ourselves to a higher standard than our team.

Personal Health
Coming back to my own review. In terms of long term personal health, shelving the drinking worked well for me. Slate ran excerpts from the Bush biography, Dead Certain. The President’s views on drinking rang true. I miss certain aspects but I really enjoy the clarity of thought that comes with the absence of hangovers. I was surprised at how easy it was to stop -- I get cravings from time-to-time but a non-alcoholic beer seems to settle that down.

With two years of consistent training completed since my last overtraining bout, my physical confidence has increased. My fearless (and somewhat futile) bike ride in Penticton was a real breakthrough for me.

Mental Skills
The area where Brant most helped me was the confidence to see the goodness in my life. Like most of my best teachers, I’m not sure if he set-out to teach that lesson. However, he was the catalyst for a change in attitude.

There is irony in how following what makes me happy has such a positive impact on the world around me. The way we live could be more important than the specifics of how we live.

Living how we want with a closed heart -- selfish?

Living how we want with an open heart -- inspirational?

Our conditioning often tells us that in order to do “good” we need to deny ourselves. I deny nothing of my dreams, or spirit, and there are clear and persistent messengers that encourage me to follow my heart.

Personal Growth
There are a lot of areas that hold me back so, for 2008, I’m going to choose the one where the benefit to me is far larger than the effort required to change. Peaceful Listening. My personal development goal for 2008 is to make a habit of peaceful listening. To me, that means listening with a still heart. I will practice with a still heart – perhaps I can progress to an open heart for 2009!

Goal Setting
Did I give my plan a chance? Absolutely. However, if I am honest then there are aspects of the plan where I operated below my capacity. It could take me a few years get it right. Am I willing to put in the time? Is my inner circle willing (and able) to support me?

I was talking to Clas and he asked me if I thought that I had put too much emphasis on Ironman Canada race day. I had to think about it. The reality of my life is that I focus on most of my days. I have goals for nearly every day of my year. I’m to the point where I assess myself based on the time that I manage to get out of bed each morning. It’s weird but I love jet-lag because I’m out of bed by 3am local time!

When I miss my private goals, or when I don’t live up to my personal standards of excellence, it “hurts” at some level. The pain isn’t too bad because I have the next goal and, by and large, I meet my commitments to myself. The difference with Ironman Canada race day is that my goals are stated publicly and missing them is apparent to all.

What I see now is the tremendous amount of good that results regardless of my public performance on that day. Perhaps that will free my mind from the concern about letting down the people that are closest to me. Missing a swim workout in February certainly doesn’t generate the same level of goodwill!

Avoid regret for a man that has the freedom to follow his dreams, and does. Feel empathy for those who live under the illusion that they are trapped in prisons, and don’t.


PS -- Alternative Perspectives next Monday will have Dr. J's piece on doping. For perspective, the annual cost of proving that I am clean is equal to my gross prize money from my best year of racing (2004). This year my gross prize money was about $2,000. You don't get rich from any aspect of triathlon (coaching, writing, racing). In fact, you have to be very good at all three to survive on sport alone.


14 September 2007

The Two Ms

Yesterday, Monica and I did a "dry run" for our late summer camping trip. In the photo, you can see the result of my campfire skills. Physically, I get tired these days so exercise is limited to easy trail walking.

Over on Alternative Perspectives, Clas shares his experiences from Epic Camp over the years. Coming up he will explain "How to run a 2:42 marathon off the bike" -- we'll get that live in a few weeks. It is an entertaining read.

I've been reading Ayn Rand -- (GV, I'll mail the book back soon). Ms. Rand is a fine writer and gets me excited about living up to my maximum potential. Her encouragement to reduce theory to basic truths interested me in relation to endurance sports -- I'll continue to think about that because I sense that with some effort it would be possible to create a straightforward model for endurance training. I've tried to do that with my Four Pillars article but there could be a clearer theory waiting out there.

In the meantime, as the summer winds down and the cyber surfing season heats up... two things kept coming back to be as I flipped the pages.

Equality -- the need to place personal responsibility for individual action as a high priority. This is even more important for those that seek to lead, or influence, others in the field of individual rights.

Intellectual Domination -- I watch media pundits (and cyber celebrities) claim to be guardians of the truth while engaging in satire and bullying. Their actions cloaked in humor and/or intellectual superiority while seeking to subdue any discussion that runs counter to their ideas. Spending one's talent bullying the students (we once were) strikes me as the path of a wasted life. There is a higher way available to us.


So, I'm back in Colorado following a few meetings in New York. In the Big Apple, I was fortunate to be able to stay with my Everest climbing, hedgefund’ing, Ironman’ing buddy, Greg "the kid" Vadasdi.

It is always fun to spend time with “The Kid”. Similar to my buddy, Ed McDevitt (I’m on to you, amigo), Greg is one of those intelligent guys that enhances his success by having the world underestimate him. I’m going to start working on that in 2008. Life can be easier when our competition under-rate us.

I received some follow-up on my piece on international financial markets. A few people asked what I thought was going to happen in various markets.

I have no clue!

Be suspicious of people that claim to have a clue!

When it comes to forecasting my experience is that it is totally impossible to predict short-term movements. We have no idea and the more certain the experts become, the greater the opportunity for an unexpected event to really shake things up.

My formal financial education is getting a touch dated (Class of ’90). At McGill, I was reasonably well schooled in the traditional drivers of markets as well as the technical theories that have been purported to drive financial markets. My academic and technical background is useful for reading the FT, or Wall Street Journal, but it doesn’t serve me well when I try to comprehend what I actually see in the world around me. In fact, it is probably a liability.

If you’ve been reading my stuff for the last couple of years then you will have seen my interest in learning from authors that immerse themselves in how things actually work (be they markets or people). The GordoWorld team is in the process of updating my website and one of the additions will be a section on my recommended reading list. Mat and I will trawl through my library and type-up what I liked, and why.

Fundamental analysis works well for estimating the likely long term path of an asset or investment opportunity. However, it falls short when asked to explain what actually happens in the short term. In other words, my academic (and real-world) training are useful for valuation but something else seems to drive pricing.

What is it?

For me, the two main drivers are:

(a) Mood; and

(b) Money.

Let’s take money first. How many people have the ability to purchase the asset, or make the investment? Most people will spend to the maximum limit of their ability to pay. As an aside, always find out your client’s budget before bidding on a project.

If we enhance ability to pay with low cost finance and easily obtained credit lines then you’ll bump up the demand for assets and, in most people, reduce price sensitivity. Many corporations (and CEOs) follow a similar path -- it very difficult for spending and investment decisions to be made free of the influence of capital available.

There is limited transparency on the true position of global liquidity – however, the careful observer can make educated guesses on the impact of global shocks on capital markets. Our recent experience with the credit contraction that followed the sub-prime shock is an example.

With mood I consider:

How do “I” feel about the opportunity?

How do people around me feel about the opportunity?

How does the broader public feel about the opportunity?

While I think that I’m an optimist when it comes to life, my conservative nature means that I’m a nervous seller. Where I’ve made mistakes on pricing is when I failed to take into account differences between my perception and the broader public. I’ve consistently sold early in my deals.

Interestingly, this tendency hasn’t cost me many investment opportunities. I’ve always had more deals available than personal appetite to fund them. In fact, our property development company started because we had a mismatch between good deals and available capital.

Why is it important to track these factors? It’s important because a change in either one can be a leading indicator of an approaching valuation swing. When these two factors change direction in tandem then we are going to see a shift in asset pricing.

So when people ask me what’s going to happen… I have to say that I have no idea. As an investor, what I look for is situations where my best guess is that my entry pricing is less than fundamental valuation. That creates the opportunity – reality is then dictated by the hard work of an ethical management team.

Investing is about: (a) solid fundamental analysis; (b) limiting the cost of your mistakes; (c) paying less than fundamental value at the front-end; (d) avoiding fraud; and (e) backing the efforts of outstanding people. Of these factors, the two deadly sins of Private Equity are overpaying and backing crooks -- very tough to recover from either of these. If your deal doesn't fit these parameters then you are speculating, rather than investing.

In terms of market timing, don’t expect to get that perfectly right other than by fluke. Watch for shifts in the two Ms. When a trend is established, consider the likelihood that this direction will be sustained. Invest only when you see a gap between price and valuation.

It sounds so easy. Reality is tougher but the basics will serve us well for as long as we temper our greedy instincts.

Stick with your winners; sell them only when concentration fears start to keep you up at night. Historically, that’s been my early warning system on both people and deals – if I’m thinking about you at midnight then we’ll probably be speaking shortly!

Always hold a portion of your portfolio in high quality cash equivalents – this will enable you to capitalize on unexpected opportunities and assist with the (near impossible) task of staying calm when everyone else is losing their cool. By definition, your best deals will be offered to you when everyone else is out of cash. As much as possible, be countercyclical in your fundraising and capital reserves.

Waiting and watching…


PS -- I'm off to Santa Cruz next week to see Brant and Mark. After that Monica and I will be camping for two weeks. I've set things up so that I should be able to keep publishing.


09 September 2007


Presently, I’ve moved on from the Canadian Rockies and am a bit jet-lagged in Edinburgh, Scotland. Before we get into this week’s letter, a few quick announcements:

Power Talk – I’ll be speaking on training/racing with power at a September 19th meeting of the Boulder Triathlon Club. 7pm at the Senior Center beside the East Boulder Rec Center.

The Business Aspects of Coaching
– November 2nd & 3rd in Colorado Springs – registration is now open. The clinic is a chance to learn more about managing your coaching business as well as tips for personal financial planning. USAT have arranged housing/meals through the Olympic Training Centre so the cost is very reasonable.

Tucson Training Camps – March 22nd to 30th & April 19th to 27th – please contact “mat” “@” endurancecorner.com to reserve your spot. If you have any questions on suitability or the actual camp program then drop me a line.

We’re going to have catering/support/sag at the standard of the camps I do with Scott/Johno. Eight days, all-inclusive, $2,250 per camp (we cover everything but your travel to/from Tucson). Sign up for both camps and we will arrange physiological testing and review your training program as part of the package. The camps are going to be a lot of fun and I’m looking forward to them.

Alternative Perspectives has a neat article by my friend Terry Kerrigan. He's writing about Power Reserve.

Mat's blog talks about the role of expectations in performance -- it's extremely rare for a new athlete to have the humility to accept their actual bike fitness. I'm willing to bet that you've had similar thoughts in your racing -- I certainly have. What makes Mat's race unique is that he didn't bow to what he thought he had to do -- he simply did his best. A good lesson for all of us.

I'm back on top of my email -- if you've been waiting a while for an reply and it doesn't come through then please follow-up. There was considerable back-log on the server and some messages may have gone missing.


Whether I achieve, or fail to achieve, my goals – there is always a huge “sigh” at the end of a long build towards any event (fundraising, competition, deal completion, business sale, graduation, new product development).

Transition points are challenging as I am at my best when working towards a tough goal. Outcome doesn’t have as large an impact as the process of sustained personal excellence towards a task. Once the smoke clears, there’s always the sensation of “well, what next”? I’ll come to that in Part Three.

Three things that I’ve been mulling in my head:

First, in evaluating the merits of a decision, I want to consider how I did based on the information that I had at the time, rather than the outcome. It’s possible to make good decisions and have sub-optimal outcomes. Likewise, we can have superior outcomes that are purely due to chance. A great discussion of this point is in Robert Rubin’s book about his time as Clinton’s Treasury Secretary.

Second, I failed to achieve my goal and am currently in nine-hour Ironman shape. It is tempting to “adjust” outcomes by rationalizing external/internal variables. That is bogus. Beware of the trap of fooling yourself with post-experience rationalizations – people close to us will often support rationalizations in an attempt to soothe our egos.

In order to learn from any experience, we need to see the raw reality of our performance. When I blow it, I need to know it. It is the fastest way to learn and improve.

In my last post, I talked about “life best” fitness – sitting here today – I don’t think so! Fitness has physical, mental and spiritual dimensions. I may have optimized certain elements of my physiology but I failed to optimize my _performance_ on the day. The clearest indicator of fitness is performance.

Finally, although I didn’t see it at the time, the race was “lost” in the first hour of the competition. In 2005, I had a similar experience (Cam beat me by 20+ minutes that day). If you are going to lose then you might as well learn something.

Swim Pacing – the swim start was super fast and that surprised me. Why? Perhaps, I created a perception that I was one of the people that you “had to beat” to do well. Perhaps, I wanted the field to race on “my terms”.

I made a choice to swim “easy”. This was a poor decision – why did I do that? I was well trained (physically) to solo at max aerobic effort – I’d been doing weekly open water swims for the entire summer. However, I ended up cruising a large chunk of the swim leg. Why? I went “easy” because I wanted the swim to be “easy”. This was a failure of mental preparation and a poor decision based on the information at the time.

Bike Pacing – coming out of the water, I gave up nearly seven minutes to Mr. Doe. I told myself that was OK, I’d simply had a “flat tire” during the swim. Early in the bike, I found myself riding with Yastrebov/Marcotte/Curry. This encouraged me as the guys are experienced, excellent athletes. My early ride felt like a repeat of 2004 (except the elite draft zone was three meters longer and those are three VERY material meters). I told myself to relax and let the lads pace me back into the race.

Sounds great, eh?

Reality proved a little different! The boys were laying serious hurt on me. We ripped the front half of the course. Even factoring in the tailwind, the first fifty miles of the bike represented the fastest riding that I’ve done in THREE years.

If we are looking to optimize race performance then we need to operate under our maximum capacity for most of the day. So why did I make this decision? I was seeking to maximize race position – maximize, not optimize.

I started racing an hour late _and_ two hours early. If you know the Ironman Canada course then you’ll understand the paradox.

Not only did I ride super strong, but I rode off the front of the lads around Mile 80 – Kieran (in first) was 15 minutes up-the-road but Johno (in second) was close. The first hundred miles was the most intense Century Ride that I’ve done in the last five years. The breakthrough ride that I’d dreamed about was happening. However, it may have proved more effective to place it in July!

Over the last two years, my coaches have recommended that I try to blow myself up on the bike (B- and C-priority races). The irony of doing it during my AAA-priority race makes me smile, and certainly doesn’t make me unique.

The results of my bike pacing happen to nearly everyone in the field. People asked me what “went wrong”? Nothing went wrong; my race outcome was perfectly normal. The fact that it took me so long to wreck myself shows that I was in decent physical shape.

The critical piece of information that was missing was my _actual_ bike fitness, relative to the guys I was riding alongside. I made an internal decision (pacing) based on external variables (the lads). However, I had zero 2007 experience racing with those guys, and then, decided to go off the front of them.

Having ‘blown it’ with my first decision of the day, I don’t have any regrets with trying a new race strategy. The huge serving of Marathon Humility was informative. I was conscious enough on the run to see that my experience was directly my creation – “why, oh why, did I do this to myself”. I was entertained by my self-created suffering. Hopefully, I won’t make this form of entertainment a habit!

Out on the bike, I failed to drink enough water but was saved from disaster by the excellent running conditions. A bit of dehydration may have led to increased complications on the run. The choice to drink less was a very poor one because it makes it much tougher for me to assess the magnitude of my cycling over-exuberance. Still, even if I knew _exactly_ the degree that I blew it on the bike; I will be a different athlete next time.

Whether, or not, there will be a next time is the subject of Part Three. In Part Two, I’ll share thoughts on how the past year went for me. I am in the process of reviewing, then updating, my Personal Plan for the next year.

One final thought, a couple of the lads emailed that they hope to race me on a better day. Last weekend’s race was my absolute best effort and represented total dedication at my end. I brought my A-game to Penticton and the guys in front of me beat me while I tried my best.

In our lives, we rarely give ourselves the chance to give our absolute best towards any endeavor. My wife, my clients and my team put a tremendous amount of energy into my race preparations. Daily, I reap the benefits of this focus on excellence.

The toughest part of the entire day was (my perception of) failing to deliver to my crew. As Mark warned, when the race gets tough, the surface fears (failure, fatigue) melt away to the reality of our subconscious fears. I didn’t realize how much I loved Monica until the only disappointment that I felt was not delivering on her dedication to my goal. That is an interesting piece of self-knowledge.

Under duress, I failed to consider that the reward we receive for loving is more love, rather than more performance. If you can relate then you are a very lucky person. If I sound a bit flakey then that is OK too. I only started to understand recently.


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06 September 2007

Financial Thoughts

My IM Canada race report is drafted and I'm giving myself a few more days to mull it over. As promised, it will be live by September 10th.

I have a few hours this morning before my taxi comes to take me to the airport so I thought that I'd address a question that I received this week.

I enjoyed your continued comments on finances and economy. At about the same time you posted being "overweight cash" I was doing about the same... ...I would love to hear your thoughts on the blog about the subprime situation and the US housing market if you're looking for suggestions from the viewing public ;)
For background and continued info on the sub-prime situation, check out this website. John is a great analyst when it comes to explaining the background as well as the specifics. My gut feel is that the sub-prime situation was merely a trigger that resulted in a (beneficial) repricing of global risk. Things were totally out of control in terms of liquidity and lending. My personal view is that the "powers that be" should let a lot of people lose a lot of money -- investors should not be bailed out when they make crappy investment decisions. People need to lose money.

That said... I'm reading the Lex Column this morning (on the back of my FT) and notice their chart on three-month interbank rates. It is a look at what's happened to Sterling, Dollar and Euro interbank lending rates over the last six months. If you can punch that up on your Bloomberg then it's worth checking out. This is the rate that banks lend to each other.

I combine that chart with a discussion that I had with a senior banker this week. He was telling me that there are rumours about some medium sized institutions that are expected to need to merge with a stronger partner. That's a quaint British way of saying that they expect a few medium-sized banks to go bust if they don't get taken over.

I flip elsewhere in my paper and note that the last month saw record levels of capital raised by the strongest financial institutions (to strengthen their balance sheets). Elsewhere, my old boss is talking about the regulatory authorities being ill-equipped to handle the nature of the crisis.

So there is a real financial crisis happening right now. To date, the stock market, real economy and general public haven't focused on this issue. Given the magnitude of what I see happening, I can't see how it won't hit the real economy. Massive amounts of liquidity are being removed from the global financial system and the cost of capital is increasing.

That's my view on the macro picture.

On the micro picture -- life remains good for everyone that I come across. Unless you are a realtor, housebuilder, mortgage broker or specialist investment banker -- you will have been insulated from the crisis.

In Scotland, we've seen 5% capital growth in our property portfolio (YTD) and have been able to achieve returns much greater than that by creating value through project design; enhanced planning and "financial engineering". The team here are experts at getting the most out of difficult refurbishment projects in prime locations.

Consistently moving around the world, what most strikes me is the value that the United States offers relative to Europe (generally) and the UK (specifically). Europe is an expensive place to live and do business.

I'm writing this piece inside a two-bedroom flat at the edge of the New Town of Edinburgh. It is a converted warehouse, rather than the traditional buildings that make up most of our portfolio. This flat is valued at US$565,000 and I'd expect to see it get close to US$600,000 in an open market sale. At market value, you'd be looking at a gross yield of 4% and I wouldn't bet on you receiving much capital growth over the next three years. Smart financial buyers have been priced out of this market (they weren't really participants up here anyhow).

What's all this mean? Not much of change from what I was concerned about in 2004. I saw that we had to shift our business strategy to one that is based around value-creation, rather than asset-inflation. Personally, I reduced exposure "too early" and my partner made a quick paper profit on my holdings. However, together we created our new business and I "made" far more by helping him create something new -- than kicking back and letting him (and our team) do all the work on an established business.

At some stage, I'll talk about exits, sales and the strategic nature of working with entrepreneurs. I'm very happy about how things turned out. Selling to a CEO (& very close friend) was highly educational -- I'm glad that we're consistently on the same side of the table now. Personally, I prefer to sell early and for a bit less than full price.

So that's what I'm seeing out there right now. No real change in my outlook from last time.


In portfolio terms...

Asset Allocation is 75% USD and 25% GBP
Forecast Capital Growth is 5% USD and 95% GBP
Forecast Income is 20% USD and 80% GBP
Forecast Expenses are 50% USD and 50% GBP

Breaking my portfolio down I'm 50% cash equivalents and 50% property related. The property investments are split 50:50 between the US and the UK. Our US property investments have a negative yield (we live in our house). My UK property investments have a high (but indirect) yield as they are tied to my advisory income.

All my portfolio leverage (up and down) sits in the UK property component of my portfolio. I hold cash as a hedge against this volatility. If we saw a major crash in global property markets then my UK holding would be hit. It is important to me to avoid dilution through the trough of the next property downturn.

It all sounds pretty complicated! More simply... a house in Boulder; a financial advisory business; a UK property developer; and cash. One major client in Scotland and personal expenses dominated by US taxes and a UK-domiciled consulting team.


In reading through I didn't address your question on the US housing market. I think that the market will continue to fall over the next 12-18 months. If I wanted to enter the market then I'd start looking in January next year. I think that you'll have a lot of scared vendors early next year -- there is a wall of ARM debt that is going to adjust in the spring.

The only reason that I'd buy would be to have a primary family residence -- I expect that the terms on "buying for investment" will greatly improve over the next 12 months. I also expect that vacation locations will see better values when over-leveraged buyers are forced to unload properties.

Given the "yield gap" on most properties, I see little capital upside and the potential to get smoked by an adverse yield-shift (for the last ten years we've been benefiting from a favorable yield-shift). If that happens then there will be some great buying opportunities but we'll all be scared (witless) about putting money into a falling market.