The Moneyball Method — Excerpt 8B
Goal-Directed Action
With many priorities, one does not sacrifice anything if the true meaning of the word is understood. To sacrifice is to give up a greater value for a lesser one and an investor’s hierarchy of values will prevent that from happening. Dr. Gorlin explains it this way, “The builder’s mindset, understood as applying to your life as a whole, provides the ultimate yardstick for evaluating and resolving these kinds of questions.”[1] The life of the investor is also the performance benchmark of The Moneyball Method and will be discussed in the next chapter.
Relationships and Family — For many middle-class investors, home and children are attached to relationships and those may require the greatest commitment of money. Subcategories for spending include housing and utilities, transportation and groceries, education and clothing and other lifestyle expenses. For cash flow modeling purposes, we need a good estimate for them, but not a detailed budget.
Also, additional spending should be planned for travel and entertainment, college funding, home furnishings, family obligations, memberships, etc. For double income, no kids’ investors, there may be friends or extended family that require money and expenditures of energy needed to make those relationships stronger or sever their ties.
Health and Fitness — Subcategories of chosen values may include health insurance, medical expenses, long-term care coverage, physical therapy and psychological and preventative exercise sessions. For many investors, sport and fitness memberships, equipment and clothing and children’s sports/adult events are cash expenditures that need to be included somehow in the simulation process. Like most goals, they may be part of baseline spending or listed as separate items.
Either way, there are physical and emotional benefits earned from the right kinds of fitness ventures and they may prolong a life well lived. To that end, participation in the arts may also be assigned a spending goal.
Business and Career — The creation of economic value can take many forms and this domain is most relevant during the wealth accumulation phase of an investor’s life. It is also true that one may be stuck in a job they would prefer to leave and for perspective, Dr. Gena Gorlin offers, “The right way is something like: “career” (n.): a series of dents you make in your universe that earn you money, competence, self-esteem and a sense of meaning and, further, that will gradually open up additional opportunities to make different and/or bigger dents for possibly more money and meaning,”[2]
Thanks to advanced medical care and the opportunities from new technology, productive work with compensation can be a life-long proposition. At the same time, money may be needed to capitalize a business opportunity and if so, that needs to be included in the cash flow schedule.
Wealth Building — Within this domain are closely held businesses, commercial real estate, private equity, qualified retirement plan contributions and building a stock portfolio. In addition, wealth preservation includes bank deposits, trust accounts, higher education plans, life insurance and annuities. To the extent that wealth is being invested on a regular basis or an expenditure is planned, they must be included in the investment strategy decision. In addition, financing decisions such as mortgage options, paying off a loan and long-term care insurance can be integrated with the investor’s whole-life financial picture through the simulation process.
For cash flow purposes, the liability side of an investor’s balance sheet will be treated as an expenditure of money according to the terms of repayment for loans on the books. Accordingly, mortgage payments, automobile loans, consumer debt, lease payments and their ultimate payoff will be treated as spending goals. Other important goals might be lifetime gifting strategies, the creation of living trusts, funding family limited partnerships, buy/sell agreements, charitable remainder trusts and other generational wealth planning techniques for estate tax mitigation.
In summary, productiveness is an existential human need, it is a spiritually important virtue and everyone is defined by their ideas and actions. Accordingly, relationships, health, career and wealth have the moral purpose of being grounded in the life of the investor. Reality is certain, we have heroic potential, we must make judgments in favor of what is good and wealth creates time for all of them.
[1] Gena Gorlin, The Builder’s Real Superpower, February 24, 2022.
[2] Ibid.
