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A Few Notes on The Geometry of Wealth

| | Posted in: Animal Spirits, Big Ideas, Strategic Allocation

Brian Portnoy introduces his 2018 book, The Geometry of Wealth: How To Shape A Life Of Money And Meaning, by stating that the book is: “…a story told in three parts,…from purpose to priorities to tactics. Each step has a primary action associated with it. The first is adaptation. The second is prioritization. The third is simplification. …The principle that motors us along the entire way is what I call ‘adaptive simplicity,’ a means of both rolling with the punches and and cutting through the noise.” Based on his two decades of experience in the mutual fund and hedge fund industries, including interactions with many investors, along with considerable cited research (much of it behavioral), he concludes that:

From Chapter 1, “Alone Together” (Page 20): “…current structural changes in global capitalism give us a narrower runway to success. The potential returns from both our earnings and our investments appear challenged.”

From Chapter 2, “Adaptive Simplicity” (Page 33): “In the context of our money lives, simplicity means having a limited number of clearly articulated concepts that both make sense of a noisy world and drive sharp, reasonable decisions; and an awareness that these concepts can weather the inevitable forces of change that disrupt even the best made plans.”

From Chapter 5, “Yes, Not Really, It Depends” (Page 81): “Much remains unknown about the intersection of money and happiness.”

From Chapter 6, “Setting Priorities” (Pages 86, 94): “To grow and stay wealthy, we should:… Think risk first… Keep resources in balance… Aspire for more. …Great investors…patiently wait until the odds are so stacked in their favor it would be foolish not to bet. They make plenty of mistakes along the way, but focus on minimizing the damage.”

From Chapter 7, “Making Decisions” (Pages 107, 109, 114-115, 118): “Psychology, not finance, is most important in achieving our long-term financial objectives. …[S]uccess is not about deprogramming yourself. It’s about finding ways to mitigate the consequences of inescapable foibles and inevitable mistakes. …one solution is to eliminate discretion altogether. …Putting a proper asset allocation in place is mission critical, but don’t fetishize precision.”

From Chapter 8, “Gray Matter” (Page 142): “Luck is as much of an ingredient for market success as anything else…”

From Chapter 9, “Four Corners” (Pages 144, 169): “There are four–and only four–quantitative elements that enlighten any potential investment…: Returns, volatility, correlation, and liquidity. …[A]n intellectual and emotional understanding of those elements is an incomplete recipe for success. It also requires grappling with the concept that after a reasonable plan is in place, do nothing. Or as close to nothing as is practically feasible. By doing nothing, we let compounding do its work.”

From Chapter 10, “You Are Here” (Page 180): “Striking an ongoing balance between more and enough…sits at the core of enjoying a wealthy life.”

From the “Recap” (Page 189): “True wealth is funded contentment.”

In summary, investors will likely find The Geometry of Wealth a thoughtful treatment of how to think about the accumulation and enjoyment of wealth.

Cautions regarding conclusions include:

  • The book does not offer detailed optimal asset class allocation strategies or tactical allocation approaches. It is as much about happiness as investing.
  • Behavioral/psychological (especially happiness/contentment) research is less precise and more difficult to replicate than quantitative investment research. The former is therefore likely less reliable.
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