Don’t Take Personal Finance Advice From Billionaires

A podcast listener asks:

Need some life advice.

One of the first finance books I read was Howard Marks Mastering the Market Cycle. Which then lead me to Ray Dalio and so on. Their teachings of economic cycles are so ingrained in my head that I can’t stomach purchasing my first home if they are correct that this should be the end of an economic cycle.

In 2018 Ray Dalio was on record saying ‘We are in the 7th inning’. What a lifetime ago that was. But what the heck man. I have been sitting on a six-figure pile of cash since 2018 allocated for a home purchase. That’s almost 3 years of waiting for the next economic cycle.

My fiancé is getting tired of waiting, she is now demanding a better housing situation. She strongly believes we should stop waiting and buy now. She is WFH and done with me explaining why we need to wait. I’m planning on meeting her in the middle and paying up to rent something bigger.

As I was going through this negotiation I was wondering what your thoughts are on the teachings of Howard Marks, Ray Dalio and the like with regards to market cycles, and if they are still relevant in upside-down 2020.

There are 3 rules that I live by:

(1) Never play cards with a guy who has the same first name as a city.1

(2) Never get behind a minivan in the drive-through lane.

(3) Never take personal finance advice from billionaires.

There are a number of reasons you don’t take personal finance advice from billionaires.

First of all, they have more money than you. It almost doesn’t matter what they do with it. They’ll be fine either way. It’s very easy to lose touch with the money problems normal people go through when you become uber-wealthy.

Plus when you’re dealing with famous investors most of the time you have to watch what they do not what they say. Marks and Dalio are brilliant but both have been defensive in their remarks for years now.

Do those defensive remarks match up perfectly with their portfolios? Not necessarily. You have to watch what they do not what they say.

And even if they did, it’s possible these two have each bought 7 houses in the past 3 years alone and you wouldn’t know about it.

The macro state of the world should be very far down the list of checkpoints when making a decision like this. Personal finance is called personal for a reason.

The 2008 crash may have led to a sense of recency where people assumed every downturn would lead to a generational buying opportunity in housing prices. The pandemic recession has shown that’s just not the case.

Home prices have sky-rocketed this year in the face of double-digit unemployment and the biggest quarterly drop in GDP in modern history.

You could make the case (and I have) that real estate could remain strong for many years going forward. What if the bottom of the cycle you’re waiting for is 15-20 years in the future? That’s not out of the realm of possibilities.

Plus there are so many idiosyncratic risks involved when buying a home beyond what’s going on in the macroeconomy. The micro matters more than the macro the majority of the time when choosing the right place for settling down.

Buying a home is a huge financial decision but the greatest return you see from homeownership is psychic income. It’s a place to call your own. It’s the neighborhood, community and school district you live in. It’s where you create memories. These things will all be far more important than the return you earn when you go to sell it someday.

Owning a home is not for everyone.

But I wouldn’t make this decision contingent on the state of the macroeconomy if you do plan on buying. Cycles never play out in the real world as neatly as they do in a book or podcast interview with a billionaire investor.

We discussed this question and more on this week’s podcast video:

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Further Reading:
Don’t Take Asset Allocation Advice From Billionaires


Now here’s what I’ve been reading lately:

1Ok I stole this one from Teen Wolf.

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