FIRE is for the Few, not the Many

It’s a hot summer and the Ermine is in a grump. We have a man-child in charge of the country, and I’ve just come across a brand-new flag-waver of the It Could Be You FIRE myth. Sure, it could be you, but the prerequisites are not evenly spread throughout the community. In many ways the National Lottery’s It Could Be You is more honest.

Maybe FIRE is the the new modern myth for these times, where so much work is plain god-awful piecework where all the power is with The Man. It’s the new century’s replacement for the American Dream. Sure, in theory anybody could rise to become President. It just sort of helps if you’re from particular families. And male. And have a load of money.

I always seem to get into hot water when I critique the extrovert wing of the FIRE community, and I am sure I’m going to piss some people off with this. However, the Ermine spat into his coffee on reading this fine Grauniad article describing the life and times of a couple of successful Millennials. Here’s the puff piece

First things first – I am not denigrating this specific couple’s individual achievement. Absolute props to them for shifting themselves and taking effective action to better themselves. As a measure of their greater effectiveness than mine, if they retired at 31 then at the same time in my life I was growling into my beer about having been so goddamned stupid as to buy a house in the Lawson boom that I was eventually going to sell for half of the real value I bought it for. They are more successful that I was, I was to go on to work for another 20 years after they retired. Total hat tip. I am Tortoise to their Hare.

I’m obviously on a sticky wicket when the National Lottery is a beacon of honesty in a sea of charlatanism. The reason the Lottery is more honest than the FIRE message in this book is all you need do is to rock up and buy a ticket. It doesn’t matter if you are genius or moron, up to your eyeballs in debt or the millionaire next door, 26 or 96, Deliveroo rider or CEO. Same infinitesimal chance of winning per ticket. FIRE just ain’t like that. Your chance of FIRE depends primarily on luck, grit and smarts, probably in that order.

Simple economic logic will show that not everyone can retire at 30. We could in theory design a society where everyone can retire at 30 if the promise of AI and robotics is used for the common good and we can control our numbers. But that comes from a world somewhere to the left of Jeremy Corbyn, and it ain’t gonna happen.

So you need an edge. That edge consists of:

Luck

Most readers are from the developed world. There are opportunities available to you that many people don’t have. That’s not enough in and of itself.

Other sorts of luck exist. Markets are cyclical. The introvert wing of the FI/RE movement started in the teeth of the financial crash. Most of these guys have quit the blogosphere now.

The 2012 PF blogosphere. They weren’t all introverts, but many of them have fallen by the wayside. Probably retired, the idle blighters. Source http://www.moneysavingchallenge.com is titsup too

The extrovert wing of FIRE started around the same time and have been riding the wave of a decade of rising asset prices and are now writing books saying ‘Look Ma, anyone can do it’. No. Just no. If you want to make these books work right for you, get into your underground lab and build a time machine. Set the controls for Q1 2009¹ and buy into the market like gangbusters.

Grit

Charles Dickens got there with the main prerequisite in the Micawber principle.

Spend less than you earn

That’s harder and harder to do. It was relatively easy for me to do in my 20s even living in London because:

• I didn’t graduate with debt
• London rents, while dear, weren’t anywhere near 50% of take-home. In those days, buy to let wasn’t a thing. Landlords used to actually have the money first to buy their rental slums.
• I had a decent job
• I grew up in a home where debt wasn’t the norm, with the specific exception of a mortgage.

Nowadays rents are higher, many jobs are more precarious, consumer debt is nothing to be ashamed of and many people start their working lives out with student debt, which normalises other types of debt.

You need a lot of grit to live very differently from your peers if you are going to try and save half your earnings. It’s the living like a monk in a brothel problem. I feel poor if I go to London because all around me people are spending shitloads of money on fancy stuff and experiences. When you are young, peer pressure matters more.

Above-average earnings

Look are the people who retire before 40, and what they work in. It’s a small pool – finance, IT usually. The second division are those that retire a few years early. These guys still earn well. I have never lived in a household with the earnings of the Shen-Leung crew, though I earned more than the UK average income for the majority of my working life.

How do you retire earlier than most people? Simples. Earn more than most people, and do the other stuff right.

Exceptions do not prove the rule

Every human activity has its outliers. These success stories lie many standard deviations away from the mean. They categorically do not prove that anybody can do it. Kristy Shen started from a much lower position of wealth and freedom than I did. She reached FI earlier than I did. I don’t have her grit or determination, born into her start in life I would have been roadkill. Most of us are closer to the average. Sure, I was fortunate enough to be born into a supportive working class environment when the economy needed more scientists and engineers than could be drawn from the upper and middle classes. I was lucky enough to be brighter than average, and this gave me opportunities that others didn’t have. But no way am I as exceptional as Kristy Shen. Her grit, determination and effectiveness in the face of adversity is to be totally admired.

But do not infer the general from the particular. She is an outlier, and the vast majority with her start in life do not end up where she is.

Myths are for motivation, they’re not a recipe

Humans need stories, many years ago Joseph Campbell described the narrative of the Hero’s Journey. Take these stories as inspiration, not recipe. Your Money or Your Life is recipe. Quit like a Millionaire is not. Let’s deconstruct the blurb to see why

From the vanguard of the FIRE (Financial Independence, Retire Early) movement, a bold, contrarian guide to retiring at any age, with a reproducible formula to financial independence–no gimmick, luck, or trust fund required.

You need luck. End of. To some extent the only actionable thing that you can do with luck is to also recognise it and carpe diem. An unacknowledged piece of luck in their case is starting 2008.

Quit Like a Millionaire is a bull***t-free guide to growing your wealth, retiring early, and living the life you’ve always dreamed of. As The New York Times recently noted, FIRE is “a growing movement of young professionals who are intently focused on quitting their jobs forever.”

Young professionals. The NYT nailed it. Amazon pickers, Deliveroo riders and Uber drivers need not apply, unless these are your side hustle. Quit Like a Millionaire had a combined income of CAD 170k in 2012², which is over £100,000 p.a. You gotta make it before you take it.

Kristy Shen retired with a million dollars at the age of thirty-one, and she did it without hitting a home run on the stock market, starting the next Snapchat in her garage, or investing in hot real estate.

Hmm, they started investing seriously in 2012. That wasn’t a terrible time to get into the market, either. I’d take starting at 2012 valuations over starting at 2019 valuations. Maybe not home run but still a decent innings. Yes, they talk of taking a $58k stock market bath in 2008. That is at the outset of their investing career. Total kudos for keeping calm and carrying on. Readers of the book can’t step into the same investing river now.

In Quit Like a Millionaire, learn how to cut down on spending without decreasing your quality of life,

Cutting down your spending always decreases your quality of life at the time. Money is a claim on future human work, having more people working for you makes life easier. It’s perfectly reasonable to say the view is not worth the climb in the long run, and no consumer shit tastes as good as financial freedom feels, but make no mistake. You will have to give up something, unless your spending is incredibly brainless to start with.

build a million-dollar portfolio, fortify your investments to survive bear markets and black-swan events, and use the 4 percent rule and the Yield Shield–so you can quit the rat race forever.

Ah, the confidence of the young and beautiful who have only known things go up and up. I was that person in 1989 – I started work in Thatcher’s ghastly 1982 recession, and had only seen the economy strengthen. So I inferred the general from the particular, and bought a house at a high income multiple of 4.5 times, because things only go up, innit? Until they don’t, because der liebe Gott sorgt dafür, daß die Bäume nicht ins Himmel wachsen. The housing market and the stock market are cyclical. Maybe all markets are cyclical for all I know. Do not infer the general from the particular, neither at the zenith nor at the nadir.

Their capital is about £600k. As long as they stay young and never get old they will be fine, but IMO that’s not enough to carry an individual from 30 to 80 or 90. If I read this wrongly and they are partners and that is their combined capital, then there is much hazard in their future. Even splitting up without any kids involved would leave each of them with £300k to last them another 50 years.

Perhaps we should all move to Canada. I would feel windy retiring at 31 on CAD1M in the stock market. I do appreciate they are living off the yield, using the concept of the ‘Yield Shield’ and yield is less volatile than the underlying capital value. But it’s still not enough IMO.

Either life in Canada is much much cheaper than it is in the UK or the Ermine crystal ball sees Work in these guys’ future. There’s nothing wrong in that. I feel a little bit bad pissing on the fireworks, but there needs to be pushback to this sort of thing

Shen is not your typical investment guru. She grew up in abject poverty in rural China, worked for a decade as a middle-class immigrant professional in Canada, and now travels the world as a retired millionaire. In short, she really walks the walk, and here she shares the mindsets she developed at each income level that launched her to the next.

You shouldn’t put an old head on young shoulders, and with that amount of grit and get up and go I am sure that if the market goes titsup this young couple will have the necessary to do what it takes. But this narrative is  inspiration. It’s not a recipe book. You are not them, and ten years of investment river has flowed under the bridge since they started. You cannot step into the same river.

Use it for motivation. But since the expected future value stream is inversely proportional to the purchase price you will get less if you do now what they did then…

It is high summer, but a sensitive mustelid snout twitches, as it picks up the scent of over-ripeness in the distance

There’s an old investing adage, when you can read about an edge in the papers it’s too late to use it. This book is published by Penguin Random House, which is about as mainstream as you can get. There is a smell of over-ripeness and incipient decadence in the air.

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1. Depending on you time-hacking skills you could go back further. I am assuming some sort of hyperspatial wotsit that only lets you go back in your own lifetime and use the resources you had then… ↩
2. QLAM P290 appendix B ↩