Your Very Own Slush Fund! June 16, 2021June 16, 2021 I have the best readers. One of you eats road kill. One of you is a nationally known meteorologist. One of you is a mail carrier. One of you gives hundreds of thousands of dollars to help preserve democracy. One of you tripled the size of my Roth IRA. One of you spots almost any typo and shoots a middle-of-the-night email so I can make the correction. (Bret Stephens, I learned yesterday, spells Brett with one T.) All of you are appreciated. To quote José Díaz-Balart: thank you for the privilege of your time. With that intro, I thought you might enjoy meeting fellow reader Peter Baum. In this video, he tells what it was like growing up a human calculator. He could have made a fortune counting cards or at a hedge fund, but went a different route. Watch the video . . . . . . and then meet him here, as he responds to a few of my questions. He suggests you set up a personal slush fund. WHAT DO YOU DO? I tutor — primarily for the SAT and ACT but also get adults ready for the GMAT, GRE, and LSAT. I have worked for myself and by myself since graduating Princeton in 1987. I’m not really fond of having a boss and, lord knows, you wouldn’t want me for one. Instead, I’ve trained a few “franchisees” over the years and let them find their own way in the tutoring world. HOW DO YOU INVEST? The thing that has worked best for me is keeping my equity percentage within a band. For me, at this point in my life, it’s 55-70%. Within that band, I’m allowed to have any opinion I want and can buy and sell to my heart’s content. But I’m not allowed to leave the reservation for any reason, no matter how strongly I believe I’m right. This way, I constrain myself from having too much certitude. Furthermore, it acts as an automatic stabilizer. As the market tanks, I’m forced to buy to stay in the bands (and to sell when a raging bull market pushes my equity percentage too high). I’ve only been forced to trade this way 5 times in 30 years. In all cases, this went exactly against what I wanted to do, and in all 5 cases the system was right. My biggest strategy is actually psychological…when considering, say, selling a stock, I ask myself: Which will make me feel worse–selling and watching it skyrocket, or holding and watching it plummet? This process doesn’t lead to better decisions, but it does allow me to stick with my positions and not get blown out due to psychological factors. COULD YOU STILL COUNT CARDS OR HAVE YOU GOTTEN RUSTY? Counting cards is so over-learned (think 4+3 or the number of states in America), that I can still do it pretty close to flawlessly. It’s not really feasible anymore, however, for these reasons: 1)The consolidation of ownership means that your results will make the rounds quite quickly, allowing them to get a quick and accurate read. 2) Automatic shuffling machines allow the casinos to shuffle more frequently. Penetration (the percent of all the cards that get dealt) is critical, and the auto-shufflers allow them to lower penetration. Previously, casinos didn’t want to shuffle because during that time they were making no money. 3) Vegas casinos have come to rely on table games less as time has progressed and many now have rules that give them an edge that counting can’t counteract (like paying 6:5 for blackjack instead of 3:2). In the 90s and early 00s I played at $25 tables and got away with it. I suspect, although I don’t know, that my act could have survived at $50 and possibly $100 tables. I was in it for the fun and transgressive nature of it, so I stuck to “playing quarters”. JUDGING FROM OUR EMAIL ADDRESS, YOU PLAY BASKETBALL? I played basketball for a long time, until the knees and ankles stopped cooperating. Since then, I’ve moved my passion to Lindy hop. (Examples here and here.) ANYTHING ELSE WE SHOULD SHARE? Yes. My contribution to financial innovation is the slush fund. You see, there exists some subset of the population so committed to thrift and financial discipline that they need a safety valve that gives them permission for profligacy. Speaking as a member of that subset, I can say that the slush fund has improved my quality of life. Here’s how it works: Funding: The incoming funds have to be money that is somehow unexpected or exceeds expectations. Mine have come from 3 sources: savings that surpass the annual goal, profits from speculative investments (beyond the losses from same), and tutoring-client tips. Basically, this is “found” money. Spending: The most important part of the plan. Money from the slush fund can *ONLY* be spent on frivolous luxury goods, the sorts of things that penurious planners do not blow their money on. In the 8 years of the fund I’ve bought an incredibly decadent chair that gently glides on rails (it feels very womb-like) and a stand-up arcade-style video game. The money can also be spent directly on yourself: for example, a yenta so that I could find a wonderful woman (I did!). The slush fund can also provide discounts to upgrade items. Want that $1500 couch but think a couch should never cost more than $1000? Easy. The slush fund kicks in the last $500. Mechanics: The slush fund should actually be its own little savings account. More importantly (for those of us who track their finances), the slush fund is entirely off the books. In other words, that fur-lined bathtub you so desperately need shows up nowhere in your records — it’s free money. The psychological benefits of this fund have been astounding. I have incentive to have a good year with the business. It makes that speculative investing way more fun. Most importantly, it gives me license to live a little. And the tinge of pseudo-illicitness from spending from a slush fund adds to the fun of the whole project. I know this sort of thing only works for a select few. But it really kicks butt if you’re one of the few. BONUS Samantha Power Still Believes America Can Help Save the World Thank you for the privilege of your time.