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The Stoic’s Arbitrage: The Thinker’s Guide to Making Smart Decisions for Lifelong Financial Success

Updated: Jan 18



Stoic* (stō-ik)

One apparently or professedly indifferent to pleasure or pain.


Arbitrage* (är-bə-träzh)

The nearly simultaneous purchase and sale of securities or foreign exchange in different markets in order to profit from price discrepancies.


You may be thinking The Stoic’s Arbitrage is a curious name for a personal finance guide and successful financial decision-making. But if you think about it, all decisions you make have an emotional element to them. You “feel” them in your gut.


Stoics tend to be practical and action-oriented, and tend to choose courage and calm over fear or anger. A stoic believes knowledge fuels personal power and that education is the greatest source of that power. Courage and calm govern the stoic’s emotions. A stoic provides kindness to others. Kindness is a source of strength. Legendary investor Warren Buffet certainly has stoic attributes, and once said, “Price is what you pay. Value is what you get.”


Arbitrage is buying or selling similar assets in different markets to take advantage of price differences. For your personal finance journey, arbitrage is more for knowledge arbitrage, that is, being more aware of how different personal finance alternatives work and taking appropriate action will allow you to minimize your costs or maximize your own value!

Applying a stoic’s mindset provides focus and tools to successfully navigate the complex consumer finance landscape. Although thinking like a stoic is not always intuitive, with practice, it is very achievable!


*Source: Webster’s Dictionary online


Introduction


Personal Finance Success Starts with Good Decision Making

I’ve been asked, “What is the secret formula to financial success?” The truth is, there is no single secret formula. But there is a great opportunity to widen your knowledge base regarding personal finance so you can make decisions—financial and otherwise—with confidence. Whether big or small, you make decisions every day, and although not all decisions are strictly for personal finance, all significant decisions you make throughout your life have a financial impact. The connection between financial success and decision-making is iron-clad.


I think of financial success as the long-term outcome of a series of small but optimized financial decisions. The challenge is, you often don’t realize financial success until after you make all those small financial decisions. Behavioral economists cite decisions lacking salience—whether personal finance or anything else—as significant impediments to reaching long-term success. [i] Decision-making is about making good choices; these choices include trade-offs and even may go against popular opinion. In this personal finance guide, I’ll show you how to make frequent good decisions to drive your long-term success.


The good news is that with a little preparation, your financial success is very achievable. Your road to personal finance success is about personal discipline and broadly applying personal finance concepts to your life. Your ability to manage your emotions, stay focused, and be disciplined is the key to victory. It has little to do with your knowledge of business, math, or trading strategy. In other words, knowing yourself, being patient and persistent, and applying discipline will power your long-term wealth.


You may be thinking, “This doesn’t sound too difficult, so why are so few people financially literate?” Personal finance and general financial literacy are critical for making the most of your financial resources. Unfortunately, financial literacy is often neglected because unfortunately, the human brain is not wired for long-term savings. This means retirement savings and other personal finance decisions must be intentional because they are not in your natural “default” wiring.

 

Why is making long-term decisions so difficult? From an evolutionary standpoint, our brains are still wired to make decisions typical of caveman days. Back then, simple, life-and-death decisions could have been, “Should I run from the lion?” or “Should I fight this person from a rival tribe?”


These are simple because they are binary, yes or no decisions. Today, decisions are often multi-criteria, multi-alternative complex decisions. Take, for instance, buying a car. A common car-buying decision, such as, “How should I evaluate my 10 car-buying criteria?” and “Which of the 20 car models should I buy?” is surprisingly complex. This car-buying example has tens of thousands of combinations of decision factors, and they are all as unique as the individual making them.


Tools to help us make complex decisions are critical. Our brains are simply not wired to make these decisions without help. This guide will absolutely help. I also provide a companion smartphone app, Definitive Choice, which will help you implement many of the personal finance decisions I discuss throughout the guide. Find it on the app store or wherever you download your favorite apps, or go to


https://www.thecuriosityvine.com/post/definitive-choice

 

Personal finance is best understood through the decision-making lens. Being good at personal finance starts with being a good decision-maker. The skills you will learn for making good financial decisions will absolutely be helpful to all your other life decisions. Your journey will start by going inside your own mind to gain a better understanding of how your brain operates (here’s a hint…we humans are emotional creatures). You will be astounded at how human neurobiology impacts decisions, including personal finance success! “Know thyself” is the gateway to great personal finance outcomes.


Because people are emotional creatures, our decisions tend to be colored by our emotions whether we realize it or not. Harvard University neuroanatomist Jill Bolte Taylor said, “Most of us think of ourselves as thinking creatures that feel, but we are actually feeling creatures that think.” [ii] This is an important perspective because we process our emotions first. It takes skill, training, and tools to properly integrate emotion into making confident personal finance decisions.


I call confidence the “decision emotion” because it provides the emotion-based signal as to whether you “feel” you made a good decision. Having confidence in your decisions is important because it powers and motivates you to productively move forward after you make that decision. All of us are subject to inevitable “fast-brain” biases—also known as “cognitive biases,” the processing shortcuts our brains take when interpreting information—which affects the decisions we make. These cognitive biases likely impact the reliability of our confidence. This is tricky! So if we’re “feeling creatures who think” and aren’t hard-wired to save our pennies, how do we build confidence in making smart financial decisions? How do we achieve “conviction in our confidence” when our brains are sending false signals generated by our cognitive biases?


We start by understanding how we confidently make high-value decisions and how managing our emotions ties into making good decisions.


Making High-Value Personal Finance Choices

This personal finance guide will help you make high-value personal finance choices. High-value choices begin with evaluating our preferences for a decision. These are the various “what is important to me” assessments about a personal finance choice. Economists call a weighted set of preferences our “utility.” To assess value, we then compare our utility and the cost tradeoffs to make the high-value choice.


Choices require actions! Confidence in a good decision process will help you act. Your personal finance journey is a lifelong journey. Think of it as a series of regular, smart, and positive habit-forming financial decisions that lead to significant long-term value. Personal finance success is merely the cumulative value of those regular, smart decisions.


As part of my goal to help you make high-value personal finance decisions, my priority is on the decision process. In my experience, if you get the decision process down, personal finance or any future decision will be improved and optimized. With that said, any guide on personal finance would not be complete without “how” resources. “How” resources are more mechanical details, like “how to open a savings account” or “how to get a mortgage.” Regarding “how” resources, I make three commitments:

  1. I will describe higher level “how” in the relevant chapters.

  2. I will suggest resources where you can read further for more complete information.

  3. Most importantly, I will suggest the best questions to ask Google or your favorite search engine to find the best “how” resources.

Why I wrote this personal finance series

When my children were young, my wife and I were committed to teaching them good financial habits and decision-making skills. I quickly realized 3 big challenges:

  1. I was astounded at how little educational support was available for personal finance as a decision-making discipline.

  2. The challenge goes beyond education. Good personal finance decision-making requires good tools that implement that education. Those tools were often not available.

  3. Our consumer marketing culture promotes messages suggesting that “buying today” is better than “saving for tomorrow.”

As a parent wanting to impart some financial wisdom, I had the feeling we were swimming against the cultural tide. Think of this personal finance guide as the gift I gave my children. Many of these concepts have been field tested and fine-tuned with ongoing feedback from my children and many others appreciating the value of good decision-making in their personal financial lives.


Why Personal Finance Success Is Needed More Than Ever

Having a great decision process will ensure you have a reliable conviction in your confidence and will provide you with the conviction that you made the best decision to drive your personal finance success. But why does this matter? Why does your long-term financial wealth depend so much on making good decisions today? Because the decisions you make today have long-term implications on your financial health as you age toward retirement.

There was a time in the United States when financial literacy was not as critical as it is today. Most companies provided a pension program (a “defined benefit” as we economists call it). You did not really have to think about retirement because your employer took care of it for you through a pension. Today, pensions are almost gone, replaced by portable, self-service-oriented 401(k) programs (called “defined contributions”). [iii] Also, there are even more “gig workers” today who completely self-service their retirement.


Unfortunately, many are falling through the cracks. According to the St. Louis Federal Reserve, 35 percent of American households had no money saved in any type of retirement account. [iv] It would seem the switch from pension to 401k has caught entire generations unprepared.



Also, the student lending crisis continues to grow. Bloomberg News stated, “The student debt crisis is one that spans generations, with about 8.7 million Americans aged over 50 still paying off college loans.” [v] Although education can be an investment in your future, the risk of overpaying for the education investment is high.


So whether you’re 15 or 55, the bottom line is the need for self-driven financial literacy is greater than ever.


The “Why” of It All

Finally, you still may be wondering “why?” What is the purpose of building long-term value using this personal finance guide? We economists usually believe people are motivated by their self-interests—the “what’s in it for me” in how the decisions we make today affect us and others tomorrow— and leave these sorts of “why” questions to philosophers. However, because we’re discussing personal finance, you’ve got a vested interest in being clear about your self-interested long-term value motivation, as you will find this very helpful when setting personal finance goals. The good news is that this guide will work for anyone, regardless of your motivation for long-term value creation.


I offer my personal “self-interest” statement to encourage you to contemplate your personal statement as well.


I believe kindness to others is central to life. Building wealth and living a value-focused lifestyle enables your capacity for kindness to others. Although there are certainly other means to provide kindness, wealth will provide options to deliver kindness to family, friends, and/or our community. Our time-tested world religions, often share a common humanity. In terms of “kindness to others,” one of my favorite common humanity teachings is from the Bible, Peter 1:4: “Each of you should use whatever gift you have received to serve others, as faithful stewards of God’s grace.”


When my children were young, my wife and I were committed to teaching them good financial habits and decision-making skills. I quickly realized three big challenges:

  1. I was astounded at how little educational support was available for personal finance as a decision-making discipline.

  2. The challenge goes beyond education. Good personal finance decision-making requires good tools that implement that education. Those tools were often not available.

  3. Our consumer marketing culture promotes messages suggesting that “buying today” is better than “saving for tomorrow.”

As a parent wanting to impart some financial wisdom, I had the feeling we were swimming against the cultural tide. Think of this personal finance guide as the gift I gave my children. We’ve field tested many and fine-tuned many of these concepts with ongoing feedback from my children and others appreciating the value of good decision-making in their personal finance lives.


I’ve organized this guide as a series of “bite-sized” chapters and sections. Certainly, it is beneficial to read through the guide from beginning to end, but you’ll also find value in each stand-alone section. Much of the guide is organized around key life events or life needs, such as choosing a career, going to college, buying a car or a home, and investing in your retirement. So, you will be able to refer back to the guide when the need presents itself. No matter when you start, this guide will inform your personal finance success journey.


It is my hope that when you finish reading this personal finance guide, you will have gained conviction in your confidence when it comes to making good choices and decisions. A person who has successfully made good decisions in the past is more likely to confidently make good decisions in the future and will be in a better position to give to their friends, family, community, and country.


The Stoic's Arbitrage: Your Personal Finance Journey Guide

Core Concepts

1. Our Brain Model

2. Curiosity Exploration - An evolutionary approach to lifelong learning

3. Changing Our Mind

4. Information curation in a world drowning in data noise

Making the money!

5. Career choices - They kept asking about what I wanted to do with my life, but what if I don't know? - Part 1

6. Career choices - They kept asking about what I wanted to do with my life, but what if I don't know? - Part 2

7. Career success - Success Pillars - A Life Journey Foundation

8. Career choices - Do I need to be a Data Scientist in an AI-enabled world?

9. Career choices - Diamonds In The Rough - A perspective on making high-impact college hires

Spending the money!

10. Budgeting - Budgeting like a stoic

11. Home Buying - Homeownership is an important wealth-building platform

12. Car Buying - Cutting through complexity: A car buying approach

13. College choice - The College Decision - Framework and tools for investing in your future

14. College choice - College Success!

15. College choice - How to make money in Student Lending

16. Event spending - Wedding and event planning guiding principle

Investing the money!

17. Investment thoughts for my children

18. Our Investment Barbell Strategy

19. Using the Stoic's Arbitrage to choose a great investment advisor

10. Anatomy of a "pump and dump" scheme

21. The Time Value of Money Benefits the Young

22. How Would You Short The Internet?

Pulling it together!

23. Capstone - The Stoic’s Arbitrage: A survival guide for modern consumer finance products


Notes

[i] This article suggests the most effective financial training is provided on a “just in time” basis—that is, in anticipation of a pending financial decision.


Benartzi, Thaler, Heuristics and Biases in Retirement Savings Behavior, Journal of Economic Perspectives 21, No. 3 (Summer 2007): 81–104

[ii] Taylor, My Stroke of Insight: A Brain Scientist's Personal Journey, 2006


[iii] Editors, "Private Pension Plan Bulletin Historical Tables and Graphs 1975–2020" U.S. Department of Labor, 2022

View the report at https://www.dol.gov/sites/dolgov/files/ebsa/researchers/statistics/retirement-bulletins/private-pension-plan-bulletin-historical-tables-and-graphs.pdf.

[iv] Chien, Morris, Many Americans Still Lack Retirement Savings, Regional Economist, 2018

[v] Tanzi, Paglia, Older Americans Are on the Front Line of the Student Debt Crisis, Bloomberg, 2021

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