This is FIRE
We often talk about FIRE in terms of numbers & theory, but what does it look like in practice?
Hello readers!
My family just came back from a long 2-week vacation to Hawaii so for those who were wondering why I took a brief hiatus from writing now you know :)
The vacation was the longest one I’ve taken since college, and gave me some time to reflect on life from the perspective of financial independence (but not retired early yet).
So the “FI” part of FIRE.
Often adherents of the FIRE movement are very numbers focused.
The 4% rule or having 25x living expenses becomes The Goal. There is never-ending discussion on whether the investments should be housed in 401K’s, Roth IRA’s, Health Savings Accounts, 529 plans, taxable brokerage accounts, etc. Budgets are catalogued, scrutinized, and optimized in order to hit the FIRE goal as soon as possible.
In all of this, sometimes we forget what the “so what” of FIRE and what it enables, making FIRE our end goal instead of using FIRE as a tool to attain our true goals.
I’m guilty of the former as well, but now that I have achieved the “FI” of FIRE for the last 12 months or so, here’s how it has practically translated to my life:
Being able to take long vacations and spend money on travel to enrich our family experience without worrying so much about budget, or how it would impact my career, or how the work will get done when I’m out of office.
Switching to a new job that from a financial perspective is a slight step back from my old job, because I will enjoy it more.
Ignoring office politics, going the “extra mile”, or attending pointless networking events to try to climb to the top of the corporate ladder…instead focusing on doing work that is interesting to me and being a a basic decent human being & team manager at work to create a humane working environment (an art that has been forgotten in today’s corporate “hustle” culture)
Being able to take college courses on the side that would allow me to pursue a completely different career path as my potential 2nd career (in exploratory phases currently with nothing firmly decided).
Exploring side hobbies such as investment blogging which I’ve been able to do through the Hidden Rock Capital newsletter thanks to generous support from my readers
Turning down the thermostat a few degrees lower so we can sleep more comfortably!
Allowing our kids to explore a variety of extracurricular activities (sports, music, etc.) to help us figure out their talents & interests…kid’s activities can be expensive!
Being able to generously give to my church and others in need without being burdened
And the list can go on and on….
I would encourage those pursuing FIRE to think about what their end destination looks like and work backwards to design your life around that, using FIRE as the TOOL but not the end GOAL. That’s one of the major takeaways I got from my vacation.
The second major takeaway from my vacation is related to investing.
During my vacation, I was able to spend a lot of time on the beach, observing the ebbs and flows of the ocean surf, which yielded an interesting insight related to investment flows.
What I noticed is that the strength and shape of the surf and how far inland it gets is not independently determined by each wave, but its interactions with previous waves.
If previous waves were strong and penetrated deep inland, the subsequent 1-2 waves would initially also be strong, but eventually become weaker and be held at bay.
The reason for this is that while the subsequent 1-2 waves can ride on top of the previous waves to make greater headway, eventually all of the water displaced towards shore would start flowing back and create a barrier that would hold incoming waves at bay.
Once most of this displaced water from previous waves had flowed back into the ocean could the cycle begin again where new waves penetrate deeper inland, not stymied by the backflow of previous waves.
The takeaway for cyclical investors is this:
If an investment cycle is very strong, the trend can continue for a limited time as subsequent investment flows (“waves”) can ride on top to continue cresting higher.
But eventually, the strength of the previous investment cycle actually sows its own demise, as what goes up must come down, and blocks future investment flows / waves from making much headway
From a practical sense this “headwind” may be fund flows liquidating previous positions, or for cyclical industries like energy, shipping, or mining, the supply-side investments made during boom times that will continue to come online for some time and keep prices suppressed.
Eventually these headwinds are flushed out, and the new cycle can begin as investment flows lift prices without major countervailing flows to block the upward trend
Applying this insight to energy, commodities, and deep value sectors which the Hidden Rock Capital Model Portfolio (HRC MP) are heavily invested in, I believe the outward flow from the previous peak (2000-2011) has been fully been flushed out, as well as most of the 2021-22 flows from energy/mining tourists who dropped by after Russia invaded Ukraine.
Consider the following:
Net positioning in oil is as low as it was in 2020 at the depths of the COVID crisis...
Fintwit experts and CNBC commentators are turning so bearish on oil that you can almost smell the fear…
Meanwhile, global oil inventories are trending lower after a slight build in 2022 Q4 and 2023 Q1…
Source: Ninepoint Energy Partners
Perhaps the violent move up in energy started this week. Net positioning in oil is grossly short going into OPEC+ meeting. Fingers crossed!
Great post. Thank you. I hope you enjoyed your holidays 😊. Given the updates for some of the companies in your portfolio, are you planning to share an update?