Invested: How I Learned to Master My Mind, My Fears, and My Money to Achieve Financial Freedom and Live a More Authentic Life (with a Little Help from Warren Buffett, Charlie Munger, and My Dad)

Introduction, or How to Use This Book

I AM A RELUCTANT INVESTOR.

When I hear personal finance and investing, in my mind I see a long, dark path of thick, swirling gray fog filled with numbers and balance sheets floating in the turmoil. Some lucky people seem to be able to easily find a path through that fog. Long ago, I stopped trying to learn to be one of them. I was never one for numbers. They swim in my mind and, though I can usually catch them and force them into submission, it’s never pleasant. And yet . . . this book is about my personal journey from financial illiteracy to becoming an educated investor. No one is more surprised than I am that I wrote a book about succeeding in personal finance and investing.

If I can do it, then truly, anyone can.

I learned how to invest on my own. I have learned what is called Rule #1 investing from my father, and from the wisdom of Charlie Munger and Warren Buffett, who originally coined the phrase. I’ve learned the theory, strategy, and practice of investing. And to all that, I’ve added what might be the most crucial element to keep me sticking with it after the novelty wears off: investing my money so it will make an impact on a Mission I support.

Allocating your money according to your own values, and supporting companies worthy of your investment, is reason enough to learn this practice and this method of investing. It’s a way to vote with your money for the future you want. I realized that if I wanted to vote my personal values with my personal money, I was going to have to overcome my inertia and my fear and do it myself.

A lot of this book is about fear: how I deal with it, and how other people investing in the stock market act on it. Voting for a Mission with my money made me feel passionate about investing, but I still felt afraid of stepping into that gray fog. Many economists and investors, including my dad, think the United States is imminently headed for another recession and market decline. But crucially, I’ve learned to use my own fear to identify when other investors are scared so I might capitalize on their fear in the markets. In these chapters, I will implore you not to overlook what fear can tell you—being cautious is not a bad thing. But, equally, I implore you not to overlook the power fear gives you.

For example, I experienced the panic around the market crash of 2008, and it made me terrified of investing. But I’ve learned that a market crash is a natural part of the economic cycle that is going to happen whether I want it to or not. Regular market declines are inevitable. I also learned that even though it may seem counterintuitive, a crash is our best chance to leapfrog into financial freedom by buying wonderful companies on sale at bargain-basement prices. It’s the investment equivalent of getting designer clothes for half of what they would have cost at the department store. These are the kinds of lessons that have given me power and understanding over my fear and allowed me to transform my life financially.

My dad and I have created an Investing Practice that anyone can do, no matter your age, income, job, or inherent math skills, which is set forth month by month. Each month of the year has a focus, along with detailed actions and exercises that support it. Most of the specific monthly tasks will take very little time, while others, such as the months practicing research, will take more diligence. Your time is limited and valuable, just like mine. This practice is meant to fit into the lives of all of us working full-time and struggling to manage everything that has to be done outside of work, and I know it’s a lot. This Investing Practice is designed to integrate into your life, not detract from it. Remember that this is your practice and you should adjust it to do what works for you.

This is my experience alone. What happened to me is unique to me and my circumstances, just as your Investing Practice and what happens to you will be unique to you and yours. Practice makes perfect—but nobody’s perfect. There is beauty in how our practices differ. Noticing and honoring what is easy for you and what is difficult will support your own Investing Practice much better than blindly following exactly what I did.

My experience gives you a barometer by which to gauge your own financial situation, along with the investing resources of the calculations, checklists, and worksheets provided throughout this book. Once you have your bearings, take your practice where you want it to go. Make the practice of investing your own, and you will have something that stays with you your entire life, a powerful skill that no one and nothing can take from you. I hope it compels you to think about your finances differently—not as a means to an end but instead as a source of happiness and freedom.

Happiness doesn’t always feel happy, Gretchen Rubin wrote in The Happiness Project about small goals like flossing daily or decluttering shelves. When it comes to something as life changing as financial freedom, I think differently. My practice of investing has created the deep happiness that comes from my authentically making the life I want, and that happiness feels passionate, big, and free. May your Investing Practice be successful beyond your wildest dreams. That kind of happiness always feels happy.

Let’s begin.

Chapter 1

Becoming Brave

January

This Month

Warren Buffett and Value Investing

Rule #1 Investing

Inflation

My Investing Practice

IT HAD BEEN ONE OF THOSE EXTREMELY LONG WEEKS, AND ONE FRIDAY night’s sleep had only smoothed out the rough edges of how tired I was. I wasn’t sure how many months it had been since I had really looked up from my desk, and that morning, I finally had a moment to remember that there was a world outside my office.

I was a low-level lawyer in the Boulder, Colorado, office of an international law firm, and as many other law firm associates have, I thought going to college, grad school, and law school and working hard at a law firm were the smart decisions for my financial future. After graduating from New York University School of Law, I had intentionally ignored the workhouse law firms of New York and gone back home to the Rocky Mountains and the lifestyle oriented law firms of Colorado. I had gotten my dream job doing venture capital and startup law in the deeply innovative Boulder entrepreneurial community, but still wanting to work at a sophisticated legal practice, I had ended up at a large firm with New York work hours anyway. I learned a great deal, and paying my dues with the stress from eighty-hour workweeks had been an acceptable trade-off.

However, as I observed the lifestyles of the people ahead of me in their careers, it slowly dawned on me that the only reward awaiting me was working more hours, internalizing more stress, and continuing to be salary dependent with no end in sight. I thought I had invested in myself, but really, I had invested in a lifelong treadmill.

The money was just not worth it. Yes, I could make enough money as an attorney to live well, but I had no time to actually live well. I wanted to feel passionate about my life. I wanted to wake up and be excited about the day. I thought of the partners in my firm, who were still on that treadmill despite years of experience, and realized: I don’t want this life.

Striving for happiness through my law career wasn’t working, but I knew that pursuing happiness without any regard for money was unrealistic. The truth is, there is a special kind of happiness money can buy. It can buy liberation from a lawyer’s 6:00 a.m.-to-midnight grind. It can buy a house in a good school district. It can buy a permanent end to waking up at night anxious about medical bills, student loans, or a mortgage. And it can literally buy time and experiences and choices in life, like, say, a Porsche 911 and time to race it. The ability to do what you want feels like more than just happiness—it feels like joy. It feels like pure freedom.

Looking out the cold window that morning, I did not feel joy. As much as I adored the people around me and my legal practice, there is a tipping point at which the pain caused by overwork makes the experience and salary of a job not worth it.

I was ill. I hadn’t been able to properly digest food for about two years and I had begun vomiting randomly. I would get a high, twenty-four-hour fever out of the blue, or leave the office with a dizzy feeling like I had been hit in the head. I got tonsillitis, then got it again, and again, and again. I hid my symptoms from my coworkers as well as I could, which wasn’t very well. When I went on medication to control the vomiting, my doctor gently suggested that my illness was caused by stress. I don’t feel stressed, I feel normal, I promised her, and I meant it. I didn’t get that my normal was skewed.

I should have seen that my body’s reaction was a warning from the universe that I had slipped away from doing what I was meant to do in my life—what ancient Indian texts call living in dharma. Being in your dharma should feel as smooth as floating in the current in a calm river. The river always flows in a straight line until it is forced to turn, which means you often are pointing in a different direction than your ultimate destination. And like that, zigging and zagging to try to find the current, we all make our way through life.

I wasn’t zigging or zagging, though. I was toiling in the choppy waves, being slammed against the riverbank by the water, struggling to breathe and stay afloat, and I couldn’t remember that there was a smooth current right next to me if only I would zag.

I had been down so long, it looked like up. My lack of work–life balance was particularly bad, but most of my friends, also in their mid-thirties, had the same types of jobs and similar stress. One lawyer friend had a mini-stroke on an airplane when flying overseas for work after months of almost no sleep. Another burnt out after months of intense work hours when he started seeing spots in front of his eyes and was unable to remember how to get home. Another had stress-related stomach problems so severe she was hospitalized twice. I knew at least three people who depended on weekly acupuncture appointments to function at work. It wasn’t only my generation. A friend’s father, a high-level manager at a well-known technology company, was the only person at his level to make it until his stock options vested—every other manager left for health reasons or passed away. When my friend told me about it, she said he was the only one who lived.

Of course, work isn’t the only part of life that causes life-altering stress. One couple I knew were juggling kids and jobs and were so sleep deprived that they barely spoke to each other anymore, to avoid starting an inevitable argument. Another friend’s fiancé broke up with her, and she lost her love, her future, and her home in one day and had to scramble to find a place she could afford on her own and move in quickly. Money alone can’t solve these problems, but it certainly can buy some literal help—childcare, movers, security deposits—and create peace of mind.

We are all exhausted and think it’s normal to feel that way because it’s so common. Leaning in to our work is considered the virtue—even though Sheryl Sandberg herself recently said she had not really understood how hard it is to succeed at work when you are overwhelmed at home.* We keep running on the treadmill because the challenge feeds our ambition, and if we stop, there sometimes aren’t any other treadmills to get on that will pay student loans.

Still, I had been certain I could push through. It wasn’t all bad. Supporting my innovative clients was my favorite part of the job, and working with my whip-smart, pragmatic, and kind colleagues was a pleasure. However, when my family started to suffer too, that became more than I could bear.

I had canceled plans with my dad, mom, and sister—and worked through Christmas—so many times that they stopped expecting me to show up; eventually, they stopped making plans with me because there was no point—we all knew I wouldn’t make it. Hard work and ambition are prized in my family, and they understood, but there was a tone of concern that had been growing strongly, and lately they had started making pointed comments about how this wasn’t going to work in the long term, and no job was worth the damage to my health. That January morning, thinking it over, I realized I needed to protect them, not hurt them.

But I couldn’t get off the treadmill because I had student loans and a mortgage, and I loved a great deal about my work.

I called one of my best friends from college, Kamala. I don’t know what to do anymore, Kam. I don’t know how much longer I can keep this up.

She sighed. Me too. I write every morning before work, but I hate what I write. Kamala is an extraordinary writer and novelist who was getting up at 5:00 a.m. each day to write her second book, while working a day job in marketing. Her potential was being slowly buried by New York City rents. I feel too tired all the time, and not creative. When I look ahead at the next few years I just think, Is this it? Am I going to keep struggling? Is this how it is?

No, I decided. No. You’re too good of a writer to get stuck in a dead-end job. There’s no way that can be the end of your story.

Well, it can’t be yours either. I think it’s clear. You have to leave that place. You just have to figure out how to financially afford it.

It’s hard, though, I prevaricated. There is so much I love about my work. But honestly, I don’t see any way to do this job without working as much as I am.

We’ve got to make this the year that we make real changes, Kam decided. We can’t keep living like this. It’s too . . . pointless.

Foin, I reluctantly agreed. Kamala coined the term foin when we were in college to mean fine, I agree, but reluctantly and begrudgingly. I have no idea how anything can change, but I’ll put the intention out there.

Me too, she declared. Maybe the universe will kick up some dust and shake things up a bit.

I knew Kamala and I weren’t the only ones who felt torn. My friends and I, all working in very different fields and having grown up in families of varying economic status, talked regularly about our similar dreams of having financial flexibility well before the time of official gold-watch-and-golf-course-style retirement to do whatever we want (if such a thing even exists anymore). Financial freedom could mean having just enough in the bank to add flexibility to our lives—to stay at a low-paying job we love and be able to easily support loved ones, to work part-time, to have reliable childcare, to quit a salaried job and start a nonprofit, to move to a safer neighborhood, to travel, to simply have a financial cushion in the bank for the apocalypse. To live the life each of us was born to live, whatever that might be. Then there is the ultimate goal: to be truly financially comfortable at the time that we want to fully retire or, even better, to be able to forget the money and just do what we love forever. That’s financial freedom.

Financial freedom means something different to each of us. To me, financial freedom meant balance in my life: quitting my law firm job, getting healthy, and working with startup companies and entrepreneurs without the pressure of having to work ten hours per day. I wanted flexibility and a financial cushion that was large enough that I wouldn’t have to worry about the bills. I wanted to be debt-free.

In my financial life, I realized that I lived with two selves: current self and future self, both of whom wanted to enjoy life and feel secure. Often, though, Present Danielle and Future Danielle were necessarily in conflict. All that New Age-y advice to live in the moment and not worry about the future was great for Present Danielle to abandon it all and tour the wineries of Tuscany, but not so great for Future Danielle to have food or shelter. Putting my nose to the corporate grindstone now was great for Future Danielle, but not for Present Danielle or my family. Living in the antagonistic relationship of my two financial selves felt constantly unstable. Present and Future Danielle needed to have a symbiotic relationship. I had to bring my financial selves into balance.

I had to create that freedom. But I had no idea how.

I started feeling some internal pressure. To figure. This. Out. The jitters started in my stomach. Maybe there was an easy fix? Or maybe there wasn’t. The jitters got worse, and I started getting antsy with anxiety. What on earth was I going to do? I needed to physically move. I got up from my big armchair, made some tea, and plomped back into my chair again.

I called my dad. He knows a few things.

Dad, I’m thinking seriously about my career plan. What can I do to get some financial freedom so I can leave this job if I need to? What I want is to not be depending on this job—or any job, for that matter. I want to be able to do the work I want to do without worrying about financial issues. I want freedom money.

My dad replied, Honey, that eighty-hour-a-week job at the law firm has clearly run its course for you. I think nature is telling your body that quite loudly. Now you have to figure out how to get some balance in your life and still somehow get the money you’ll need for the lifestyle you want, right?

Right. I love so many parts of being a startup lawyer, but I want a life too.

Okay, you love what you do and you’re really good at it. So, if you want this career, then the answer is obvious, right?

It is?

You have to start investing. Then you’ll have the money to have the choice. Right now, you have no choice.

Oh. Of course that’s what he was going to say. My mind drifted to all the times he had told me that already.

My father, Phil Town, already has a life of financial freedom: he loves his job and he has the money to do whatever he wants to do. He knows how to create money starting from almost zero because he did it himself.

After dropping out of college and getting dirty for a living as a young lieutenant in the U.S. Army’s elite Green Beret unit in Latin America and a platoon leader in Vietnam, while working as a river guide in the Grand Canyon,* my dad had a chance meeting with an investor who ended up teaching him how to use the value-based strategy of renowned investors Benjamin Graham and Warren Buffett. Value investing is an investment strategy to buy stocks based on financial fundamentals at prices below their value. It was first defined in 1934 by Benjamin Graham and David Dodd in their book, Security Analysis.

A Note from Phil

The basic ideas of investing are to look at stocks as businesses, use the market’s fluctuations to your advantage, and seek a Margin of Safety.

—Warren Buffett

If you want to get rich and stay that way, study Warren Buffett; he is simply the best investing teacher in the world. In 1956, he started the Buffett Partnership in Omaha, Nebraska, to invest his own money and that of family and friends. Over the next fourteen years his partnership returns averaged 31.5 percent per year and his $100 grew to $25 million (about $175 million in today’s dollars). A runaway success already, in 1969 he closed the partnership and urged investors to buy the stock of Berkshire Hathaway, a public company that Buffett and his investing partner, Charlie Munger, controlled from Omaha and into which he put his entire fortune. Through Berkshire, which became synonymous with Buffett, he bought shares of dozens of publicly traded companies like American Express and Coca-Cola, as well as entire companies like Geico and Dairy Queen. His original investors saw a $10,000 investment grow to $1.2 billion, which is why people call Buffett the Oracle of Omaha. Today, he is an elder statesman of the value investing world: at eighty-seven, he’s worth over $73.4 billion and continues to run Berkshire. Virtually all of the investing knowledge in this book comes from knowledge given to me by Warren Buffett and Charlie Munger.

My dad took to investing like he had a lighted path showing him the way through the fog. After he turned $1,000 into over $1 million in five years, he then developed his own deep value investing strategy based on those methods called Rule #1, a name that pays homage to Buffett’s statement that there are only two rules of investing. Rule #1 is Don’t Lose Money. Rule #2? Don’t Forget Rule #1.

Seems obvious, I know, like buy low, sell high, but simple isn’t the same as easy. My dad’s point is deeper than it sounds: buy a wonderful company (my dad calls companies he loves wonderful) when it is a bargain and only when you are certain that it will be worth more ten years from now than it is today. Then wait, sometimes for years, as the company does what wonderful companies do: becomes more valuable over time. Be so confident that you now own a great company that—even if the stock price goes down—you don’t worry and you stay with it until it goes back up and, ideally, you never sell. That’s how you don’t lose money. That’s Rule #1 investing.

When my dad discovered that other people were interested in his investing strategy, he wrote two books about it—Rule #1 and Payback Time—both of which were New York Times number-one bestsellers. I read each of them when they came out and thought they were great, and then promptly forgot everything I read. I only found out recently that my dad correctly predicted the 2008 stock market crash in an appearance on CNBC, and he correctly called the bottom of the market in 2009. Now, he invests, plays polo, and hangs out on his horse farm outside Atlanta. He is incredibly passionate about educating people about how to invest on their own and they travel from all over the world to learn from him.

I had never been one of them.

I grew up in a little town in Iowa, where half the town, including my family, had moved there from other places to be part of a Transcendental Meditation community—with a university, a private school, and group meditation domes. Meditation and yoga were part of my school day. My dad was able to move his family there because his investing work could be done from anywhere.

We had lived in a big house that my parents had designed and built together on a large property with a view of a cornfield and a large lake beyond—very Field of Dreams Iowa. My dad and I got into an accident at the house before it was completed, when I was five or six years old. We spent a lot of time together then, and I wandered around the half-built house with him fairly often to check its progress. That day, to shake some fallen cement off some thick drywall slabs that were leaning up against the hallway wall, he pulled the drywall slabs slightly toward us, but they just kept coming, against all his strength. He yelled at me to get out of there while he held the weight for a few extra seconds and backed into the stairwell. Once I scampered clear, the drywall fell over onto him and pinned his legs down, its weight slowly and inexorably crushing both tibias against the sharp, unfinished stair below. I crawled over the drywall slab and sat on the stairs above my dad’s head, getting more confused and scared about why he wasn’t getting up. Can you go get help, honey? he asked. I probably would have been screaming in his situation, but he was calm and no-nonsense. Green Beret training. No cell phones then, and we were out in the middle of nowhere. I started to understand that my dad could not get up, and I could barely breathe. I ran to the car and honked the horn, but we were out on an empty dirt road and no one passed by. There was a neighboring farm some ways away, and I was terrified to go to a big strange house alone, but I had no choice. I ran across the field, summoned the courage to knock on the door as loudly as I could, and whispered to the nice lady who answered that there was something wrong with my dad. I don’t remember what happened after that until we were at the hospital and he limped out on crutches with bandages on his legs, making jokes. After a week, he was fine. We had made it out together, as we did many things then, and we resumed our regular walks and bike rides and discussions and house inspections.

Then my parents divorced. I was eleven, and my sister and I primarily lived with our mom, and our parents’ relationship could only be described as a war. The war meant that my sister and I suddenly didn’t have our dad with us every day, so when we did get to see him, neither of us particularly wanted to spend our dad time talking about long-term savings accounts or financial statements. We were focused on more important matters, like, oh, I don’t know, keeping our family together and wondering where we were going to live.

My sister and I always knew that my dad made money and we would be fine financially, but the divorce rocked our world. It was a typical divorce horror show with my sister and me caught in the middle. Haruki Murakami once wrote, There’s only one kind of happiness, but misfortune comes in all shapes and sizes.* Ours was that my dad wasn’t around much anymore, and I couldn’t see any reason why, except that I wasn’t reason enough to stick around.

The war created financial pressure too. Mom got a job teaching at the private school, she sold the house they had built, and we moved with our mom to Maharishi University Utopia Park—a trailer park for university students and faculty. It was a genuinely nice trailer park, but still, it was a big change. The night of our move from our house to the trailer, after a long day of moving and cramming our house of stuff into a trailer that could have fit into our old living room, and after months of being the strong older kid, I broke down and cried. Though neither of our parents wanted it to go that way, we lost access to love and money all at the same time, and that day it became real. I felt horrible about breaking down because my mom was miserable and I didn’t want to make her tough day worse, but I was so sad. I was twelve years old, but I crawled into her lap like a four-year-old and cried, and she cuddled me and promised it would be okay.

She was so brave for us; she’d lost her husband, she had to move out of the house she’d designed and built, she was in a brutal money battle, and still, she had the emotional energy to comfort me. I will never forget her courage that night: to keep going, to keep being there. My mom tried to shelter us from the fallout from the divorce while my dad was out in California with his business.

In my hurt and pain, I imagined him without me, out there living the life of a wealthy, single guy. It seemed so unfair, and I was angry about it. Mom made sure we had food and occasionally got to eat out for lunch in our little Iowa town, but suddenly there was no money for much more than necessities.

My dad seemed to parachute in occasionally for the weekend and get a hotel and a Nintendo, and we would have a surface-level great time visiting with him, tinged with underlying horror at the whole situation. It was so stereotypically Disneyland Daddy, it was embarrassing. Mom would struggle to make ends meet and Dad would take us on a vacation to Club Med. It didn’t make sense, and yet, my sister and I loved him so much that being aware of how unfair the situation was didn’t make us less eager to visit with him.

After two years, Dad came back, got a trailer in Utopia Park five doors down from ours, and my sister and I ran back and forth between their homes while our parents smoothed the waters of our post-divorce world.