Episode 1: Low versus High Time Preference
Dear subscribers,
Thanks for your interest in this newsletter and allowing me to take up just a little bit of space in your inbox, I promise it will be worth your time. I wouldn’t call myself a see-all know-all investor, I will however propel you in the right direction when it comes to analyzing investments and framing your mind about WHY it is that you are investing.
The way you should think about investing is simple, you are allocating today’s resources with the expectation that those resources will become more productive (or valuable) in the future. If you’re not able to invest, the next best thing to consider is how should you preserve your purchasing power. This is not to be mistaken for day-trading or speculative trading which I will not cover in this post.
Before stocks and the federal reserve existed, investing meant producing food or bartering for assets like cattle, real property, or preserving it in commodities like gold. The energy of everyone’s labor was “stored” in the collective sum of all these assets. This practice is considered low-time preference behavior, because one was more sensitive to the state of their well-being in the distant future.
Up until the federal reserve came around in 1913, low-time preference was the norm. No one entity or person was able to print money which would dilute the rest’s purchasing power. Low-time preference allowed for quantifiable storage-of-value in assets. Artisan goods and services strived because the energy of one’s labor was essentially stored into said assets (like a sweat-equity bank). This was a time of superior goods and services which could be accounted for based on what was created, the value it produced, and how much was available to EVERYONE at a particular point in time.
Unfortunately, it wasn’t until the federal reserve was born that Americans were transitioned in a debt-ridden society with high-time preference. This is because the medium of exchange (the dollar) is designed to lose it’s purchasing power over time. Historically, no fiat currency has lasted the test of time. Through quantitative easing and low-cost debt issuance, the money supplied could theoretically be increased infinitely. Those closest to the money printer benefit the most while you benefit ZERO from it. Holding the dollar is essentially a liability to one’s personal balance sheet. This leads us into a society where reckless consumption is promoted and the accumulation of wealth is nearly impossible.
How can you combat this melting ice-cube?
How can you preserve or accumulate more purchasing power for your future self?
It’s simple, have a lower time preference.
This sounds a bit philosophical and tin-foil-hat-ish but it will make sense when you think about more than just yourself. I believe that investments are a direct reflection of who you are, what you believe in, and what you would like to see in the world.
Links and References
Edit your subscription: Substack Dashboard
Creation of the Fed: The Federal Reserve
Psychology: Time Preference
DISCLAIMER
I am not a financial advisor and none of the material here shall be construed as “buys”, “sells”, or tailored financial advice. I am not responsible for any material losses as a result from the articles posted here. You are fully responsible for performing your own due diligence on the underlying investments brought forth to you here and if you have questions about investments or personal finance you should consult with a licensed financial advisor (because I am required by law to say that). By subscribing and reading these posts, you are assuming to have fully read and agreed to the above disclaimer.