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To be honest the dot com crash caught me unprepared, and the feeling of having 10+ million dollars in future equity go to less than $100K is not something I'd wish on anyone. But not all of my investment value was "future", I had a bit more than $500k in Sun stock that I could sell at "any time." When I sold it when Oracle bought them it was worth about $12K.
I did not make the mistake of buying a big house on the promise that in the future I'd be able to afford it. A friend of mine bought his house and his neighbor's house to combine into a larger lot, but since the stock was going up he got jumbo loans and was selling stock periodically to make the payments. When things went south he ended up selling the neighbors house at a loss refinancing his own house at a lower rate to stay in it affordably. But I did make the mistake of not paying off my house when I could have using "bubble" stock (like that Sun stock). 2001 to probably 2006 were very wintry years.
I analyzed my behavior during the last dot com bubble and my biggest driver was tax avoidance. How stupid is that? I would say "sure this stock is 'worth' $500K but if I sell it I'm going to have to pay a huge amount of tax on it and that will net out to a smaller number." I was looking at "losing" 25% of the value of the investment by turning it into cash. Ridiculous right? Well now I think it is ridiculous.
Every 3 months I take a long look at my assets and debts and future plans and re-balance as necessary to avoid a single thing from killing me financially.
A good mental game to play to counteract the endowment effect[1] if one ever ends up holding $[some_large_number] of [tech_stock] is to ask yourself "If I had $[some_large_number] in cash, what % of it would I spend investing it in [tech_stock]?"
Very very rarely will you find yourself saying 100%. Act accordingly.
* I was looking at "losing" 25% of the value of the investment by turning it into cash. Ridiculous right? Well now I think it is ridiculous.*
Reminds me of a stock options seminar I went to, presented by an actual Fidelity options trader. The question came up along the lines of "so something something, what would the tax implications be?" His answer was something that I remember to this day, and remind myself when I'm worried about "something something capital gains": "I'm the worst person in the world to ask about investment taxes. If I'm getting taxed, then I'm making money, and that's as much thought as I give it."
I couldn't even tell you the capital gains rates at this moment. If I need to get out of a position, I get out. And to quote the above professional options trader, if I take a tax hit then I made money. If I try to avoid the tax hit by holding on for a few more months to avoid short term capital gains, I might very well lose money in the interim. So I just don't pay any attention anymore and settle up with the government come April.
> I would say "sure this stock is 'worth' $500K but if I sell it I'm going to have to pay a huge amount of tax on it and that will net out to a smaller number." I was looking at "losing" 25% of the value of the investment by turning it into cash. Ridiculous right? Well now I think it is ridiculous.
Not that ridiculous! Give yourself some credit. One of the reasons taxes work this way is to incentivize people to keep their money invested.
Absolutely, when times are good, pay off your house. This may go contrary to most investing advice, but owning your home is a great safety net.
Risk assessment is really hard for individuals. If we did it rationally we'd never get anywhere. But I think "money in the bank" and "defense in depth" are pretty good rules of thumb. In the end your goal on any one investment is to not lose.
I don't have any vested equity yet (very early career) but have decided upfront on a strategy of "sell every share the moment you can, reinvest in diversified index funds."
Being long on your employer just seems like a really stupid idea. I don't consider myself likely to be fired for incompetence and I'm not high enough on the ladder to be fired for political reasons. If my income stream ever goes away, chances are it'll be because my employer stock is doing the same.
> I would say "sure this stock is 'worth' $500K but if I sell it I'm going to have to pay a huge amount of tax on
How is that possible? After 1 year, you are in Long-term capital gains territory, so selling now vs later is tax neutral (except for gains on gains, but that's rather minor unless you think you are in a growth stock)
The only reason to delay selling for tax reasons is if you also have a high income (over $300K?) that boosts your Long-term capital gains rate
I had somewhat similar feelings about the taxes (different company) (went from $7M to < $2 over the 6 month lockup period alone!)
Ended up paying a bunch of taxes i likely could have avoided and got something out of it (but it was painful) Now over 10 years on after the "corrections / bubble burst" I'm finally about back where I started ... oh well I guess. I have a house and a job and all my limbs ...
Hindsight is 20/20 and all that, but in case anyone finds himself in a similar position, there are hedging strategies that avoid the 1259 constructive sale rule. You have to take some risk but you can put a floor on it.
If you think winter might be coming and want to prepare financially, the #1 most important piece of advice is this:
Lower your expenses.
Nothing gets you into trouble more than having a high expense load. Get as close as you can to spending nothing.
The next most important piece of advice is to build up cash. 6 months of your monthly burn is cutting it way too close. You should save until you have at least two years. What's more, you should save until you can actually invest some money.
These two bits of advice go hand in hand. The lower your expenses, the easier is to save 24+ months of runway up. And the reverse is true too.
Beyond that, you can do a couple other things to prepare yourself. You could join a larger, profitable company with no history of major layoffs. (Eg Google, Facebook, many others.) Or, you could take the opportunity now to start your own company, and maybe think about what sorts of businesses could benefit from an economic downturn when you do so. Focus on getting it profitable, rather than focusing on rapacious growth. Obviously, these moves (getting a job at a stable company or stating a company and getting it profitable) are more out of your control and harder to pull off. Which is why cutting expenses and saving as much as possible are the most critical endeavors.
Great advice.
Thing is, unless you plan ahead, almost everyone cuts expenses far too little and too late.
I'd add figure out your lines of retreat. If shit happens, what goes first - cable, phone contract, nice car etc.? If shit keeps happening what's next? When?
Figure it out beforehand with family whilst calm over a nice bottle of wine. You won't be making rational decisions after the shit hits the fanm and your partner is stressing over how you're going to keep feeding the kids....
Common scenario seems to run something like this. Lose job, burn normal money for six months or a year whilst "I'm bound to get a new job this week", and only then think about significant restructuring. Fast forward another six months and only now is cable tv or mobile contract being looked at. Hmm, maybe we need a cheaper car. "Sorry guys can't afford to go out this month". And so it goes until you lose the house.
I lost touch with a great friend and his family in the dot com fun who went through something like this. He looked increasngly ill and stressed until one day their phone no longer rang. Never did find out what happened to them. Couple of other friends went through similar, though rather less dramatically.
I went from a higher rate than I dreamed possible to unemployable for six months+ literally overnight. As a contractor at the time I was poison to the permanent market. (Brilliant interview, but we think you'll get bored... etc)
>You should save until you have at least two years
It is a little late to be doing this.
I have pretty bare-bones expenses (Fine, my apartment is 40% of my income) but I would struggle to save 24-months of expenses any time soon.
Unless you are making like $250k and living on $50k, I would say it is a little late to be stocking up to survive a downturn. I could do it if given probably 5 years, but I couldn't pull that off in 1 year.
I dropped mine pretty dramatically in the last year.
Quit smoking. $12/pack * pack/day = $4380/year
Eating at home every meal (save one/week). Went from $10/meal out to $3/meal in (I don't eat breakfast usually). $5000/year
No drinking on school nights ~ $4000/year
That's a lot of after tax cash.
> 6 months of your monthly burn is cutting it way too close. You should save until you have at least two years.
Tell that to the nearly 50% of Americans who live month to month and would not be able to produce an extra $400 in savings to cover an emergency. The average American consumer is a powerful spending workhorse that keeps our economy running, but it is dangerously close to running out of gas.
http://www.theatlantic.com/magazine/archive/2016/05/my-secre...
>>Get as close as you can to spending nothing.
Are you suggesting farming ?
> I’ve been telling my students, “Take a chance, you can get another job on Monday.”
For students, maybe, especially if they're entry level jobs. However, for anyone even mid-level, I don't think this has been good advice for several years. Perhaps in SF it's been fine, but even for many mid-level (and certainly sr folks) I know, finding another job "on monday" has not been the case. (getting an interview, especially via a recruiter, has still been relatively quick, from what I hear).
Employers have been far more picky than I think many people expect. Compounding this is that they sometimes have suboptimal folks in particular roles, and those people tend to exacerbate the problem when interviewing/finding new folks.
In any event, glad to see somewhat balanced view, vs the extremes we normally see.
The message is loud and clear for senior engineers (10+ years experience): startups don't want you. They may say they do, but they really don't. And the message from SV big tech is also clear: we don't want you unless you're in the inner club (Google, FB, Amazon, etc.)
The solution is to avoid these companies. There's a huge world outside SV. These may be known as "boring" (banks, insurance, etc.) but they will not have the stupid ageist algorithm games known as "technical programming interviews". And they respect experience. And they won't have an ageist culture, it will be ok to go home early and be with family.
I'll add another voice to the job market for experienced developers and managers. It's terrible. I have an advanced CS degree, in-demand programming skills and leadership experience. I've hunted for full-time, part-time, and contracting work for a couple of months.
Interviews tend to go the following way: pass the initial interview, pass the programming test, pass the technical interview and never hear back (even after a couple of following up emails and/or phone calls). This grind really wears down one's self-confidence and outlook. It's been a depressing summer.
I have over 12 months of living expenses in my savings account and a very supportive wife, so I'm going to do a startup and see how far I can take it. It feels like a better use of my time and promises some new learning experiences compared to more interviewing.
Yea. I think a lot of people might think the hiring market is healthy and that there are jobs everywhere purely based on the volume of recruiter spam in their inbox. In reality, tons of companies are INTERVIEWING but nobody seems to be HIRING.
I've got almost 2 decades of experience as a programmer, project manager and product manager, and I still estimate that, given the job market these days, it would take 1-6 months to line up another job if I started today. I've not seen an environment where you could "get another job on Monday" since 1999.
I've seen co-workers, who were way more skilled than me, be on the market for almost a year. One in particular was my mentor and it took him about 8 months. Another was my direct manager and it's been over a year.
>However, for anyone even mid-level, I don't think this has been good advice for several years.
The implication is that this advice has been good historically, but is "going away". In the article he argues to value jobs over job prospects.
I just have a point about the last piece of advice:
"Make small convex investments. Learn a little bit of a lot of things–machine learning, internet of things, virtual and augmented reality, 3D printing."
I find a lot of advice to be diametrically opposed to this. Many other people advise you to "go deep" in a single topic and be the expert on that topic. (It also seems to contradict the point above it, but only if they are both read a certain way.)
So which is better advice? Is there a study out there?
I appreciate this author's "hope for sunshine but prepare for rain" philosophy as opposed so many others view that either "the sky is falling" or "the good times will last forever" narratives. An ounce of prevention is worth a pound of cure.
Certainly interesting. This felt out of place to me in the concrete actions you can take now: "Keep having children because a) the world needs more smart children and b) by the time they get really expensive, who knows what things will be like." Sure these are fair points but dependents do limit ones ability to make decisions 'suddenly'
I agree with the mentality, but the advice doesn't seem great. In particular, I already follow all of it (even in good times you should have 6 months savings).
Since I wasn't around during the dot-com crash, could some of the veterans on HN give more practical advice on how to position yourself to ride out a crash?
Right now, my theory is to try to get yourself a job at a stabler tech company with proven profitability (ex. Google). Does that make sense?
FTA: talking about a tech dip with a big external shock. He quotes: "another US genital waving adventure" as one of the shocks along with banking crises, trade route blocking, war, etc.
I had quite the wtf? moment with this one. Can someone explain to me what "another US genital waving adventure" means?
Not a huge fan of the 'have kids, the world needs smart people' this seems to pretend that his intended audience holds the key to wisdom and the only way to keep that going is for his audience to have kids.
I don't live in Silicon Valley so this is a genuine question: Are things starting to fall apart over there or is Kent Beck just offering up some sage advice? (Either way: Thanks, Kent!)
Defer gratification until you have six months in the bank, if that’s an option.
Phenomenal advice. Having some cushion when between jobs is great. It's also peace of mind.
6 months in the bank is always nice to have and probably a must by now.
He does not seem to state any reasons he thinks "Winter is Coming".
The earnings of Facebook, Apple, Amazon, and Google tell a different story than his.
6 months of gross salary, net salary, or expenses?
I have noticed that people who have lived through dramatic downturns tend to look for a pattern or signs of it happening again. It's probably basic human behavior, once you get burned by something you tend to flinch when you see something similar.
I am also not saying he is wrong of course... But I have noticed similar pessimism since 2012. People justifying being unadventurous with "the bubble is gonna burst soon. I have lived through it before."
I wonder where else there can be growth though?
People have been beating the drums pretty loudly lately for a global downturn. It almost feels like mainstream media is trying to cheer it into existence.
Yes there are "concerning" signals if you look - a decline in China's GDP, the plunging price of a barrel of crude oil, Britain leaving the EU. There are always areas of concern in even "good" times. However Op Ed columnists and Cable TV pundits seem to be falling all over themselves warning of the impending doom. And honestly it feels like sport.
Yes its always wise to have some saving, the more the better to a point any way. However it also wise to realize that a lot of this is fear mongering by the news media. And for an industry that has less credibility and relevance in people's daily lives than it once did, a lot of this just feels very contrived. Bad news sells, bad news is always good for the news media. There's an old newsroom adage "If it bleeds it leads." I realize this was a FB post and not a mainstream news media post but the fear mongering is starting to have this effect.
My coat is in the closet right where I left it, its August now, the sun is out and I'm wearing shorts.
I think this is good advice- risk management is important in managing your own career. It's easy to get complacent with recruiter outreach hitting your InMail at a steady clip but macro, micro, exogenous, endogenous factors can shift your short-to-medium term career prospects significantly.
Perhaps it may not be winter everywhere all at once?
I would slightly disagree with the housing. At least in some areas, owning is cheaper than renting, especially if you plan to stay in the area long term. Seattle is definitely that way. Mostly you have to be smart and buy something you can't afford. A decent fixer upper will put you in great financial shape.
6 months in the bank is pretty standard personal finance advice. The rest is just good, solid career advice that applies to a greater or lesser extent any time.
> Keep having children
Really? This is fiscal advice?
Words of wisdom here
His financial advice includes "Keep having children". OMG, lol... uh... speechless...
And my favorite piece of advice: Don't take advice from people less successful than you.