🟢 “Investor”

Am I an “investor”? Questioning my identity (and aspirations).

Ryan Walsh 🟢

Apr 23, 2024

(6 min read)

A man wearing a t-shirt and sitting at a desk and typing on a Macbook which has financial charts on its screen. The man does not have a head but instead has a basic bright neon green sphere in its place. Green background and theme.

When I was 14 in 1998, my dad opened a Datek brokerage account for me:

Now owned by Charles Schwab after a bunch of mergers and acquisitions

I’d save up money from small jobs (e.g. refereeing soccer) and buy a few shares at a time.

I bought shares in Microsoft.

And AOL, Coca-Cola, AT&T, SunTrust, Intel, Amazon, General Electric, Cisco, Macromedia, and others.

My dad’s millionaire boss let me have a phone call or two with his stock broker.

What the hell did I ask as a little kid?

I don’t remember.

But it felt important.

By the way, until just now when writing this article, I hadn’t remembered these details.

(I’m glad I’m such a digital hoarder.)

It’s fun to see what my age was and the first stocks I bought.

My life would have taken a significantly different path if not for that brokerage account.

It instilled a habit in me:

Prioritize investing instead of spending.

When other kids were buying music (CDs and minidiscs) and stereos and video games and cars, I was tucking money away.

Of course, I hadn’t yet learned that index funds are a much better approach than hand-picking individual stocks.

But at least I was carving a healthy groove in my brain:

“Live beneath your means, and invest as much as you can.”

Towards the end of my time at Princeton, maybe when Bridgewater was recruiting me, I learned that:

The best investors are the dead ones—the abandoned accounts who just sit patiently, not trying to time the market.
Holding algorithmically-defined (NOT actively-managed) diversified baskets of stocks (i.e. index funds) substantially outperforms trying to pick winners.

So I sold all of my individual stocks and started buying shares of index funds, diversified across asset classes and geography.

I diverted a substantial portion of my biweekly paycheck into those investments.

4 years later, in 2010, Katie and I moved to California.

It seemed like everyone was obsessed with startups and the allure of running your own business.

I caught the bug.

Chasing that autonomy, I knew I’d want to run my own business instead of be an employee.

Hustle culture was strong.

Experts everywhere would say “There is no such thing as passive income”.

Ironically, within that hustle culture—the culture that inspired me to quit my software engineering job and become a solopreneur—I came across this diagram at a conference:

Cash-flow Quadrants

The person teaching about this concept encouraged all of us in the crowd to move away from the Employee quadrant to either the Self-employed quadrant or the Business Owner quadrant.

He ignored the Investor quadrant.

That should have been a red flag for me… 🚩

Who wouldn’t prefer to be in the Investor quadrant!?

Although it’s not 100% passive, it’s as close as you can get.

You can manage a portfolio of stocks, bonds, commodities, etc with just a few hours of work per 2 or 3 months.

(And theoretically you could hire someone to take that chore off your schedule too.)

If the portfolio were large enough that its proceeds could pay for your lifestyle, you’d be set.

Your calendar would be completely open.

You could explore, play, create, learn, choose our own challenges.

In my case, unfortunately, instead of learning how to shift into the Investor quadrant, I moved from the top-left to the bottom-left, earned less, and invested less into our portfolio. 😞

My reflections on the Cash-flow Quadrants

Awareness, relatability

Most people seem oblivious to any quadrant other than Employee.

They feel trapped, trading their effort for money.

Showing up to a job day after day.

Doing what they’re told.

Our society is full of discrimination that prevents certain people from exiting this quadrant. (Each century brings more social progress, but it sure feels slow.)

Others might have the opportunity but assume that leverage (the green quadrants on the right side) would be forever unachievable for them (or at least until old age).

Owning a system vs owning a job

Most people’s thoughts about entrepreneurship are too blurry.

They don’t notice the important distinction between the Self-employed quadrant and the Business Owner quadrant.

I learned this lesson the hard way.

I’ve felt this pain personally.

When you own a business, if your efforts are still required for the operation of that business, you own a job. It can suck.

To be a true business owner, you need to think in terms of systems.

Systems for finding where your ideal prospects are.

Systems for teaching those people about what your business offers.

Systems for delivering your product or service (and offering support).

Systems for recruiting, hiring, managing, inspiring, and mentoring employees, if necessary.

Systems for mitigating risk.

And so on.

In many cases, designing and managing all of those systems would itself be a job (or maybe more than 1 job).

So at a minimum, you’d need to hire a trusted operator (e.g. CEO).

The more your effort is required, the more you’re on the left side of the diagram instead of the right side.

Changing quadrants

The 2 easiest transitions are from Employee to Self-employed and from Employee to Investor (diagonally).

But replacing your Employee income as an Investor might require more patience.

Moving from Employee or Self-employed to Business Owner is probably more difficult than most people realize (in the sense that it requires that you’re really good at designing systems and leading and managing people).

Fake passive

I see people lie to themselves.

They call themselves a “real estate investor”, when they’re really in the own-a-job Self-employed quadrant.

Because they’re the ones finding properties, buying them, cleaning them up, and selling them.

That’s so much work.

That’s not passive.

What I think “Investor” looks like

The kind of passive I’m looking for is:

Occasionally check the performance of your index funds so that you can rebalance as necessary.

(E.g. if in the past couple of months stocks outperformed nominal bonds, inflation-linked bonds, commodities, etc, now your portfolio is too heavily weighted in stocks and would be exposed mostly to the economic factors that affect stock performance.)

That’s it.

No employees to hire or manage (or pay).

No computer systems to worry about.

No business licenses, even.

Just monitoring financial data and fine-tuning allocations.

Note: when looking at the 4 quadrants, the most important point is that leverage is good.

Favor the quadrants on the right.

I sort of think of Business Owner as “Investor”, but with income coming from primarily 1 company (where you have majority ownership and control).

“Investor” implies you own shares of many companies, even if you have no control over those companies.

Having diversified income streams that in no way rely on your effort = “Investor”.

Diversification = safer and more predictable.

If I could go back and advise my younger self

Perhaps I would have been better off if I’d encountered the FIRE (Financial Independence, Retire Early) movement sooner.

As a 22-year-old, I wish I bought a 10-year-old Honda instead of a 3-year-old Acura, for example.

Instead of blowing money renting a luxury townhome, I could have lived in a budget apartment.

Expenses like those were a bad trade.

I hesitate to do the math, but maybe I’d be retired by now if I’d been frugal earlier.

Going forward

Identity and labels

Our culture seems to define people based on their occupation.

Whenever meeting someone new, people want to know “what you do”.

I haven’t had a software engineering job since December, so labeling myself a software engineer or software engineering manager seems outdated.

These days, instead of coding, you can find me researching topics like Bitcoin.

Some people have encouraged me to think of myself as a writer.

Yes, I’ve been publishing these newsletter posts twice a week.

I don’t earn money from them, but I could still see myself saying “I’m a writer” since that’s what I “do” nowadays.

But I wonder why I haven’t thought of myself as an investor instead.

Have I reserved that label in my mind for “angel” investors who write multiple checks for $50k and take tons of risk hand-picking opportunities?

When labeling yourself on social media or when meeting people, should you refer mostly to how you earn money (e.g. investing) or instead to the tasks that occupy the majority of your calendar (e.g. writing)?

My plan

After researching Bitcoin extensively for my recent post, Katie and I bought more of it.

It’s risky—I know.

I wish I took more risks when I was younger.

But I am starting to feel like at only 40 years old, maybe I am still at the beginning of my life.

The more leeway you think you have for correcting mistakes (and climbing out of a hole that you dug yourself into), the more you can take a chance.

It’s possible that BTC-USD will double within the next year or so.

Its volatility will be extreme in the meantime (and we’ve already “lost” tens of thousands of dollars in recent weeks, if we were to sell now).

But I’m trying to adjust my thoughts to prepare for the possibility that maybe my effort is not required for income.

Maybe having 80% of our portfolio extremely diversified and 20% dedicated to riskier bets like crypto will take us where we want.

Sure, maybe the drawdowns along the way will be uncomfortable.

Maybe I’ll need to get a job (Employee quadrant) to maintain our current lifestyle.

But the more I think about the Investor quadrant, the more I realize that none of the other quadrants suffice as my final destination.

And I don’t want to wait until I’m in my 60s or 70s to consider myself an Investor.

The past decade has shown me that I didn’t have the knack for business that I expected I would.

So the fastest way to Investor might be minimizing our expenses (to live below our means and invest the rest) and work as an Employee temporarily if necessary.

I’m now applying to full-time software engineering jobs again.

If you keep reading these posts, you’ll hear how this plan shakes out!