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Killing Sacred Cows by Garrett Gunderson

Book Reviews, Personal Finance

Written by:

Alvin Chow

Killing Sacred Cows by Garrett Gunderson

This is the summary for the above mentioned book. I have kept summary as succint as possible, often enough to include my perspective on what he actually means, and to the point it may not do justice to the author. For greater details, please read the book, as he provided very clear elaboration to his arguments. He organised his book into 9 myths that will harm your financial well being, and of course, urges you to killed these sacred cows.

Myth 1: The finite pie

We should not be thinking in terms of lack. Getting more for yourself does not necessarily make another person worse off. It is not a zero sum game. Adopt a win-win and not a win-lose mentality. Once you eliminate scarcity, you will have abundance. This concept is similar to law of attraction, everything begins from your mind, physical realisations are manifestations of your thoughts. So to have more, start to think in abundance. The world is not evil or good to you, it is how you perceived it.

Myth 2: You’re in it for the long haul

It is a financial mistake to put all your money into banks and retirement accounts. It is not about accumulating wealth, but how you use your wealth that matters. Keeping all the money tied up in retirement accounts is not utilising. People who focus on accumulation tends to postpone their dreams, as they think they need to have this and that, before they can really do what they want to do in life. Instead of accumulation as a target, one should focus on utilisation or value creation. The accumulation focuses on net worth while utilisation focuses on cash flow. With cash flow, you constantly channel resources to places demanded or desired by the society, and the act itself is value creation. You will have greater cash flow if you can create greater value.

Myth 3: It’s All About the Numbers

This seems like an extension to Myth 2,  where he challenged the definition of wealth and how it should be used. To quote him, “Wealth is doing what you love to find joy and fulfillment. Focusing primarily on numbers often prevents us from achieving true wealth.” Next, he criticised the financial industry for the use of numbers to appeal to investors. For example, the use of “average returns”. An average return of 25% per annum is very impressive but may not suggest anything concrete about your actual yield. Look at the hypothetical calculation:

His point is that, beware of the numbers that financial industry reports. They are meant to look nice so that investors will buy.

Myth 4: Financial Security

Do not believe in financial security. You are your very own security. Your ability to create value and earn a living is the security. Do something that you can create the most value to the society and you will be rewarded accordingly. Having a job that pays well, but not necessary allow you to live to your full potential of value creation is a waste. You think it is not sensible to quit because you need the money to live, but in actual fact, it is just giving you a false sense of security.

Myth 5: Money is power

More money does not equate to more power. The ability to create tremendous value brings about money and power. Money is a byproduct of value created be people. This post has a more extensive discussion about your relationship with money.

Myth 6: High risk = high returns

No investment is inherently risky but the approach to how you invest determines the risk. You should invest in areas or businesses that you are creating value in, as it is something close to your heart and you know best. Otherwise, you should look out for businesses that create value for others. A business must have a value proposition, without which, it will wind up pretty soon. You should also invest in yourself, increasing knowledge decreases risk. You must first know what to look out for, and subsequently do your due diligence and homework before investing.

Myth 7: Self-insurance

Insurance is an act of transferring risk away. One should therefore transfer as much risk as possible to the insurance company. Remember wealth is created by value creation. In this case, you are the goose that lays the golden eggs. It makes sense to insure the goose as much as possible. The ability to lay more golden eggs means the more insurance you need to cover yourself with. Hence, the focus of protection is about the value creator or human life value, and not the possessions (house, car, etc) that you have. Another advantage of insurance is that it give you a peace of mind, knowing that the worst thing that can happened to you is taken care of, and allows you to go all out to create value for the society.

Myth 8: Avoid debt like plague

Debts are not necessarily bad. There are forms of debts that are good. The author described 3 types of liabilities, Productive Liabilities (PL), Consumptive Liabilities (CL) and Destructive Liabilities (DL). Let’s talk about the last one, DL do not increase cash flow and in fact, it destroy human life value. Think about drugs and junk food. CL cost more than any increase in cash flow, but may contribute indirectly to productivity; items like sofa, car, nice shoes. PL result in future increase in cash flow; e.g. are rental property, student loans, small business loans). It is obvious that we should go for PL, minimise CL and avoid DL totally. If a debt can create a positive impact to your cash flow, it is a good debt.

Myth 9: A penny saved is a penny earned

Again, the author urged us to focus on value and not price. Instead of be a coupon cutter, or constantly looking out for discounts, we should spend the time to create better value and earn more money thant the amount saved. It goes the same when we buy a product. Do not just look at the price, Product A may cost more that Product B but because it is of better quality and more durable, it delivers more value to you than Product B. You actually spend less over the long run.

You should be aware by now that the entire book revolves around one word: VALUE. Focus on value, not money.

8 thoughts on “Killing Sacred Cows by Garrett Gunderson”

  1. Ya. Don’t be fooled by “Average”. Use CAGR

    Compound Annual Growth Rate. The year-over-year growth rate of an investment over a given period of time. It is calculated by the formula:

    CAGR=(Ending Value/Beginning Value)^(1/# of years)-1

    This figure represents the rate at which an investment would have grown had it grown consistently at a steady rate. It can be considered as a way to smooth out returns.

    For example, suppose a $20,000 investment is made on March 1, 2004. On March 1, 2005 the portfolio was valued at $25,000. By March 1, 2006 it had grown to $27,000, to $30,000 by the same date in 2007, and finally to $32,000 in 2008. In this case the CAGR is the ratio of the end value to start value, ($32,000/$20,000), raised to the power of ¼ since the designated time period here is four years, minus one. The result is approximately 0.3375, or 33.75%. The investment did not grow by this percentage every year. This rate represents the smoothed annualized gain for this four-year period.

    So in this case:
    Average return = 25% but CAGR = POWER(1000/1000,1/4)-1 = 0%

    See the difference.

    Reply
  2. Hi Alvin,

    Haha, so you read the book too 🙂 I love this book – the concepts are illustrative and easy to understand on the first reading. I love the page layouts and the overall presentation of the material – it makes for joyous reading 🙂

    Reply
  3. Hey Alvin,

    Great to came across your blog through another blog. Good to know another fellow Singaporean 🙂

    Your blog really have useful information to guide people on their finance, investing etc. Will keep coming to read your articles.

    So are you a full time trader now?

    Dan

    Reply
  4. why be a full time trader? For me I rather be a part-time Investor. Last year I made over S$120,000 on my stock investments and with very little work done and very little monitoring of the stock market during week days. Good thing about being a part-time investor is that we can continue to have full time job and/or businesses.

    For example, I currently own 3 different businesses other than stock investing. Which means I have At Least additional 3 sources of income compared to a full time stock trader.

    Reply

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