How to use the domino effect when investing

Hey there, fellow Reader.

I want to share with you a few thoughts that came into my mind while reading a book by Gary Keller and Jay Papasan with the title “The One Thing”. 

In a nutshell, the book is about the power of focus and consistency. Over time, these are ingredients for extraordinary results. Continue reading How to use the domino effect when investing

Dreaming Big of a Tiny House

For my wife and me, the dream of a house with a big, wonderful garden is deeply rooted and in fact, buying  our first real estate object is an incredibly exciting goal we pursue.

But having been looking for our Dream House for two years now, it’s pretty obvious, that “finding the perfect real estate object” is not an easy project.

The hard, cold numbers show us, that it is a pretty daunting task to find a house here in central europe, suitable to our “needs” and not to overpay.   Continue reading Dreaming Big of a Tiny House

The magic wisdom of Mary Poppins

Drawing by the blogauthor

We have a wonderful custom in our family. Every year at Christmastime we watch the film “Mary Poppins”.

It’s a lovely musical fantasy comedy, produced by Disney in 1964. The main character, Mary Poppins, is a magical woman who descends from the clouds after having received an advertisement from the family Banks searching for a nanny to look after the two children Jane and Michael.

The wonderful messages in the dialogues and songs of the film are timeless:

  • having time with your loved ones
  • being the master of your own dreams
  • having fun
  • finding fulfillment in life

Continue reading The magic wisdom of Mary Poppins

Taking different perspectives in life

That’s not a chart, it’s s a castle

Yesterday evening I was reading financial reports of a company I am considering to invest in. While I was studiying the chart of that company showing the development of the stock price of the last months, my son came to me and asked what I was looking at. 

“That’s a chart.” I said. 

My son replied with a smile: “No dad. That’s a castle”. 

That made me laugh. How cute! And indeed, I could immediately recognize the resemblance, just think of the castles shown in Disney films. Interstingly, all of a sudden I could see much more: a mountain range, a skyline, a fire, icicles, a cave with stalagmites and so on. 

What I nice reminder that each thing and each experience in life can be looked at from various perspectives.

Thinking outside the box 

Education, worklife and daily routines over time let us unlearn our essential ability to look at things from different perspectives which leads to an extremely one-dimensional thinking. To a certain degree this makes us stuck.

We tend to limitate ourselves.  

Just take as an example the general concept and deeply rooted set of beliefs in our society  “expecting” that someone has to

  • immediately “find” a job after school, university etc.
  • work eight to nine hours a day
  • work until he or she is 65 (or even longer)
  • work hard, be ambitious and loyal towards the employer and in exchange get a good salary
  • use almost the entire salary to consume and feel good about that

Where are the limitations when you look at the points above? They lie in the assumptions that someone

  • does not have many other purposes in life other than working and consuming
  • wants to depend on an employer and wants to get a job instead of creating opportunities (for example by pursuing the path of an entrepreneur and/or as an investor)
  • does not invest in productive assets and therefore the salary is the only source of income
  • increases spendings for consumption over time and consequently has a falling savings rate (if any)
  • relies on an ever growing salary which leads to high dependency on a job

There is a high probability that these general assumptions are not applicable to all of us and yet they seem to set the framework for our lives.

There are many cool alternatives

I know people who earned a salary far below average and nevertheless were able to stop working at the age of 50 years to travel the world. Some of them were even much younger when they quit their job. How is this possible?

In fact it is quite simple: they aligned their spendings, led a down to earth lifestyle and invested wisely. They took a decision and chose a different pathway to become financially independent instead of “working in order to consume for decades”.

So the basic concept of working “9 to 5” for almost the entire life is just one way of life.  There are uncountable other possibilities.

Breaking limitations

Looking at things from different perspectives is extremely refreshing and shows us plenty of options. Thinking outside the box is the base for creativity, the ability to address challenges with new ideas and solve complex problems. It’s a different learning process than through emulation and memorising facts.

We all have choices and can have an influence on many variables. We just have to relearn to see them. If you don’t want to work for decades and pursue something you are really passionate about, you can go for it. It is possible. It’s all a function of how much you need to live well, how much money you accumulated and how hard that stash is working for you. In a nutshell it boils down to the savings rate. 

It is the right and duty of each of us to take control of our life, take care of our loved ones, to pursue our dreams, rise to the top of our capabilities and to find fulfillment.  

If your household was a company, would it be an attractive investment?


Hi there. Appreciate you stopping by!

Let me ask you a question.

Would you invest in a business that makes USD  100’000 in revenues and grows that amount by 10 % annually?

Yes, if the price is right” you might answer. Investing in a growing business can make a lot of sense, after all such a revenue growth rate is to some extent an indicator that the business offers good products or services to its customers.

Fair enough.

And what would you say if the annual overheads of that company were USD 90’000 and grew by 12 % every year alongside with the revenues?

Hmm. Not so attractive anomymore, am I right?

The reason is quite clear and intuitive: although that company is able to consistently increase revenues by a remarkable annual rate of 10 %, profits are squeezed year by year as costs grow even faster. Such a business is not attractive as an investment. It is pretty clear, that the fundamentals of that company are leading to losses, eroding shareholder value over time. The prospect would be daunting. After just a few years, dividend payments would be cancelled or slashed or – even worse – be financed with additional debts which is to the detriment of the financial flexibility and risk position of the business. The compelling revenue growth of 10 % in our example came at very high costs and sooner or later such a company would be out of business.

Companies are considered to make profits

As an investor, you are primarily interested in “your” company to make sustainable and growing profits. That’s the way shareholder value is created and increased over time. Successful companies (such as Johnson & Johnson, Coca Cola, Nestlé, Walt Disney) have a certain “financial behaviour”. For decades, they

  • focus on making sustainable and growing profits
  • tend to increase revenues faster than costs in order to boost profits
  • consistently reinvest a portion of their profits to grow their business, improve products and processes and to make acquisitions
  • use the power of the compound effect to their benefit
  • invest in productive assets in order to increase their economic moat and ensure increased future profits
  • focus on business oportunities, new products and services to establish new sources of income to make profits
  • take on debt to grow their business and increase financial flexibility
  • pay out between 30 % to 60 % of the profits to the shareholders in form of dividends and/or by buying back shares of the own company

Profits are the essence of successful businesses and consistently being reinvested make these companies real compounding machines. The difference between revenues and costs should be as wide as possible and – ideally – grow over time.

Households are considered to earn as much as possible in order to consume

The equivalent of profits in terms of households are their savings, defined as the difference between income (take-home-pay etc.) less spendings.

Interestingly, people have a different measure of success, when it comes to households and their personal finances. While companies are considered to make profits, individuals are generally considered to

  • work hard
  • be ambitious and loyal employees
  • rely on having/getting a well paid job
  • earn as much money as possible
  • feel good at spending money and showing their consumption habits
  • invest only a minor part of their income in productive assets such as stocks
  • rarely take profit of the compound effect
  • take on debts to invest in just one asset class  wich is in general their house in which they live (therefore that investment is not productive)

So, the focus of households is quite different from companies and is set on the renumeration for working hours and consumption. Or just simply put:

“One earns to spend”

Both – businesses and individuals alike – are considered to manage  resources efficiently and handle economic risks. But more often than not, households act irrationally when it comes to their finances. High consumption is perceived as a “successful lifestyle”.

Just let’s take a highly paid executive for example, making USD 500’000 annually and getting a pay rise of 10 % every year. The general perception is: “he or she made it” – Right?

Most people wouldn’t even change their perception, if they knew that our highly paid executive took a mortgage of USD 1 Mio. to finance the house and yearly spendings accounted for USD 400’000 annually and are set to grow by 12 % each year. Savings are eroding year by year finally turning negative in the medium term. What’s the result? Accumulated wealth will decrease and finally additional debts have to be taken on to sustain the lifestyle level. High consumption is litterally eating away the savings of the highly paid executive putting him or her in a financially risky position.

Remember, if a company showed these financial fundamentals, no one would consider an investment in such a business as it would be considered as unattractive. Just think of it: the mortgage by far exceeds ten times the yearly savings of the highly paid executive. A company with debts higher than three times yearly profit is already considered as highly leveraged and risky.  Rating agencies such as Moody’s, S&P and Fitch wouldn’t even consider a company with such fundamentals investment grade.

Although the highly paid executive in our example arguably and objectively is in an uncomfortable financial position, few people would see it that way.

High income and high consumption of individuals are considered as measures of success

Why is that?

In my humble opinion, it is deeply rooted in our society and part of our education system and worklife. We are consistently trained to be good, loyal and ambitious employees and in exchange we are put in a position to consume. “The more the better”.

What’s the problem with consumerism and depending on a job?

Someone who works hard just to spend most of his or her  income is caught in a ratrace and is in a very risky position. There is usually just one source of income. People depend on a specific job and more often than not on an increasing income level to keep pace with their “standard of living”. It is very hard – and sometimes impossible – to change high fixed lifestyle costs in the short run. Taking a position with a lower income level e.g. to work on something he or her is passionate about would be perceived to be to the detriment of the “standard of living”.

Escaping the ratrace

Consumerism is not per se a bad thing, but it can make you stuck. You don’t have many options. How can you lead a voluntary life if you exist from paycheck to paycheck? It’s impossible to truly pursue your dreams and rise to the top of your capabilities.

You should save. As much as possible and as much as you feel good about and even increase your savings rate over time. After all, that’s what successful companies do. They increase profits, they grow, they thrive financially.

So should you.

Aim for a higher savings rate to streamline your finances and to gain financial flexibility.

Invest in productive assets, diversify your income streams and put your money to work for you instead of the other way around.

Make money your friend.

Hooray, another awesome boost to our savings rate

Slowly, but steadily increasing. 


October was an extremely successful month in terms of our finances. We increased our savings rate well above 65 %, the best result ever (see page savings rate)! Our average rate for the current year now stands at 55.2 %.

But most important, my family and I have a great time. Being more conscious regarding our resources and our spending habits intensified our focus on meaningful things in life and gradually transforms it even to the better. Over and over again we are making the experience that a down to earth lifestyle makes much happier than costly habits. Continue reading Hooray, another awesome boost to our savings rate

We are looking for our Dream House

“The open floor encompasses four spacious bedrooms with room for sleep, study and storage … Here is one of two bathrooms and there is the stylish gourmet kitchen … other highlights include a charming fireplace, just look at the exposed bricks … every detail was quality crafted and carefully selected … And here you see the expansive living room opening up to the wonderful garden with beautiful old trees …”


(painting by the author)

You may have guessed it. We met with some real estate agents last week and read a ton of property descriptions. I have been running numbers since then. Now, my head is aching and my eyes are burning! Continue reading We are looking for our Dream House

How to use Jaws Ratio to improve finances

While the Jaws Ratio is commonly used in corporate finance and security analysis, you rarely hear or read about that measure in the context of personal finance. This is to some surprise, as households – like businesses – have to manage their economic resources and taking into account various financial risks and (life) events. Almost everyone has money issues – companies and people alike – so why not use that concept to increase your personal savings rate to put you in a position to make more of the money you earn?

First, I want to show you what that Financial Ratio stands for, how it is calculated and then – and this is most important – how you can benefit from knowing that concept.

Continue reading How to use Jaws Ratio to improve finances