Ornoth

It’ll surprise those of you who know me best, but aside from my 2016 mention of my condo sale, I haven’t posted about money at all in four or five years, mostly because “people get funny when you talk about munny…”

But since money is one of my six necessities for happiness, and because things are afoot in that department, I’m going to correct that with a two-part look at money and investing. This first part will be a retrospective covering the 25-year period from 1990 to 2015, and a followup post will discuss more recent developments since moving to Pittsburgh.

The Windfall

The event that kickstarted my savings was, of course, working at Sapient. I joined a startup of 120 people, and during the dot-com boom we grew to over 3,600 staff, went public in an IPO, and were added to the prestigious S&P 500. We were one of the biggest internet darlings, and my Sapient stock options made me a moderate but comfortable nest egg.

On one hand that was just an unexpected windfall: a completely arbitrary gift from the heavens. On the other hand, I worked my ass off at Sapient for seven long years, and my coworkers did the same… That windfall was the result of our long hours, huge sacrifices, mental discipline, and collective business and technical acumen.

I was a pretty conservative stockholder. I never wrote covered calls against my Sapient stock (i.e. selling others the right to buy my stock at a particular future price), nor did I use my Sapient holdings to buy other equities on margin (i.e. borrowing against unrealized paper gains). Thus I avoided the pitfalls that claimed some of my coworkers’ fortunes when the internet bubble deflated. Some simply held their stock for too long and watched, paralyzed, as it spiraled into the shitter. Others got hit with margin calls, which forced them to sell their stock well below its peak.

I was a little bit wiser and a fair bit luckier. I knew buying on margin was stupid, and also that tying up 99 percent of my net worth in one volatile internet stock was even more stupid. Instead of thinking the stock could only go up, near the top of the bubble I decided to cash out most of my stock and use the proceeds to buy a condo. I attribute the fortuitous timing to blind luck, but financial wisdom drove my decision to move my tenuous paper gains into something less volatile, e.g. real estate.

Not that I wasn’t making big mistakes of my own. When I sold, I incurred a ludicrously heavy capital gains tax burden, which threw me into the dreaded Alternative Minimum Tax category. Then I compounded the problem by not knowing enough to file quarterly estimated taxes, which incurred substantial penalties. I know: “First World problem”. But let me tell you, writing an obscenely huge tax check to the government ranks as one of the most painful things I’ve ever done. Lesson learned!

Congratulations on Your New Mortgage!

Those who parrot conventional wisdom will tell you that carrying a mortgage is a smart way to force yourself to save money, and that you get great tax benefits by writing off your property taxes and mortgage interest payments. Then you sell your home for maybe 50 percent more than the original purchase price. Sounds pretty awesome, doesn’t it?

It isn’t. Consider your expenses.

No one lends you money for free. When you add up all your mortgage payments, you’ll find that over the course of the loan, you pay back two to three times the amount you borrowed. That’s like going to the bank every week and depositing $300, but only being credited with a $120 deposit!

Then add on all the ancillary costs: local property taxes, mortgage insurance premiums, home insurance, condo fees, utilities like heat and water and sewer and electricity, maintenance and repair, and more. Now your 50 percent profit is looking mighty thin.

But you won’t see that 50 percent profit anyways. Remember that when you sell your home, you’ve also got to cover the real estate agent’s fee and closing costs. And if there’s still any profit left, don’t forget the tax the government will levy on your capital gain.

Sure, sometimes owning a home makes financial sense. But much of the time it doesn’t, and it’s a ludicrously inefficient way of saving for your future.

Unemployment, or “Quasi-Retirement”?

So after selling my stock, my main job became ensuring that I could pay for that mortgage lunacy. For the next decade, I bounced around five jobs, quitting twice, being laid off twice, and taking severance when one employer got bought out. That’s pertinent because I learned one of the most valuable financial lessons of my life after leaving Sapient due to my first layoff experience.

Being laid off ain’t so bad at first. You might get some severance pay, and you’ll get unemployment insurance checks. You might be able to get by for a while; I did. I even kept my mortgage payments up! But a year later I had a problem: how to pay the mortgage when both my severance and unemployment ran out?

About the same time, I realized something important while doing my post-layoff income taxes. My only income that year came from my severance and unemployment checks. Then, when I looked at my deductions, I got those promised mortgage interest and property tax deductions, which would offset about $25,000 worth of income. Basically, those huge deductions offset all of my meager income, which meant I owed zero taxes!

But with my severance gone and unemployment ending, I was in a really strange position. I had a huge liability to pay (my mortgage), but no income, and a huge $25,000 tax deduction which I couldn’t benefit from unless I had income! If only there was some way to apply the deductions to my mortgage payment…

That’s when I remembered my other big, forgotten asset: my retirement savings. There was plenty of cash in my 401k and IRA, but since I wasn’t retirement age, I would have to pay regular income taxes on anything I withdrew, plus a 10 percent penalty.

But if I only withdrew $30,000, that “income” would be completely offset by my mortgage deductions, plus my personal income tax exemption. Essentially, I could withdraw a certain amount from my retirement account, and—thanks to those mortgage deductions—pay *no income taxes on it at all*, just the 10 percent penalty! Then I could use that money to pay my mortgage, and everything would be copacetic!

Now, I wouldn’t advise normal people to raid their retirement account. But compared to my Sapient windfall, my IRA was a small part of my net worth. I always expected to finance my retirement with the proceeds from my Sapient stock (now tied up in my Back Bay condo), rather than my comparatively small “retirement” account. So it actually made sense to raid my IRA account.

That worked out so well that I took three years off between Sapient and my next job. I recharged my utterly depleted energy levels, did lots of biking, traveled, and generally just enjoyed the hell out of life. It felt like taking three years of my retirement and pulling them forward into my forties, when I could enjoy them more fully than if I were older. It was an immense, immense blessing.

And boy, did I internalize that lesson! When I went back to work, I dedicated myself to building up my savings, so that when I was laid off again in 2008, I could afford to take two years off without having to raid my retirement account. And another whole year off in 2014, when my employer was bought out. And I converted the majority of my IRA to a Roth IRA, a taxable event that was made easier by having no other income for that year, but large mortgage deductions.

To be honest, in the 16 years since Sapient let me go, I’ve spent more time unemployed than employed. Having the financial resources to take a year or two between jobs, bringing several years of my retirement forward, has been one of the greatest blessings and most valuable financial lessons of my life.

Taking Stock

After leaving Sapient, my financial life was mostly quiet, since most of my net worth was tied up in my condo. I did hold some money back, so that I had a little cash to invest elsewhere.

At first I tried my hand buying individual stocks, but being very uneducated about the market, I had mixed results at best. Looking back, I’m surprised at how many individual stocks I bought. At various points I held: Cardinal Health, Staples, Fleet Bank / BankBoston, gold miner Freeport McMoran, MBNA, and Sprint.

I never made real money on any of those stocks, and eventually accepted the fact that I was taking too much financial risk and not reaping any reward. And more than anything else, I wanted to keep those assets safe, so that they would cover my expenses if I had the opportunity to take time off between jobs. So I satisfied myself with the much safer alternative of just buying and holding less volatile mutual funds.

Paying the mortgage and shepherding my assets, alternating between work and time off: that’s how more than a decade would pass. That would change dramatically in 2016, but that part of the story will be told in my followup post: The Ghost of Munny Present…

With the perspective that comes from thirty years in tech, I’ve gained quite an appreciation for the basic absurdity of developing software.

A quick look in the rear-view tells a revealing story.

Of the volumes of software I’ve written, perhaps a quarter of it was never even used. And nearly all of the code that did make it into production was gone and deleted within five years of its creation. Heck, half of the companies I worked for disappeared within eight years! And nearly every programming environment I ever learned was obsolete within ten.

While everyone talks about how rapidly technology evolves, it’s rare that anyone thinks through the implications. The software that I was quite well paid to craft has been astonishingly ephemeral, and the development tools that I’ve used have had a useful lifetime somewhat shorter than my last pair of socks.

Needless to say, this isn’t just my problem; everyone in our industry faces the same underlying challenge. Nothing lasts forever, but in tech, everything we learn, use, or create should come with a “use-by” date of fewer than 60 months.

When you were young, you probably got the impression that your career would be a linear journey from Point A (your first job) to Point B (a comfortable retirement).

In the tech field, it’s more like trying to steer a sailboat at sea. You can point yourself toward a destination, but the water’s hidden currents and tides will pull you in different directions. The wind, waves, and other people’s passage will also push you off course. Never mind that every employer and project asks you to use their own boat with completely different rigging! And sometimes, either by choice or necessity, your destination changes mid-stream. About the time you reach the middle your career, you realize that your industry and career trajectory are far more fluid than you foresaw when you first set out.

While all this change and dynamism makes it hard to make progress in any one direction for long, if you develop the insight and skills to respond to these changes wisely, you can still get to a happy destination, even if it might look nothing like what you imagined when you got your first offer letter.

What follows are a list of observations I’ve made over the course of my shifting career: some often-overlooked implications of trying to navigate my way through such a turbulent industry. I hope they are of value to you on your own journey.

First, let’s look at the implications the ephemeral nature of software has on companies as a whole.

As soon as a development team delivers a software system, companies and product managers need to immediately start planning for its replacement. These days, you have two options: either factor a perpetual enhancement and revision process into your product strategy, or plan to simply throw away and reinvent your system at great cost a little further down the road. The traditional concept of implementing a system once and then scaling back for a lengthy “maintenance phase” died about the same time as pay phones and busy signals. It’s a nice old-fashioned idea that will lead you directly toward your Chapter 7 filing.

Whether you are a product manager or a development lead, you must accept and somehow communicate to your development team that time to market is infinitely more important than the elegance or academic correctness of their code. Bug-free code does not exist, and companies are much more rigorous about following the old 80/20 rule. If you’re truly following the Agile model (rather than pretending, as so many companies do), your top priority is to ship the beta: get an initial offering with a minimal feature set out into the market, and then react rapidly to customer feedback. These days, software that is “good enough” is almost always good enough.

When I first became an engineer, my older brother offered me one of the most valuable insights of my entire career: never hire technical staff for the knowledge they already have; instead, evaluate candidates primarily on their ability to learn new skills quickly and effectively. Five years down the road, the knowledge they walked in the door with will have no value; their usefulness as employees will be determined by how easily and quickly they can become productive with new languages and tools. Furthermore, the optimal way to retain the best technical talent is to support their desire to keep up with current and emerging technologies.

Now let’s talk about a few things that apply both to individuals as well as companies.

Whether you’re an individual managing your to-do list or a product manager specifying features and enhancements, you’re always going to have more tasks than time and resources to complete them. Therefore, always work on the highest value item. Constantly ask yourself whether you and your team are working on the most strategically valuable task. Always attach yourself to the tasks that truly have the most impact, and don’t waste your time on anything else.

Risk is uncomfortable. Risk is a threat to one’s company and one’s career. And yet risk is an inherent part of every single thing we do. While moving cautiously forward might seem like the most comfortable and risk-free approach, it really only defers that pain, because there is a huge hidden risk associated with not moving forward assertively enough. Both corporations and individuals must learn how to embrace risk, tolerate its associated discomfort, and recover from failures.

Software engineers and managers often have a grand dream of software reuse: the idea that if you’re building a program to handle Task A, you should invest some extra time into making it generic enough to handle anticipated future Tasks B and C. In the real world, B and C might never be needed, and their requirements are likely to change between now and then anyways. While it goes against our sensibilities, it is often quicker and easier to just duplicate and customize old code to handle new tasks. If the additional cost of maintaining multiple versions becomes sufficient, only then should you invest the resources to refactor it into a single generalized solution. That might sound like blasphemy, but in thirty years I’ve rarely seen a compelling example where software reuse saved money in the long run.

Finally, let’s talk about how we as individual employees should respond to the fact that our work has such a surprisingly short lifetime.

On a purely tactical level, as soon as you finish a project, save some screenshots and code samples for your portfolio. Six months later, those sites you built will have changed significantly, if they survive at all.

While everyone wants to be the best at what they do, building deep expertise in any tool or language no longer makes sense, because most languages are supplanted in a few short years. Rather than becoming an expert at one thing, a better strategy is to become the long-derided jack of all trades: someone who has a wide breadth of knowledge, an understanding of the general principles that apply to all environments, and the ability to adapt to changing business needs and a changing job market. Cultivate your passion for perpetually learning new tools, and your ability to be comfortable doing so under stress and time pressure.

In terms of getting your resume noticed, what you have done is not always as significant as who you worked for. Sites and projects are ephemeral, but major companies last longer and will catch the reader’s eye. Working with companies that are household names will—for the rest of your life—help you get that first phone screen.

My advice to all individuals is to focus on saving cash when you’re working, so that you can comfortably weather the inevitable downturns in the business cycle. Every time I’ve been laid off, I’ve been able to take a year or two off to decompress, have some fun, wait for the next upturn in hiring, and then be selective in my hunt for a new position. Layoffs and buy-outs weren’t personal emergencies because I had the cash on hand to weather any situation that arose. But if you take time off, devote some time to keeping your skills up to date and learning marketable new technologies.

Unlike the coding I’ve done, the one element of my career that has proven surprisingly durable over the long-term has been the relationships I’ve built with my coworkers. Despite everyone moving from project to project and job to job and often city to city, people remember you forever, and a robust contact list is immensely helpful in finding great places to work (and knowing which ones to avoid). It might sound crazy, but this has been one of the most important elements of my career success: put just as much effort into developing good relationships with your coworkers as you put into the software you write. Software doesn’t last, but people do.

Finally, one closing bit of advice about the long-term. If you want to be happy when you look back on your career, you must work for companies and projects that improve people’s lives, rather than just making a buck. Being a successful spammer or marketer might pay the bills, but money isn’t fulfillment. No matter how elegant, satisfaction will not come from the short-lived systems you build; real, lasting fulfillment comes from the impact your work had on real people’s lives. Life is too short to waste your time working on shit that doesn’t have any meaningful value, so make sure you’re contributing to a business you can really believe in.

And, of course, don’t be surprised or dismayed when the systems you worked so hard to build disappear overnight. It’s one of the facts of life as a software developer…

This one might sound particularly stupid, but if you lived in my head, you'd know that it's a revelation for me.

So I've been unemployed now for five months, but really I've only had the past three weeks to really relax (don't do it/when you want to go to it) because of other things taking up my time. But recently I've been trying to figure out why, now that I have ample time, I still find it difficult to relax (don't do it/when you want to come). And I think I've got a answer, although it probably will sound terribly obvious to you.

You see, I'm one of these people who values productivity. I think people who spend hours commuting are wasting their lives. And I think people who watch television are nothing more than worthless by-products of our overcoming the Darwinian struggle for survival. Movies are pap to tranquilize the masses; intelligent people use their time to create, not to sit around waiting to passively absorb stimulation.

In contrast, I spend my free time in pursuits that require concentration, if not intellectual engagement. I write fiction and critique a lot more. I run an online magazine. I create art. I build Web sites. I drum, cook, and do photography. And don't forget journaling! Literally everything I do requires mental engagement and concentration.

Somehow, it's only now that I realize that even I can't live being 100 percent "on" 100 percent of the time. I need to find ways of shutting the intellect down, to give it time to rest and recharge before diving back in again. I guess it's apparent now because I haven't been on my bike in several weeks, and that was the best way I knew of to relax (don't do it).

I'm sure that the need for non-concentrating relaxation time is second nature and it's a pretty underwhelming revelation to most people. But for me, it really is a big change in how I think about recharging and the value of time.

The funny thing is that I don't have an easy time coming up with "mindless" activities that qualify. Cycling counts, as does seeing live bands, visiting cats, and reading. I suppose socializing would count, if I did it more... That's really about it. I need to spend some time brainstorming other alternatives.

That's all. Just thought I'd capture that thought, since it really isn't a natural one for me.