There was no point ducking it – I was earning 20% less than the year before, but I felt like I working as much as I always had.

It was a sobering realisation.

It was 2008 and the recession had been taking away my clients for months.

Most of us get used to a rising income over our working lives – unless interrupted by illness, a career break, or children.

Yet my gravy train had careened into the sidings.

I was also out of practice in drumming up new work.

Something had to be done.

How boosting my earnings began with a change in mindset

Reducing your income through early retirement or downsizing can be a positive step forward.

Seeing your long-term plans derailed by the whims of the economy is different.

I had no desire to get philosophical about my newfound role in Honey, I Shrunk My Salary (And Put Financial Freedom On Hold).

So I considered my options.

For a while I thought it might be time to change the focus of my work (and a few years later this proved to be the case) but before then I was able to arrest and then reverse my declining earnings by shaking up how I thought about my output.

In this post I’ll explain how just an hour’s effort might put your income back on track, too.

It’s a motivational technique that probably works best if you’re self-employed, or if you have a side business on the go (and you should!)

However I believe it could also be used by those in full-time employment, too.

Greener grass syndrome

Before I share my technique, I’ll describe how it came about.

I’d lost two clients within two weeks of each other.

Wondering when it would stop, I pondered the unthinkable – giving up freelance and getting a job!

I had some useful skills that I knew could land me a permanent role somewhere, despite the downturn.

In fact I had friends at one company I’d already worked for that had a vacancy I was confident of filling.

But going back to full-time employment would be a drastic step.

Being self-employed suited me, and I’d done it on-and-off for over a decade.

True, my career progression had flat-lined.

But the positives of far more freedom both in my personal life and how I worked outweighed for me the fact I wasn’t now bossing people around for a living.

Yet I was concerned.

Who knew how long the recession would last?

Perhaps I’d only been able to make a good living as a freelancer because of boom times that had turned to bust?

Meanwhile, here was this job offering reasonably interesting work, a decent salary, a four-day workweek (!), and paid holidays. (The latter something full-time employees always take for granted).

It even included a then-newfangled iPhone on contract.

As I was pondering the downsides – a boss, commuting, office politics – it struck me that the salary on offer was actually below what I still expected to earn that year, even assuming my lost clients weren’t immediately replaced.

In other words, I was being scared into swapping uncertainty about the future for the certain downside of crystalising the very loss of earnings that I feared!

I did it my way

Why was this potential job so appealing?

Thinking about it, I realised I’d been drawn to the security and perks of a role…

…all spelled out in clear type.

I saw I’d become very uncertain about what I was trying to achieve from self-employment.

For many years I’d had all the work I wanted to do, and I’d grown complacent about my motivation.

Could spelling out my freelance rewards and responsibilities address this, I wondered?

Yes, was the answer. Better than I could have expected.

Here’s how I did it.

I wrote my own job description

I decided to do write myself a contract of employment – all in the third-person – as if I was an official employer.

It was the sort of job offer I wrote for potential candidates when I headed up my own start-up company.

The big ticket items like the salary and specific role were at the top, and then came a clear list of what I was expected to do to earn my money.

I also stated:

• My hours (I prefer to work six days a week but only from 8.30am to 2.30pm for maximum productivity).

• The average on-target day rate I needed to earn to keep my job.

• My non-core responsibilities (including prospecting for new clients…)

• A set holiday allowance.

• Flexi-time possibilities to ensure I work away from home for at least two weeks of the year — a perk too often lost in the bustle.

• I decided as a bonus that my job would also come with an iPhone!

There was lots of detail specific to my own business, too.

When you formally employ yourself, my advice is to get your job description as detailed as you can.

For example, include lunch hours and working conditions.

It felt a bit stupid when I was spelling that out, but once I had it all written down I would refer to it several times a week — and I slacked off less.

I don’t mean I stopped taking afternoons off or whatnot – more that I stopped perambulating around the Net when I was meant to be working, being happy if I made some money instead of enough money, procrastinating, and avoiding frogs.

Tackling mental beliefs is important if you find yourself ‘stuck’ at some particular level of income, but for me it turned out to be equally useful for simply holding the line, too.

My income went up, almost automatically, as I relentlessly focused on what I was looking to achieve, instead of wondering about what I wasn’t.

What if you’ve already got a full-time job?

Perhaps this post isn’t as relevant if you’ve got a traditional job that you’re happy with. You might simply talk to your employer about increasing your salary.

That said, many people look to earn a passive income on the side, and so-called portfolio working is also becoming much more common.

Some people treat their equity or property investing as a core part of their own ‘household business operations’ too – and those that don’t might consider doing so.

I suggest you try combining your salary with your extra income to derive your overall on-target earnings.

In my experience, stating what you want to achieve and regularly reviewing it can be a powerful way of focusing on your day-to-day salary and income goals.

Paying yourself first is a proven way of boosting your long-term savings.

Why shouldn’t employing yourself first grow your income, too?

Whether you call it factor investing, chasing the return premiums – or you use the once-trendy but now sounding increasingly like walking into a bar and declaring “Hey daddy-o, I’ll have a Babycham” term Smart Beta – trying to get an edge by exploiting biases in the market remains controversial.

A few hedge funds do it to great effect.

Others flounder.

Among passive investors the debate is if anything fiercer.

Indeed the idea of a passive investor pursuing a specific ’tilt’ to try to beat the market smacks some as a contradiction in terms.

I’m not one of those people – my definition of ‘passive’ is wider than most – but plenty of big guns have had a shot.

Vanguard founder Jack Bogle says:

“Smart beta is stupid; there’s no such thing. It’s an idiotic phrase.

Quoting Shakespeare, I guess: It’s a tale told by an idiot, full of sound and fury, signifying nothing.

It’s just another way of saying, “I know I’m going to be above average.”

Active managers are just trying to come back and say there is a better way to index, when they know damn well there isn’t a better way.”

I don’t think Jack’s a fan.

Everything but the Krypton Factor

One inevitable hurdle with factor investing is it takes a simple if weird idea – that by just buying the market and not paying anyone to try to do better, you probably will do better – and obfuscates it to the n-th degree.

That’s not appealing to the passive investing mindset.

For example, we’ve covered most of the return premiums on Monevator…

• Value
• Size
• Profitability
• Low volatility
• Momentum1

…yet I suspect only the geekiest2 of readers have read them all in full.

Even after explaining how to build a risk factor portfolio, my own co-blogger The Accumulator then wondered aloud whether it was really worth it.

Confusing stuff.

Video on factor investing

Still is your curiosity piqued?

Naturally I’d be delighted if you read all our articles on return premium. (I suspect they’re feeling a little lonely).

But you could start instead by watching this interview with Cliff Asness, the founder of AQR Capital Management and a student of efficient market titan Eugene Fama.

Mr. Asness covers most of the bases and gives his views as to why these factors might exist – but he does it with the accent of a wise-cracking gangster from a 1950s crime flick.

I find him very personable:

Just don’t be scared when the interviewer says:

“Now, when I read the very latest papers on risk, let me tell you what I see.

I see talk of the third moment of probability distributions, the fifth moment, words like coskewness, terms like the U‑shaped pricing kernel, and talk of the volatility of volatility.

I’m just waiting on the paper on the volatility of the volatility of volatility.”

…because Asness waves all that away.

There’s also a full transcript on Medium.

Finally, for the other side of the argument you can read our own Lars Kroijer explaining why everything except a total market tracker is hokum in his view.

1. This one is not yet accepted by the grand seers of the Chicago School of Finance. [↩]
2. From one investing geek to any others out there. [↩]

Good reads from around the Web.

I was sad to learn this week that Jim Slater has died, aged 86.

Slater was a fixture of the UK’s investing landscape for more than five decades. That landscape is the poorer without him.

Unlike the US where the likes of Peter Lynch and Warren Buffett became household names in the 1990s, we don’t really turn out celebrity stock pickers in the UK.

The very successful contrarian investor Antony Bolton did publish a book a few years ago, but it hardly caught on. (2009 probably wasn’t the best year to try to win people over to investing, even if in retrospect 2009 actually was the best year to be won over to investing…)

I guess Neil Woodford is more chatty nowadays, via his newish company’s blog.

But income investing’s Billion Pound Man will have to live to 300 to outdo Slater’s output at his current word rate.

Most of our top active investors are unknown hedge fund billionaires who barely leave the City except to helicopter to their estates in the Home Counties or to attend society weddings in the South of France.

I don’t get the impression they’re interested in sharing with the rest of us.

Investing made accessible

In contrast, Jim Slater was unique, and to me uniquely inspiring.

Slater was a self-made man back when The City was still dominated by old school ties, and he was systematic about his stockpicking when the culture was still to buy on tips from those supposedly ‘in the know’.

He began sharing his investing thoughts way back in the 1960s.

But most UK private investors today know him from his famous bible for picking growth stocks, The Zulu Principle, which was published much later.

In the periods when its kind of companies are in fashion, Slater’s Zulu method works almost like magic. It’s therefore created a fair few vocal disciples who’ve done well in those good times – not least his own son, Mark, who runs a fund based on its principles.

I’m not ashamed to say however that my introduction to Jim Slater’s thinking – and pretty much to investing – was his much less sexy Investment Made Easy, which I bought in the mid-1990s for the princely sum of £12.99.

I still have my battered old copy, which I dusted down for a photoshoot:

For me Investment Made Easy was a sort of Hitchhiker’s Guide to an amazing new world.

Slater explained everything from inflation and bank accounts to funds, shares, investing ratios, and even the pros and cons of home ownership.

I even re-read the book 20 years later for inspiration when I began my own short series on investing for beginners.

I’ve also referred more than once to his thoughts on spotting bull market tops and bear market bottoms, which to me as an active investor are much more insightful than any number of data-mined numerical indicators.

If only I’d followed Slater’s stern advice given in the mid-1990s that nobody can afford to ignore the huge tax advantages of owning their own home in the UK!

Slater convinced me, but events and a decade later poor judgement intervened.

But the point is: How many stockpicking gurus have you read that tell you to first go buy a house?

Slater was practical, and he had the common touch, despite his extraordinary career.

Fluctuat nec mergitur1

Incidentally, I was surprised to read that popular investing blogger Paul Scott had no idea of Slater’s boom-to-bust business career of the ’60s and ’70s.

Like me, Scott was a denizen of the Motley Fool bulletin boards a decade ago when they were in full health, and there was a time when you couldn’t mention Slater on there without someone harping on about his past – invariably in an unflattering light.

Slater was one of the original corporate restructurers – the sort that would later be disparaged (by some) as asset strippers.

In the 1970s he was as famous as any City figure is today for that, not for his stock picking prowess.

The business ultimately blew-up – as so many of that ilk do – on the back of excessive debt. There was also a suggestion of scandal that was thrown out, but which some of those old hands on the Fool boards still remembered.

By the way, Slater didn’t seem to lose his appetite for risky borrowing. Investment Made Easy was later reworked into a how-to guide on becoming a millionaire via an interest-only mortgage and an equity ISA!

I remember thinking at the time it seemed ultra-risky. But that time was 2001 or 2002, and I daresay his strategy minted a few millionaires among its readership.

Passionate even at 80

I met Slater – well, to shake his hand and say I enjoyed his books – a few years ago.

It was at a conference for private investors. They loved him, and he seemed at one with them.

At the Q&A at the end of his session people shouted out small cap names to ask for his opinion, and the bright 80-something knew them all. (Another inspiring old super-successful investor!)

Slater was getting into gold miners at the time. I hope he got out again.

I’ve also met his son, Mark, the aforementioned fund manager, and enjoyed a more substantial conversation. The physical resemblance is uncanny, and Mark also follows the Zulu principles.

I found him a different sort of personality to his father, but I’d certainly be very interested in a book, were Mark to take on his mantle.

[continue reading…]

1. ‘Tossed but not sunk’ – the motto of the indestructibly beautiful city of Paris. [↩]