One of the most significant risks related to house flipping is holding period market risk - it's the risk that during the time in which you're holding the property you intend to "flip," the property value will decline. 

The decline in property value can be caused by a variety of reasons (macro recessions, localized events, etc.), but that's not the point of this short piece. The point being made here is that house flipping exposes the "flippers" to significant market risk. 

Not taking this real estate market risk to which you're exposed to when pursuing a house flipping strategy into proper account and consideration may have some serious negative consequences. The negative consequences are rare - they only arise in market downturns, which happen once every number of years. But, although the chances of the risk coming to fruition are small, the severity of the negative consequences (should there be a real estate market decline) are severe. The consequences can be severe enough to wipe out investors that are not well-capitalized and in positions of strong liquidity. 

This is pretty easy to see if we think about a hypothetical example. Let's say you're doing house flipping and you buy a $200,000 property. The timeline might look something like this:

• January 20XX: Put down payment/earnest money deposit
• February 20XX: Close on the purchase; get keys
• February - April 20XX: Renovation
• May 20XX: Sell the improved property

The risk in the hypothetical example above starts as soon as the earnest money (down payment) is provided, not when the real estate transaction closes. This is because you've physically outlaid your money in January - by the time February comes around, you've already been exposed to real estate market declines for about one month. 

The risk exposure continues until you sell the house. So, in the above example with the relatively rapid renovation and resale (likely in a good real estate market; very unlikely in a real estate downturn), the investor or flipper would be exposed to market risk arising from adverse moves in the real estate market for at least a few months. If the investor is new, inexperienced, or doesn't have a lot of capital/liquidity in reserve, things might be over in one serious real estate or economic downturn. 

If you're holding a property that's worth less than you bought it for -- even with the improvements you made or might make -- you'll have to (1) either accept a loss on this investment or (2) you'll have to continue making mortgage payments on the note until the market recovers. 

In the first case, you'd lose real money - you'd possibly lose your entire down payment and in the worst scenarios you might be so underwater that you'd have to add additional funds to be able to get rid of it. This isn't far-fetched. Many people all across the United States experienced this during the Great Recession that started in 2007/8. 

In the second case, you'd avoid having a severe capital loss, but you'd have to outlay money every month to keep the mortgage note current. This can be costly, especially if this is done for many months or even many years. 

Of course, you might have bought the house in cash - in that case, you still may experience a severe loss (you'll just never be underwater on the mortgage). Renting might also help mitigate the risk - if there's a downturn, you might abandon your initial house flipping strategy and put a tenant(s) in the property for several months or years to help with the mortgage payments. ​

A prudent house flipper or potential house flipper would take these risks into account. Everything is exposed to risk, so this article isn't attempting to say that real estate investing in general, or house flipping specifically, are imprudent investments or that there's undue risk in a house flipping strategy. The article simply attempts to highlight a particular type of risk that house flippers are and will be exposed to. 

With each economic cycle in modern economies, we experience the same thing - there's a boom, then a bust, then a recovery, and then another boom...

It's typical after a long period of growth for investors, the financial media, and your everyday Joe Shmo to start thinking that a recession looms on the horizon. But, recessions don't like fear - people freaking out doesn't usually beckon a recession. 

In actuality, recessions are more often seen right after periods of intense euphoria in the economic and financial worlds. These times are marked by excessive optimism and a fear of missing out (FOMO) by many market participants. During such times you'll hear people traditionally not involved in finance or investing talking about investing - this is markedly different than how people act during times of fear or caution. 

Thinking that a recession is near when most others think this is an error in most cases - one likely based on not understanding financial market history well enough. Although real panics will very likely have macroeconomic consequences (and might cause a recession or even a depression), general but relatively subdued caution and fear is not likely going to be the cause of a recession. It's when people expect it the least do macroeconomic downturns start to brew. 

​From a mathematical perspective, those in Finance can clearly show you how not being diversified -- in an economy that allows for diversification -- is not prudent. Why isn't it prudent? Because, for most investors, not having all of their eggs in one basket will prevent them from devastating loss should some baskets break. Baskets break all the time. 

Although diversification is an ancient concept, the modern idea of financial diversification in the context of creating an effective investment portfolio can be attributed to Harry Markowitz. Markowitz published his seminal paper titled Portfolio Selection in 1952. Check it out here, and other places online.

Some investors, however, feel that they don't need this rule. Some investors think the rule, or more precisely, the nature of the world in the investing space, doesn't apply to them. They feel that they know more than the typical investor or investing firm knows - they think they're somehow better at picking stocks or making investment decisions. These people -- and they are everywhere -- believe that they're just different. It's a common thing in humanity, and it might not change.

​In the context of investing -- and specifically retail or family office investing -- portfolio concentration risk is the risk that you are overly exposed to something. That something can be any of the following and more:

• one particular stock
• one particular sector
• one particular country
• one particular asset class (eg. bonds, stocks, cash, real estate, commodities/precious metals, etc.)
• one economic assumption (eg. bullish, bearish, market stability, political turmoil, etc.)

 
Inappropriate portfolio concentrations are those that expose your portfolio to more risk than you would like or more risk than would be prudent. As such, assessing the concentration levels within your investment portfolio and taking steps to ensure that they are in line with your goals is a smart thing that should be done every so often.
​
The good thing is that it’s pretty easy and straightforward to determine the concentration levels for a lot of things like stocks, sectors, and countries (things like determining the concentration to strategies and assumptions is a bit more complex).

Next, pick a category against which you'd like to determine concentration levels in your portfolio. Don't start with complex things - start with basic things and move towards more complexity as you slowly get a better understanding of the risk nature of your portfolio.

For example, a great place to start would be sectors - you don't want to be exposed to a particular sector too much. If you're only in tech stocks or only in blue chips, you might want to diversify at bit more, depending on your risk tolerance and investing horizon. At the very least you'll want to know that you're heavily concentrated in particular sectors. 

Other key concentrations are for individual stocks (eg. the investor who's absurdly exposed to one particular stock they love at the detriment to proper portfolio risk management and diversification). 

For a retail investor doing simple portfolio concentration risk analysis, once you have your portfolio in one place and once you decide what you want to examine, it's very simple to proceed. 

All you need to do is make a list with two columns - the particular investment product in the right column and the percent of the portfolio that the investment product represents. This is best illustrated by the table below. 

As you can clearly see, this isn't a healthy portfolio. The vast majority of the portfolio is concentrated on 

• two single stocks, both in the technology sector
• in the US (or home country), not at all exposed to the global market
• a random energy stock that was a hot tip

The portfolio has home country bias and seems to biased toward popular or newsworthy tech stocks and friend/family tips. Only 30% (broad market ETF + global ETF) of the portfolio is in a broad, well-diversified, investment product while 55% of the portfolio is in just 3 stocks. That's simply absurd for most investors - unless you're an excellent/skilled investor with a very long time horizon and a high risk tolerance, that sort of exposure is unacceptable. 

Finally, after the analysis, you would take action - you'd act in ways to adjust your portfolio to reduce concentration risk. Of course, in doing this you'd want to be prudently confident in the insights on which you base your decisions and you'll want to take other factors into account - these other factors might include tax implications and macroeconomic assumptions. 

In our example above, a prudent investor would sell off some of the tech stock exposure and re-assess weather the family member's energy stock tip was actually a good tip (eg. is the stock worth owning). Then, the investor might take the proceeds from these sales and invest them into more well-diversified products like ETFs, focusing both on foreign and domestic ETFs. The investor would also want to make sure to focus on both small cap and large cap ETFs, keeping in mind their risk tolerance and adjusting appropriately. 

Finally, the investor might see that they are only in equities - this might make sense but putting some money in bonds or alternatives might make sense for some investors. These decisions are all individual - one needs to act prudently based on their own circumstances.

Concentration risk is only one type of investment portfolio risk, but it's an easy one to spot and fix. A lot of investors are prone to taking on too much concentration risk. They don't do it intentionally - they just lack an investing plan or approach and instead buy stocks here and there based on emotions. This is hard to remedy - not everyone is going to create an investing approach and monitor it over time. But, people easily -- and enjoyably -- do the above exercise once in a while (at least once a year) to see if their portfolio is too concentrated on one stock, one sector, or one economy.

Everyone thinks about gaining money when they invest, but too often we neglect how important it is to not lose money. Not losing money is so important, in fact, that one of the greatest financial investors in history (and very likely the greatest one alive today) espouses the following as his Rule No 1:
 
Don’t lose money. 
 
What’s Rule No 2?

Remember Rule No 1. 
 
Rule No 2 is obviously meant to be a little humorous, but Buffet is a serious man when it comes to investing and his rules are meant to illustrate a fundamental truth about investing – that truth is that it’s very hard to recover from a loss and that it gets harder and harder the deeper the loss.
 
This is all best illustrated with examples. Sometimes, a good set of examples can do more for contributing to understanding than pages and pages of text. So, let’s go over three examples, each with increasing levels of severity of initial losses. 
 
In each example, we’ll break things down into 3 time periods – Time 0, Time 1, and Time 2:

• Time 0: This is the initial amount you have before you invest – we’ll start out at $1000 for mathematical convenience, but it can obviously be any number
• Time 1: Once you invest and one time period goes by, you end up at Time 1. This works with any time period – it can be a week, a month, a quarter, a year, or many years. For example, if your time period is one quarter, at Time 1, one quarter will have gone by. 
• Time 2: This is just one more time period that has gone by. So, with a time interval of one quarter, two quarters will have gone by when we are at Time 2. 

​With a 25%loss, your $1000 declines to $750 – this represents a one-quarter decline in your portfolio and would obviously be an unwelcome occurrence. Now, let’s take a look at what sort of returns you’ll need to recover by Time 2; let’s see what sort of returns in the subsequent time period you’ll need to make you whole again. 
 
As you can see from the table, a 33.33% gain is required in order for you to recover and get back to the initial $1000. A 10% return, 20% return, or even a strong 30%return in one time period simply won’t do it. 
 
That means if each time period is 1 year, even a 30% return in the year subsequent to your 25% loss won’t be enough. 30% is a solid return. The fact that it’s not enough should be the first hint that getting back to whole is a lot harder than dropping, from a mathematical/percentage perspective. It’s only going to get worse. 

​With a 50% loss, it’s a lot harder to recover. Now, it takes a 100% gain (doubling your post-loss portfolio value) to get back to whole again. If you halve your portfolio, you’ll need to double it to bring it back to its original value. 
 
So, if a time period is one year, you’ll need to double your post-loss portfolio value to get back to your Time 0 initial value. That’s very hard. You’d be far better off having avoided such a decline because it’ll be an uphill climb getting back to baseline again. This is what Warren Buffet’s Rule No 1 points to.

​With a 75%, things get really bad. Now, in order to get back to whole, you’ll need a 300% gain. A 300% gain is the same as quadrupling your money (4x return). As any investor knows, a 300% return is very hard to get – it usually takes years to achieve such returns in a well-diversified portfolio.
 
Let’s think about this some more. As we keep increasing out Time 1 losses by 25% increments, the return needed to get back to whole by Time 2 goes up by way more than 25%. This is based on the underlying mathematics of portfolio returns, but we don’t need to get deep into that here. The above examples should clearly show how each time the loss gets more severe, the needed gain to get back to baseline gets more and more astounding. 
 
If you lose 75% of your portfolio’s value in a single year due to a very severe recession or, far worse, due to investing blunders, you’re going to have to make some incredible returns (300%) to recover. What makes you think you’ll beable to do that? It’ll likely take a number of years and some serious investing discipline to be able to recover in this way. 

​For those that are more mathematically inclined, let’s dig a bit deeper into the portfolio maths. 
 
Let’s assume an initial portfolio value of a – this is your Time 0 value
 
For any portfolio change (decline or increase)  d, where is greater than -1 but less than 1, the portfolio value in the immediately subsequent period (Time 1) will be a x (1 + d)
 
To get back to the initial portfolio value by Time 2, we’ll need to do something to the Time 1 value to get it back to a (which we stated above was our initial value)
 
We can simply divide the Time 1 value by (1 + d) to get back to a – that’s [a x (1 + d)]/(1 + d)
 
Dividing by (1 + d) is the same as multiplying by 1/(1 + d) – that’s the amount, no matter what our initial a is and what the change d ends up being, that we have to multiply the Time 1 portfolio value by 
 
Now, notice that if d is less than 0, 1/(1 + d) will be larger than 1. So, if d is -0.25 (corresponding to a 25% decline in our first example above), then 1/(1 + d) is 1/(1 – 0.25) which is 1/0.75. What’s 1/0.75? It’s 1.3333. That means you’ll need 1.3333 times the Time 1 value – this exactly represents an aprox 33% increase. 
 
Let’s do a 75% decline as in the third example above – now 1/(1 + d) is 1/0.25. That’s equal to 4, which represents a 300% increase over the Time 1 value. 
 
We can see that as d approaches -1 (moving towards a total loss), 1/(1 + d) gets bigger, but by a disproportionate amount. 
 
Can we derive a simple way to see how our 1/(1 + d) factor changes with changes in d? Yes – it’s easy using Calculus:
 
d/dx[1/(1 + d)] = d/dx[(1 + d)^-1] = [-(1 + d)^-2] x d/dx(1 + d) = [-(1 + d)^-2] x (0 + 1)
 
so, the derivative is -1/(1 + d)^2
 
Calculus can be applied to lots of situations to better understand how things change. F
 
We can see that by squaring the (1 + d) term, we’re increasing the effects of both positive and negative portfolio changes. If d < 0, then squaring (1 + d), which will be less than 1, will only make the factor smaller. By making that factor smaller, the entire factor gets bigger because dividing 1 by smaller and smaller numbers makes the result bigger and bigger. 
 
This should be very discouraging – the numbers tell us that negative effects are magnified when we think about the returns needed to recover. 

One of the best ways to calm your anxieties during market turmoil is to track your portfolio over time in a robust and sustainable way. What does that look like? It means periodically and consistently -- on a weekly or monthly basis (daily is too volatile and yearly is too high level to see intra-year fluctuations) – in a way that makes you actually have to engage with your portfolio.
 
This means using software or an app to track might not be sufficient if the app does all of the work for you. One of the best ways to do it is to use an Excel file and simply list your total portfolio value over time, row by row, with each row representing a particular point in time (see example below). 

​What this will give you is something incredible – it’ll give you some perspective. Perspective is an amazing gift, but it isn’t very easy to come by. To get real perspective, there aren’t a lot of shortcuts you can take – it takes time. But, even if you have been investing for years and years, you still likely won’t gain perspective if you don’t track your portfolio but instead mindlessly go about checking it every once in a while without putting its current value in appropriate historical context.  Remember - perspective is earned.

By having some perspective, you'll be less likely to make dumb investing mistakes. When stocks go down severely due to short term market turmoil, you'll have enough historical perspective to understand that markets are volatile in the short term. 

This is useful for all sorts of investors - those that invest in stocks obviously, but it's also useful for investors in real estate, derivatives, cryptoassets, and even fixed income (although fixed income can be a bit more complex because it is exposed to interest rate risk in addition to market risk). 

Nations and countries are illusions at the most basic level of reality. Cities are too, but far less so. Where the idea of a nation like the United States exists only in our minds, the idea of a big city like NYC or Los Angeles exists both in our minds and in the immediate world around us.

Cities are were life and economics happen:

• You drive on your cities streets, highways, and freeways every day to go about your business and get to work
• Your job or your business is in a city
• If you open a business, it'll first be in a city (unless it's purely online)
• How attractive your city is to new ventures and businesses (either created internally within the city or those that come in from outside) depends on key decisions by city leaders
• You depend on key services such as water, power, and electricity that are heavily dependent on your city
• Where you can build, live, or work depends on your cities zoning laws
• Policing and firefighting is a city affair
• The people you interact with and do business with -- whether they are creative and dynamic or dangerous and depressed -- are mostly within your city
• Your property values are determined in large part by how attractive your city is to residents (and businesses)

Cities are where stuff happens - countries have cities and benefit from them, but can you name things that happen economically in a country but that doesn't happen in a city? Asked differently, what can you point to that's economically beneficial that, at its core, is something that happens in a country but not in a city? It's hard to think of an answer because most economically beneficial activity happens within cities themselves - nations benefit, but it's not within the nation that these things originate. Think about this another way - if you're city was run by idiot monsters who made only bad decisions, what could the national government do to fix things? The answer - not much.

When news businesses are started, when new museums and coffee shops open up, when ideas are created and implemented, or when intelligent and driven entrepreneurs drive intense economic growth in an area, it's all city-based. Cities are the economic engine of the modern world and, therefore, way more focus should be placed on cities and far less focus should be placed on nations. 

If people focused as much on mayoral and city council elections as they do on Presidential races, we'd start creating better cities. A city like Detroit, for example, will never be improved because of national decisions - more granular decisions at the city level (and by people who understand local dynamics) are required. People must take city life and the responsibilities that come with being part of an urban community far more seriously in the 21st century - through that, the nation will become great on its own. 

Check out a UN Habitat piece on the economic role of cities here - it's an interesting piece on how cities are the driver of economic growth globally in today's world.

​We have come to the point of absurdity in terms of news consumption - far too many people consume news from secondary (or tertiary) sources instead of going directly to primary sources. This is tragic because primary sources are more easily-available today via the internet than ever before. 

Secondary and tertiary sources take primary source information and do things to it - this may include analysis, synthesis, etc., but, all secondary and tertiary sources include something extra. That extra stuff can be incredibly useful and interesting, but it is also removed from the primary source in some way. 

In today's world, a lot of news-related secondary (and tertiary sources) still provide interpretation, summarization, and synthesis. However, they also very often add in heavy doses of bias. This bias may be implicit or explicit, but it seems to be ever more present as Big Media can leverage Big Data and create far more granular approach; social networks like Facebook and Twitter do this too. Where 25 years ago, everyone tuned in to the same few news channels on TV, today, every single person in the Western world can have a customized/tailored Facebook or Twitter feed. These feeds can become deeply biased as a result of tech firms' attempts to get more eyeballs for longer periods of time. 

Watching primary news can seem very strange to a person who only consumes secondary and tertiary news sources. The initial reaction can vary, but it is often one of surprise at how different and "more real" consuming primary news it. People are surprised at how the world really is vs. how they typically see the world presented in heavily-biased secondary and tertiary news sources. 

​To have a clear mind and understand the world, one can't rely only on secondary and tertiary news sources. Especially terrible is relying on free secondary and tertiary news sources - in these cases, the reader is, in fact, the product and the source of the secondary or tertiary news have no real responsibility to the reader (either from a moral, fiduciary, or economic perspective). This, however, is a topic for another time. 

The problem with modern Western self-improvement and self-development thinking is that it treats the human mind as a machine when it should instead be treated more like a tree - we'll get into what this actually means in below. But, the vital thing to note is that this type of thinking has permeated self-improvement and self-development thinking quite profoundly. It has penetrated so deeply that when most people think of becoming better human beings are strictly in the machine paradigm; most people don't even understand that a different way of thinking about the mind and self-improvement exists.

Machine: The machine paradigm is easy for most Western readers (e.g., readers who grew up in an environment where Western post-Platonic thought formed the foundation of academic/scientific thought) to understand. Treating your mind like machine means having a paradigm where you believe improvements to the machine (your mind) are to be made based on external analysis/planning/thinking (exogenous improvements) and where those improvements can be immediately implemented (e.g., upgrading the machine).

Tree: The tree paradigm is more difficult for Western-oriented thinkers to understand and is somewhat more in line with Eastern, though, but not completely. The tree paradigm is where you believe that mental "upgrades" are impossible or exceedingly rare, and you acknowledge how little control you actually have over your own mind. Instead, with the tree paradigm, you more clearly see the only real way to make lasting changes to your mind: through feeding it with useful information over a long period of time and allowing that information to be absorbed, integrate, and recalled later. Someone who understands the tree paradigm has a far clearer perspective on their own mind, their ability to improve or develop it, and the timeframes it takes for such improvements. This is just a brief into the tree paradigm - there's as much and more here as there is in the well-known machine paradigm

The descriptions above are accurate, but they might seem confusing to readers without proper examples. Often, the best way to illustrate a point quickly is to give examples. So, here are a few.

Problem: A man realizes he's terrible at relationships - his wife is unhappy and he finally realizes that there are things he just doesn't know about women, relationships, and how to have a happy marriage. 

• Machine approach: The man decides to be a better husband. He listens to the feedback his wife gives him, interprets it as best as he is able to, and then commands himself to "be better" next time; he makes a promise to himself to not repeat the same mistakes he made in the past next time he interacts with his wife. He reminds himself why it's essential to do this and genuinely believes it, ready to be a better man next time he has the chance to. 
• Tree approach: The man decides to be a better husband and realizes that his brain must be lacking certain key pieces of information or an ability to integrate and use that information. He goes about researching the best materials on relationships, using subjective criteria but making sure to temper his subjectivity with external objective criteria like "best of" or "top 10" lists. He complies a list of material - most might be good relationship books, but there might be a great romantic movie or a good podcast included as well. Over a few months, the man begins to diligently but calmly consume this information without at all thinking about how he will use it; the man simply consumes the information and enjoys the process of consuming it. When anxiety arises (maybe during a rough convo with his wife) and the man wants more immediate results, he reminds himself of his inability to control his mind that way and trusts that the tree method is the only one that will lead to sustainable change. 

Problem: A man's friends sit him down and tell him that they feel he has a deep problem with aggression - at bars he picks fights, friends are always afraid of him getting upset when he's drunk, and they remind him of how he became aggressive with his wife a few months ago. 

• Machine approach: The man decides to no longer be aggressive - he promises himself, his family, and his friends that he'll be better. 
  
• Tree approach: The man realizes that aggressive is who he is at times - it's in his current nature to behave that way. He understands that there are underlying reasons for his aggression and goes about calmly understanding them and dealing with them over a number of months, all without putting in much effort into actually acting more calmly when he's drunk. Instead, he might hold off on drinking for a while until he improves, but he will avoid having the illusion that anything can be done about this right away; he knows that he can't will himself to be better but instead needs to take his mind in a different direction over time. 

Problem: A high school kid who is good in school but self-conscious, timid, and possibly under-developed physically compared to his peers gets harassed at school by older, more aggressive kids looking for easy prey. 

• Machine approach: The kid stands in front of his mirror and is disappointed by the reflection looking back at him. He decides he doesn't want to be weak and pathetic any longer and promises to himself that he next time an aggressive bully tries to mess with him, he will be assertive - maybe he'll speak up for himself, maybe he'll find some sort of witty/charming remark that will disarm the bully, or maybe he'll deck the bully right in the face. 
  
• Tree approach: The kid stands in front of his mirror and gets disappointed by a core aspect of his personality, but he doesn't forget that he's more than just that aspect (and more than his personality too). He understands at a deep level that there is no way he can fix this immediately - if he could, he already would have fixed it. This timid person who is prone to get bullied is simply who he is at this point in his life -  it's because he is who he is that he gets bullied. The kid goes online and does a bit of research to understand how this problem can be fixed - maybe he consults with trusted adults too. Again, his focus is subjective, but he tempers it with external objective information. He uses that information to develop a program to improve himself - effectively, to change himself. For six months he hits the gym and builds up a ton of muscle (easy to do fast when you're in high school) while attending some suitable sparring/boxing classes locally. He sees how hard it is - every day is a struggle against sloth and entropy, but he understands that it's through this long-term process that he will become a better and stronger human. 

News is by definition most relevant in the short term – as time moves forward each piece of news information degrades quickly in terms of how relevant and/or useful it is. In effect, information can be thought of as having a half-life. If we map things out in this respect, we can see that not all information is equal:

• Very very long half-life: Understanding/learning about God, the nature of reality, mathematics, and the nature of consciousness
• Very long half-life: Key human wisdom (eg. the intersection of things ancient philosophers talked about and the things we still feel are important today); this can include hard sciences such as physics and modern chemistry
• Long half-life: Many core sciences and intelligence derived from long practical experience in relatively stable environments
• Average half-life: Many softer sciences and fields of study, technical skills and acumen, job-specific skills; these things are very useful and valuable in a relatively stable environment
• Low half-life: Innovative ideas that have yet to prove themselves (some will rise up the ranks of the half-life scale but most will be proven to be useless), geo-political developments, technical skills in a very dynamic and evolving environment; these things may be very useful in the short term, but one must be aware that over the medium term and long term the usefulness of this type of knowledge will begin to fade
• Very low half-life: Most current events and news; this information is only relevant in the very short-term and quickly becomes non-relevant as the world continues to change

So, if you’ve got a limited amount of time and energy -- and your goal is to maximize the amount of useful information you obtain -- you’ll want to focus on things with a far lower half-life. In practice, that means making choices like this:

• Staring a good meditation practice vs. creating a reading list
• Reading a good and well-regarded novel vs. reading up on current events
• Reading a technical manual that can help you be better at your job vs. reading an article on how we’re going to go to Mars soon

It can be very hard to not read, watch, or listen to the news – we’ve all got serious FOMO today and with the news being so entertaining (thanks in part to Big Media’s selfish and at times malevolent efforts), it can be very hard to pull away. But, if you really want to compound your knowledge and grow, you’ve got to put in the effort to channel your attention to more valuable information.

Here are two great articles that in-part inspired this piece:

• Farnam Street - Half Life: The Decay of Knowledge and What to Do About it
• Farnam Street - Compounding Knowledge

Bitcoin cash is a cryptocurrency created in August 2017, arising from a fork of Bitcoin, the classic/original cryptocurrency. The most significant difference between Bitcoin and Bitcoin Cash has to do with the size of blocks on the blockchain.

By increasing the block size from 1MB up to 8MB, Bitcoin Cash allows many more transactions to be processed in one block. The idea is to process larger transaction volumes faster and for lower fees. 

Bitcoin Cash offers lower fees and a purportedly, more reliable transaction rate than Bitcoin. In terms of development, Bitcoin Cash and Bitcoin share a majority of code. Having so much code in common makes developing software or altering existing software to support Bitcoin Cash quite simple. 

Bitcoin Cash differs from Bitcoin Classic in that it increases the block size from 1 MB to 8 MB. 

Bitcoin Cash attempts to increase the number of transactions that can be processed in a given interval of time. Bitcoin Cash supporters hope that this change will allow Bitcoin Cash to compete with the volume of transactions that PayPal and Visa can handle by increasing the size of blocks. Since the issue of scalability tends to be at the forefront of cryptocurrency debates, developers have made increasing block size and improving transaction processing speeds their top focus areas. 

Despite the many vocal Bitcoin Cash advocates, as of early 2019, Bitcoin cash is used in exchanges at far lower rates than Bitcoin. In fact, with so little traffic that as of yet in the Bitcoin Cash network, the block size increase hasn't been necessary to process transactions more quickly than Bitcoin. 

Since the beginning, there have been questions surrounding bitcoin's ability to scale effectively. Bitcoin is a cryptocurrency that exists within a decentralized network of computers all over the world. Payment transactions are verified by majority rule, not by an individual actor. 
The problem with this technology is that it's slow, especially in comparison to banks that deal with credit card transactions. For example, Visa processes 150 million transactions per day, averaging roughly 1,700 transactions per second. The company's capability far surpasses that, standing at aproximately 24,000 transactions per second. 

How many transactions can the bitcoin network process per second? Seven. 

Transactions take about 10 minutes to process. As the network of bitcoin users grows, waiting times will become longer since there are more transactions to handle without a change in the underlying technology that processes them. Ongoing debates around bitcoin's technology have graviated around this central problem of scaling and increasing the speed of the transaction verification process. 

In a general sense, the steps of a typical residential real estate transaction (or even a small retail real estate investment) are as follows:

1. Decide to buy a place
2. Find a place (usually with the help of a real estate agent)
3. Get a loan (can sometimes be switched with Step 2 if you're a proactive person)
4. Make the transaction -- which involves three parties (buyer, seller, and lender) -- go through

Step 1 is easy, and Step 2 is relatively easy in practice in developed real estate markets like those in the United States and Canada. Step 1 is easy because the decision is binary, and only one party is involved (the buyer). The "buyer" might also include the buyer's family, but it's all one party when the binary decision needs to be made. Step 2 involves a real estate agent, but it's usually not overly complicated or unpleasant. 

Unlike Step 1, Step 2 includes another person. But, this other person isn't truly an interested party to the agreement/transaction that's going to happen down the line. The real estate agent is simply someone helping the buyer with the process. A buyer's agent (as opposed to a seller's agent helping to sell the house) helps the buyer find a place while maintaining a responsibility to act in the buyer's best interests. You, in effect, have a knowledgeable real estate person in your corner -- that's what a buyer's agent is. It, therefore, makes a lot of sense that Step 2 isn't the bottleneck in the process – it's, in fact, the core part of the process itself; it's in Step 2 where the house buying actually takes place.

Once you pick a place, you need to fund the purchase somehow. If you've got the cash set aside, you can skip Step 3 and go directly to Step 4, which involves actually executing the transaction. If you skip Step 3, you also only have to contend with a 2-party sale instead of a 3-party transaction because the lender isn't in the picture.

​For most of us, however, Step 3 is needed – we either don't have the money to buy a property outright, or we can't do such a thing more than once and need to use other people's money to obtain assets as we grow our real estate portfolios/businesses. In this case, we'll need a lender – this will almost surely add a ton of complexity to the process and prolong it.

The primary reason using a lender adds so much complexity is because the lender faces a very significant amount of risk – they are giving you money to buy a house with most of the purchase being put up by them and only a small portion being put up by you (e.g., the down payment). With the lender financing 80% to close to 100% of the purchase price, they are exposed to significant credit risk and are prudent with not taking this lightly. A lender will require a ton of documentation from you so that they can perform the necessary due diligence to (1) understand, (2) mitigate, and/or (3) prevent unacceptable risks. These risks include the following:

• Title errors (e.g., the person selling you the house isn't the actual owner): Title errors will cause a ton of problems should the lender need to foreclose in case of default; lenders will run title reports and buy title insurance protecting themselves against title risk
• Borrower's ability to repay loan not strong: A good borrower has a decent amount of liquid assets and an income that's sufficient enough to be able to make the monthly mortgage payments; lenders will want to assure themselves that this is the case by analyzing the borrower's financials appropriately
• Borrower fraud: A borrower could lie on an application about income, assets, where the down payment is coming from, and many other things; the lender will perform due diligence to ensure their analyses about the borrower's ability to repay are based on reliable assumptions
• Property value may be too low: Lenders don't want to lend more than the property is worth because they won't be able to recoup the full loan value should the buyer default; lenders will obtain comfort over the market value of the property by requiring an appraisal
• Property might be destroyed from now until the loan is repaid: Even if everything is excellent, there's still a chance that a natural or man-made disaster will destroy the property and not give the lender the ability to recoup in the case of a default; lenders mitigate this by requiring buyers to purchase appropriate insurance protections

All of these due diligence steps lenders take to provide themselves (and future buyers of the debt) with assurance over the quality of the credit risk they are taking on. This process can involve a lot of people – these may be people working at the actual firm lending the money and third-parties like appraisers, inspectors, insurance agents, and bankers.

​If technology is to further assist in the real estate transaction process, it's in Step 3 where the most value can be added. An easier way for providing assurance over borrower quality and for determining title might help house buying and selling go a lot faster. If, for example, all property claims or titles were stored on a secure blockchain, title might be able to be ascertained far quicker than it is today.