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robonomics · 6 years ago

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Altria’s Investment in Juul: Buy, Hold, or Sell?

Altria’s stock has recently fallen on some pretty bad times. The last time I wrote about the company a few years ago, I endorsed it as a great long term buy. Since then, the stock has fallen about $15, or $9 if you account for unreinvested dividends. One would think the stock would be higher over this period along with the rest of the stock market, but events over this period changed the company’s strategy. Its most concerning risk- government regulation- battered the stock. Looking back, you can see that I’m not always right- nor do I believe I am always going to be when writing about my investment ideas. It’s time I re-examine Altria’s stock (this time ignoring Philip Morris’s stock).

Altria is holding company for the sin business. For the most part, it is a cigarette producer, owning several cigarette brands, most notably the American rights to Marlboro (Philip Morris owns the same brands but for the international market). It also dabbles in cigars, wine, and smokeless tobacco products like chewing tobacco and e-cigarettes. When it comes down to it, Altria is nothing more than a cash-generating machine in a recession-proof industry. Growth in cigarettes is in perpetual decline- its regular customers are dying after all. However, even with a declining base of users, it is able to increase revenues from price increases. Addicted people have a pretty inelastic demand curve, which Altria has taken advantage of as its core business model for decades. Further, brand loyalty is strong in the industry, and Altria has the strongest: Marlboro. Price competition hasn’t happened in decades when the industry oligopolists figured out that branding was all that mattered for users. On top of the businesses and brands it owns outright, they also own major stakes in a few other sin businesses. Over the long history of this company, much of its revenues come simply from the dividends it receives from these investments, and the managerial prowess it provides to the boards of these companies.

Interestingly, I just came across some of the terms of the Master Settlement Agreement, a 1998 settlement between cigarette manufacturers and 46 states. The terms require cigarette companies, including Altria, to pay billions every year to states in perpetuity for public health needs. Under the terms, 2018 was the last yearly increase in the amount to be paid. From here on out, the maximum amount tobacco firms have to pay is $9B/year all together. They collectively have no problem paying this. Just imagine how this will help the bottom line in the coming years as revenues continue to rise, but this cronic cash outlay stagnates- and that’s not even accounting for inflation! However, there appears to be some type of volume and inflation adjustment actually leading the manufacturers to paying less than expected, and which will possibly mean that their outlays will continue to rise in the coming years. It is unclear, but this may or may not mean that there will be additional earnings over the coming years.

In August of 2017, it sold off its stake in SABMiller in exchange for about a 10% stake in AB Inbev (SYMB: BUD), the world’s largest brewer. It also go$5.7B cash at the time of the deal. The nice thing about this is that AB Inbev pays a huge dividend to supplement Altria’s stake. Well not so much recently. Because of the debt ABInbev took on to buy SABMiller, the company recently cut its dividend dramatically, also causing a fall in the stock price. That means the value of Altria’s stake went down too. On the bright side, Altria has this stock to supplement its revenues, and, in the end, its own dividend payments. (I am struggling to find the actual amount of cash Altria generates from these dividends, but some rough math based on AB Inbev’s cash flow statement puts it at around $513M for the next projected full year and possibly $1.4B looking back over the year since it took a stake). All it has to do it sit back and wait every 6 months or so for the dividend to come in. I don’t really believe there is too much worry here in the long run. The beer industry faces a lot of competition from craft brewers competing with mass market producers, but even there it seems that some of the craft brewers are just becoming another large competitor in the market, like Bells and Yuengling. Sorry hipsters, you can’t fight off brand loyalty and the ease with which many consumers want to make their purchasing decisions forever. Sure, Altria’s income statement is going to take a hit while Bud pays down debt, but investing in a company for an asset play is not unheard of. For example, investors might find swaths of land owned in prime markets by companies that aren’t using it properly and invest in what otherwise looks like a dead end company solely for the purpose getting the company to sell the land, and hence, give them a huge inflow of profits. If Altria truly fell on hard times, it could do the same with its AB Inbev stake. So far, management doesn’t see a problem with it, notably because they haven’t sold it in order to make other investments.

Juul is Cool

Speaking of asset plays, Altria’s biggest recent news involves its new stake in Juul, an e-cigarette company. Juul essentially came out of nowhere in the last couple years. Just in the last year alone, it had an explosive 900% growth in revenues to $1.5B. Why? Simple: Juul is cool. A generational shift is currently happening where smoking went from being a nasty habit into what is considered one of the coolest things to celebrate for college (and likely high school- see below) students. Just review a Barstool Sports Instagram or Twitter account for any random college and you’ll find videos of countless people showing off the numerous ways they consume, charge, and distribute their Juul. Hell, I’m even using one right now! Just kidding, but I occasionally think of getting one. What used to be a dying, slowly decreasing market for nicotine has now turned into a super fast growth market. The base of users is growing again, and therefore, the chance for new revenues and profits.

This is the reason Altria invested $12.8B in Juul for a 35% stake, valuing Juul at $38B. That’s 25x last year’s sales, a dotcom bubble era size valuation. Juul supposedly makes up 75% of the e-cigarette’s $2.3Bish market*, so it’s still dwarfed in size by the cigarette market, a $119B industry in the US in 2017, over $600B globally. This is the reason why many analysts believe Altria overpaid: it will take a long time to recoup the investment in a small company and market, regardless of how high the current growth rate is. I’m not so certain though. Even in my attempts to do a discounted cash flow model with completely arbitrary figures, the revenue growth rates have to continue to be pretty explosive for several years. From the looks of it, Altria is betting that its customers will quit smoking cigarettes and switch to e-cigarettes,and gain new users who weren’t previously smokers. Nicotine is addictive, so there isn’t much concern about future revenue generation once a new customer buys its products. How much brand loyalty will exist in this new market is uncertain, so part of their bet is that Juul is going to be the Marlboro of e-cigarettes. If Juul and other e-cigarette brands can turn a $2.5B industry into a behemoth $119B, assuming the switch is a perfect substitution, it’s not a bad move for Altria to pay up now to maintain its current 50% market share. Maybe e-cigarettes will generate less revenue but from some quick figures on from numerous sources that aren’t totally reliable, Juuls will make a shit ton more. Estimates range on how long a pod lasts, from a day to a week depending on a person’s use. Some say a pack of cigarettes is equivalent to a pod in reference to its nicotine level, delivering 5% nicotine per puff. I have not clue how that translates to a cigarette pack. On average, it’s a more expensive habit than smoking at $15/pod. This means its users, at least at the moment, likely have higher incomes, or really are committed to quitting smoking. As we already know, addicted smokers have a high inelasticity of demand, but it is unclear if this much higher price is something users are as willing to stomach before brand switching or price competition occurs. What is clear is that as long as Juul can maintain pricing power from the dominance of its brand- a risk in a new market- it is likely that Juul will be a cash fucking cow. A fast growing one, too.

The terms of the purchase agreement are very favorable to Juul. In exchange for a 35% stake in the company, it basically gets access to act as if it were any other product in Altria’s sales force. Prominent placement in stores, marketing campaign assistance, distribution network, brand management, you name it- Juul now has it. Overnight, a company with a well-known brand from a niche industry gained the knowledge of the larger industry it’s taking on’s best competitor. Under the terms, Juul also doesn’t have to worry about Altria using its new board seats to influence a future sale of the company outright to Altria, well at least for 6 years. I have a feeling Altria will block any other competitors from taking stakes in the company before (if it ever) goes public, and be happy to buyout the rest of the company if the next 6 years prove that they made a good investment. Many investors see all these benefits to Juul and limitations on Altria as a sign that Altria overpaid for an investment in a parasite. One thing investors are forgetting: Altria knows the tobacco market better than them. As long as what I imagine Altria predicts are astronomical growth rates in the e-cigarette industry over the coming decade, the stake will pay for itself- especially the board seats at the decision making table (future acquisition). The difference between this and the AOL/Time Warner merger is that Juul generates cash and profits, unlike the lofty future projections of AOL. Cash speaks, and Altria is simply looking to keep its cash generating machine of addicted users running long into the future.

The big negative the comes with this investment is that it is politically very savvy to attack not only the smoking industry, but especially the e-cigarette industry. Not only has the number of vapers increased dramatically in the last couple years, but sadly the number of people under 18 has too. This is the first time in a long time that any form of nicotine use has climbed in that age group in quite a while. Some attribute it to product advertising. I’m not sure where but possibly Instagram and Twitter. The FDA appears to be on somewhat of a mission at the moment not only to regulate, but destroy the industry, announcing just this morning that if teen vaping rates do not stop rising in 2019 (highly unlikely) they might completely ban the product. While I fully disagree with this approach, and much of the various proposals the FDA has announced regarding e-cigarettes simply because of the massive decrease in health problems compared to conventional smoking, it is a real scare for investors, especially since Juul is the FDA’s biggest target. A ban on e-cigarette’s would completely wipe out Altria’s $12B investment.

But keep in mind, the FDA also once proposed regulating the level of nicotine in cigarettes down to a non-addictive level. That never went through. Every once in a while, the FDA talks about banning menthol. They did so officially this past November. I’m a bit concerned about this, as an investor, but who knows if it will actually go through. I feel that notice and comment rule making proposals almost always go through since public input or any opposition to a proposal really doesn’t matter in administrative rule making, but lobbying is a strong force to deal with. Altria, which I imagine Juul will be a maaaaaaajor beneficiary of, has an incredibly strong lobbying team. Along with British American Tobacco and other major cigarette producers, its not a stretch to say smoking is a prime example of regulatory capture: when industry regulators become so cozy with the companies they regulate that the regulators implement whatever rules the companies want in place. And the companies always make it so that they survive and competitive barriers are put up. I’m not a fan of the model, but it’s a common one; one Altria is really good at. If anyone can stop the FDA from banning revenue generating products, it’s the cigarette industry under a pro-business president.

Without going into it much, Altria’s investment in Juul is likely a positive for the company, but from an antitrust concern I am fully opposed to it. Altria already announced that they are shutting down their in-house e-cigarette brand operations in order to focus on Juul- a blatant example of anti-competitive activity.

Other Stuff

Altria also recently invested $1.8B in Cronos (SYMB: CRON), a canadian cannabis maker. On this front, I simply do not have enough knowledge. With a 45% stake in the company, and the ability to take majority control later, this could work out similarly to their investment in Juul. I’m happy Altria is investing an area that logically flows from its core business model, the marketing of sin products. Maybe Cronos will become the next Altria of marijuana. The hard part here is that competition is rife in this legally suspect industry. Who will be the eventual victor after marijuana is fully legalized in the US is unclear. There are numerous competitors, a lack of brand loyalty anywhere as far as I can see at this point, too many different flavors (strains) without clear mass appeal, hundreds of different consumption methods... the list goes on. Another on the competitive front is that multiple different sin business giants are investing in the industry, including Constellation Brands. I’ve even heard that general products companies like Coca-Cola are looking to get in on the game. That’s a lot of strong marketing/brand competition to eventually face. It is an economist’s dream to follow the marijuana industry given how all the different restrictions affect decision making and how it came to life out of nowhere to let market factors play out in real time. However from an investors stand point, any investment in the waaaaaaay-overvalued-relative-to-risk marijuana stock sector, it’s a crap shoot whether Altria made a good investment or not. Analysts see it generally as a good move for both Altria and Cronos, which seems strange to me given their universal agreement on how the Juul investment was bad, even though Juul has much better prospects of future success. Let’s hope the analysts are right about Cronos.

One of the biggest problems Altria faces as a stock rather than a company is how it is viewed. Currently, it is a blue chip industry stock. Revenues grow with stability over time. Dividends are high. Cash flows are massive. For much of its history, the company has had so much money that it had to buy up companies in totally unrelated industries just to find somewhere to grow and diversity in case cigarettes were all out banned (Kraft, SABMiller, etc.). Investors have historically bought the stock because of its reliable dividend. With interests rates rising, this presents a problem: investors sell high dividend stocks and switch to bonds to lower their risk for the same or similar return. This creates a headwind against Altria for the expected coming years. Further, if Altria’s investment in Juul turns out to add lots of growth to its revenues, it may completely alter Altria’s historical view as a dividend growth and income play. Whenever this happens, stock prices are unpredictable as investors try to figure out the future direction of the company. This is a probably the biggest risk factor for the stock, more so than its one time investment in Juul. On the plus side, it does not have much foreign exchange exposure, since it owns only the US rights to Philip Morris products. Altria is therefore a bet on the US market.

Is it a buy?

This isn’t so clear. To me, Altria’s investment in Juul is a good move, even at its high value. It’s overall business model seems to be intact, if dying without it’s investment in Juul. An investment in Altria without the Juul investment would have been a dividend play, but with it, there is now growth potential. If you were to invest in this stock, it is likely to stagnate for a while. But since it recently fell 30% in the last three months, mostly related to general market moves compounded by their investment announcements and regulatory scares, the price looks attractive at these levels relative to expected earnings. The P/E is at a 5 year low. Other valuation metrics are also at 5 year lows for the stock, suggesting it may be undervalued relative to the long run. I suggest waiting out until the next earnings call to hear what Altria has to say about its Juul investment. This is the key to any future investment decision. Sure, you might miss out on a current buying opportunity, but I think it’s too risky when you can wait to hear what management has to say. If the stock goes up on their discussion, no biggie. Plus, there is low downside risk since a lot of the negative factors I’ve listed, notably the on the regulatory front, are baked into the stock already. It’s all about long term growth.

It’s clear that there is a morality complex that comes along with an investment in Altria. The nice thing to remember is that whenever you buy a share of stock, its going to be from the secondary market. This means that you aren’t actually putting any money into the company, you are simply buying the rights to future earnings from someone else who may or may not have actually put money into the company’s bank account decades ago. This likely won’t dispel any moral issues for most investors, so at the very least one could look at Altria’s investment in Juul as taking a step to severely reduce the health hazards attached to a nicotine addiction, to say nothing about the taboo against addiction generally. In no way is it good that teens are getting addicted at young ages, especially from a psychological perspective (though we know how notoriously unreliable studies in that field are, both scientifically and statistically). For me, I look at Juul as a way to help people quit smoking, or be addicted without the vast majority of the health problems associated with smoking. It’s unfortunate that high schoolers find it cool, but at the same time, it’s not translating into cigarette use, a far worse alternative. At least, not yet. Teenagers have always found ways to do adult things adults don’t want them to do, whether it’s smoking, drinking, seeing R rated movies, or having sex. Maybe this will be one with far less problems (though there are reports of people who vaped so much that it caused seizures- not a good thing). It’s up to the investor, when it comes down to it, whether they feel good or not investing in a company whose sole purpose is feeding users’ addictions.

1/28/19 Update: Another thing to consider is the expected rate of e-cigarette cannibalization of traditional smoking. Sure, Altria’s investment in Juul will help offset the cannibalization it faces, but not only will this not be a perfect one-for-one switch given Altria’s loss only returns it a 35% share of profits from Juul, it also means that the costs to Altria might be felt much stronger in the short term even though it will make up for it in the long term. Putting it simply, it’s not clear if there is nothing but pain for Altria’s stock in the next couple years as people switch smoking preferences for current smokers (new nicotine addicts aren’t as much of a concern), even though it will be offset by the gains in their Juul investment in the long run. This could lead to years of stagnation or stock price depreciation before getting growth again, even in as Altria raises cigarette prices every year to combat the loss in unit sales. Investors should consider this macro trend when deciding on the timing of whether to invest in Altria, if at all.

*I know the math doesn’t make sense: 1.5/2.3 ≠ 75%. But I’m going off the various statistics I found in news articles and some statistics databases on the industry.

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themoneybuff-blog · 7 years ago

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How to find your purpose in life: 12 powerful exercises to help you discover purpose and passion

Shares 298 Happy blogiversary! Twelve years ago today, I launched a humble little blog about personal finance this blog, Get Rich Slowly. It was meant as a way for me to share the things I was learning as I dug out of debt. It turned into so much more. For the next couple of weeks, Im on the road in the southeastern U.S., speaking to people about personal finance and meeting with readers. This morning, for instance, I spoke to the 76 people attending Camp FI in Spring Grove, Virginia. My topic? No surprise: The importance of having purpose in your life. As you can see, I am a PowerPoint genius

If youve spent any time reading my material, you know that I believe purpose is the foundation on which all plans financial and otherwise ought to be built. Purpose is a compass. It helps you set big goals, sure, but it also acts as a guide when times get tough. Your mother died? Your wife left? Your husband lost his job? If you know what your primary purpose is in life, these stressful events are much easier to deal with. For this presentation, I added a new twist. You see, a lot of folks who are interested in money tend to pick things like getting out of debt and becoming financially independent as their purpose or mission. But I think these are poor choices. Ive seen far too many folks make debt elimination a goal then fall right back into debt once theyve achieved it. And there are plenty of people who reach FI (or retire early) only to find they no longer know what to do. (Its like aiming to reach a certain weight instead of choosing to make lasting lifestyle changes that lead to weight reduction.) Instead, I think its important to recognize that your financial situation should be side effect of pursuing some greater purpose. Financial independence ought not be your aim; its merely a means to an end. When I speak about purpose (which is often), I tend to fall back to the George Kinder/Alan Lakein personal mission statement exercise. I feel like its one of the best available tools for helping people find focus. But its not the only tool. Today, to celebrate this sites twelfth birthday, I want to present twelve alternative exercises for discovering your purpose and passion. If youve tried one (or more) of these without success, try another. One of them is sure to be useful for you. Note: Ive done my best to credit sources for these exercises. (Many come from Barbara Shers excellent book Wishcraft, which is all about crafting the life you really want.) At the end of this article, Ill give you a list of recommended reading and tell you what I think is the single best book for discovering passion and purpose. Your One-Hundred Word Philosophy The first exercise is one I created myself. Its based on CrossFits world-class fitness in 100 words statement. Theres no time limit for this exercise, but it could take a while so be prepared. Your aim is to write out your life philosophy in exactly one hundred words no more and no less. This can take any form you want, from a statement of values to a list of instructions. Begin by writing down your core beliefs and values. It might also be helpful to think about books that have had a big impact on your life or powerful advice youve received in the past. Based on your experience and beliefs, what is your life philosophy? As an example, heres my own hundred-word philosophy, which Ive written as instructions to myself:

Some of those admonitions are my own invention. Some come from books like The Four Agreements and The Power of Now. Refuse to let fear guide your decision-making process, was advice from my girlfriend. Create your own luck is based on my friend Michelles advice to create your own certainty. Again: Target one hundred words exactly. Itll force you to spend time thinking and editing and being introspective. As you can see, I paid an artist friend to create a pretty letterpress poster of my 100-word philosophy, which Ive hung on the wall here at home. I look at it every day. Obviously, you dont have to go that far. Your Original Self This next exercise, which comes from Barbara Shers Wishcraft, sounds hokey at first. Turns out, however, that its a lot of fun to complete. Heres how it works. Set aside about half an hour for quiet contemplation. (Theres no writing involved in this exercise only thinking.) Let your mind wander back to your childhood. Remember what you used to do to have fun especially those times you especially treasured. When you were allowed to daydream or do whatever you wanted, what did you choose to do? Try to answer these questions: What sorts of things attracted and fascinated you when you were a kid?What sense smell, sight, hearing, taste, touch did you live through most? Or did you enjoy them all equally? What kinds of sensory experiences do you remember best?What did you love to do (or daydream about), no matter how silly or unimportant it might seem now? Did you have secret aspirations and fantasies that you never told anyone about? After thirty minutes of unstructured reverie, ask yourself a couple of questions. First, do you feel like theres a part of you that still loves the things you loved as a child? What do you miss most? Next, ask yourself what talents or abilities these childhood dreams and passions might point to in the present. What can you do today to reconnect with some of who you were as a kid? As I mentioned, I enjoyed this exercise. Although you dont have to, I wrote down what I liked as a kid: When I was a kid, I loved the outdoors. I loved to run and play outside. We lived in a small trailer house but were surrounded by acres and acres of land. We had freedom to romp across the fields, explore the nearby woods and orchards, and to browse the banks of the creeks. My favorite family vacations were those that involved camping. (Unfortunately, there werent many.) I loved looking at the insects and the plants. I liked digging in the dirt. I liked finding bones and rocks and shards of glass. I enjoyed playing games outside tag, dirt clod fights, whatever. I especially liked building forts. I liked going down to the big tree and hanging out under its branches. Yes, theres still a part of me that loves this sort of thing. I think thats one of the reasons Ive come to treasure the morning walks with the dog. Its an opportunity for me to explore the same stretch of ground over and over and over again. I truly enjoy watching how the woods and fields change a little every day. And thats probably one of the big reasons I enjoyed the RV trip. It forced me to connect to the world outside in a big way. What talents and abilities might this interest point to? Im not sure really. Who Do You Think You Are? This activity is short but effective. On a blank piece of paper, spend 5-10 minutes answering the question: Who do you think you are? How would you describe yourself to a total stranger? Be objective. What are most important characteristics that define your identity? There arent any right or wrong answers here, and theres only one rule: Dont overthink this. Put down the first and surest answers that come into your head, the ones that make you say, This is me. [This exercise also comes from Wishcraft.] Focus on Five Well explore the next exercise in greater depth next week when I write about goals. Youll find a version of this in nearly every book on productivity or positive psychology. This version is taken from Angela Duckworths Grit (which in turn borrowed it from billionaire Warren Buffett, who may have taken it from Alan Lakein). Heres how it works: Write down a list of your top twenty-five goals (or more). This might seem impossible at first, but give it a try. List all of the projects youre currently working on, both at home and at work. List all of the things you want to do but feel like theres no time. List at least twenty-five. More is beter.Next, review your list. Which goals are most appealing? Do some soul-searching it doesnt matter how and narrow the list to the five highest-priority objectives. Just five. Circle them (or copy them to another piece of paper).Lastly, look at the goals you didnt circle. These you avoid at all costs, writes Duckworth. Theyre what distract you; they eat away time and energy, taking your eyes from the goals that matter more. Harsh but true. If you need help prioritizing your goals it can be tough to sort through so many! rate each one on a scale of 1 to 10 based both on how interesting it is and how important it is. Then multiply those numbers together. For instance, if one of your goals has an interest rating of 9 (very interesting) and an importance rating of 3 (not that important), its score would be 27. Compare the scores. Higher is better. Duckworth says that she would add a fourth step to Buffetts exercise. Ask yourself: To what extent do these goals serve a common purpose? The more closely aligned your top five goals are, the better youll be able to focus on your passion (or purpose). When I write about goals next week, Ill ask you to do a different version of this exercise drawn from Sonja Lyubomirskys The How of Happiness. A Letter to the Future Heres another exercise thats common in self-help manuals. Youre going to contemplate and describe the personal legacy youd like to leave in this world. Think about how you want to be remembered by your grandchildren or great-grandchildren. (If youre childless like me, youll have to pretend.) In the form of a first-person letter, write a summary of your life, values, and accomplishments as youd like them known to your descendants. Pretend like youre near the end of your life and want to share the greatest hits version of your personal story for posterity. One common way to approach this is to pretend youre writing your own obituary. In The Seven Habits of Highly Effective People, Stephen R. Covey offers the following variation: In your minds eye, see yourself going to the funeral of a loved one. Picture yourself driving to the funeral parlor or chapel, parking the car, and getting out. As you walk inside the building, you notice the flowers, the soft organ music. You see the faces of friends and family you pass along the way. You feel the shared sorrow of losing, the joy of having known, that radiates from the hearts of the people there. As you walk down to the front of the room and look inside the casket, you suddenly come face to face with yourself. This is your funeral, three years from today. All these people have come to honor you, to express feelings of love and appreciation for your life. As you take a seat and wait for the services to begin, you look at the program in your hand. There are to be four speakers. The first is from your family, immediate and also extended children, brothers, sisters, nephews, nieces, aunts, uncles, cousins, and grandparents who have come from all over the country to attend. The second speaker is one of your friends, someone who can give a sense of what you were as a person. The third speaker is from your work or profession. And the fourth is from your church or some community organization where youve been involved in service. Now think deeply. What would you like each of these speakers to say about you and your life? What kind of husband, wife, father, or mother would you like their words to reflect? What kind of son or daughter or cousin? What kind of friend? What kind of working associate? What character would you like them to have seen in you? What contributions, what achievements would you want them to remember? Look carefully at the people around you. What difference would you like to have made in their lives? Make no mistake: This can be a powerful exercise. Tear-inducing, even. Thats okay. By thinking about how youd like people to remember you in the future, after youre gone, you can take steps to align your present self and actions with that ideal vision. 20 Things You Like to Do Heres another exercise from Barbara Shers Wishcraft. She says she borrowed it from Sid Simons Values Clarification. To begin, list twenty things you like to do. You must come up with twenty. Thats the only rule. Dont cop out and make a list of four things you like to do. Or twelve. List at least twenty. (You can write down more, if you like.) Now youre going to make a chart. Take a fresh piece of paper. Down the left side of the page, in the first column of the chart, copy your list of twenty things you like to do. (The order is completely unimportant.) Now, across the top of the page create 8-10 columns. Label them like this (you might have to write tiny): How long since you last did this activity? Free or costs money? Alone or with somebody? Planned or spontaneous? Job related? Physical risk? Fast-paced or slow-paced? Mind, body, or spiritual? Feel free to add other categories that occur to you. (At home or in the world? Spouse likes also? Enjoyed a decade ago? Whatever. Its your list.) Now go through your chart and fill it out for each of your interests. What patterns emerge? What do these patterns tell you about your self and life? To illustrate what this chart ought to look like, I did the exercise myself. It was enlightening. And it took me longer to complete than I expected. I could come up with sixteen things I like to do, but expanding the list to twenty was tough. Heres a screenshot of my list. (Because Im a nerd, I used a spreadsheet instead of a piece of paper.)

Kind of sad (and hilarious) to note that this list is in the order I thought of things. So, that means computer games came to mind as something that I like to do before sex did. Yikes! Looking at my list, it seems like I do a pretty good job of doing the things I like to do. Not perfect but good. Theres also a good balance of free activities vs. activities that cost money, and an even divide between social and alone time. But its clear that most of the things I like to do are spontaneous, not work-related, mental, and most of all slow. The only activity on my list thats truly adrenaline-inducing is riding my motorcycle. Who Do You Want to Be? This exercise is based on a conversation I had with my friend Tyler Tervooren. On a blank piece of paper, make a list of qualities and habits youd like to develop. Do you want to ride your bicycle every morning? Do you want to be more patient with your children? Do you want to be more helpful to your co-workers? Do you want to read the Bible every day? Do you want to drink less alcohol? It doesnt matter what order you write these in. Take as long as you need to make your list. When youve finished, reframe each item using the following format: I am the kind of man who [blank] where [blank] is the habit or quality youre trying to develop. (And obviously, if youre a woman please reframe each of these as I am the sort of woman who [blank].) For example, if you wrote down that youd like to get in the habit of waking 10,000 steps every day, you might reframe that as: I am the kind of woman who walks 10,000 steps every day. Or, better: I am the kind of woman who walks everywhere she can. If one of your aims is to talk less about yourself and pay more attention to others, you might write: I am the kind of man who listens first and talks second. Im genuinely interested in what others have to say. Now copy each of these sentences onto an index card one for each habit. Place these index cards by your bedside. Every morning when you wake up, train yourself to look at these cards first thing. Read through all of them to remind yourself of the habits and qualities youd like to develop. Finally, choose one to make your focus for that day. Keep it in mind as you go about your normal routine, and do your best to live up to the affirmation. Tyler says this habit helped him make real and lasting changes to his life. He built new habits to replace some of the tendencies that had been giving him trouble.

Who You Might Have Been Imagine you grew up with all of the resources financial, emotional, educational you could have possibly wanted or needed. Your interests were encouraged and fostered. You had help and encouragement in all that you did. You werent limited by time or money or location. In a perfect world, what do you think you would be doing now? What would you already have done? What kind of person would you be? Think big. Be as extravagant and far-fetched as youd like. Whats the one big dream you would have pursued if everything had gone your way? If you really would have wanted to become President, then say youd be President. If you would have become a movie star, say youd be a movie star. Dont hold back. Let your imagination fly free in whatever direction it desires. Dont pull any punches. Answer truthfully. Describe what this ideal life might look like. [This exercise also comes from Wishcraft.] The Ideal Schedule In David James Duncans The River Why, Gus, the main character, decides at a young age that in an ideal world he would fish 14-1/2 hours per day. Hes still in high school when he formulates the following plan: The Ideal 24-Hour Schedule sleep: 6 hoursfood consumption: 30 min. (between casts or while plunking, if possible)school: 0 hours!bath, stool, etc.: 15 min. (unavoidable)housework and miscellaneous chores: 30 min. (yards unnecessary; dust not unhealthy; utilitarian neatness easily accomplished)nonangling conversation: 0 hrs.transportation: 45 min. (live on good fishing river)gear maintenance/fly-tying/rod-building/log-keeping, etc.: 1 hr. 30 min.fishing time: 14-1/2 hrs. per day! Then, in true money boss fashion, Gus brainstorms ways he can pursue his purpose: Ways to Actualize Ideal Schedule finish school; no college!move alone to year-round stream (preferably coastal)avoid friendships, anglers not excepted (wastes time with gabbing)experiment with caffeine, nicotine, to eliminate excess sleepdo all driving, shopping, gear preparation, research, etc. after dark, saving daylight for fishing only Result (allowing for unforeseeable interruptions): 4,000 actual fishing hrs. per year!!! I love it. (And I intend to use this example in future talks, so be prepared.) Gus knows his purpose and by brainstorming his ideal schedule, hes able to figure out ways to put this dream into action. In Wishcraft, Barbara Sher suggests a similar exercise. Heres how it works. Grab paper and pen. Seclude yourself somewhere quiet. Close your eyes. Imagine your ideal day. Imagine a day that would be perfect if it represented your usual days not a vacation day. Just a regular, average day if your schedule were ideal. Spend a few minutes visualizing what such a day would look and feel like. Once your ideal schedule begins to become clear, write down what its like in the present tense and in detail from getting up in the morning to going to sleep at night. I might say, for instance: I wake up at 5:30 already in my gym clothes. I grab a piece of fruit, hop on my bike, and ride to the gym. I do an hour of Crossfit. I ride home, grab the dog, and take her for a walk. When we get back to the house at around 8:30, I spend four hours writing about money. And so on. As you write about your ideal day, think about the following: Whats the first thing you do when you wake up? What do you have for breakfast? Do you make it yourself or does somebody bring it to you? Do you take a long, hot bath? Or do you take a cold, bracing shower? What clothes do you wear? How do you spend your morning? How do you spend your afternoon? How do you spend your evenning? At each time of the day, are you indoors or outdoors? Quiet or active? With people or alone? As you envision your ideal schedule, focus on what, where, and who. What are you doing? What kind of work? What kind of play? Dont limit yourself. If youd like to sing or sail but dont know how, in this fantasy you do know how.Where are you? What kind of place, space, and situation? Are you on a farm in rural England? In a New York office building? On a sailboat in the South Pacific? In a fully-equipped workshop? Again, youre not on vacation. Youre imagining a normal day but an ideal day. Where are you?Who are you with? Who do you work with? Who do you live with? Who do you talk with? Who do you sleep with? Maybe its the same people you work and sleep with already. Maybe its somebody else. Let your imagination go. Dont put down only what you think is possible put down the kind of day youd like to live if you had absolute freedom, unlimited means, and all the powers and skills youve ever wished for. Note: Before (or after) you complete the ideal day exercise, you might find it useful to figure out how you actually spend your time right now. For that, I suggest performing a week-long time inventory. On the advice of Paula Pant, I tracked my time last summer and it was very enlightening. It helped me see where I was frittering away my minutes and hours. For more info and instructions on doing a time inventory, visit Laura Vanderkams website where you can grab free downloadable PDF forms and spreadsheets to help track your time in fifteen-minute increments. What Color Are You? This exercise from Wishcraft is for the more right-brained artistic folks. You analytic engineer types might not like it. (On the other hand, it might be good for you to actually complete it!) Heres how it works. Choose a color that represents you. It might be your favorite color or it might not. It ought to be a color that, at this moment, feels like you. The best way to do this is to have an array of colors in front of you. If you have a box of crayons, go get it. If not, heres a page with a bunch of colors. Youre now going to role-play that color. You are going to pretend you are that color. Youre going to think like that color, speak like that color, act like that color. Take a sheet of paper. Write: I am red or I am orange or I am carnation blue. Do not say I like blue because or I think blue is. For the rest of this exercise, you are that color. Now, in a few sentences to a few paragraphs, describe what qualities you have as that color not as yourself. For instance: I am dark blue. Im quiet and deep like the ocean. Or: I am yellow. Im bright and cheerful, intelligent and warm. There are no right answers to this exercise. If youre black, be black! I think Suzanne Vegas Small Blue Thing is a great example of what you might do with this activity. [embedded content] What color am I? Im orange, of course. The 14-Word Description This exercise comes from my friend Amy Jo. Several years ago, she did a photo project in which she took portraits of people she knew. Before each session, she asked the subject: What are the fourteen words that best describe you? For our purposes, I want you to brainstorm as many words as possible to describe who you are. You should come up with a minimum of fourteen, but its better to brainstorm more. Dont ask others to describe you. Your aim here is to describe yourself. How do you see yourself? If you come up with more than fourteen words to describe yourself, narrow the list to only the fourteen that fit you best. Lastly, for each word write a short sentence that describes why you chose it. For instance, if one of your words was athletic, your descriptive sentence might be, I enjoy playing sports and being outdoors. Here are the fourteen words I chose to describe myself six years ago. (Theyre all still accurate.) Adventurous I love to try new things.Creative I love to make new things.Curious I love to learn new things.Evolving Im a different man today than I was yesterday.Independent I make and act on my own decisions.Intelligent I am smart.Playful I like to joke and jest.Positive I look on the bright side.Resourceful I search for ways to get things done.Sociable I enjoy the company of others.Tenacious I pursue my goals with vigor.Unguarded I share myself freely, and I accept the word of others.Versatile I am good at many things.Zealous Im passionate about my friends and hobbies. Heres one of the portraits from our 14-words photo shoot. I look so serious!

When I gave Amy Jo my list, she made an interesting observation. When adults do this exercise, their words are always positive, she told me. But when kids do it, they describe themselves using both positive and negative words. Its as if theyre more aware of their shortcomings or at least more willing to admit them. Three Questions about Life Planning Last of all, heres the exercise I use most often. The father of the life-planning movement, George Kinder, is a certified financial planner and the author of The Seven Stages of Money Maturity. To identify and clarify your direction in life, Kinder suggests thinking about three hypothetical situations: Imagine that you have enough money to take care of your needs, now and in the future. How would you live your life? Would you change anything? What would you do with the money?Now imagine that you visit the doctor and she tells you that you have 5-10 years left to live. She says that you wont feel sick, but youll have no notice of the moment of your death. What would you do in the time you have left? Would you change your life? How?Finally, imagine your doctor shocks you with the news that you only have 24 hours left to live. If you only had a day remaining, what dreams would you leave unfulfilled? What would you wish you had finished? What would you wish you had done or been? What would you have missed? These questions which are based on the work of time-management guru Alan Lakein are powerful tools for figuring out what you want out of life. If you take the time to really ponder them and answer them honestly, they can help you clarify your personal values and set meaningful goals. Over the past five years, Ive shared this exercise with hundreds of people. Many who took it seriously have written to tell me it changed their lives. It changed my life too. Maybe itll change yours. Recommended Reading In this article, Ive done my best to credit sources. A couple of these exercises are my own the hundred-word exercise, for instance but most are not. Most are borrowed from books. But there are plenty of excellent books out there that can help you figure out what you want out of life even if they dont ask readers to fill out forms our meditate on whats important. Victor Frankls classic Mans Search for Meaning, for example, is a work that almost everyone refers to. Its a ground-breaking short book about how to find purpose even under the worst circumstances. But it doesnt contain any reader homework. Here then are a few of my favorite purpose-related books. You might like them too: To my mind, however, the best book on this subject is relatively new: Angela Duckworths Grit: The Power of Passion and Perseverance. This was my favorite book of 2016. If I could make it required reading, I would. Its that good. Ive listend to the audio version nearly a dozen times (including yesterday during my 21-hour trip home from Florida). Grit is dense with information and ideas. Duckworth makes a convincing argument that passion and perseverance or, in Money Boss lingo, purpose and patience are the best predictors of success. If you can hone in on a single top-level purpose then doggedly pursue it, your life will be filled with meaning and happiness. Great stuff. I hope to publish a review of the book sometime soon. As I said at the start, your purpose is your compass. Its your mission. Its what gives your life direction and meaning. To support your purpose, however, youve got to set up a personal action plan built around a hierarchy of goals. Next week, Ill share some thoughts (and exercises) on how to set goals and structure life to pursue your purpose. How do you put your personal misson statement to use? Well talk about that in just a few days. In the meantime: Tell me about your purpose. What is it? Do you have a personal mission statement? Which of these exercises do you find effective? Are there others that are better? Shares 298 https://www.getrichslowly.org/finding-purpose/

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themoneybuff-blog · 7 years ago

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How to find your purpose in life: 12 powerful exercises to help you discover purpose and passion

Shares 208 Happy blogiversary! Twelve years ago today, I launched a humble little blog about personal finance this blog, Get Rich Slowly. It was meant as a way for me to share the things I was learning as I dug out of debt. It turned into so much more. For the next couple of weeks, Im on the road in the southeastern U.S., speaking to people about personal finance and meeting with readers. This morning, for instance, I spoke to the 76 people attending Camp FI in Spring Grove, Virginia. My topic? No surprise: The importance of having purpose in your life. As you can see, I am a PowerPoint genius

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