Thursday, February 21, 2019

Custodian v Consumer

Saving is still hand-to-mouth consumption. It is just more French than American in that you use smaller plates, and take longer to eat. You put money aside “for a kitchen”, or “for a car”, or “for a holiday”. In the meantime, the money does a bit of Netflix and chill. Waiting till it is needed. Investing is different. The heart of investing is reinvesting. Profit is only an entry point. There needs to be a cycle. The next client. The next project. It is that pulse that drives growth. Investing turns you from a consumer into a custodian. You tend your cake, rather than eating it. Investing turns the TV off and gets your money a job. Then it looks for the next job that needs doing. And the next. Investing is active. That is why saving can only keep you at the same level. Investing compounds. The growth grows. That is where the magic happens. 

Wednesday, February 20, 2019

The Right Incentives

Whether you are in politics, education, academia, business or the home, most of what we do ends up being about people management. Management of ourselves, and management of the way we engage with others. Why do we do things? What drives us, and what pulls us? Incentives and processes that will bring out the best in us. What does the best mean? Do we agree? Are we working with or against each other? In "All Marketers are Liars", Seth Godin argues that we are all Marketers. If you have an idea you believe in, you need to be a Marketer. All Marketers are storytellers. We are all storytellers.

Two stories I have come across are forms of incentivization that contrast quite strongly. The "Wolves at the Door" and the "Money off the table" approach.

The first turns the heat up. It works for underconfident overachievers. The idea being that in order to get the best out of someone, you have to put them in a corner and keep them hungry. Nothing is every good enough. There is always more to do. There is always something you got wrong. There is never cause for celebration that does not come with a caveat of "must do better".

The second turns the spirit up. It works for people with deeply internalized motivation. The crude incentives (like money, promotions, prestige) are no longer important because there is something else that gets the person out of bed. Things are good enough as they are. Sometimes there is nothing to do. Mistakes are simply a positive part of the learning process in that they mean you are exploring rather than repeating. They are a sign of life. There is a pulse of celebration.

Personally, I don't work well in a corner. I recognize that some people love it. Anxiety, busyness, and a tinge of fear keep them sharp. Fight mode. When that fire goes away, the systems switch off and motivation is a challenge. A lot of people look for corners.

I have the opposite response. I believe there is seldom value in rushing. Sometimes the smartest thing to do is just keep quiet. To admit you don't know the answer, and it will take time to explore the options. To chip away slowly at the problem. Start early and breathe.

Tuesday, February 19, 2019

Communicating Needs

Financial Security is a coordination tool. Every business is (1) an articulation of a problem that needs to, and can, be solved and (2) placed in a container that allows monetization. Nailing exactly what those needs are is incredibly hard, ambiguous, and uncertain. Financial Security releases our “Tacit Knowledge”. The stuff we understand, but can’t express. It allows people to solve their problems directly through an exchange. Two fuzzy sets of values and problems colliding in a simple market transaction. A trade. This was Adam Smith’s great insight. Wealth Creation isn’t a war. It isn’t win-lose. It is a conversation. Financial Security gives everyone a voice.

Monday, February 18, 2019

Expected Unexpected

A Buffer is a form of self-insurance. Like a salary that only meets your expenses is hand-to-mouth survival, actual insurance takes the bumps out of life in exchange for a premium. It is hand-to-mouth risk control. You pay someone else to remove the bumps. A Buffer is Capital that you can draw on if you need to. Some months you spend more than others, because of expected unexpected events. Flat tires, broken toilets, dropped vases, leaky fridges and rats in the roof. These are annoying but hardly unusual. If you have breathing space between what you earn and spend, building a Buffer can take care of you. The bigger the Buffer, the more you only need to pay for insurance for the smashes and canyons that would wipe you out. A Buffer is temporary, till things right themselves, support. An Engine would be enough Capital to give you Financial Security without requiring you to be a productive financial asset. An Engine would be the breadwinner, and rock, in your family so that you can build a life. And rock.

Friday, February 15, 2019

War Chest

Cash is a placeholder rather than a thing. That's why it doesn't get paid very much. It is like a teenager sitting at home waiting to go to university, or get a job. It still eats (inflation) but it is definitely only earning minimum wage if anything. Bonds are like working for someone else. They need a salary, so they take the cash and build something for someone else. Equity is a slice of ownership in a business. The money only gets paid if it creates something people are willing to pay for. So why hold Cash? Since, like the teenager, it may be useful if you need an extra set of hands. Bonds and Equity are like the friend/family that is always busy because work comes first. A War Chest is when you hold more cash that you would otherwise because of a potentially exciting opportunity. Google, Apple, Amazon etc. hold big War Chests of cash so that they can buy the next Google, Apple, or Amazon if it pops its head up.

Thursday, February 14, 2019

Last Man Standing

The struggle for Financial Security often focuses on Income. That is only half the battle, and it is the half most people have far less control of. The Outs tend to control us more than the Ins. Particularly the ones we don't choose. It is very easy when there is breathing space between the Ins and the Outs to dish out advice as an example of success. Except the real learnings need to come from the heroes making do. The ones who are capable of surviving on very little. The fighter who can get punched again and again, and get up. The first step of gaining Financial Security is finding a source of income. In South Africa, there is structural Great Depression-level unemployment. There are no jobs. The trick then becomes creating something from nothing. 

This is not something I know very much about at all. I come from a "suck it up" culture. Do the hard work first, and the play can come later. Life owes you nothing. There has always been something on the menu though. When I first came to the UK, for two years between school and university, I started to feel the grip of the Outs on my throat. Every pound I spent (multiplied into rands) gave me a klein bietjie kots in my mond.

A friend of mine also took a gap year, and was doing construction work in London. I was working as a teacher' assistant, and took a job as a Waiter and Night Porter at a local hotel during the holidays to get a little more. This was us "roughing" it... We knew university was around the corner, and that was the path to some financial breathing space. Both of us were on two-year working-holiday visas that gave us the chance to come to the UK. We could find work. We still felt like we were really struggling. Despite not having anyone we had to support.

I always have monkey's wrestling in my mind over money issues. I wish they didn't control us. Part of the gap I took was to figure out the answer to the "what are you going to do?" question. The glorious luxury of choice. Except I didn't want to choose. I love learning new things, and spending time with people. That doesn't pay. Doing stuff pays. 

I was working in Chichester, which is the South of England. I got to hide from the Outs partly by doing very little, and partly because I was mostly paid in Board & Lodging. This is a little like the luxury children have when they get to live off the BOMAD (Bank of Mom & Dad), and under their roof. London was a decent reality check provider. A "you can look, but you can't touch", display of all the options available.

That must be a little like what it feels to live in South Africa in areas where there is no work, and then popping into where there is lots of money - Sandton, Umhlanga, the Waterfront in Cape Town. "A little like" because I cracked. I decided to pick from the set menu. I chose to study Actuarial Science. Literally by looking at the options and picking the one that paid the most which best suited my skills. I didn't solve my problems by thinking outside the box. I climbed deep into the box and knuckled down.

I saved really aggressively and invested that money to build an Engine that could do the work for me. Eventually, I was able to tap out. I actually enjoyed my work a lot, and had some incredible colleagues. My greatest challenge was my distaste for hierarchy, and being managed. In the same way, as I didn't like the Outs controlling me, I really hated the idea that other people's subjective opinions would have so much impact on my success or failure. I wanted to feel like I was living life, not that life was living me. Like I cracked and chose something from the menu the first time, there was a degree of cracking and choosing from another menu. A belligerent middle finger to the idea that I wasn't the one driving my life. You can't. You don't have enough yet. Really? Watch me.

I hate answerless questions. Like people who look at those in poverty, and say "Why don't they sort themselves out?". This implies that there is a menu they can choose from and they are just being lazy. There is a path... and they just aren't following it. That is absolute rubbish. I am sure they, just like me, would love to take responsibility for their choices. We just happen to live in a menu dependent world, where we aren't all given the same menus.

And most do take responsibility. I am in awe of those still standing despite the menus they have received. Some of the biggest push back I get when I talk about Engine-building to improve your ability to "Just Say No", is from people who are well beyond Step 1 (find a source of income). Often the best place to learn, is from those with less. The ones for whom "No" wasn't a choice. The last man standing is normally the one who can take the punches.

A pre-selfy selfy

Wednesday, February 13, 2019

The Container

Not all good ideas are good business ideas. That is why it is a thing of beauty that we can separate our Capital and Labour. Capital can live within the constraints of good business ideas, and be the breadwinner for Labour. Labour can love. Quality Journalism is a good idea. It used to be a good business idea when it had the Container of broadcasting from an enclosed garden through which it could sell advertising. Advertising was its engine. Social Media (Facebook) and Search (Google) stole the Engine. The idea may be awesome, but without a Container, good ideas don't matter. A Container controls the supply and demand of a scarce thing. The heart of a good business idea is "how will people pay?", "how will it keep them as paying customers?", or "how will you continually find new paying customers?". It doesn't matter what the business does. For it to be a good business it needs to show you the money. Not everything needs to be a breadwinner. We can't live on bread alone.

All the Toys

Adults are really just big kids. If a small kid was hogging all the toys, the person looking after them may be inclined to a little deception. They could take a piece of paper and cover it in glitter as a "Toy Token". If they were very good at Kid Talk, they could convince the little bully to hand over the toys to other kids in exchange for tokens. Tokens that grow if the other kids enjoy themselves more.

This was the huge leap forward we took in the shift from Mercantilism to Adam Smith Capitalism. Instead of Nations being seen as competing schoolyard bullies, the people within those nations could exchange toys. Stock Markets are the tokens. The toys get handed over and grow *IF* they do or make things that the other kids want.

The wealthy today are massively incentivized to put their Capital to work rather than hoard it in pools of gold coins. Conspicuous Consumption is a stupidity tax, where the wealth gets transferred from someone who wants to spend $10,000 on a bottle of Champagne to someone who puts that $10,000 to work. Those who inherit massive amounts and just buy stuff with it, will slowly see that stuff become worth less if it isn't working.

It isn't perfect. Far from it. I believe a Universal Basic Income is necessary for pure play Adam Smith Capitalism. He argued that local markets were the best way of finding out what people wanted. Rather than a bunch of stiffs sitting in a board room "representing people". The act of buying something is direct empowerment. A form of voting. But you can't vote if you don't have any cash in hand to start.

The three richest men in the world no longer "hog their toys". Buffett owns share is Brick companies, Insurance companies, Media, Logistics, Capital Goods, Household Products, Food and Beverages. Even Bezos and Gates don't hold all their wealth in Amazon and Microsoft.

A big part of the magic trick of Capitalism is getting people to carry on working for those tokens. To see their number grow. That is dangerous. Like fat, salt, and sugar... numbers are a too easy proxy for the real things that matter. There are lots of holes that need working on. Lots of incentives that need discussing. Lots of self-evaluation and deciding what really matters.

But the answer isn't just taking the richest people in the world's toys and sharing them around. They don't actually have the toys they think they do. The numbers are just glitter-covered tokens.