Slow but Effective

Desire for quick fixes, makes facing intimidating mountains a good barrier to entry (once you are on the other side). 

Exams can provide this barrier. Being good at something, is not the same thing as being able to explain (or even know) why you are good at something. Being good at exams is different from knowing the content. Exams impose artificial constraints. Time limits and the interpretation of markers. 

Reality normally lets you use google, maps, or GPS. “Only when the tide goes out do you discover who's been swimming naked” is Warren Buffett’s reminder that difficulty is revealing. 

Exam “match fitness” is the ability to deliver under constraints if questions go off the beaten path. 

If you have surface-level knowledge, you can pass tests, if nothing goes wrong. If the right questions are asked. That can develop confidence as you know a single path to success.

Embodied knowledge lets you understand the broader context. It is more sustainable. Which is why challenge allows deeper soaking. Basic processes can let you build that depth. 

The yoga I practice will be the same in 30 years. In 100 years. It is not variety it is teaching. Lots of people will find it boring, preferring postures that change. This style focuses on 12 basic postures, but those who go deep will develop the flexibility to deal with variations. 

No quick fixes, but a process that works.

Sani Pass

Inspirational Humanity

We celebrate outliers. Record-breaking and extremes of human achievement. Those being celebrated have a combination of barriers to entry the vast majority cannot possibly overcome, and hopefully... a smidgen of humanity we can relate to. Traits we can learn from. We can recognise the pain etched sharply in the face of a lone cyclist being pursued relentlessly by the peloton. With what we are given, we can apply these lessons and make the most of it.

I like the tough love concept of accepting responsibility and avoiding blame. I also get that part of white, english-speaking, male privilege is that I get treated as an individual and have no one to blame. I am not part of any category of people that is massively disadvantaged. So I have to take responsibility, but only from a strong foundation. That is empowering. If I succeed, I am acknowledged... not my category. If I fail, it is my fault... not my category. I get seen. 

It is true that massive groups of people have disadvantages that swallow their inspirational humanity. We are grappling with how to overcome those structural barriers and see people. How do you see the humanity and potential within people who aren’t breaking records? How do we avoid and unwind the disadvantages of a category becoming so engrained, that the shadows and scars remain even when walls fall and doors open? 

Austrian Mathematician wins Gold

Obstacles and Barriers

Formal studies are not solely about skills and knowledge. We live in a world where that is largely available for free. I heard about email and the internet for the first time as a 14-year-old from my Maths teacher who had visited the United States. Information flow was starting to burst. 

She was also the one who told me about Actuarial Science. Even though the world is connecting, money is still made in containers with barriers. The way we build the structure is partly through formal education. I broke some of my barriers (the country we are born in) after school by going overseas for the first time. I went to the United Kingdom for two gap years, working as a teaching assistant on a work-travel visa. 

When I came back, I picked something with barriers. I knew there were people who paid people who passed these exams. Jobs that wanted these qualifications. Limited people with those qualifications. I looked at the shop. I saw what the expensive products were. I looked at the cost to put those on the shelf. I went and did the thing that was most tolerably difficult (challenging barriers) with the highest gap between price and cost. Based on my existing set of scarce skills and knowledge. 

That is not the same for everyone. Which is why it paid well. Scarcity pays. Understanding money is partly about understanding and overcoming your obstacles and barriers.

Map of Internet Connections

Forrest in Forest

My dream when I “stopped working” in 2014 was not to do nothing. I just wanted to not have to think about how what I would do would make money. I also did not like my fate being in other people’s hands. In a pure meritocracy, everyone would line up on a theoretical starting line and the gun would go. In reality, there are plenty of gate keepers to opportunity. There is not a path you choose and then knuckle down and crack on. So washing your hands of that rubbish, and saying “I am done” had incredible appeal. Front loading the effort, then constraining expenses going forward. The problem with that idea is I do see myself as part of others. It does not help if I am not stressed, if others are stressed. Like the scene in Forrest Gump where he runs back into the forest (with one r) to rescue people. The idea of financial independence is an illusion. I celebrated stopping working for money as “Independence Days”, but the problem is we aren’t independent. We are interdependent. So even though I talk of financial security and stilling the waves of money anxiety, the reality is it is a process of practice. The struggle to still the waves will continue. Part of stilling is acceptance and perception. Stillness where you are, not where you are aiming for. Stillness within the chaos, not after the chaos.

 

Live and Work

When I went to work in the UK in 2008, I needed a work visa. I was born in the South African container, and needed permission to work in the British container. The idea of “equal pay for equal work” is a goal, not a truth. We work in containers. Even if the idea of remote work is growing. If we haven’t met the challenge of breaking down the obstacles, then you get paid based on the supply and demand of your barriers to entry. Gender gaps, race gaps, national gaps… rightly or blatantly wrongly, there are plenty of reasons (beyond merit) why people get paid differently if they have different containers. We have work to do to change that. I went to work in the UK, partly to get paid more. The reality too, is that you spend more in areas where you are paid more. Again… supply and demand. The same thing doesn't cost the same everywhere when there is friction. The real key to wealth creation is the gap between spending and earning. I came back to South Africa in December last year and now work at a company (a container) that builds a container (open-architecture platform) for South Africans to invest around the world. Getting our clients money a work visa to work (and grow) overseas, while they live (and grow) in South Africa.

 

The Signal

Until you are the decision maker, there are lots of people who will be in positions to choose the options that are available to you. Good ideas are not sufficient without financing and a container. Someone must have the money. Someone must own the money vehicle. Until that person is you, you will have to convince people. Skills and knowledge will need to be conspicuous. A clear offer. Although there are other paths, one of the tools for conspicuous skill is formal education. Arguably, you are not paying for the education/information (that is largely free now), you are paying for (1) exclusivity (for them to reject other candidates), (2) network (for them to accept other candidates who will become colleagues/friends), and (3) the signal to the person with money who gets to impact your fate. You are buying privilege. Beyond the knowledge, exam and study technique become essential. Establishing a habit of breaking down barriers. The process of absorbing information in a limited time, and then performing in an artificially constructed signal factory. 

"The Signal"

William Powell Firth  (1858)

 

Beyond Television

One of the joys of being human is we are in it together. When you're mapping out a path, you can look at what other people are doing. This is where social capital kicks in. Being surrounded by people that you share enough in common with to believe their paths are paths open to you. You can see the skills that they need to do what they do. If you know them well enough, you can ask questions. Ideally, you want a holistic sense of the person. To know beyond the stories you attach to the job, or what you have seen on television. What is their actual day-to-day? In practical terms, what does the person do? Every week? On TV, you might see the exciting bits of law, with time-lapses of them spending all night for months in a room with a box of files. If you know someone, you see the journey, and the consequences of the job beyond the conspicuous. Subtle things like knowing their circle of friends and family. Their capacity for interests beyond work. Their health. Do they spend lots of time on spreadsheets? Do they write a lot? Do they read a lot? Are they mainly in meetings? What are their frustrations? How is their relationship with colleagues and bosses? What is the politics like? What are the barriers to entry and development?

The first mass-produced Television

Hereditary Entitlement

Meritocracy came in as a response to hereditary wealth. Hereditary entitlement. You had a position or role in your caste or class, and that came from your parents or the money you inherited. Meritocracy was the wild idea that you should hire the best person for the job. Which is the most skillful or the most knowledgeable. You should push resources to where they will have the biggest impact. That provides a path for social mobility, and it allows people to move “up”. If you use that directionality. The problem with meritocracy is that the idea is handicapped by the impact of privilege. Part of our incentives is money, but part of it is we naturally want to invest in the skills and knowledge of our children. We quite reasonably want to give them a competitive advantage. One of the barriers to entry is education. If you give someone education, you implicitly strengthen their barriers and that compounds. So there is a lot of thinking to do about conspicuous meritocracy and the barriers that people have to overcome. If we really want to get resources to where the true merit is. 

Focussed on Up

Which Path?

We don’t choose our mother tongue or the country we are born in. Similarly, our relationship with money is path dependent. Money is not a thing. It is a communication tool. A catalyst for things that matter. That is why the conversation about wealth creation, or any creation (even things that don’t make money often need money), starts with understanding someone's relationship with money. A good financial adviser’s key job is understanding you and how you think. You can only take control over your next step on the path if you know where the starting point is. Know where you are. Know what you pay attention to. Know the container you are in. The barriers to entry to what you want to do. The barriers to exit from what you are doing. Your capacity for things not going exactly as you expect. Money is like words and numbers. It can either help you tell your story, or control your story. 

Did you choose your path?

Cut the Fat

Price is not value. Daniel Kahneman points out that while we might be intuitive grammarians, with our ears bristling when someone butchers our mother tongue, even those with years of training in statistics are not “intuitive statisticians”. Some truths require slow deliberate thinking rather than rules of thumb. Truths like there are no gods of investing. Investors who will agree “price is not value” will fall foul of this too when talking about “their value”. Everyone likes to believe they are the one that adds the value. That can’t be replaced. That other people can be cut out of the value chain, because other people are the fat. A high price is not an indication of value. It is more likely (1) scarcity, or (2) barriers to entry. An obstacle to creative destruction is that we all need to eat. We all need to get paid. We all need a source of wealth. The only way anyone will be prepared to be made redundant is if we believe we are included in the future that exists on the other side. Money is made by solving problems for decision makers. One of our problems, is that (without capital) we need problems. 

Are you the fat?

 

I See You

Fundamental Investing is the “Sawubona” of investment philosophies. “I see you” is the aim. What you see is not all there is. A business is not just about an idea. It is about what gets done over a significant helping of time. Meritocracy is caveated by the ideas of competitive advantage and barriers to entry. Any idea, whatever its quality, requires Capital to protect it from the waves of chaos, and to feed its growth. Any idea, whatever its quality, exists in an ecosystem of stakeholders (regulators, suppliers, customers, competitors, employees, investors) that force its existence into constant existential evaluation. Resources are limited. We don’t get to do everything. There are tradeoffs. Fundamental Investing is about seeing the potential through the noise of the conspicuous. It is about looking at support structures. It is about doing due diligence on how something exists, not just that it exists.

compound eye of an antartic krill

 

Someone Else's Box

Wealth is created in boxes. How well do you understand your box? I heard the term “option counselling” for the first time yesterday. Everyone has vested interests, which means the idea of “independent advice” is a bit of an oxymoron unless you are a fully detached yogic master. As Austin Kleon points out, “all advice is autobiographical”. Option counselling aims to explore choices, without influencing the decision maker one way or another. It shines light on *someone else’s* box. Exploring their obstacles and paths. Exploring their choices. A key to making empowered choices is acceptance. All journey’s start from where you are, and none of us are in the same place.

Pick a Box

Wealth is created in boxes. The key challenge once you understand a problem, is understanding the box. The box is so important, that sometimes it is better to start with a box. Pick a box with money in it... then start looking for problems to solve. The box defines the shape and form of supply and demand. The barriers to entry. The barriers to exit. Who makes the rules? Who can compete? Who are you serving? One of the key measures of inequality looks at equality within the primary wealth creation box that we use. Nations. The Gini Coefficient would be 0.00 if everyone had the same, and 1.00 if one person had everything. South Africa is the worst box in the world (estimates of 0.63-0.70) and yet is at the level of the global income Gini coefficient (0.61-0.68). Our biggest box is as bad as our worst box. There are boxes within boxes... but one of the best ways to open opportunity is to chip away at barriers to entry and exit for the four freedoms (Goods, Services, Capital... AND People).

Capital and Containers

Making money is not just based on skills and knowledge. It also requires capital and containers. Capital provides endurance and resilience. The ability to survive through waves of feast and famine, with a degree of stability. The ability to invest, unlearn, relearn, and adapt as the skills and knowledge that are required and rewarded change. The ability to absorb and accommodate shocks from expected and unexpected risks. Containers give shape and form to what we do. They are the wider context in which we operate. The laws. The agreements. The relationships. The barriers. The incentives. Containers are where the rubber hits the road, and we get paid for our potential. They hold the space for an ask to meet an offer. They allow potential to manifest. Without capital and containers, merit does not get seen.

Giving Shape and Form

 

Chocolate Monster

Lindt Chocolate does not cost the same in Oxford and Cape Town. “The Law of One Price” (LOOP) is the theoretical idea that the same thing should sell for the same price. The LOOP does not hold, because there are trade frictions. What something is does not determine its price, because price is not value. Price is a negotiation between the buyer and the seller of a thing *in a container*. The container determines the barriers to entry and barriers to exit. The container determines the story. The story determines the agreement. Money is made by solving problems for decision makers with money. The decision maker does not know everything, is not everywhere, and each decision maker has their own set of competing things that they value. More than half the battle of making money is becoming a part of a decision maker’s value recognition. “The thing” is not what determines the price.

Lindt Chocolate Cake

Winking in the Dark

There is not enough work. Much of the work there is does not pay enough to have some left over to build capital. It is not simply a case of willingness to work. You must find a job that matches your skills and knowledge. Then it depends how many other people could do the job, and whether the employer/client specifically wants you. Ideally this would all be neatly mapped out like GPS. Insert destination, and a road map is provided. The challenge is we all need to eat. In a pure play meritocracy with 7.8 Billion people, there is for all but the Djokofednadals, always someone better. We operate behind smoke and mirrors to protect our containers. A friend told me about a reality show called “dating on the spectrum”, and how young adults with autism deal with the unpredictability of dating. A world where you hope someone stops “looking for someone better”. In some ways their yesses are yesses and noes are noes, and they deal with it. Imagine a world with full transparency where we were comfortable being open with our asks and offers. It would be pretty uncomfortable, but we would do less winking in the dark.

Winking in the Dark

Echoborg

An Echoborg is a person whose words and actions are determined, in whole or in part, by artificial intelligence. The outsourcing of decisions. My wife and I participated in a discussion panel with an Echoborg designed to do hiring interviews. Our group's goal was different. To try get the Echoborg to discuss how people and AI could work best together. In some ways, companies are like Echoborgs. We talk of them as people because they act through people. There is the pretence of an agreement between people in the employment contract (but one is just a legal person). The challenge our group faced was speaking with/arguing with the Echoborg as if it was a real person, because it spoke through a real person. The most echocult like of companies aim to only develop talent from inside the manufactured club, not hire outside, and have a revolving door where people who leave are no longer welcome. These companies are not real people, even if we anthropomorphise them. The key is to remember companies serve us, and we are all part of a bigger container. Companies are merely useful devices that serve a (temporary) purpose. It is the people, both inside and outside, that matter and to whom we owe our loyalty.

Surviving the Storm

The Agency Problem is the conflict of interest that exists when one party is expected to act on behalf of someone else. In investing, you can try aligning interests, but the reality is you cannot put everyone in the same boat. Even if it is the same storm. If someone is rewarded for performance (deservedly or luckily), there is a butterfly effect. Money is in part made through merit, but also made through capital and containers. As you build capital, you have capacity to have a longer time horizon. You no longer live hand-to-mouth. You can say “No” more often. As you build capital, you can create barriers to entry to protect your “merit”. The key competitive advantage in investing is not the skill of investing. It is the club that has been built. The container used to gather investments of others. The vehicle that gives certain people the privilege to invest other people’s capital. Even when they are not performing. The club buys time for the storm to pass… for the agent.

Survive the Storm

Island in a Bubble

The two main ways of measuring investment returns are called “Time-Weighted” and “Money-Weighted”. Time-Weighted could be called the play-play-meritocracy measure. It eliminates the distortion of money coming in, and going out, and looks at the performance of the investor as if they lived on an island in a bubble. This lets you compare the results of a decision-maker with a billion dollars to one with 10,000 dollars. What matters is the Money-Weighted measure. If you do well, when you have no money, and badly, when you have lots of money… it matters. When we talk of meritocracy, we normally mean the quality of skills and knowledge. That is not the full picture. You need money to make money. To survive. To invest. To have enough to reinvest rather than consume, and compound. Hand-to-mouth living leaves no space for escape or growth. You then need a container to make the money in. Barriers to entry. A door that opens for you, but not others. Even if your time-weighted return screams average. If you believe in your merit, you do not need to live on an island. And can invest in the bigger container that includes others. Beware those wracked with self-doubt who project that doubt on others through judgment.

Frosted Bubble

Honest Pitch

Investing is a lot like dieting or exercise. It is not a secret how to do it well. The difficult bit is doing it consistently. With a little bit of studying and a broker account, a huge investment house with a massive investment team has no advantage over you whatsoever (unless you are a trader). There are no gods of investing. There is a lot of smoke and mirrors used to create the impression that there are. And to keep underconfident overachievers self-doubting and working for others. The cold truth is that most investors make the big money, not by investing, but by investing for others. The competitive advantage is not the skills and knowledge. It is the capital, and the container. The ability to survive noise, and maintain the barriers to entry that stop new competitors. The honest pitch is, “I like investing. Please can I do it for you, for a fee.”