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.

 

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?

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

Reply All

I have been lucky to work with awesome people. My colleagues are the part I miss most about a Corporate life, and the thing I am looking most forward to in the trade-offs of a return. You spend a lot of time with the people you work with. Those teams change. As time grows since my first job, it is interesting mentally going through the list of who I have worked with, and where they are now. The old adage of repairing a boat panel by panel, till you ask if it is the same boat. I once got a job as a waiter at a restaurant I loved eating at. Turned out management was awful to staff, and then switched on their smiles. The same can be true in “Reply All” slip ups, and emails forwarded without looking at the full trail. False smiles will out, and containers will change. I love being part of a team, but have gradually realised my real loyalty lies with the people I have connected with. Not the dynamic containers we were using at the time. Clients become colleagues. Colleagues become competitors. Competitors become colleagues. We are all connected, across time and through actions. Money is made in containers with barriers to entry and exit. We are not made in one container. There is always a bigger container that matters more, and will last longer.

You need boxes to move.

But boxes are not the point.

Keep Playing

In a pure play Meritocracy, Mr Shaibel would tell you to resign before you even sat down at the table. If you knew the opponent was better, you would not bother to pull out the chair. A fundamental rule of money is that price is not value. The idea that money is a measure of merit is bizarre. All money is, is a balancing machine for supply and demand of things you can count, control, and contain. Money is made in boxes with barriers to entry. That allows us to learn to play the game even when we are not the world champion. The world champion is not always the opponent. We all have to eat, so we use multiple boards. You do not have to point potential clients to someone who does a better job than you. You get pieces. You play. Win or lose, you learn and keep playing.

"You resign now", Mr. Shaibel

The Queen's Gambit

Counted and Contained

One of the most important lessons in the world of money is that “Price is not Value”.

We half wish that it was, because of a love for scorecards and a way of measuring progress. If you can measure something, you can control it. People partly love big salaries because it is a conspicuous sign that you are making it in the world. Unfortunately, all a big salary means is that there is an undersupply of the thing that you are providing. Or there are significant barriers to entry. Or there is a lack of transparency. There is a container that creates the ability to earn more, but it is not value. There are lots of valuable things that are abundant. A high price is just an indication of scarcity.

Not everything that counts can be counted and contained. Not all good ideas are good business ideas. Not all good business ideas are good ideas.

Artist: Alex Rennie

Choose your Mountain

20-year-old Trev also had long hair. Grown during a two-year stint in the UK on a work-travel visa, in between school and university. It was the first time I had left South Africa (I had only ever even been to Cape Town once when I was two, which felt like the closest foreign place to Durban). My bravest previous adventures had been crossing the Vaal river to visit the family who said Fish with an accent. Young Trev was also a curious spirit, but those two years exposed him to how daunting a London you cannot afford is. Sitting on a bench in Kensington Gardens, he/I took the decision to accept the world hard. Money is made in containers. One of the most defendable containers is hard. Actuarial Science is not on the covers of flashy magazines, nor does it have sexy movie leads (“About Schmidt”). It does however require serious knuckling down, which creates a deep moat. A Competitive Advantage is not what you are good at. It is why others cannot do that. The mountain of professional exams is intimidating. I am grateful to young Trev that that did not scare him. It scares me. Money is made in National Containers. Salaried Containers. Professional Containers. Inherited Containers. Figure out the barriers to entry, and how to overcome them. Hard but possible is good for you.

Panning for Gold

My oldest brother used to love (as a Medical Student) asking, “What do you call a Medical Student who gets 50% for their final exam?”. The answer is Doctor. It is only in the classroom setting where the false laboratory conditions allow us to weigh and measure everybody. You can even ask university level questions for 2 marks to separate the first and second place 12-year olds who are getting everything “at their level” right. In the real world, meritocracy is limited by the fact that no one cares how clever you are. It is not about you. They want their problem solved. If there is an over supply of problem solvers, you do not have to pay them very much. As more people can read, write, think, create, and exchange ideas, it gets harder to pretend the barrier to wealth is merit. The barriers are not skills and knowledge. The barriers are the containers. Rather than survival of the fittest, it is survival of the most flexible. What is the container in which you make money? Why can’t others make money in that way? What if that container no longer existed?

Basic Questions

It is true that the world is always changing. But it is not changing so fast that you don’t get a lot of information by asking simple questions like

(1)    What skills and knowledge does doing your job involve?

(2)    Where did you develop those skills and acquire that knowledge?

(3)    What are the entrance requirements?

(4)    What would the obstacles be to me being trained?

(5)    Do you enjoy your job?

(6)    Are you financially secure?

(7)    Any questions you wish you had asked before embarking on your path?

You have to assume that there will be significant obstacles to any path that is well remunerated. Either that, or the job itself is not very pleasant. There has to be some reason why the supply of people willing and able to do that job doesn’t exceed the demand. There are 7.8 Billion people on the planet, half of those people earn less than $3,000 (Gallup 2013), and we are consuming more than the planet can handle. Part of designing your path to financial freedom is accepting some hard truths, and making some difficult choices. About your goals. About your values. About your willingness to do what it takes.

Prepare

The Robots

Price isn’t Value. Without insurmountable barriers, price is supposed to act as a traffic light. A competitive advantage isn’t what you are good at. It is the reason other people can’t do what you do. The obstacle. The privilege. The difficulty. The law of supply is that for a fixed cost of doing something, a higher price will attract a larger supply of people willing to solve that problem. You don’t get paid more for doing something more valuable. Price is a signal of scarcity. Not value. You have to determine how you value things, and then look at the traffic lights (given your values and intended destination) of the things that will help you get where you are going.

Price is not Value

If you earn lots of money, it is not proof you are adding lots of value. Price is not value. Salary is the price of your labour. Capital is the size of your ownership. Dividends are management’s impression of a sustainable payment stream from the business. Rent is for something you have. Nothing to do with your value add. Nothing to do with you. Price is simply a reflection of the balance between supply and demand. If you earn a lot, it means there is an undersupply of the thing you are selling. If you don’t earn much, it means there is an oversupply of what you are selling. Supply doesn’t adjust quickly because of barriers to entry, and barriers to exit. Time to build the Capital. Time to build the necessary skills and knowledge. Time and obstacles to create or overcome the barriers that form the container. Price is not Value. Price is not Value. Price is not Value. You are not your price.

Supply and Demand

Biggest Slice

Once you let go of the illusion that price is value, anxiety disappears from selling the pie. If people want pie, and you can get it made at the price offered… it happens. The problem remains in slicing the money after selling the pie. We still live under the illusion that you can attribute everything. That you can say who added the value. That you can say who deserves the biggest slice. We still claim that people are paid based on their value add. They aren’t. It is a combination of politics and power that splits the pie. Containers and Capital. People with barriers. People with capacity. In the absence of markets that simply respond (without barriers) to supply and demand. You can’t count everything that counts. As soon as it isn’t a market and there are barriers… it isn’t a meritocracy. It’s a story.