Moron with Money

If you understand Compound Interest, then you understand Privilege. The same “merit” applied to more Capital will result in a bigger reward. Reinvested rather than spent, it can grow. That is why hereditary privilege is a part of generational wealth creation. Our lives are short. If we spend everything, the next generation is always starting again. Starting without a buffer for emergencies. Starting without space to breathe. Money making requires skills and knowledge, but is completely ambivalent to the back story. Unless we add barriers to entry. Institutions, networks, communities, inheritance, prejudice and regulation. Real merit doesn’t care how much effort you put into learning to solve the problem, or who Mom and Dad were. The key is being able to solve the problem. Whether it is because you watched a YouTube video, or studied for 20 years. But. If you are a moron with money, you still get a seat at the table. Again, the back story doesn’t matter. Money is the story. Real meritocracy would be smart money. Able to connect people with voices hidden by their lack of capital. Money that understood history.

Timbuktu Manuscripts

Knowledge and Capital are Intergenerational

Spot the Chairman

Corporates aren’t democracies. They have shareholders who employ (or are) managers, who set the goals and manage the performance of their teams. Corporates also aren’t free markets. Once you are hired, central decisions get made up the chain and strategies set. The most obvious exhibit to demonstrate this is salaries. If there was an internal market for skills and knowledge, then whoever needed something done would have to bid for their team. Instead, in most companies I know of, the bosses would be irate if a Spreadsheet of everyone’s pay got leaked. Like Chairman Mao managing the iron supply in a 5-year plan, the central powers need to trust the train of information about who is doing what. Layers of grades and metrics can be added to maintain the illusion of price (salary) and value bearing a relation. The beauty of free markets is the lack of pretence. Price isn’t value. It is a way of matching supply and demand. It is very noisy, but if both parties are happy, value is created. In Corporates, this falls apart because (1) the employee is full time, and (2) we don’t talk about pay. In some ways that is good. Imagine your pay moved like the markets? To cope with that you can’t live hand-to-mouth. To cope with noise (transparency and truth), you need to create space to breathe.

Can you handle the truth?

Reverse Darwinism

Homo Economicus is the imaginary human with an infinite ability to make rational decisions. This character doesn’t exist, but is useful in models of how real people make choices. Behavioural Finance focuses on painting a better picture of the more complicated ways we really engage with the world. The idea that businesses focus only on profit is also imaginary. Partly because incentives are complicated. Partly because businesses are imaginary models too. Businesses are collections of real people with real behaviours. The future is unknown, and the consequences of our actions are unknown. “Reverse Darwinism” is the idea that people hire people slightly less intelligent/more controllable than them so that their place is secure. People get promoted till the hit their level of incompetence, or a political ceiling. If someone promising threatens to leave, let them. There is always another promising, less demanding, person to fill their place. This all sounds cynical. My point isn’t that people are bad. It is that merit and profit aren’t clear. People are complicated with inconsistent goals to match an uncertain world.

Not a Democracy

“This isn’t a democracy” was a common phrase in my corporate career. Although there are legal minority shareholder protections, the reality is that control is concentrated… even if you are a part owner rather than a work taking employee. But, there are checks on power. Arguably more than over democratic majorities. Companies can fail if run badly, or if competitors attract away their staff and clients. They can fail slowly, if they have Capital to eat through while paying Corporate Zombies lots of money to do bad work. They can fail fast, if they live hand to mouth. Democracies don’t have the competitive pressures of the four freedoms of movement (Capital, Goods, Services, Labour) because we still live in a system of Global Apartheid where your rights depend on where, and to who, you were born. Citizenship isn’t voluntary and with enthusiastic consent. A system that ensures that Countries don’t fail like Companies in a way that frees the people and capital. I am a “small a” anarchist. Decision making should have as few layers as possible, be voluntary, and we should hire our bosses. Should isn’t reality. Human rights are built in the same way as Capital. From scratch. If that is the world we want, we need to build it.

Hierarchy from the Greek hierarkhēs "president of sacred rites, high-priest"

NeverEnding Story

Bottom-up Stock Picking is equivalent to seeing people as individuals and communities rather than abstract prejudices. It’s easier to simplify people and businesses into races, nations, and asset classes. It’s lazy. A bottom-up stock picker has a universe of thousands of public businesses from around the world to choose from. For most, you can afford to put them in the “Too Hard Pile”. You don’t have to have an opinion on everything, and you can admit ignorance on the vast majority of hard questions. You can gradually build an opinion on the endurance, resilience, and creativity of enough businesses to allow a margin of error. The first question is always, “what if I am wrong?”. Fundamental Investing isn’t about predicting the future. It is about creating an environment for sustainable growth in a world that is complex, ambiguous, and random. The key is time. You buy yourself time through consistent investing in strength, flexibility, and control. The peaks and troughs become the inevitable and predictable chapters in a much longer story of staying alive, and making a contribution to the conversation.

Yeeeaaah!