Spending and Earning

Sustainability is the key to compounding. Although what you do matters, what you are doing now matters less if you can’t carry on doing it. 

An engine is capital that earns (on average) more than you spend (on average). As soon as that balance of consumption and creativity changes, the clock starts ticking. 

If money can sustainably make money, and we can spend less than the money sustainably makes... there is no reason that can’t carry on forever. If the sustainability is cared for. 

For money to make money, you need to ask very pragmatic questions. 

How is money made? What is wanted? Where is the scarcity? What are the skills and knowledge needed for those specific requirements? Are too many people already working on those problems? How are decisions made? What are the containers those decisions are being made in? What are the barriers to entry? What are the barriers to exit? What frameworks of understanding and action are we using? How are we communicating? What agreements do we have? 

You can only be freed from the constraints of these questions if you have control of the balance between money coming in, and money going out.

hanging from the see saw

On the Menu

I am chatting to a few companies in my job hunt. Like dating, if you do that while employed, it feels dirty. The company I work for has one employee. Me. And currently no clients, other than people reading my free writing. My 2,800 blog posts over 6 years earned me $23.59 (and you need to reach $60 to get paid). So, it is okay. The context shift of coming back to South Africa after 12 years, means it provides an opportunity to get to understand what is going on here on the ground. My head and heart never left, because of Social Media and working for/with companies with South African links while away. My feet did, and it does feel different. Like buying cupboard items when shopping, rather than hand-to-mouth eating. The gaping hole in my “build capital” mantra is that I am not an entrepreneur. I did not make jobs. I took on-the-menu jobs, and reinvested the gap between my pay and my needs. I studied a degree knowing the salary and demand for the jobs that required that. Old Mutual paid for my studies. The most prominent emotion I have is gratitude. You cannot build capital without a job, and South Africa does not have enough jobs. But I am confident it will have one for me. Not all good ideas are good business ideas. Not all people willing to work can find work.

Savoy Hotel Menu

Cairo 1900

Putting Capital to Work

Fundamental Investing is the idea that what a business does actually matters. A good business takes Capital and sustainably generates cash. That cash is then either paid out to owners or is reinvested and becomes Capital. Maximising sustainable growth. The Payout Ratio is the proportion of earnings a company pays as Dividends. The Reinvestment Ratio is the same thing, looked at in the opposite way. It is the money that is reinvested back into the business. Ideally, there is a good balance. The money paid out is sufficient to cover the cash needs of owners. The growth opportunities are there to sustainably put more Capital to work. An Equity Portfolio can give an owner generating more cash than their needs and their investment opportunities, the option to put the cash to work in other quality businesses. If all this works well, then what matters is what is going on in the businesses. Not what is going on with the share price. Share prices are noisy. That is where people are guessing. A share price is a quote of what someone will pay for a slice of ownership. People who play the market focus on the price. People who invest focus on the business.

"Oxcart - My Dream" Van Gogh (1884)