Not Corn

Rich lists don’t show the resources people have hoarded. The figure isn’t the same as a weight. It isn’t a pile of bags of corn that could be divided up by the kilogram. You can figure out your own Net Worth. Net Worth is the value of the assets a person owns, minus the money they owe. Owning an asset doesn’t mean you “have” the asset. Asset Managers themselves don’t even have the Assets. They use Custodian Banks who keep a record, but the Assets are companies doing work. The Share Prices are a combination of the Tangible (stuff you can touch) Assets (Factories, Equipment, etc. that could be sold) included in a quote of what the market would pay for ownership of future profits. Like someone giving you money now, up front, for the salary you are going to earn going forward (not that unlike a Mortgage Loan). Worthless if the work isn’t done. The beauty of Public Equity is that it penalises hoarding and rewards Capital that solves real problems for real people.

Public Pool

Pooling allows us to have a slice of something bigger. If you buy a house, it is yours or it isn’t. Private Property. Mostly, it is also the banks because it is easier to borrow for. Equity is different. You can buy and sell smaller slices of ownership. It isn’t as either or. A share/stock is a slice of ownership in a real underlying business. Public Equity. It is like getting your money a part-time job with clear constraints rather than giving it a boss with 24-7 access to its email and phone number. Your money can work at multiple companies. With multiple suppliers. In multiple countries. For multiple clients. It is not in a Scrooge McDuck pool of coins. It is working. An Equity Fund is when you have units of a pool of money that a professional equity manager chooses jobs for. A Public Pool.  An Equity Analyst acts as the Engine Driver, doing the Due Diligence on the underlying businesses. When you need money, you sell units. If the money does a good job, over time it grows. If that growth is sustainable, it can power your focus on things that don’t make money.

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!

Behaviour Penalty

If something is free, you are not the client. You are the product. The same is true with the Stock Market. You don’t “play” the Stock Market. It is not a game. It is true that Traders can trade anything with a pulse with no regard to what it refers to. The “fundamentals are free”, because the product is the other people who are trading. If you are “playing”, you are playing against some of the most sophisticated and resourced poker players alive. Investing is different. There, the fundamentals matter. You are buying a slice of ownership in an underlying business. You can’t get played if you have a long-term horizon. Then what matters is the quality of the offering, culture, management, and people in delivering their problem solving. What matters is the strength of the company to endure through difficult times. To emerge. In a dynamic world where they have to respond to a changing environment. You don’t have to respond. You can sit on your hands. The “Investor Behaviour Penalty” is a well-studied phenomenon where the average investor underperforms the thing they are invested in, by second guessing and buying in and selling out at the wrong times. Sometimes, the best thing to do is nothing.

Don't let the smile fool you

Due Diligence

Once you have bought into the idea of building an Engine, and you have tamed your expenses to the point where you are reasonably in control, the next question is “How?”. Treat your money like you treated your first productive asset (you). Get it some work. Know what that work is. There will be plenty of people trying to convince you they can manage your money. Make sure you do Due Diligence. That means asking good questions, and avoiding people who only promise upside. Be especially careful of the word “Guaranteed” and anyone promising high returns. Sustainable growth is the key. Charts of past performance don’t show the others who tried the same thing, but failed. I am a Soutie. One foot in South Africa & one in the UK. SA is blessed with many great asset managers, and I don’t believe any are touched by the Gods. I invest in Global Equity Funds with the two companies I worked at, and then have an Interactive Brokers account where I have a portfolio of about 20 companies where I have got my money jobs. Don’t invest with anyone just because you think they are smart or cunning. Invest when you understand what work it is your money is doing.

What work is your money doing?

Sustainable Growth

I am a fundamental equity investor. I think money is better at working than people, and people shouldn’t have to be productive assets. This requires building Capital. A space between hand and mouth so that something is left to put to work. It also requires an underlying optimism and faith in the future. If you are negative, now is all that matters. You could be hit by a bus. I plan to not be hit by a bus. This means I get my money jobs at companies I think can deliver Sustainable Growth. I believe most of us have a short-term bias. A long-term plan means “the next five years”. My ideal long-term plan is the next 1000 years. That makes you look at the underlying system, institutions, and deep roots. That makes you plant Oaks you won’t see grow to full size. That gives unborn people the same vote as those who are currently making the consumption v investment choice. Being a fundamental investor means what the money does matters. Matters deeply. It isn’t gambling. It isn’t playing. It isn’t a Win-Lose competition. It is building on what came before, responding to current challenges, and contributing to what comes next.

Not scared of Busses

Leech

An underlying assumption of my attempt to live off an Engine rather than work for money, is that the Engine can do productive work. If I was just living off hoarded cash like a blood-sucking leech, the money would run out. I would have (Money Pile)/(Spending per Year) years till I had to get a job like everybody else. I like to talk about my money having a job and being the breadwinner, so I can be the homemaker. Not all work is paid work. Ask your parents. But my money doesn’t get a salary. It is invested in real businesses listed on stock exchanges. I have slices of ownership. Owners don’t get salaries, unless they are also Managers. I do nothing for the stocks I own other than deciding whether to own them or not. In any given year, my money can be paid nothing. It can also shrink. Meaning smaller “Money Pile”. Meaning fewer years of homebuilding if my assumptions are wrong for a long enough period. Underlying my theory is the belief that creative people can solve real-world problems if allocated capital, support, and time.