Cornerstone

Barriers to Entry include base expenses. The price of a seat at the table before you even have any money coming in. The cost of getting out of bed in the morning. In my industry, this includes professional indemnity insurance, regulatory oversight (to ensure compliance with financial authorities), and the necessary software to protect client data. That is just to talk to people. If you want to manage money for them, there is a whole host of other protections to put in place (custodian banks, accountants, administrators, lawyers). Like home mortgages, banks lend to people who can prove they have the money coming in. To get started, you need a cornerstone client. Someone with money and the problem you know how to solve that can reliably cover your expenses. Ideally, you could be your own cornerstone. If you had Capital that reliably covered your base expenses. Without a cornerstone, it is difficult to build.

Church of Saint Paul in Macau (1602)

Building an Innings

I once unsuccessfully tried to explain cricket to a Scottish Music Teaching Colleague who came to watch me play. I didn’t touch the ball while fielding, and she didn’t understand what my role was. I told her not to worry, I was batting third and she would see me play in the next innings (meaning our turn to bat). After a huge opening partnership ended, I walked in, double-stepped, missed the ball, got stumped, and walked back to her to tell her I had no “further” role in the game. She, understandably, still didn’t understand why I mattered. To build an engine, you need to get control of the ins and outs. We have fixed expenses that come off every month/year. We have bumpy, but predictable expenses which vary between a high and low. We have annoying, but predictable maintenance costs that are erratic. Then we have the unpredictable storms we need to build a buffer for, or they knock us back to zero. If you keep going out, it is impossible to build a significant innings.

 

Bavuma became the first black cricketer to make a Test century for South Africa

Reality Check

There are four broad categories of investors in Asset Management Funds. Institutional, High-Net-Worth-Individuals (HNWI), Retail, and those who get left out because the economics are hard. Institutional investors are Pension Funds, Fund-of-Funds, Company Assets, Insurance Companies, Endowments (e.g. Universities), Charities and Governments. Investment Committees make the decision to invest on behalf of others. They pool the assets to reduce the costs. HNWI are rich people. They make their own decisions, or get an adviser. Retail Investors are non-professional but still have enough to invest that the expenses don’t completely swallow the growth. Not having money is expensive. Scale makes things cheaper. One of the hardest problems to crack is making investing accessible. Two companies I follow with interest working on this problem are Franc (www.franc.app) which aims to make investing affordable and social, and Meerkat (www.meerkat.co.za) which focuses on those who are in a hole of debt. Charting a path off debt reliance and providing cover for the clear and present emergencies that can make long term capital building a pleasant unicorn frolicking in another reality.