Greener Grass

The tyranny of choice is that having lots of options can make life frightening. We spend so much energy thinking about what could have been. Greener grass and bitterness at the hand we have been dealt, when some of those options were never real options (because life isn’t fair) and others were choices we made (which have consequences). 

We live one life. Decisive indecision can leave you constantly spinning. There is always an escape hatch when life gets hard, but if you aren’t prepared to do the hard work then it is impossible to commit. There are always other options. Progress often requires closing things down. 

Real value is built over the long term and so you can’t be constantly starting again. Detachment, importantly, is not a lack of commitment. You can build within boundaries without being defined by those boundaries. Be prepared to do the work. Be able to face hard truths. 

It is easy to get wound up in self-pity and frustrated at the way things work. Your frustration can be 100% valid and yet not helpful. Righteous indignation about the cards you have been dealt seldom changes your cards. Is anyone else going to do anything else to change things, or is it going to have to be you? From where you are. 

Accept the way things are, but not in an accepting way. It is the only possible starting point for understanding, so you can change the setup for who comes next, or with grit... for yourself.

And Again

Not eating or sleeping properly can catch up on you. Short-term resilience can hide the long-term damage you are doing to your endurance. 

You need to deal with the patterns of ups and downs and recognise natural rhythms respectfully. Your body is a vehicle that allows you to think clearly. You won’t be able to still the waves of your thoughts if your body is crying out. 

Niggles, knots in your muscles, and points of tension are what stop you from doing what you should be doing. That is when scarcity of attention kicks in. You get big, muscular, sportsmen coming into yoga classes, who (forget touching their toes) can hardly brush their teeth because of the size of their distorted biceps. 

You need awareness of how everything is connected, and to regularly move in a way that reminds your body of its options and tools. It’s a long-term game. Real wealth, and real meaning, gets created through commitment and consistency. 

A long timeframe shifts your reality. Single decisions get taken in context of their broad framing. Instead of all your energy being sucked into one choice with life-or-death outcomes. Where getting it wrong is debilitatingly frightening. Endurance is the bedrock for the confidence to be creative. 

It has to be okay to be wrong, because being wrong is the only way to learn. Endurance is your ability to be wrong... and still be able to try again. And again. And again.

Bedrock

Building Capacity

Building the capacity for long-term thinking, is a form of exercise. Running a marathon is not a one-day event. It starts on the first training run. 

Developing a movement culture to gradually increase your strength. Putting yourself under controlled stress to learn about yourself. To build your skills and knowledge in a way that you believe you are capable in difficult situations. Reflecting on how you react. Seeing what kind of support you need. 

The body has a use it or lose it efficiency that comes standard. Once confident in similar situations, auto-pilot gets turned on, but where you don’t use something regularly it disappears. 

Which means you need to build up capacity to stay involved and stay conscious. Part of endurance is reserves. The ability to pull on extra when you need to go deep. Very physical requirements that come from eating properly, cooking properly, and recognising what your body needs beyond what it craves. 

A very sad legacy of Apartheid was promising sports stars coming through where despite “picked from nowhere” support, the gap of early childhood nutrition meant their body didn’t have the structural back-up for sustained performance without injury. Grounding matters. Consistency matters. Back-up and reserves, matter. 

When running a marathon, you need to take on nutrition and water regularly even before you need it. Otherwise, if you only respond when you do need it... it is already too late.

Increasingly Released

We will always be thinking of something. Although often pitched as emptying the mind, meditation is practicing letting distractions pass through. Enhancing the capacity for conscious focus. That is the connection between money and yoga. 

If you have or build buffers for financial noise, and an engine to support your immediate physical needs and future development, you gain the ability to choose your point of focus. You can care about things that are bigger than you. 

What are you worrying about? Is it what you want to be grappling with? Can you involve yourself in solving problems that revolve around more than just you, your survival, and your status? 

With community wealth, we become truly invested in the bigger vehicle that solves those problems. We build universal capacity to deal with noise. With a longer-term commitment, it is no longer about mercenaries and sellswords who are rewarded and go on their way. We become a part of something larger. 

Focus can expand when you have confidence that the basics are secure. Focus can expand beyond money, as the money distractions pass through. 

Where money gradually takes more of the burden of working for money, and we are increasingly released to focus on issues that get suffocated by the rules of money-making.

Sani Pass

Investing Time

As soon as you have the capacity to detach, and not be a productive asset, you are playing a completely different game. 

If YOU are “not required”. You have the ability to invest time. This may, or may not, be for something that will turn you back into a productive asset. 

Some areas require years of education before there is any sign of output. Sometimes, you even need to put in years of education just to be able to understand the signs! 

Money is a blunt cross-discipline tool to demonstrate output in areas others don’t understand. Someone pays you to do that? Someone pays you a lot to do that? Ok, it must be valuable. 

Not needing to demonstrate value in the short term allows you to go through long stretches of not knowing what you are doing. Asking embarrassing questions. Feeling annoying. Connecting dots. Mapping your ignorance. Not being respected. 

We sort people based on how quickly they pick things up. Sometimes, deep understanding requires admitting ignorance AND YET persisting. 

We have a bias to monitoring and action. For some things to do their work, they need to be left alone. For some things to do their work, they can’t also have to do the communication work of keeping others regularly informed.

"Show me the Money"

Time and Effort

If you are living hand-to-mouth, you have no option but to solve the immediate problems in the way you are most confident works. 

Building space, to take knocks (Short Term - Resilience) and give you confidence that sufficient time is available (Long Term – Endurance), allows you to look at problems differently. You can afford to try something different. 

This is the capacity that allows firms, countries, and people to invest in research and development. To allocate money to potential. Most people are looking for quick fixes and easy solutions. The higher your required rate of return, the shorter the time frame that is considered. 

One of the strongest competitive advantages you can have is willingness and capacity to commit to obvious, but hard, challenges. Where everyone knows the answer, but it is too much effort. 

Like getting fit and eating healthily. The further down the road the payoff for effort is, the more support you need till that pay off arrives. 

Most of us know how to run, and have done since we were kids. Few of us have run marathons because of the hours of training and effort required. A lot of people just don’t want to run marathons. Some want to. Theoretically. Maybe. Probably not. 

A common skill many Olympians share is the capacity to not have to earn money during the time they are training. Time and effort are significant barriers.

Time and Effort

to overcome barriers

50-15-5-Rule

Money can make money. 

A path to freeing yourself from being a productive asset is the 50-15-5-Rule. If you have an income stream because YOU are a productive asset being paid for your work, and you have capacity to gain significant control over your expenses, you can apply this rule. 

It starts by not consuming everything you produce. 

If you can invest half (50%) every year, for 15 years, and your money makes 5% real return (paid $5 for each $100 that works, AFTER all expenses and inflation)… then your capital can grow to the point where your money makes as much money as you were spending. 

These are aggressive assumptions. Investing half is hard. 15 years is long. 5% is proper work for proper money. 

All that said... it is possible to get to the point where you have an engine. 

An engine is capital that (on average), earns more than you spend (on average). 

If you sustainably spend less than your money sustainably earns, then you are no longer bound by the constraints of money on how you spend your time and energy.

Half

Linked Moments

Fundamental investing and a focus on value creation are concerned with long-term compounding. How moments are linked to each other. Sustainable actions with intentional consequences. 

Price exists here and now. It moves in rapid response to supply and demand. A higher price attracts more people and resources to meet that demand. A higher price makes people who want that problem solved consider alternatives. Our decisions are all relative. 

We have a limited basket to fill, and very different decisions to make. Price averages out our immediate decision making. We do not all pay what something is worth to us. We pay the same. Some get a good deal. Some think it is fair. Some will feel they need to explore options, or uncomfortable but still pay. Others will walk away. 

That process communicates information about where resources “need” to go. A surface level information flow that does not have knowledge of all the behind-the-scenes complexity. Adam Smith’s invisible hand pulling on our tacit knowledge. The stuff we understand, or don’t understand, about our own worlds. That gets expressed through how we engage and what decisions we make. Revealed preference.

How are things connected?

Trees and Fruit

If you are able to build Capital, you have to internalise discipline. Because you *can* spend Capital. If you stop it working. If you turn it into cash. Then consume it. It depends on the story you tell yourself. You can look at money as trees and fruit. You can live off the fruit, but if you start cutting down trees, there is going to come a tipping point where sustainability comes into question. “No Money” will again be the enforcer of discipline. It is analogous to the planet and our natural resources. While we were growing, and while we were living hand-to-mouth, we have not adequately considered the sustainability of our environment. You have to think in a long-term fashion. Normal panic is, “I am not going to be okay at the end of the month.” It is a different type of worry you have when you change the way you look at money. You have to realise when “this is not sustainable”. You might have to change your habits even if you are okay for the next three to five years. Because you are not okay... for ever. And that worries you. That is an important worry to have. One that requires a change in the way you act. 

 

Source of Power

The reason I talk of “building an Engine” rather than saving/investing/capital is because I am a fundamental investor. I believe what you do matters. Wealth creation is not a win-lose tussle to prove how clever you are. It benefits you if others also succeed. I believe long term wealth is created by solving problems for the whole value delivery chain. “A species can only thrive when everything else around it thrives too” points out David Attenborough. It is not an accident that it is easier to make money in rich countries, or if you are randomly born into a rich community. An Engine powers things that don’t necessarily power themselves. Not all good ideas are good business ideas. Equally, some great ideas only happen if they find the money. If they have an Engine. To power good ideas, Engines need to work. Building Engines can set your good ideas free, beyond the narrow constraints of supply and demand that contain money making ideas.

Source of Power

 

In Between

Actions have consequences. Both intended and unintended. The desire to count and maximise has the unintended consequence of undervaluing the future. If you make your decisions by simplifying complexity down to two simple numbers (Return and Risk), the result is a just-watching-your-feet time horizon. The underlying assumption is you will have the opportunity to make a different decision for the next time frame that does consider the future when its turn comes. Aiming for returns of 15-20% would mean anything beyond a 5 to 10-year time horizon almost does not enter your consideration. The most powerful investment forces are space and time. Space between production and consumption. Time between contribution and extraction. Rather than short sprints, thinking with a long timeframe in mind allows you to focus on sustainability and consistency. A long timeframe forces you to think of things that cannot be simplified into numbers.

Observable Universe Logarithmic Map

A Little Extra

How did you do pocket money?

I got pocket money based on age, with increases each birthday. And when I was eight, I got a R8, and when I was nine, I got R9. That was how it worked till inflation kicked in, and then fortunately my parents changed the rule. That gave me an impression of progress. Of ageing, seniority, hierarchy, and annual increases. Older siblings got more (I am not bitter).

My parents would match our savings. If we saved up for something, they would contribute to whatever it was that I was aiming to buy. It is hard to teach compound interest to kids because the time horizons are so short. Compound interest takes a very long period of time. To teach that concept, you need to come up with some sort of game that can amplify the idea that money makes money. That money can have a productive job. That money can grow if you give it time.

Lots of people did not get pocket money. Just like Father Christmas does not give all children presents of equal value. Pocket Money can be a foreign concept. The idea that there would be extra. Many parents are struggling just to survive.

That is going to affect how you see the world.

The Awakening of Father Christmas

Punch, 1891

Rules of the Game

Money is made by being able to clearly identify, articulate, and solve problems for decision makers with money. Solving problems requires skills and knowledge, and that is what we traditionally think of as meritocracy. That is not the whole story. Two key factors besides problem solving, are capital and containers. Capital is fungible. It can be allocated (by a decision maker) to any problem, and is not defined by skills and knowledge. Instead, it acts as a buffer and an engine. A buffer to reduce noise and increase the timeframe for planning (ends hand-to-mouth survival decision making). An engine to fund good ideas that are not good business ideas, and to generate more capital. A container is how you get paid. Once the ideas stop bouncing around, how does money move into your account? When? How much? A container is the reason you solve the problem, and not someone else. A container is the rules of the game. The world as it is now. The barriers to entry. The barriers to exit. Making money is not just about ideas, or skills and knowledge. Problems get solved with capital in containers.

Song Dynasty Football

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

Polis Smous

I started my career in Finance in South Africa and the United Kingdom during two watershed moments. Just after the bursting of the Internet Bubble, and during the cracking of the walls around endowment policies and remuneration of Insurance Sales. Endowment Policies pay a lump sum after a specific term or on death. They combine investment and risk cover. The sales people often were not professional financial advisors giving appropriate advice. They were remunerated up front, in commission. If the client stopped paying their premiums, or another “Polis Smous” (Policy Hawker) convinced them to churn/swap, there were big, indefensible, clawback penalties. The scandal made the environment ripe pickings for “Pure” investment or risk products, and saw a massive professionalisation of the advice industry. Allow time to pass, and even the pure grow and get legacy skeletons in their closet. The constant trade off between starting from scratch, and keeping the good bits of the old way of doing things. As the environment changes, we need to change. The question is whether we are brave enough to be transparent and honest.

Not Two

Yoga means everything is connected. Advaita Vedanta is the name given to the philosophical school and means “Not Two”. Yoga has stories to use as tools for understanding very abstract ideas. We think through contrast and comparison, so it is hard to understand if we only see one thing. The Seven Bhumikas are a way to understand this idea of a “seedless state” through a path of developing knowledge. (1) Longing for truth, (2) right enquiry, (3) stilling of the waves, (4) control of the waves. At that point control can seem magical, and the risk is someone backs themselves as particularly important. It is not about you. The last three stages are about you moving on. (5) Detachment, (6) Knowledge, and (7) Liberation. Your money waves will never still if it just about success and funding your hand-to-mouth consumption. Being more. Being better. If you make money to spend money. If you visualise what you are going to buy with everything you earn. If everything you do is for an expected return. How does your daily practice change if instead of a 1-year or 5-year plan, you are thinking of the 1,000-year plan? 

“virama pratyaya bhyasa purvah samskara seso nyah” Yoga Sutras

“Seedless state is reached when all mental activity ceases and only unmanifested impressions remain in the mind”

Advaita - Not Two

Things that are temporary aren't real

Seen and Unseen

“Drsta nusravika visaya vitrsnasya vasikara samjna vairagyam” Yoga Sutras

"Vairagya, or non-attachment, is that state of consciousness in which the cravings for objects both seen and unseen are controlled by the mastery of will."

Our waves of anxiety don’t deal just with what is in front of us. Worries come from within, from our dreams, and from conscious ideas about what we want, should want, what can happen, what might happen, what we expect, what we expected that didn’t arise, and all the flavours in between. Yogis explain the types of waves through the three Gunas. Tamasic thoughts are the ones that bring us down. Like periods of being unemployed or struggling to find clients. Rajasic thoughts are like periods of being too busy, with no space for self-care or focusing on what is important in the long term, because you are putting out short term fires. Sattvic thoughts are the ones in between. The ones we want to pay attention to. Even though they are also temporary. Thought waves and problems (should) come and go. With changes in the supply of and demand for solutions.

The Eye of a Red-tailed Hawk

Firm Grounding

 “sat u dirgha kala nairantarya satkara sevito drdhabhumih” Yoga Sutras

“Practice becomes firmly grounded on being continued over a long period of time without interruption and with sincere devotion”

I am not a great believer in Saturday Night epiphanies. I worry about Monday. There is no big secret. A lot of what we need to know is freely available. The challenge is embodying the right behaviours and building a daily practice. Not what you do today. What you do day after day. Firm grounding requires time. A long time. The key isn’t whether you can maintain your practice if the conditions are perfect. The key is whether you are able to sustain your practice through the chaos. In the real world. With all its distractions and challenges. Practice and Non-attachment. Solving problems without becoming overwhelmed by them. Epiphanies are more useful when they are the realisation of something that is already there. Has been built up over a long time. Is there to stay. Sustainably.

"Dynamism of a Cyclist" Boccioni (1913)

Trying to capture complexity in a single moment

The Battlefield

 “Tatra sthitau yatno bhyasah” Yoga Sutras

Abhyasa is the continuous effort towards firmly establishing the restraint of thought waves.

Stilling the waves of money anxiety requires developing a sustainable practice over a long period of time. It isn’t about “get rich quick” schemes and easy solutions. One of the main texts in Yoga is the Bhagavad Gita, which tells the story of Arjuna on the Battlefield. The chaos is going nowhere. The practice you develop is to find that point of calm within the struggle. To cope. It isn’t just moments of silence found in practicing meditation, outside of life. The aim is to develop new scripts, habits, actions and reflections that combine to deal with whatever life throws. To have the endurance and resilience to draw from and see through the chaos. Each day. For the long term. With commitment and focus.

Arjuna

Engine and Vehicle

Don’t put good ideas on a pedestal. A good idea is just an intended destination. To get there, you need an Engine (Capital) and a Vehicle (Container). Fundamental Investing recognises that just because something is a good idea doesn’t mean it will be a good investment. A strong company needs a strong Balance Sheet and control of their Cash Flows. Meaning they need to be both solvent and liquid. To survive the long term, their assets need to be worth more than their liabilities. To survive the short term, their liquid assets (easily available) need to be more than their immediate obligations (payable now). A company with assets that are theoretically valuable may be forced to sell them for far less than they are worth if they have short term obligations that are impatient. The same is true for individuals as is true for good businesses. What you do, isn’t the only thing that matters. Your Engine matters. Your Vehicle matters. Step back. It isn’t just activity that counts. Work on the foundations and the environment in which you create meaning. Create space. Create time. Then create.

Good Ideas need Engines and Vehicles