Changing Story

We only have one life, and as we grow older we tell ourselves a story about ourselves. It is hard not to grow attached to the story, and want it to make sense. 

As if we need to explain or justify ourselves, our path, and our identity to others or to typically our harshest critic – ourselves. Most other people don’t care about our stories as much as we think they do. They are too busy beating themselves up about their own. 

Capital on the other hand, is inanimate. It can be allocated to any problem, and can move around the world (if the rules allow) to change shape and form almost instantly to apply itself to different problem-solving. “Permanent Capital” is valuable, because it is sufficiently patient to wait for compounding to kick in rather than seeking short-term returns, but it is still detached enough to be available to move should the need arise. 

Much of our opportunity as people is tied to the lottery of birth, which means our meritocracy has individualized denominators. Our potential is grounded in artificial and temporary constraints. Grounded in biases and boundaries. 

Freedom of movement of goods, services, capital, and people looks to chip away at the weight of those constraints. We should be able to solve problems wherever they are, and have people from wherever they are and whatever their irrelevant constraints are solve them if they want to. 

We can dismantle the illusions that separate opportunity. If you have freedom of movement for Capital, Goods, and Services, but not for people... that has a name. Apartheid. You get areas around the world that are far better at mixing groups so that you don’t have bubbles of wealth.

Moving between illusions of difference

Pay or Ask

Money-making requires friction. Perfect meritocracy would be short-sighted. Could you make money in a world with perfect transparency, perfect replicability, and zero transaction costs? If someone could compete, they would. 

There are almost 8 billion of us. With a rounding error I can ignore, I can confidently say that you wouldn’t have a job in a perfect meritocracy. Neither would I. There is someone who does what you and I do better than we do it. 

Why does the person come to you to get something done if they could do it themselves, or get someone other than you to do it better? Money only functions with constraints. 

Relationships are more fuzzy. Communities are a strong container. Communities have reciprocal respect that help each other be part of their lives. Gradually as we solve more money problems, we will have capacity to lean more deeply into fuzzier worlds, with different rules that don’t bow to counting or constraints. 

Sometimes we like the clarity of paying for something because it releases us from fuzziness. Sometimes it is much cleaner to pay a stranger to do something than ask someone we have a relationship with. That can lead to us leading very isolated lives where we don’t have to have difficult conversations. 

We end up with clear rules of engagement and expectation management, but we don’t lean into the difficult, but interesting world of relying on, or trusting people we don’t, and can’t, fully understand.

The Value of Hiding

Own Silence

A danger with the idea that meritocracy works at an individual level, rather than a hand wavy “life is unfair, but you can progress from where you are” way... is that we can take the decisions people make about *us* too seriously. Whether you get a job. Whether you get a promotion. How big your bonus is. Whether someone recognises and understands the work you are doing. 

The strong temptation is to self-reinforce. To lean into the conspicuous. Separating our identity and the problems we are working on is a hard practice. 

We all want to do well. Which make measures of success feel like they are measuring who we are. Which can be a spiralling, relative, search for recognition. Imposter syndrome means most people are constantly self-judging. 

Aging does help you realise there are no real adults in the room, and everyone is just doing the best they can. Michelle Obama was asked how she managed the stress at being at a table with people that were very impressive. Chief Executives and Presidents are all just people with their own insecuritities. “They are not that smart”, she realised... as a different way of realising that “you are smart enough”. 

Some people get jobs due to connections... marriage, inlaw’s friends, birth, friend of a friend. Some people fake the right skill well to the right person at the right time. 

Even the people who are amazing at their jobs, are also useless at other things. Normal people who sleep, eat, and get confused. We don’t have access to what is going on in other people’s heads. 

Silence can appear like confidence. Our own silence is more raw.

"The Art of Silence" (1911)

Odilon Redon

Wound Up

Numbers are blunt tools for communication. The message they convey is more important to us than the countable thing they are supposed to represent. How a number is heard, interpreted, and felt, can wind us up. How they relate to ranking criteria or how we are judged. 

Key performance indicators to measure us. Seeing what you have done. Seeing what you haven’t done. How the environment has changed. Have you put sufficient effort in? 

Has effort resulted in output? How clever are you? Should you be given more responsibility? Should you be given coaching/mentoring/the boot? All the various ways we use to decide if someone is good enough. 

It is always interesting to see how this is connected to the broader questions, and the broader community. Many problems are solved in complex groups. Wealth creation is a team sport. Attributing who did what, and ranking those contributions, can be an impossible task. One that pretends that contribution = value = reward. 

If you look at the long-term growth of countries' “gross domestic product”, it exploded with the industrial revolution. Newtonesque jumping on the shoulders of giants. 

We tend to look at meritocracy as the marginal contribution of the individual (“if they hadn’t been there”) rather than the hard Tim Minchin truth that “If I didn't have you, someone else would do”. 

Accepting that we are inherently replaceable *in the world of money*. People will miss you, but someone else will do the job. Don’t get wound up the numbers. They don’t represent you.

Empowering the Uncontainable

Meritocracy and conspicuous consumption are dirty dancing partners. Value is personal, and price is a blunt tool for exchange. Price is a way to “put a number on anything”, even if it shouldn’t be boxed in that way. 

Demonstrating your wealth via things you can see can be an attempt to put a price on yourself. To show what you are worth. If you buy the idea that people with more merit, have higher prices, and so in a hand-to-mouth world... consume more. Another way of thinking of money and price is a tool to build the capacity to cope with life. Not about ranking or comparison, but rather about endurance and resilience. 

If you snap the need to (always) listen to price, you can internalise the way you look at value. You are not extracting yourself from life, in all its glory, and with all its challenges. You are building capacity which requires support. You can’t do it alone. 

Wealth is built in containers. We need to recognise our communities, and see how the containers we build exist within bigger containers. Trust in the bigger container is part of Adam Smith’s argument in favour of win-win capitalism versus win-lose mercantilism (battleship diplomacy with nations competing). He was able to show that freedom of movement in capital, goods, services, and people is win-win. 

You need to give things shape and form to make money, but those containers can morph and empower the uncontainable.

Changing Shape and Form

Are or Do

Paul Bloom says people are essentialists. Like Plato, believing that all things have an “essence” that define them. We “are” something. “I am angry” rather than “I am doing anger”. “They are a racist” rather than “they are doing racism”. 

We like the baseball that was hit by Babe Ruth, or the jersey that was worn by Kolisi, Smit, or Pienaar. The value (price?) of the jersey goes up if it wasn’t washed! Like there is a permanent spirit in the object. 

I had a coke can collection growing up that I inherited from my older brother, then expanded. I learnt that if you want a valuable can collection, you had to maintain the integrity of the can, unopened, and in its original state. Wasn’t going to happen... so my collection was just for me. 

We start believing that we can be weighed and measured by our essence. That some people are fundamentally better, with more merit, than others. The toxic view that you can gather data points on people till you can discard them because they are not brilliant outliers. The idea that once you have enough information on a person, you can pass judgement on them and decide if they are good enough. 

My view of privilege is that it is part of endurance. It is building up your ability to endure and strengthen your capacity to absorb challenges. Part of that has nothing to do with you and your essence. 

In stilling your money waves, you have to be aware of the impact you have on others, the benefit you receive from others, and the obligations that you have. Part of stilling waves is realising the waves don’t only affect you.

Inspirational Humanity

We celebrate outliers. Record-breaking and extremes of human achievement. Those being celebrated have a combination of barriers to entry the vast majority cannot possibly overcome, and hopefully... a smidgen of humanity we can relate to. Traits we can learn from. We can recognise the pain etched sharply in the face of a lone cyclist being pursued relentlessly by the peloton. With what we are given, we can apply these lessons and make the most of it.

I like the tough love concept of accepting responsibility and avoiding blame. I also get that part of white, english-speaking, male privilege is that I get treated as an individual and have no one to blame. I am not part of any category of people that is massively disadvantaged. So I have to take responsibility, but only from a strong foundation. That is empowering. If I succeed, I am acknowledged... not my category. If I fail, it is my fault... not my category. I get seen. 

It is true that massive groups of people have disadvantages that swallow their inspirational humanity. We are grappling with how to overcome those structural barriers and see people. How do you see the humanity and potential within people who aren’t breaking records? How do we avoid and unwind the disadvantages of a category becoming so engrained, that the shadows and scars remain even when walls fall and doors open? 

Austrian Mathematician wins Gold

Waves of Life

The vast majority of people, even those earning a lot of money, live hand-to-mouth. One way to view meritocracy is that it shifts capital to where it is working the hardest. Another way to view meritocracy is that people who are "better", deserve to live better lives. That how much you spend should be in line with how much value you add to society. For that to be “true”, people need to spend what they earn, and be paid what they are worth. That is not how capital, money, or price works. 

One of the challenges of building capital is that there are always emergencies. There are always events that can stop you and set you back to zero and hand-to-mouth. 

In Australia, they have famously changed national saving habits and built huge superannuation funds. One of the philosophical questions is whether people should be able to access their retirement savings in emergencies. For proponents of Universal Basic Income, a key question stands around whether lenders should have a claim over those payments. Can you borrow against that guaranteed stream of money?

In the early stages of building capital, the waves of life can destroy any capacity to protect, cultivate, and invest in merit. It is hard to grow capital when it is being harassed. It is hard to see each other when we are living hand-to-mouth. 

Forrest in Forest

My dream when I “stopped working” in 2014 was not to do nothing. I just wanted to not have to think about how what I would do would make money. I also did not like my fate being in other people’s hands. In a pure meritocracy, everyone would line up on a theoretical starting line and the gun would go. In reality, there are plenty of gate keepers to opportunity. There is not a path you choose and then knuckle down and crack on. So washing your hands of that rubbish, and saying “I am done” had incredible appeal. Front loading the effort, then constraining expenses going forward. The problem with that idea is I do see myself as part of others. It does not help if I am not stressed, if others are stressed. Like the scene in Forrest Gump where he runs back into the forest (with one r) to rescue people. The idea of financial independence is an illusion. I celebrated stopping working for money as “Independence Days”, but the problem is we aren’t independent. We are interdependent. So even though I talk of financial security and stilling the waves of money anxiety, the reality is it is a process of practice. The struggle to still the waves will continue. Part of stilling is acceptance and perception. Stillness where you are, not where you are aiming for. Stillness within the chaos, not after the chaos.

 

Necessary Friction

Building wealth is not purely about skills and knowledge. There is not a pure play meritocracy with a completely level playing field. The reality is we all have to eat, and that requires a degree of protection to be able to incentivize investing in skills and knowledge. With 7.7 Billion people on the planet, a pure meritocracy with no barriers would mean almost all of us would have to point out that someone is better than us at what we do. That means building wealth does require some friction. Some boundaries. Something to allow you to build an engine and vehicle completely detached from you. That can support you, and your community, without judgement of their merit. To still the waves of financial anxiety, you cannot constantly be weighing and measuring everyone. There has to be some independent commitment. That requires a level of self-awareness, seeing what your strengths and weaknesses are, what your community is, who your clients are, and understanding the market you are in. Developing skills that do not define you, but are transferable between different problems. 

 

All Animals Are Equal

When the supply of candidates massively outweighs the number of jobs available, work givers have the option of being picky. There is a lot of wiggle room to impose their preferences. In “Thinking Fast and Slow”, Daniel Kahneman talks of how hard it is to convince people that interview processes regularly don’t add value. One tool in the Hubris Factory is to be very selective in hires, and regularly fire people. This gives the illusion of meritocracy. It is very difficult to evaluate this process objectively because you have no long-term, definitive, information on the people you didn’t pick, or the people you let go. The people doing the selecting/letting go are also often not subjected to their own criteria. One of my favourite German words is Geschmacksfrage – a question of taste. You need to detach from job interviews/opportunities. It is hard, because you know you. The interviewer does not (cannot), but will superficially form an opinion to think they do, and to reinforce their belief in their process. You are not your job. You are also not the jobs you did not get. 

 

Work Giver

There are formal skills that are easy to quantify/articulate and are specific to the jobs that require technical knowledge. For those, you just need to know what they are and do the work. There are other less obvious barriers to entry. It is not just about skills and knowledge (“Merit”). It is also about supply and demand. How many people have that ability? Why choose you? If there is an oversupply of people in the area that you are interested in, it is going to be difficult to get those jobs. Not because of you. Because of your choice. Qualitative and subjective filtering processes give lots of wiggle room to those selecting who gets the job. In a world where demand for jobs outweighs the number of jobs on offer, employers become guardians of opportunity. The German word for employer is arbeitgeber – work giver. The employer will be faced with similar supply and demand questions one level up. What is the problem they are solving, and how many other employers are solving it? Do they have the Capital needed to solve the problems? Can they solve the problem in a container with barriers to entry? It is not just about you. It is not just about merit. When building wealth, capital and containers matter. 

The Container Matters

Long Term

Although investing is a long-term game, our working careers are short. 5 years is not a long time. Even 15 years is only just long enough for compounding to start hinting at its magic. In “The Psychology of Money”, Morgan Housel points out that Warren Buffetts' biggest weapon was that he started investing at age 10, and has kept at it without quitting for 80 years and counting. At the time of writing the book, Buffett’s net worth was $84.5 Billion, of which $81.5 Billion had been made since his 65th birthday. Housel’s rough estimate of the size of Buffett’s Engine if he had started at 30 (after enjoying his 20s/setting up home), and stopped at 60 to golf, is $11.9 million. That is a big Engine. But no one would know who he is. 80 years is the number that really matters... and all the small numbers that contributed to the foundation years are the only reason the glory years exist. Merit applied to nothing doesn’t get seen. Conspicuous Merit always builds on deep history. 

Time measured in Ice Ages

 

Surface Waves

Stilling the waves of money anxiety starts small. Like building relief from a storm when you have no shelter. The goal is simply to get dry and warm. If you can build a buffer of three to six months of what you normally spend, you start to create the capacity to make some path-altering decisions. You build a capacity to cope. You increase your control and focus. “You” increase it, but really it is the power of the buffer/capital. It is the same you. Just empowered. Similarly, yogis talk about Siddhis. Siddhis are seemingly supernatural, paranormal, or magical powers obtained through regular practice. In other words, mastery. But they are dangerous. Other people might elevate you and you might start believing that elevation. It is nice getting recognition. And that sets you up for the waves of anxiety to return. Real meritocracy is a call to see the value of people and their connection to each other through the waves. Building buffers and capital to power us without building barriers to divide us.

Stilling the Waves

 

Longing for Truth

There is a perception that if you are earning lots of money, you must have lots of natural talent. So you get respect. This is dangerous. In yoga, they speak of the seven stages of development of wisdom. Wisdom isn’t about skills and knowledge. Even though skills and knowledge, properly contained, is how we create wealth. Wealth itself is what the skills and knowledge get applied to. The problem with a directionality in seeing progress and meritocracy as “more” is privilege. The first of the yogic stages is longing for truth. You understand that you are connected to everything, but you still have work to do. Before you can get all philosophical, there is the stuff you have to do, and there is the stuff you want to do. The stuff of life. The experience of life. There are still actions required, but you have to want to get free from the waves of anxiety. That desire is the directionality worth valuing. 

The Directionality Worth Valuing

Hereditary Entitlement

Meritocracy came in as a response to hereditary wealth. Hereditary entitlement. You had a position or role in your caste or class, and that came from your parents or the money you inherited. Meritocracy was the wild idea that you should hire the best person for the job. Which is the most skillful or the most knowledgeable. You should push resources to where they will have the biggest impact. That provides a path for social mobility, and it allows people to move “up”. If you use that directionality. The problem with meritocracy is that the idea is handicapped by the impact of privilege. Part of our incentives is money, but part of it is we naturally want to invest in the skills and knowledge of our children. We quite reasonably want to give them a competitive advantage. One of the barriers to entry is education. If you give someone education, you implicitly strengthen their barriers and that compounds. So there is a lot of thinking to do about conspicuous meritocracy and the barriers that people have to overcome. If we really want to get resources to where the true merit is. 

Focussed on Up

Losing Focus

There is a conflict between the idea of “leave your ego at the door” and meritocracy. If we believe in a world where the quality of life you can live is determined by your “underlying permanent” skill and knowledge, then constant evaluation of an individual’s fundamental intrinsic worth makes sense. If you believe in Elite teams, then you need to be regularly dividing people into groups that are good enough, and not good enough. The justification for meritocracy is that all boats rise if resources are pushed to those who are the best. Not for spending. For reinvestment. Politics is bound to be brutal and closeted if you pretend to be gods. Ego gets left at the door when it is all hands on deck to find solutions. When someone is confident enough about their place that the focus is on the problems, not the person. If you are surrounded by naked emperors, the focus is likely to be on, smaller things.

Graffiti in Tartu

Hubris Factory

“The real secret to investing is that there is no secret to investing. Every important element of value investing has been made available to the public many times over, beginning in 1934 with the first edition of Security Analysis.” Investing is enticingly easy to monetise. You get cost centres (need money) and profit centres (make money). A good business is one where you have something that is easy to count and communicate. “I’ll grow your money” fits the bill. Pricing is also easy with, “I’ll take a percentage”. The two key elements are good capital allocation (what work the money does) and reversion to mean (prices typically overreact and true normal is less noisy). The downside of all this simplicity is that investing is a hubris factory. The real work gets done by the underlying businesses, but investors often think it is an extension of classroom exam results (which also oversimplify the process of ranking people). An Investor’s entire career of being a rock star can come tumbling down with factual evidence that they have done no better than average. They’ internalise the good times and excuse the bad. The real secret of investing and good businesses is that it is not about you. It is about putting money to work, and reinvesting. Custodianship, not proof of worth.

Decision Makers

Ideally, we would have a very transparent relationship with asking and offering. Money is made by solving problems for decision makers with money. The challenge is making sure everyone is a decision maker. That is a foundation stone for the idea of Universal Basic Income. Information gets lost in central decision making. The more layers there are between where the knowledge lies, and where the power lies, the poorer the decision will be. Central decision makers also rely on concealing information. The true nature of problems. The resources allocated to those problems. This makes it harder for people to develop the skills and knowledge necessary to find solutions. It is hard to ask. It is hard to offer. It is hard to know with clarity what you need to do to help, even if you want to. Part of this is due to trust and communication skills. Being prepared to clumsily iterate through the questions and answers needed to nail what needs doing. Trusting that being open will not bring down the barriers to entry that maintain the illusion of your superiority. Trusting that other people will make different decisions, while respecting yours.

Nailing the Problem