Price is not Value

If you earn lots of money, it is not proof you are adding lots of value. Price is not value. Salary is the price of your labour. Capital is the size of your ownership. Dividends are management’s impression of a sustainable payment stream from the business. Rent is for something you have. Nothing to do with your value add. Nothing to do with you. Price is simply a reflection of the balance between supply and demand. If you earn a lot, it means there is an undersupply of the thing you are selling. If you don’t earn much, it means there is an oversupply of what you are selling. Supply doesn’t adjust quickly because of barriers to entry, and barriers to exit. Time to build the Capital. Time to build the necessary skills and knowledge. Time and obstacles to create or overcome the barriers that form the container. Price is not Value. Price is not Value. Price is not Value. You are not your price.

Supply and Demand

Purging

One of a clan of great family friends of mine is getting married in a couple of weeks in New Zealand. It is a long way to go for a short trip, so I am heading off to New Zealand and Australia for two months next Sunday. I figured it would be silly to pay rent for that period and so I am moving out. The last few weeks have seen a brutal purge. I am very conscious of what happens when you put things in storage. There is a strong risk that on the other end you take the stuff out, and then get rid of it. So I have attempted to do up front ridding. We keep a lot of stuff just in case.

 

Not much survived the Purge

Opportunity costs are very difficult to quantify. I mentioned how I have been using ZipCar for the last few years. I am a fan of the idea of renting things as and when we need them. Renting is a much clearer idea of real cost. When we look at the costs of things, we tend to only  look at the explicit price tag. This misses a lot. Imagine a elderly couple who have been running a corner store for years and years. Assume they bought the store when they opened it. Once they have paid it off, they may not consider the rent that they could be getting if they rented the property out. They may also be very content with other non-store earnings and highly value the network of friends they have in the area. The friends may only shop there because of them. Now consider their kids inheriting the store, but not their friendly nature. In considering whether to keep the store going, it would be silly for them to ignore the value of the property and what else it could be used. And whether they had the skills.The real cost is what it would cost them to do it from scratch.

I was kuiering last night with a friend I haven't seen in years. Amongst other things, we were talking about work choices, career paths and goals. One of the choices we have to make is about the amount we need to make in order to 'maintain the standard of living' we are accustomed to. This is a great example of opportunity costs and explicit price tags. Often our thinking doesn't go beyond a salary, how much we spend and how big a positive or negative gap there is between the two. It is certainly the easiest way to think about things and without the space or expertise to look at it differently, we can easily just get on with what we are good at.

I don't claim any expertise on this. I am keen to learn more though. Given flexibility and a ZipApproach, I would like to see how much more control I can have over my standard of living at a much reduced price tag. Part of this has been giving up a flat I have loved renting for the last 6 years. Someone else will get to love it. I also purged much of my DVD and book collection. That was hard. It was like giving up friends. The truth is the movies don't disappear anywhere if I don't have the objects. When I first got my Kindle in 2011, I suspected that books might become more like art. As the world becomes more digital storing up the physical objects that aren't art becomes a large hidden cost. I didn't really give up my friends and charity store guys will have a few more titles to tempt bargain hunters.

 A handful of holdouts - unread books and the best box set ever

Now that I have cut loose, watch out Kiwi and Aussie buddies, ek kom kuier.

Just in Case

I haven't owned a car since arriving in England just over six years ago. This is weird for a South African where car ownership feels like a rite of passage to adulthood. Johannesburg , the largest city, is apparently also the world's largest urban forest. This means it is very spread out and you can't just hop on a tube like you can in London. There are efforts to change that with improved taxis and Rapid Bus Service springing up. In a country with lots of space, it will likely take quite some time to tempt people away from desiring their own wheels. Clearly there are lots of people who can't afford wheels, and their lives are made much more difficult.

An aerial pic of Jozi

When necessary, I have been using ZipCar rather owning a car outright. You rent it when you need it. They are parked all over the city and you get a credit card style 'key' to tap on the windscreen to let you in. The actual keys are in the cubbyhole. The petrol card is on the side of the dashboard and you just need to keep the tank more than a quarter full. You rent it by the half hour. You need density for this sort of thing to work but it is an awesome idea.

I am in the process of moving out of my flat as I am going to be doing a bit of travelling. It amazes me how much stuff you can accumulate. This is crazy since I am not using most of the stuff. Even in moving out, there is a big temptation to put things in storage. I am trying to be aggressive in giving things away. I can see a picture where I store things for a while, then eventually take them out of storage and give them away.

We talk of an 'internet of things' in terms of connectability. Perhaps another way of thinking of it is in terms of reduced waste. I have written a couple of posts on how money isn't actually a thing (Bankers and Poets, Custodian, Mini Me). One of the things money is good at is keeping things working. There aren't piles of cash sitting idly. Even if your money isn't working for you, it is working for someone. You choose who. If your cash is in the bank, the bank is able to lend this out to someone else. If your money is invested in bonds, you are loaning that money to someone else to use. How that borrowed money is used is another story for another time. Whether the banks are too scared to lend the money out or borrowers too uncertain to borrow also becomes an issue. A process, warts and all, is there to keep things moving. Non-financial assets are more static. If you aren't using them, no-one is. That is the stuff that is hoarded.

We store things because of the difficulty of them not being (almost) instantly available when we need them. Whether it is food, cars, clothes, crockery, books or whatever, there is a lot of stuff that doesn't get used. As friction gets smashed by technology, wouldn't it be great if we could slowly decrease the amount of stuff we have just in case.