Funded Abundance

We all need to eat. To eat, we need money. To get money, we need to be paid. One of the fundamental parts of getting paid is the container. The shape and form that holds what it is you offer. 

Without constraints, an offer is a gift. That is because we don’t get paid based on the stable, known, countable, intrinsic value of what we do. We get paid based on supply and demand. We get paid based on scarcity. If something is incredibly valuable AND plentiful, it will have a low price – water, oxygen, love. 

It is possible to free yourself from the constraints of what makes money. If something/someone else makes money for you. You can be born rich. You can marry into money. You can surround yourself with rich generous friends. You can be born in the right country. You can have significant natural skills that set you apart. 

Otherwise, you just need to listen deeply to the signals given by price. What are people paying for? In what containers? How do you develop the skills and knowledge in those containers? It sounds cold, and in some ways it is. 

You start where you are, and you work to release yourself from constraints that don’t work for you. Chipping away with small, achievable goals that add up. Gradually building capacity for abundance funded by scarcity.

Shape and Form

Income and Spending

Plan for things not going according to plan. Start with space. In monetary terms, that boils down to what your income is and what your spending is. In London Underground terms, mind the gap! There needs to be a gap between the two. 

A decent goal is building up to three to six months of what you normally spend in a month. Then you will be able to absord months that are not normal. You can expect unexpected expenses. 

You don’t know when, if, and how much they will be... but that doesn’t mean they need to be the boss of you. If something really big happens, it also buys you some time to adjust the plan. This creates the capacity for life-long learning rather than picking a path and sticking to it doggedly. 

Money is made through the supply and demand of skills and knowledge in containers. Supply and demand change. Once you have picked a path, something might happen that changes everything. You study IT and graduate as the Internet Bubble bursts. You study medicine in Holland, and so do all the smart kids, and then there are too many Dutch Doctors. The world is dynamic. 

You don’t get paid because of what you can do. You get paid because of what people need done, and how many options they have to get it done. 

Price is not value. Change price INTO value. Your value. By listening and responding to price, so that eventually you have the capital not to have to. A gap between your income and spending buys some time to do things at your pace.

Moving Underground

Nothing Else Matters

It isn’t only the idea that matters. It isn’t only your merit that matters. Liquidity (enough to cover immediate needs) and Solvency (you have more than you owe) are cornerstones that carry anything with potential value through the chaos. 

Liquidity recognises that the short-term can swamp and swallow true value. If you think of true value as what would happen if everything went according to plan, and everyone saw the world as you do. 

Solvency is what lets you carry on carrying on, for a chunky period of time. 

If you aren’t being creative in the long-run... Liquidity and Solvency won’t save you. What they do do, is prevent you from being forced to make decisions. 

If “No” is not an option you have, the forces of supply and demand will eat you alive. Desperation is blood in the water to sharks. If you have to buy, at any price, the price will go up. If you have to sell, at any price, the price will go down. 

Value is almost meaningless in a pressure cooker. If one thing is so important, that nothing else matters... you won’t be able to see, hear, or feel anything else.

Shark's Eye

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?

Blunt Tool

Money-making is not driven by fixed and knowable value and worth. Value and worth are deeply personal. We use money to communicate our conspicuous needs bluntly through supply and demand of resources. 

The price will be highest where the demand for those resources is not being met. Price (for solving) and cost (to solve) are signals attracting and repelling focus of those who are looking to identify quantifiable, measurable, rankable, prioritizable, manageable, solveable (monetizable) problems. 

Separate your identity (who you are at the core), and how you measure value, from the market. Create space. Use the market as a tool to internalize value it knows nothing about. Transform what you create into what you value. Use the strengths of the market to power where it is weak. To take the energy that can fire your endurance, and build your resilience, in the way you work with the market. Do not take it too seriously. You are the one creating meaning in the way you want to create meaning. 

See beyond the superficial. What we do matters. Actions have consequences. Fundamental investing is about looking beyond the smoke and mirrors to get a sense of what is really being done. What problems are being solved? Is the problem being solved scarce and worth focusing on in the monetary world? A deep acceptance of the problems others are communicating, so that you can free your attention for the things that are more qualitative and important to you.

Use and develop the tools available

More Jam

There is a constant wrestle between price (a number) and value (qualitative and dynamic). Not everything that has value can be counted, and yet we are trying to build and grow. 

We measure ourselves through change. Often we rely on change to bring awareness of value. Change gives us a sense of direction. Adding contrast. Allowing us to tell ourselves a story. Of the past, and of the future, and how they differ. 

Why does a Jam Factory make money? Because it makes Jam. If you reinvest some of the difference between how much you sold the Jam for, and how much it cost to make, you can make more Jam next year. Expand the factory. Count more jars of Jam. Buy bigger machines. Hire more people. Use more supplies. Then it makes sense if in 20 years time the Jam factory is worth more. It produces countably more Jam. That is fundamental investing. 

What happens with speculation is the same thing has a higher price. Not because of any countable growth. Often just because of supply and demand. The same house may cost more, simply because we are not building enough houses, we are lending people money to buy houses, and more people want houses. 

You cannot treat homes as an “investment”, *and* something you want to become more affordable over time.

Patterns and Work

Trading is sensing the patterns. It is like poker where you are playing against another person. Attempting to go with the momentum when the price is going up, and not be exposed when it is going down. Playing off the rhythms. The natural feast and famine cycle. 

If you have got a sense that there is a long-term, stable price, then you get an understanding of how buyers and sellers move around that. You are juggling supply and demand, and playing both sides. Good or bad, this too will pass. "Buy when the price is low and sell when the price is high". Be a supplier when there is scarcity, and store up when there is abundance. 

You have to have a sense that there is a long-term price, but you don't really care what the thing is. You are making money by playing off the relationship between price and long-term value. 

If you are really brave, you can trade something where the long-term price is zero. Where there is no value, there are just people willing to buy. Until there aren’t. Trading musical chairs. 

With investing, you are not dependent on a buyer of the vehicle until/unless you sell... you are dependent on what work the vehicle does. Trading is about the patterns, investing is about the work.

Natural Rhythms

Enough to go Around

If you tie your identity and incentives to your job and pay, the stress and shocks of money will drive your anxiety. Hunter-Gatherers may have also lived hand-to-mouth, but that is a false analogy because they were living off the land (a form of capital which produced opportunity). They had the option of moving in tough times. We live in containers which restrict our movement (countries, job qualifications) and do not all have the option of a menu of skills which provide almost certain payback if mastered (hunting and gathering). 

Modern hand-to-mouth living means spending all you earn, without the option of earning more if that is not enough. When there is more than enough, simply consuming it. Adjusting spending up if income rises. The trick is to slowly separate from that. To see value in things that are abundant, and put your money to work solving scarcity. “Democratic Goods” are things where there is sufficient supply that everyone who wants it, can have it... at a reasonable price. 

Price surges when there is not enough to go around. Price surges when we borrow to buy at a price we can’t afford... because there is not enough to go around. If you can find and see value in things where there is sustainably enough to go around, you can detach from the relentless stresses and violent shocks of scarcity. 

Gathering Honey

Understanding your Constraints

A competitive advantage is not the thing you are good at. It is the barrier that stops other people from being good at it. A competitive advantage is not the value. It is the container. It is a given that you need skills and knowledge, but you get paid for the box. 

You get paid because of the limits of supply. You do not get paid for things that are plentiful. The barrier is what makes it hard to do. It may be some intrinsic ability that only a few people have. They won the lottery of birth. Whether genetic, geographic, or familial. It does not matter if I want to run as fast as Wayde van Niekerk. It does not matter how hard I train in that attempt. It will not happen. 

It is not true that you can do anything you put your mind to (unless you just want to do it in your mind). We are born with constraints. You need to understand those limits, and how the world works. Then push them. Shift them. Break them. Or find your meaning within them. Not everyone can be Roger Federer, Simone Biles, or Caster Semenya. Not everyone can be you.

World Class Athlete

Obstacles and Barriers

Formal studies are not solely about skills and knowledge. We live in a world where that is largely available for free. I heard about email and the internet for the first time as a 14-year-old from my Maths teacher who had visited the United States. Information flow was starting to burst. 

She was also the one who told me about Actuarial Science. Even though the world is connecting, money is still made in containers with barriers. The way we build the structure is partly through formal education. I broke some of my barriers (the country we are born in) after school by going overseas for the first time. I went to the United Kingdom for two gap years, working as a teaching assistant on a work-travel visa. 

When I came back, I picked something with barriers. I knew there were people who paid people who passed these exams. Jobs that wanted these qualifications. Limited people with those qualifications. I looked at the shop. I saw what the expensive products were. I looked at the cost to put those on the shelf. I went and did the thing that was most tolerably difficult (challenging barriers) with the highest gap between price and cost. Based on my existing set of scarce skills and knowledge. 

That is not the same for everyone. Which is why it paid well. Scarcity pays. Understanding money is partly about understanding and overcoming your obstacles and barriers.

Map of Internet Connections

Releasing Constraints

Building an engine (Capital which can work on your behalf) creates the capacity to stop focusing on yourself as an individual. We all have to eat. Many of us have dependents who rely on us financially. Which unfortunately means we can be seen as productive assets. Valued for the money that consumes the majority of our time. A few get the perfect combination of “what you are good at, what people want, and what you love”. Applying all three filters cuts out a lot of activity. Things you are good at and love, that don’t pay? Things people want, and you love, but you aren’t “good” at? People can get stuck doing things that people want and that they are good at, but they don’t love. Many people can’t pick and choose. They take the opportunities presented, and are too busy being a productive asset and meeting obligations to have capacity to breathe and change path. And life passes them by. If you want to stop seeing yourself as a productive asset, you need to build an engine that replaces your need to earn money. If you need to earn money (as most people do), there will be real world constraints of supply and demand that form the boxes in which we are paid. The hold of those constraints gets released if you can gradually create breathing space. 

 

Live and Work

When I went to work in the UK in 2008, I needed a work visa. I was born in the South African container, and needed permission to work in the British container. The idea of “equal pay for equal work” is a goal, not a truth. We work in containers. Even if the idea of remote work is growing. If we haven’t met the challenge of breaking down the obstacles, then you get paid based on the supply and demand of your barriers to entry. Gender gaps, race gaps, national gaps… rightly or blatantly wrongly, there are plenty of reasons (beyond merit) why people get paid differently if they have different containers. We have work to do to change that. I went to work in the UK, partly to get paid more. The reality too, is that you spend more in areas where you are paid more. Again… supply and demand. The same thing doesn't cost the same everywhere when there is friction. The real key to wealth creation is the gap between spending and earning. I came back to South Africa in December last year and now work at a company (a container) that builds a container (open-architecture platform) for South Africans to invest around the world. Getting our clients money a work visa to work (and grow) overseas, while they live (and grow) in South Africa.

 

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

Picking an Engine

Once you buy into the idea of building an Engine, the how remains. I think of investing as getting my money a job. As a person, you need to pick an advertised role that meets (or stretches) your qualification set. You need to have a CV that describes your education, experience, and fit. You then apply along with other hopeful candidates. Normally there are too many applicants for the job, and the interviewers don’t know you personally. When investing, the dynamics change. You still need to pick a container. A vehicle in which your money can work. There will still be application forms (checking your identity, the source of funds etc.) but now the shoe is on the other foot. There are more people who want to manage your money than there is enough money for them to manage. The vehicle you choose will depend on your investment philosophy, and your relationship with money and uncertainty. You need to pick something that you can commit to (through the noise), but the decision lies with you. 

Gas Engine

 

New World. Old Vines.

 “If South Africa wins, we all win”. Ian Naude was responding to a question about whether he supports young, up-and-coming, winemakers or sees them as competition. Wealth is made in containers around supply and demand, and the temptation is to forget that we exist in bigger containers. Wine containers. South African containers. Global containers. In “The Art of Learning”, Josh Waitzkin talks of a martial arts teacher of his who was very open with what he knew. His belief was that if other people were obsessing over what he was doing, that was to his advantage anyway. The great insight of Adam Smith was that win-win beats the gunboat approach of mercantilism every time. All containers provide is shape and form to our problem solving. They make for clear asks and clear offers. They are a communication tool, but they don’t have to define or separate us, or our learning. Secrecy is lose-lose. Grow the bigger container and we all win.

craft wines that tell a story

Cut the Fat

Price is not value. Daniel Kahneman points out that while we might be intuitive grammarians, with our ears bristling when someone butchers our mother tongue, even those with years of training in statistics are not “intuitive statisticians”. Some truths require slow deliberate thinking rather than rules of thumb. Truths like there are no gods of investing. Investors who will agree “price is not value” will fall foul of this too when talking about “their value”. Everyone likes to believe they are the one that adds the value. That can’t be replaced. That other people can be cut out of the value chain, because other people are the fat. A high price is not an indication of value. It is more likely (1) scarcity, or (2) barriers to entry. An obstacle to creative destruction is that we all need to eat. We all need to get paid. We all need a source of wealth. The only way anyone will be prepared to be made redundant is if we believe we are included in the future that exists on the other side. Money is made by solving problems for decision makers. One of our problems, is that (without capital) we need problems. 

Are you the fat?

 

I See You

Fundamental Investing is the “Sawubona” of investment philosophies. “I see you” is the aim. What you see is not all there is. A business is not just about an idea. It is about what gets done over a significant helping of time. Meritocracy is caveated by the ideas of competitive advantage and barriers to entry. Any idea, whatever its quality, requires Capital to protect it from the waves of chaos, and to feed its growth. Any idea, whatever its quality, exists in an ecosystem of stakeholders (regulators, suppliers, customers, competitors, employees, investors) that force its existence into constant existential evaluation. Resources are limited. We don’t get to do everything. There are tradeoffs. Fundamental Investing is about seeing the potential through the noise of the conspicuous. It is about looking at support structures. It is about doing due diligence on how something exists, not just that it exists.

compound eye of an antartic krill

 

Other People's Numbers

Not all good ideas are good business ideas. Good business ideas require the ability to control supply and demand. To create shape and form around an idea through barriers to entry. Demand is not good enough if supply is a free for all. It is easier to control things when you can reduce them to numbers. Which is why STEM areas (Science, Technology, Engineering, and Maths) typically make better business ideas. They focus on areas that are easier to box into products that can be paid for. A clear ask. A clear offer. Not everything can be boxed. Even good business ideas will be exposed to qualitative questions that cannot be reduced to numbers for comparison. You can force anything into a 1-5 ranking or a Yes/No binary. That is often useful just to force you to think about something, but then you have to avoid being seduced by the numbers. Falling in love with the illusion of control so much that you forget that numbers make better questions than answers. Especially when they are other people’s numbers, and you did not do the work yourself.

Not all Ones and Zeros

One Slice

A share is a slice of ownership in a real underlying business. If someone sells a house, it is quite often also their home. If someone offered an excessively cheeky price, the (still) owner would tell them (the wishful buyer) to get knotted. Unless they had no choice but to sell. You don’t sell slices of your home. You either sell the whole thing (and buy another one), or not at all. With shares, little bits of ownership swap hands, but unless the company is raising more money, it can often crack on with doing whatever it does (largely unaffected). A share price is not the price of the whole company changing hands. It is the last slice to swap hands. It is a quote as a guide for the next person who wants to buy or sell. That is part of why price is not value. If suddenly a whole lot of people are buying, the price will go up. If suddenly they sell, the price will fall. The only way you would see how much the whole company would sell for, and turn into cash… is if the whole business went on sale. And there was a buyer. And cash changed hands. Price is a rough stab value. Real value is what gets done. Sustainably, and into the future. 

The Whole "Cake"

Pick a Box

Wealth is created in boxes. The key challenge once you understand a problem, is understanding the box. The box is so important, that sometimes it is better to start with a box. Pick a box with money in it... then start looking for problems to solve. The box defines the shape and form of supply and demand. The barriers to entry. The barriers to exit. Who makes the rules? Who can compete? Who are you serving? One of the key measures of inequality looks at equality within the primary wealth creation box that we use. Nations. The Gini Coefficient would be 0.00 if everyone had the same, and 1.00 if one person had everything. South Africa is the worst box in the world (estimates of 0.63-0.70) and yet is at the level of the global income Gini coefficient (0.61-0.68). Our biggest box is as bad as our worst box. There are boxes within boxes... but one of the best ways to open opportunity is to chip away at barriers to entry and exit for the four freedoms (Goods, Services, Capital... AND People).