Lights, Camera, Action

Not all money decisions are born equal, even if they have the same price. Price is a photograph of the edges, rather than a movie of the life. The angle, lighting, and perspective of the viewer all have an effect. When money changes hands, it can be to (1) consume, (2) buy, or (3) invest. After consuming, the buyer has nothing, and the money is gone. After buying, the buyer has a passive thing that may or may not hold its value. The money may, or may not, be retrieved. After investing, the buyer has “nothing” but their money is working. If the money does something useful, its price will grow or it will get a stream of income. Passive Things are easier to price. Especially if they are tangible, simple, and with steady supply and demand where the price is confirmed by swapping hands. Investments are based on potential. The work they will do in the future. The price is a quote for a piece of that potential, and gets affected by waves of short-term uncertainty. Long-term investors don’t swap their investments regularly, so the price is distorted to amplify the voice of short-term gamblers. Price is not value. What something does matters significantly more to value. A single frame doesn’t make a movie.

Build Consent

I am not worried about superior Artificial Intelligence competing against humans in Capital Allocation. This is because I don’t believe Capital allocation is a Win-Lose competition. Although it is pitched as a Zero-Sum game, by definition. Performance is measured relative to the average, so outperformance and underperformance add up to zero. Unless you are an active trader (which allows you to be outplayed), you are an owner of a slice of a real underlying business. This means nothing other than the performance of the business determines your long-term success. If you are never a forced seller. What really matters is the absolute rather than the relative performance. That can be Win-Win with the necessary self-discipline. The number one rule of investing is never be a forced buyer or seller. You do that by building breathing space. Build Buffers. Build the ability to say the words Yes and No with enthusiastic confidence and choice. Build Consent.

What is going on?

British East India Company

Before Capitalism, under Mercantilism, the lines were blurred between Companies and the State in the same way as they were blurred between the Church and the State. Given a Charter, a Company could raise an army and make laws. The British East India Company ruled India from 1757-1858. Things changed. Now there are concepts like Public Equity and Multi-National Companies. Public Equity democratises ownership. Shares of listed Companies are traded freely and can be bought and sold by people who aren’t Citizens of one competing tribe. Multi-National Companies have employees, customers, and owners, from all over the world. Stock Markets allow customers to own shares in the companies that make the products that they buy. You don’t “play” the market. You can invest in a real company, doing real things, for real people. The heart of Fundamental Investing is the question, “what is really going on?”.

Amsterdam Stock Exchange

Magic Trick

Price is not value. Value is deeply personal and qualitative. Markets are a crude but effective way of admitting that value is too complex to put a number on. Complex and with a split personality. The exact same object or service has different value depending on how it is perceived, and who consumes or looks after it. Price is a simple magic trick. Through the act of exchange, and with full information, value can be created. If the buyer believes that the thing or service is worth more than the money, and the seller believes it is worth less. Both can be correct. Of course, if either is manipulated and feels different “on Monday” then it is wealth extraction. But if an honest relationship building exchange takes place, then both parties win. Price is just a clearing mechanism. A way of shifting things around. Money isn’t a thing. It is a lubricant to release value.

Magic

Bottom-up Who

Adam Smith favoured local market exchanges because of Tacit Knowledge. Explaining our needs and wants is difficult. Conveying that information up a chain of command without it breaking even harder. When problems are scaled, they are also abstracted. We use categories and prejudices to create theoretical ideas of who people are, and what they want. The best way to find out what someone wants is to ask. Not in a survey. Not even in a direct question. Ask by being part of the community. Honesty is time spent. Instead of decisions being made in a board room, based on crude scribbles and interpretations… bottom-up decisions release information. To create value from the bottom up, you don’t need to have all the information. You just need two parties and an agreement. All businesses start with a who. Who starts at the bottom. With a name, a face, individuality, and relationships. 

Beware Central Decisions

Tianjin

When Britain made South Africa a country by force, each of the preceding countries bar Natal (which got cash) was given a Capital. SA has three Capitals... Pretoria is where the Executive sits, Bloemfontein where the Judiciary sits, and Parliament is in Cape Town. Pretoria and Johannesburg are not the same city... but you wouldn't know it on the 60km drive. In China, Beijing is the Capital but just 130km away is Tianjin - also one of the biggest cities in the world with over 15 million people. In 1856, officials suspected a ship was engaged in piracy and dealing opium. They boarded and arrested 12 men. In response the British and French sent gunboats. The resulting "Opium Wars" allowed Britain to continue trading, but according to their rules rather than those of local authorities. Along with opening up to trade, the city also has numerous European style buildings in the concession areas. Architectural reminders of their rule in the form of Churches and Villas.

Church of Our Lady's Victory - 1869

Guangzhou

Guangzhou has a 2,200 year history as a Silk Road port. What we think of as "The Age of Discovery" is analogous to an undergraduate University student discovering a philosopher or book they like, and thinking no one else has (literally) every read it. Cities and Ports are always evolving. Domestic (Chinese) migrants from other provinces make up about 40% of Guangzhou's 14-25 million strong population (depending on where you mark the city's edge). Until the Opium Wars forced the opening of other points, it was a single point of entry for most foreign traders. "Canton" derived from Cantão, which was a muddling Portuguese pronunciation of Guangdong (The Province which Guangzhou is the Capital of). Muslim conquests sacked and held the city for a century from 758. Following that, foreign trade came in an out of favour depending on the Emperor. Legal Trade was often restricted to tribute delegations. Eventually, around the 17th century, when the Portuguese became regulars, they were permitted to warehouse their goods at Macau instead of Guangzhou itself. Trade increased under the Canton System as the city gradually became a centre of Global Trade. 

City Montage

Mumbai

Some people get Microwave Ovens as wedding gifts. Bombaim means good little Bay in Portuguese. In 1661, Charles II of England was given the seven islands of Bombay, when he married the daughter of the King of Portugal. The indigenous people of the islands were the Koli. Places became the personal property of Monarchs. Never mind who lived there. The King leased the islands (which then had a population of around 10,000 people) to the East India Company. Major roads, railways, and reclamation projects transformed Bombay into a significant port on the Arabian Sea. Economic and Educational development lead to the City becoming a central point in the Indian Independence Movement. In 1995, the City was renamed Mumbai. Mumbadevi is the patron goddess of the Koli people. It is now one of the top ten centres of global financial flows, generating more than 6% of India's GDP. The business opportunities attract migrants from all over India (more Continent than Country with a population of 1.3 Billion) making Mumbai a melting pot like many Global Cities around the world. It now has a population of between 12 and 21 million people, depending on the boundaries you believe in.

Mumba Devi Temple

Shanghai

Four Cities in China have the same rank as Provinces - Tianjin, Beijing, Chongqing, and Shanghai. Shanghai has a population of about 24 million people, roughly the same as Australia. The City was one of five treaty ports forced to open to foreign trade after the British victory over China in the first Opium War. European tastes for silk, porcelain, and tea caused one-sided trade imbalances. Chinese Officials weren't keen to even the scales with Opium. Gunboats forced the issue. The City then flourished as a centre of commerce. It has now become a showpiece for the booming Chinese Economy. Shang means upon, and Hai, means sea. Ports have for a long time being where the best and worst of us clash.

Pudong, Shanghai (2010)

A reclaimed swampland

Capitalism

Absolute Poverty has massively decreased 

as the world has become Richer

Words tend to mean different things to different groups. We end up missing each other when we are talking, because despite using the same words, we aren't talking about the same things. Capitalism is one of those words that gets used very loosely. For me, Capitalism was the alternative to Mercantilism. Under Mercantilism, 'The People' was represented by a centrally planned state, and wealth was taken and hoarded by force. Adam Smith suggested (1) local people are better decision makers than committees, and (2) trade could be win-win. Instead of taking wealth, you could make wealth. Wealth, in the form of capital, could be reinvested rather than hoarded. It could grow. It could continue to serve in the form of factories or other productive assets, rather than big piles of jewelry and large houses. Wealth can work.  To me, Capitalism has been a major force in the destruction of poverty. Building Capital can free Labour - through Personal Engines, Community Wealth Funds, and Sovereign Wealth Funds.

Adam Smith

Trade

When you trade (swap things), or have a trade (do tasks), the rules of supply and demand are pretty clear. Markets work best when there is a countable thing involved. They work best when there are enough competitors to keep each other honest. They work best when the barriers to entry are low enough, that new competitors can reduce excessive profits. When regulation protects the stakeholders rather than those big enough to afford the paperwork to comply. They work best when barriers to exit are low enough, so sunk costs don't trap you in a business that should really die. As economies shift away from manufacturing to the knowledge and service industries, it gets much more complicated, ambiguous and random. It boils down to storytelling. If you tell a good story that connects to an individual, all the other rules fall away. That makes me uncomfortable in an unconnected world without the constraints of permanent relationships. The clarity of a trade is very appealing.

Storytelling

Natal

Os portugueses foram os primeiros europeus a explorar o litoral da África do Sul. Tendo desistido de séculos de cruzadas, o mar oferecia uma rota comercial alternativa ao Oriente. Essa foi a justificativa comercial. Parte da justificação religiosa foi Preste John - um mítico rei cristão, isolado do mundo cristão pelos muçulmanos vitoriosos. Bartolomeu Dias foi o primeiro europeu a navegar pela costa, mas os portugueses não marcaram presença. Angola e Moçambique mais tarde se tornaram o foco português. Eu cresci em Durban, Kwa-Zulu Natal. 'Natal' fornecendo um lembrete da conexão portuguesa. O comércio com os portugueses em Mombasa enriqueceu o fundador da Nação Zulu - Shaka. Como Portugal, a Grã-Bretanha é relativamente pequena. As histórias coloniais são diferentes. A corte portuguesa mudou-se para o Brasil em 1807. No século XIX, a Grã-Bretanha dominou as ondas e Portugal voltou a ser pequeno.

A Família Real embarca para o Brasil

Knowledge Work

When you dig holes, it is easy to see what you have done. It is easy for others to see what you have done. Machines can dig holes. We can quantify that work. When you listen, understand, speak, read and write... tracking progress is much harder. Machines can't do that that well... yet. We can't quantify that work. Unless by number of words, number of views, or resultant countable actions taken. You can't count the depth of relationships and understanding. Adam Smith recognised this as a constraint when he argued for markets to pull through the 'Tacit Knowledge' we have. We may not be able to explain stuff, but if you push decision making down to those with the knowledge... we don't need to explain. Explaining takes time. The best way to explain something to someone, is to take them on the journey with you. The best explanation is time. The problem is, we are all on different journeys. The solution is trust and empowerment. 

Bordered Tongues

A pet-peeve of a lot of South Africans, including myself, is when people speak of Africa as if it is one country, or one place separate from the rest of the world. Africa is HUGE. The distance from Tunis on the Mediterranean coast to Cape Town on the Southern Tip is about 8,000 km as the crow flies. That is about the same distance as Amsterdam to Beijing. If you have visited Beijing, you haven't visited Amsterdam. If you have visited Tunis, you haven't visited Cape Town.

The problem is this peeve also works both ways. A friend of mine is working on a project where a lot of business is done in Africa. That is the corporate definition of their area of interest. When he joins conference calls, they will often switch from Arabic to French. Neither of these will be their local language, but they will speak both fluently. My friend speaks neither, so then asks (slightly embarrassed) for them to swap to English. Again, fluently.

Swahili is the widest spoken African language. As Arabic and Persian traders started dealing with Africa a trading language was needed. For the equivalent of my friends business meetings - but a long time ago. It was originally written in Arabic Script. While it is now the first language of about 3-15 million people, it is spoken by about 100 million people.

My friend has started French lessons. Many non-English first language Europeans are adept at picking up new tongues, and training their ears to understand variations. This is like the many skillful linguists in South Africa which has 11 official languages. The 'borders' of these official languages were artificially created as languages were built up as one of the blocks of Nation States.

The reality is that language is as full of flavour as people. People don't stay still and don't fit into categories. To truly see, and hear, people... language needs to go back to the kitchen. Adding to your vocabulary can't stop once you have 'finished' mastering your home tongue. Your tongue needs to move with you.

A (small) start is saying someone's name the way they want to be greeted - rather than giving them a name that doesn't need any effort from you.

Language Families

United Arab Emirates

The southern coast of the Persian Gulf was known as the 'Pirate Coast' - although the ruler of Sharjah wrote a book in 1986 entitled 'The Myth of Arab Piracy in the Gulf'. Pearling was a major industry. Some would also make a living by harassing British flagged ships from the 17th to the 19th century. For 150 years, the local rulers had a treaty with Britain as the Trucial States. Britain was expected to protect their authority in exchange for exclusivity rights. The invention of cultured pearls wiped out the industry, but oil finds in Persia (1908) and Mesopotamia (1927) led to eventually successful exploration which changed the game. The first successful boreholes struck black gold in Abu Dhabi in 1950. The Suez Crisis of 1956 is arguably the last time Britain flexed its global authority, and it ended up with a bloody nose. In 1968, unable to afford being a global policeman, Britain decided to withdraw all troops east of Aden. This led to unity negotiations and in 1971, six emirates joined to form the single country of the United Arab Emirates. Each Emirate is governed by an absolute monarch, and one (traditionally the Emir of Abu Dhabi) is selected as President.

Burj Khalifa

World's Tallest Man Made Structure

Tonga

The Lapita were seafarers who lived around 3,000 years ago, exploring islands hundreds of miles apart. Tonga is made up of 169 islands, with 36 of them inhabited. Tongan is a Polynesian language closely connected to that spoken in Hawaii (an 18-hour flight away). The first Europeans visited in 1616 with a brief trading visit from a Dutch vessel. Sovereignty was never given to a foreign power, but it did have 'protected state' status from the United Kingdom from 1900 till 1970. It was only united as a Kingdom in 1845, and (with the help of a missionary) declared a Constitutional Monarchy in 1875 adopting the western royal style. It is the only Pacific nation to maintain its Monarchical government.

Lapita Pottery

Solomon Islands

The Berlin Conference of 1884 regulated European colonisation and trade in Africa. New Imperialism rose on the back of newly industrialised nations Germany and Japan. 'New' imperialism because the first wave between C15th and early C19th focused on the Americas, after 'losing' the Old World conflict to Muslim powers which barred the path east and into North Africa. The "Civilising Mission" religious justification combined with trade wars between European powers. Instead of just ports, the conference required "effective occupation". Germany, being a new power, insisted that no European state could have a hand-wavy 'claim' without strong and effective political control. 

This concept extended beyond Africa in the new attempt to "fill the gaps". Instead of the commercial venture before, it became a 'moon-landing' style pissing contest. In 1893, Britain defined its area of interest in the Solomon islands. It was declared a British Protectorate. A protectorate was a de-facto colony, but used a chosen pre-existing native state as an agent of indirect rule. Sometimes the Protected State, didn't actually agree to the protection, and sometimes the additional foreign muscle bolstered dubious local claims. The Solomon Islands gained independence in the post-World War II wave of self-determination. This was added to the increased cost of administering colonies becoming evident after the 1973 oil shocks. Again, a commercial decision, with a convenient justification. Independence came in 1978, with Queen Elizabeth II remaining the Constitutional Monarch.

Solomon Island Warriors - 1895

Singapore

When 'Greece' fell to Rome, it wasn't an Empire but a bunch of independent city-states who did things differently. The Greek peninsula first came under Roman rule after the fall of Corinth in 146 BC. Roman culture was heavily influenced by the Greeks. Western Rome fell to the Barbarian tribes of the North in 476. Like the Greeks, the Germanic people were part of independent tribes rather than an Empire. In the year 800, King Charlemagne (of the Franks - a collection of Germanic people) revived the Imperial idea and started the Holy Roman Empire. Barbarian culture was heavily influenced by the Romans. Singapore is one of the few modern City States. Ironically, so is the Vatican City. Singapore was a colonial trading post of the British East India Company, and later part of the British Raj. In 1963, it federated with other former British territories to form Malaysia. Ideological difference saw it become a separate sovereign nation in 1965. The country took commerce, finance, and transport by the scruff of the neck and today has the 3rd highest GDP per capita of any sovereign nation (not based on natural resources).

1825 - Singapore Free Port

Samoa

Unlike other islands which were colonised and the populations replaced, the Samoan people's ancestors reached their country about 3,500 years ago. Only a small minority are not indigenous. In most countries, that is the other way around. People tend to wander. Including Samoans! The island group, including American Samoa (still part of the US) were known as the "Navigator Islands" because of their seafaring skills. Although Europeans visited from 1722, contact was limited until 1830s when English missionaries and traders began arriving. Germany, the United States and Britain started backing military efforts to support their respective business interests. Backing different local groups, there was an eight-year Civil War (1886-1894). A proxy for war between colonial powers. In 1899, all three sent warships resulting in the Somoas being divided between Germany and the US. Britain backed off in exchange for Tonga. New Zealand took over after World War I, and independence came (for what was known as Western Samoa until 1997) in 1962.

Samoa v South Africa

(2007)

Saint Vincent

The 'Black Caribs' were a mix of native Carib people and West African slaves who escaped from Spanish shipwrecks and other slave islands. The Caribs aggressively managed to hold off European settlement of Saint Vincent until 1719. Some of the refugees were enslaved by the Caribs themselves, some became part of the community, some set up their own community. The First Carib War (1769-1773) saw initial success by the Black Caribs supported by the French. The British launch a full-scale attempt to subjugate the island, but it eventually resulted in a stalemate. The Second Carib War (1795-1797) again pitted the British against a coalition of runaway slaves, Black Caribs, and French Revolutionary advisers (The French had briefly taken control during the American Revolutionary Wars). Again initial success was met with a major intervention. The defeated natives were deported to the island of Roatán (65 kilometres off the coast of modern-day Honduras). 

Saint Vincent and the Grenadines