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

Financing Value

An essential part of the practice of being good with money is being good with your emotions. 

Making money involves being good with other people, through social, emotional, and cultural intelligence. Despite this, these forms of soft skills are often not the things that explicitly and conspicuously make money. 

STEM (Science, Technology, Engineering, and Mathematics) skills are typically easier to monetise because of the direct application to things you count and contain. Acknowledging that good ideas aren’t always good business ideas, isn’t an invitation to ignore social, emotional, and cultural skills. Quite the opposite, it is an invitation to invest in them heavily. 

A yogi is not someone who is completely unruffled. A yogi participates in and is part of the world. Detachment is not exclusion. Unlike in the past where the incredibly wealthy would flaunt gold and palaces, well managed wealth can connect and empower. 

A wealthy person can live a grounded life, with a background engine reinvested in problem solving. Putting capital to work, and labouring on things that are good ideas but hard to monetise. Unpaid work is often priceless, with value that needs to be funded by the priced. 

Detachment becomes that how you make money is how you finance value creation, not how you demonstrate your worth.

Growing in Muddy Waters

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"

Working to See

We can live very different lives, and have such varied values, that massively competing worldviews can lead us to conversations where it becomes clear we are struggling to see what the other person is seeing. If the two sets of decision-making framework have little in common. The two people might even be very close. They may even be in love. Yet they do not see the same thing even when it is in front of them. 

Hello in isiZulu is Sawubona. Directly translated, it is “I see you”. Seeing someone means you are sufficiently interested in them to do the work of understanding the building blocks of how they construct their world. Through curiosity and care, deep relationships gently unpack what words, sentences, tone, chunks of meaning, triggers and backstories, create the exchanges each person has with a shared reality interpreted differently. 

Money is a blunt tool for this. You don’t have to do the work if you measure your respect for someone by how much they charge, get paid, or own. Instead of relationships where people see each other, they can become job descriptions and conspicuous expectations. Mapping life through things you can count. Success as a life CV of achieved milestones... houses, schools, job titles. 

In truth, a really well-lived life might be difficult to express except to the person who walked with you. Except to the person who saw you.

Armenia's Symphony of Stones

Foggy Window

The relationship between price and value is a signal. It is a powerful signal that allows us to communicate with each other. Personal value cannot be expressed in a number. We express it anyway... through decisions and price. 

Our values change. Our bodies change. Our bodies regenerate every 7-10 years with new cells replacing old ones. We learn based on what we experience. Our value set changes based on the evolving relationships and the connections we have to the world. Our interactions evolve with the environment around us. 

The way we communicate is complex. We grapple with issues. We reflect on our past. Heroes rise. Heroes fall. New perspectives raise uncomfortable questions and interpretations of our stories. The relationship between price and personal value becomes a tool in value creation. 

The problem is we set up that communication in a hand-to-mouth way. We, as living evolving stories and bodies, become productive assets tied to blunt price tools. Our egos, sense of respect, and self-worth get tied to “what we will be when we grow up”. Society used to create blunt roles, castes, and classes, providing repugnant clarity. When you were confused about a situation, authority would instruct you. 

Now it is more complicated. We are unpacking, and figuring things out. 

Another blunt tool for self-definition is money. We never earn enough. We want more. Valuable actions that don’t make money, get lost in our ability to communicate if we live very different lives... with money the foggy window between world views.

Unclear Price

Grow or Shrink

The value of a business can be zero. Price can join it there. Now or later. Analysts will attempt to calculate their view of the intrinsic value of a business, and then compare it to the price. Value is dynamic, relative, and personal, and so no estimate of intrinsic value is the “correct” price. 

It is possible to get caught in valuation no man’s land. Seduced by a model of what you think reality should be. Seduced by the impenetrable complexity of your perspective, and how smart that makes you feel. 

Instead, calculating intrinsic value is like doing due diligence on a company you plan to work for. It’s not just about the quality of the job offer. It then matters what work gets done. 

Investors with a quality mindset, will seek out businesses at a reasonable price, but what they are really looking for is what is being done. We tend to undervalue the future, and so it is profitable finding companies that sustainably do something of value and reinvest, creating wealth through a process. 

A good idea is not enough. Those investors will very much consider the strength of the balance sheet of these companies, and the container (barriers to entry) in which value is created. Understanding the barriers that allow winners to keep on winning. 

You don’t have to know what is going to happen in the future. If you don’t pay an excessive price, then the focus shifts to the quality of work being done, and the habit of reinvestment. It is not about outperforming others, or even looking at what they are doing. Not gambling. Not chance. 

If a business creates and reinvests, with a resilient container, it will grow. If it consumes capital, it will shrink.

No Man's Land

Flander's Field, Belgium (1919)

Real Value

Find value in the abundant that is neither contained nor containable. Find value in things that are difficult to monetise. When you want to be paid, provide solutions that are easy to monetise. 

To put a price on something, you need shape and form. To see value, you need to look beyond superficial structure. To see what others don't. To price, you need to simplify into a clear ask and offer. To see value, you need to relax into complexity that may exist beyond words and pictures. 

To make money, you need to listen to the signals of the market, be adjustable, and move with the problems as they arise and are solved. As the situation changes, the useful containers change. Real value is more consistent and dependable than the temporary containers we use. 

We create space for real value by getting spending under control. Carefully choosing the containers we are prepared to pay for. Building internal spending discipline is fundamental to being able to handle the waves of money anxiety. That anxiety comes from placing our value in external containers that are not of our choosing or creation.

Artist: Alex Rennie

See the Value

One of the ways to gain control of your spending is to select where you place value. To find value in the plentiful rather than in the scarce. Spending is often a team sport, and changing your habits can be incredibly difficult. 

Like trying to become more vegetarian in a South African meat-eating culture. It is painless to change habits if the tweak feels better. If it is simple to make vegetarian food, and you enjoy how it tastes, it will be a smoother transition to eating less meat. If you feel like you are punishing yourself and being a martyr because everyone else is eating what you want, and you don’t like what is on your plate, it is going to be incredibly difficult. We get a quota of self-discipline, and if you use it all up in one area, it can explode in another. “Everything in moderation, including moderation”. 

Build changes to behaviour realistically, gradually, and sustainably. Planning is not about epiphanies. Break-through-weekends are followed by Monday alarm clocks and deep soaked patterns. To make real change, see the value in things that you did not before. Tweak your drivers and incentives. Deep, slow, conscious re-programming. The self-imposed limits stop feeling like chains because you experience the world differently. 

“Save more later” is an approach where the goal is not to adjust your spending up if your income goes up, or you get an unexpected boost. Where you snap the sense that life is better if you spend more, and spoil yourself because “you are worth it”. Reward yourself with the abundant. Put your money to work.

Changing Habits

Start with Conversation

Financial Planning starts with a conversation about you and your relationship with money. The goal being to help you understand your risk tolerance and what matters to you. If you want to still the waves of money anxiety, you are building your capacity to deal with complexity, randomness, and ambiguity. 

We do not, and cannot, have a complete understanding of cause and effect. We cannot know in advance what the result will be for each path we pick. If we did, we would all just pick the one that took us to our intended destination. The rules are always changing. You cannot just do exactly what has been done in the past and expect the same result. 

A good conversation about financial planning starts with understanding you as a person, how you see money, what your goals are, and what you value. You do not get paid for taking risk. You get paid for adding value in monetizable areas others have signaled is in short supply. 

Risk tolerance is mainly your ability to adapt, adjust, and accommodate. Like physical strength and flexibility, risk tolerance is something you can build through exercise. 

Then you make money, or your money makes money, by solving problems for decision-makers with money.

Risk and Return

I had failed stuff before, but not academic stuff. When I got to University, I was left dazed and confused on several occasions. Sometimes for time pressure reasons and the sheer volume of work to get through. I was made to fully realise the limits of my academic ability. My mantra getting through was, “This is not Rocket Science. You are not pushing the boundaries of human thought. Other people have done this before.” One idea that I found really problematic coming out of the maths of finance was the oversimplifying of risk to volatility. Volatility is quantifiable. It is how much the average observation, differs from the average of the observations. So, if you know the average, how far “on average” will one of the parts be away from that. It is appealing if you can count something. If you want to believe in a world where you can clearly say return simplifies down to a number, and risk simplifies to a number. Then you can adjust return for risk. Take the level of risk appropriate for your appetite, and you choose the option at that level with the highest reward. Now, that seems beautifully simple. It is just wrong. You don’t get paid for taking risk. You get paid for value added. You don’t get paid for complexity, you get paid for solving things. You don’t get paid for not failing. You get paid for getting to a solution.

 

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?

 

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"

Pay for Work

Money “should” cost something. Interest is the salary of money. A low interest rate environment is a way of artificially providing cheap labourers (cash to invest). It is the same as you get cheap labour in countries where there isn’t enough work (e.g., South Africa now), and have to force people to go to work with hut taxes when there is too much work and not enough labourers (e.g., South Africa during the Bhambatha rebellion of 1906, or Sierra Leone in the Hut Tax War of 1898). The flip side of cheap labour is that those getting paid struggle to survive (actual workers or Gran living off her pension). Cash is low pay work, so the labourer can decide when and where to work or sleep. A bond is lending your labourers for a higher fixed salary. Like getting your money a job. Equity/Stocks are slices of ownership in a real underlying business. Businesses are where the work gets done… with cash, borrowing, salaried workers and the resources from owners. No salary is paid for equity (dividends are the closest they come). If long term value is added, the capital will grow. If long term value is destroyed, the capital will shrink. There is lots of noise, smoke, and mirrors… but in the end, it’s what you do that matters.

"Bauer beim umgraben" Van Gogh

Do Good Work

There is nothing more Free Market than failure. Bail-outs etc. are “third way” interventions where Government steps in. Particularly bad if they only step in when there is failure, and do not share in the up-side. A danger of basing your investment philosophy on a dance around what something is worth, rather than what it does, is that price and value can disconnect massively. It is particularly dangerous if you “bet” more than 100%, or are naked (have a position in something you do not own). You can trade anything with a pulse, the underlying thing does not matter as much as the person (legal or real) you are buying/selling from/to. You can leverage up a horrible asset to make great profits (until things go wrong). Investment is different. A basic principle of fundamental investing is that what you do matters. It is not gambling. It is capital allocation and problem solving. Shifting resources to where they are doing good work, and continuing to do good work over long periods of time. No one can force you to sell if the business is strong enough to carry on doing its work.

Counted and Contained

One of the most important lessons in the world of money is that “Price is not Value”.

We half wish that it was, because of a love for scorecards and a way of measuring progress. If you can measure something, you can control it. People partly love big salaries because it is a conspicuous sign that you are making it in the world. Unfortunately, all a big salary means is that there is an undersupply of the thing that you are providing. Or there are significant barriers to entry. Or there is a lack of transparency. There is a container that creates the ability to earn more, but it is not value. There are lots of valuable things that are abundant. A high price is just an indication of scarcity.

Not everything that counts can be counted and contained. Not all good ideas are good business ideas. Not all good business ideas are good ideas.

Artist: Alex Rennie

False Gods

Money makes money. This allows wealth to compound (the growth also produces), if not everything that is produced is consumed. If some of the fruit is planted, and given the space to grow. This is both powerful and dangerous. Ideally, you want to fail hard and memorably early on, to knock the delusions of grandeur out of you. You do not want to be that false god who complains that the (clean and comfortable) guest room is not up to the standards to which they are accustomed. Because if you do not regularly suffer some misfortune, chances are life will one day smack you hard and repeatedly in the face. Probably when you are managing other peoples’ money. As Mike Tyson said, “Everyone has a plan until they get punched in the mouth”. You cannot just judge yourself on how your path has played out. You cannot judge others without looking in a mirror and reflecting on your potential unwalked paths. We are communal animals, and every path is an alternative reality. One you could have easily been on. The key is not profit making and ego building. It is reinvestment, and building buffers and capacity for whatever punches are thrown.

Nergal Gate in Ninevah

Price is not Value

You can put a price on anything on this. That is why it is a useful communication tool. Because even if you have completely different worldviews, you have this point of connection that is price. You do not need to understand each other. Computers are not sentient, but a string of ones and zeros can convey information that can lead to action. The computers do not understand the underlying reasons, but they know what to do. Price is similar. It literally does not care. It is a tool between two people who care very much. Two people who determine their own value.

The Matrix isn't Reality. Price isn't Value.

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

Biggest Slice

Once you let go of the illusion that price is value, anxiety disappears from selling the pie. If people want pie, and you can get it made at the price offered… it happens. The problem remains in slicing the money after selling the pie. We still live under the illusion that you can attribute everything. That you can say who added the value. That you can say who deserves the biggest slice. We still claim that people are paid based on their value add. They aren’t. It is a combination of politics and power that splits the pie. Containers and Capital. People with barriers. People with capacity. In the absence of markets that simply respond (without barriers) to supply and demand. You can’t count everything that counts. As soon as it isn’t a market and there are barriers… it isn’t a meritocracy. It’s a story.

Understand your Container

Money is made in containers. Price is not value, and there is no reliable hierarchy of skills and knowledge that are more valuable than others. Supply and demand adapts, adjusts, and accommodates. We wouldn’t want a pure meritocracy in a world with 7.5 billion people because there is always someone better. If you are fond of deciding if other people are good enough, be wary of mirrors. Problems don’t always, or normally, get solved by the best problem solver. The essential tools beyond the obvious problem-identification and problem-solving ability are Capital and a Container. Capital allows you to still the financial noise. It ensures you are available to solve problems, whatever they are. Capital builds endurance and resilience. A Container is the way you get paid. It is the friction that gives shape and form to what you do. The barriers to entry and stakeholders in the wider environment. The problem is just one element. As important to understand are the regulators, competitors, substitutes, suppliers, and customers. Understand the container you are in, to build the one you want to be in.

Food Containers