We are all investors
Sometimes it feels that there is too much separation between ‘investors’ and ‘others’ in general consciousness. I would like to argue that there should be no line drawn between investors and everyone else — we are all behaving like investors very often.
When I decide what to do when making any longer term decision, I always spend at least some time thinking about that decision as an investment — will it pay off, will it increase my long term quality of life, or security, or future happiness. Or most often simply future chances to have higher income, which in turn would ensure better life.
And more often than not those decisions have to be weighted against possible alternatives that involve doing less work in short term, or some other trade off. For example — when I accepted job offer that included myself moving from Rīga to Tallinn, trade-off was leaving all the friends and family and having to build up new life in foreign country. Had I not been thinking about this as an investment in my future happiness, I would have chosen short term comfort of familiar environment, known job and no changes.
We all do such trade-offs more or less often during our adult lives. Each can and should be considered to be an investment in our future. And it helps to structure our thoughts in a pragmatic way when making such decisions, otherwise it is all too easy to dismiss any slightly frightening change too fast. However, we are often doing such decisions also lot less consciously, and at lot younger ages.
As a kid I did not need to make many financial decisions, and when I did, then it was mostly about spending lunch money on something other than lunch. Usually on things that mother wouldn't approve of. Any investment decisions I ever made were of different sort — how to spend free time that I had a lot of.
I could have done homework for school or maybe go to some after school activities. I never did any of that. All I did was reading books — science fiction, popular science, adventures, detectives, that sort of thing. And lot of playing, mostly alone.
Doing any school things usually seemed very pointless as it did not feel that school grades can influence my life in any way whatsoever. Any possible impact of outcome was always removed so far in time from the moment of making decision, that it was never taken into account. Any meaningful impact on school decisions was all about teachers or parents being angry if I don’t do something. Which is really not very efficient way of motivating person to do anything involving lot of intellectual effort.
This is the first type of investment all of us do, through all our life. We invest our time and effort into learning.
We should try to bring the benefits of successful investment more apparent for everybody and as young as possible. And words like “it will be good for you” are not enough. It has to be something closer to showing clear correlation between success at various school things and later success in life. Something you can narrow down to the app.
Correlation are of course not causation, but there is still certain truth in the fact that people who drop out of middle school are very very unlikely to build themselves good life. What we need is a simple and constant direct feedback to school kids on what are their probabilities of achieving middle class success based just on statistical average outcomes of people in similar situation.
When person steps into adult life and starts earning some money, then money comes more directly into question. Not yet about financial investing, as in stocks, bonds and pension funds, but just daily choices about what to do with the limited cash that starter job brings in.
When I look years back to the time when I just started working, I remember struggling with such investment decisions daily. Those were the worst parts of my life, as I was constantly failing to do the right thing. Mostly because for any decision all options I could choose to invest were quite bad.
When buying new shoes, I could not afford really good brand as those would cost half of my salary. So instead I had a choice of really bad no-name shoes, that would not likely last for more than a season, or discounted version of the good brand shoes that still seemed to be way over budget for me. Sometimes I bought no-name, sometimes I shelled out some serious cash for better brand. But in both cases shoes were usually dead within a year, and I felt betrayed by a shoemakers and trapped in a world where there is no chance of me wearing something good for prolonged amount of time.
Of course, it was inevitable that even reasonably good shoes were dead after a year, as I had only one pair of shoes, wearing them every day, in all types of weather and, importantly, not really taking good care of them to try and keep them usable longer. Somehow I could never make connection between this bigger investment of buying shoes and small daily maintenance to keep them going longer.
The same story was with most other bigger items I bought. Clothing, furniture, kitchenware — it was either cheap and bad quality, or some sort of good discount offering of better brand, yet it was never the best, as nobody was ever offering their best product with big enough discounts. So it was either bad or medium, never good.
Sometimes I bought something from the ‘good’ category, by using some financing service to lease it over time. It was scary to do that, and often I made bad decision because I just were not used to dealing with more costly items.
Point is — we are making investment decisions daily, regardless of our relative wealth. We always try to get best deal for us in longer term, but so often fail as it feels just impossible to get it. And then we substitute future with some immediate gratification that is at least understandable and predictable. In my case it was often a good book — affordable price (back then they were cheaper, especially in Russian) and predictable effect. And if some book was not very good, I could afford to buy more, it was not like all the bet was put on the single purchase. Though sometimes it was not a book, sometimes it was a bottle of booze and company of friends. Also quite predictable combination of joy. Yet quite short term, when thought of as an investment.
This is one of hardest investment types where to suggest anything. If you are broke, then only reasonable thing is to focus on spending money in the way that boosts other types of investments. Most important here is not to feel down. It is easy to get depressed and start trying to fix it with drinking or something equally destructive. Only way is forward, and that would only be extra roadblock.
And booze with friends is good starting point to talk about third type of investments that we all do. It is social investment. It is well known fact that persons social network can have huge impact on their life outcomes. It can be argued whether it is larger or smaller than talent or education, but it is huge nevertheless.
It is often called ‘social capital’ for a reason. Knowing right people often leads for one to be ‘in the right place in the right time’ and that can make a difference between being smart but poor, and just as smart but striking it rich. Most of the jealous thoughts ‘I could have done the same thing, maybe even better, if anybody would only let me’ boil down to just not being in right place and in right time. And that boils down to just having the right social network.
If you are older, think back, how many of the people you spent your wild youth with have made it? How many of them very actually interesting and smart in the first place and how many very just fun to drink with and maybe good with opposite (or not so opposite) sex? How many of them would you really enjoy having a lunch with, with no party, no sex and no drinking involved?
And if you are a young adult reader (pun intended), then how many of your party friends are people that you can imagine climbing to the top, or at least middle level, in their respective industries? Do they even have any industry? Do they feel entrepreneurial? Or would they be able to specialize in something cool? If answer is — not many, then maybe you are investing your fun time into wrong social network.
Fun can be had also with the people who you will be glad to talk to also twenty years later. And who might lead you to opportunities you can’t even imagine yet.
Do not take it wrongly, it is good to have friends of all possible backgrounds, you do not need only to hang out with some rich successful assholes (which they often are if they are young). But you probably will be better off hanging out with people who you see are making life choices that are leading towards something meaningful.
And one life hack I can share for free — try hanging out with your friends without drinking. If it is still fun and discussions are interesting and engaging, probably they are good people and you will not have much regrets later on. (my dear friend who are reading this— this is not about you)
Learning and social capital is of course pointless without having job or business. Investing yourself in job is another type of investment. If you are an entrepreneur then it blends more with social capital, if you have salary job, then it is more distinct type of investment. But in both cases there still is something special about investment in work.
Every day when we go to work, regardless of what job it is, we make many small choices. Many of those choices can be thought of as an investment.
If we stay later in the office to finish some task, instead of going home, or just put in extra effort, when it would have been more or less fine without doing it, then it is investment into potentially better evaluation, pay or contract later on.
If we learn company specific tools and processes that might have much use outside of it, then we invest ourselves into this particular company and align our future more closely with that company.
If we take an extra step to understand more what other teams, departments and units are doing, then we invest into platform that could propel us into better position over time. Or allow us to pitch our services to other company in a better way.
Don’t get me wrong, it is a constant struggle between such need to invest ourselves into company and various ugly things that tend to hit us daily — be it bad boss, tenuous bureaucracy, strategy that might feel bad or project that seems to never end. All those things and many more tend to show up in everybody's career, multiple times, and usually as a combination to make it worse.
But we must strive to have every month of our work life to have positive net result in terms of investment into growth of our working life. It does pay off.
And fourth type of investment we are all doing is of course big financial investment. I do not classify as an expert in this field and do not want to screw anything up so I will keep it short.
Even if you never have bought any stock/bond/fund/CDO (and I will not give any advise in this front), there are still many large monetary decisions that we do. Buying your home versus renting. Saving some money or spending it all. Leaving your job to start your own business or not.
We are making all of those decisions even if we are not noticing it. And each of those decisions are more complicated than might seem on the surface.
Buying a home gives a nice feeling of actually owning your space and being able to paint walls purple if you wish so. But it also comes with a mortgage, that might be cheaper than a rent now, but if market crashes, then it might become more expensive or even be required to repay early. This risk, however big, needs to be taken into an account. Also people often do not think that buying expensive property might reduce their mobility — if economy goes down, then it is hard to move to another city or country, if you can’t sell or rent out your house. On the other hand — if you own something, when you manage to pay it off, you have place where to live when you are old. Complicated topic.
Saving or spending seems kind of obvious — saving is good and spending is not. On the other hand, if all you do is work and save, and never take a vacation to some nice beachful place, then I might be worried about you burning out and never living long enough to enjoy your savings. There needs to be some balance. But it is very personal — everybody is different in a way they wind down and enjoy their lives.
And leaving the job to start business is one of the hardest topics. On the one hand — if you build nice lifestyle business and enjoy rest of your life as a small business owner and it fulfills your desires and passions. Go for it. Even if you fail, it will be fun. If however you dream of creating next google or facebook and going for the wild venture capital money with your tech startup concept — chances of actually achieving that are minimal. It for sure will be fun, but it will be also exhausting and super hard. And you need to take into account opportunity cost of what you could achieve in the job that brings home steady salary. After all if you manage to become top level manager in Google or Facebook you are likely to see more success as an employee than 90% of successful startup founders.
So, all of those investment ideas are mostly about choices. But you have to give conscious thought when making them. Think about longer term implications of everything you do and you will be able to call yourself a small investor. Even if you have not own a single stock in your life. Good luck!
