2 >   Value All Your Resources

I was in India, visiting Kolkata to strengthen ties with my company’s textile suppliers there. It was my first experience making that kind of trip. I was wide-eyed and thrilled to be discovering new people and new places so far from home.

I took a car from the airport to my hotel on an undersized, ridiculously crowded road. Bicycles, goats, transport trucks, wooden wagons, and everything in between shared the narrow winding strip of pavement. At first the frequent horn honking seemed uncomfortably rude, until I started to see that it was an essential safety feature. The honking was not chaotic; it was expected communication meant to warn slower travelers on two wheels or two feet that they were about to be passed. I began to understand why driving is a trained profession there, not for the faint of heart.

During my visit I spent one day with a local tour guide. He was officially trained in the history and monuments of the city. He wanted to show me the high points and the tourist attractions, what he knew, and what he was proud of. I had a different goal: to continue to learn about poverty around the world. I wanted to see the daily life of real citizens in the city. Because he couldn’t resist showing me the high points, I obliged. We went from place to place in our air-conditioned car, learning the history of the city.

After a few monument visits and some more persuasive discussion, I prevailed, and we went off the main roads into the alleys and back streets of the city. We saw homeless people sleeping in formerly grand buildings from colonial days. We visited markets with stomach-threatening smells. We stepped into religious places and ceremonies I didn’t understand. We saw skilled artisans working with ceramics in small shops down narrow alleys and corridors.

Perhaps my guide was starting to believe that I honestly did want to see the real city. After all that, he took me to a slum. It was a shantytown along and down the banks of an urban ravine. Much to my surprise, pockets of this shantytown looked decidedly industrial. There were large square bales of something, sorted by color, and stacked beside the road. I saw piles, tin-roofed sorting areas, and people of all ages doing work. My tour guide explained. The people of this slum are recyclers. They separate materials of value from the trash of the city, and sort, clean, and bale them for sale. That’s how they survive.

This glimpse of a way of life in a slum might make you uneasy. It probably should. It raises a lot of questions worth thinking about, and feeling about.

Here’s one thought I took away. I’ll never forget the resourcefulness of those people. They used resources we might not even think of as resources to increase their return on investment of time.

The first time I visited New York City, I took a walk from my hotel near Times Square, all the way down to the financial district in lower Manhattan. I had been intrigued by the workings of financial markets for years, and I had participated in them as a financial investor. I wanted to stand in front of the iconic New York Stock Exchange, the symbolic center of it all. So I did. I stood there and looked at that familiar, pillar-adorned structure, and I felt grateful for access to a system that let me participate, though I had no status, position, or anyone’s permission. I wasn’t sure what else to do there, so I took a selfie with the Wall St. sign, bought some Greek yogurt from a shop around the corner, and walked back to my hotel.

I’m pretty sure the residents of that slum in Kolkata didn’t own any stocks, bonds, or real estate. They certainly weren’t using any fancy hedge fund algorithms. I bet they never had a transaction processed at the New York Stock Exchange. They may not have had bank accounts to store money, or even much cash. We might easily conclude that they had no resources to invest, but we’d be wrong. They had resources, and they were making investment decisions with those resources. They had that land in and around the ravine. They had each other. They had other people’s trash. They used those resources to increase the return on the investment of their time resource from near zero, to enough to survive.

When I talk about investing, I’m referring to something more fundamental than what happens inside the New York Stock Exchange. The Wall Street exchanges, and financial instruments like stocks and bonds, are mechanisms for investing. Investing itself, as a concept, as a practice, is much broader and more basic. Investing existed long before the invention of money. Investing is using resources, of all kinds, to get more of the results you want in the future.

Money is a human invention to make trading and investing resources easier and more efficient. Thanks to money, if I have extra apples, and want some oranges, I don’t have to find someone who has extra oranges and wants apples. Money also transports more easily and stores better than apples and oranges. These features make money a convenient intermediate between one kind of resource and another. We’ve developed ways to trade money for almost anything, and this is a really useful feature of advanced society. Fundamentally, money is a claim on other people’s resources.

Money is the most flexible resource, but it’s not the only resource that matters. The only way to get money in the first place (unless someone gives it to you) is to make effective investment decisions with your other, non-monetary, resources. Time, skills, physical stuff—value all your resources and include them in your intentional investment decisions.

Take Stock of Your Owned Resources

A resource is anything that’s useful to you or someone else. If you get to decide or influence what a useful thing is used for, that thing is part of your resources.

The most straightforward examples of your resources are things you own. If you own a car, it is part of your resources because you get to decide what it is used for. The cash in your wallet is part of your resources for the same reason.

We learn about this as toddlers when we try to grab other kids’ toys. We call it property rights. Law enforcement in developed countries protects, with force if needed, your exclusive right to decide the use of the resources you own. If someone tries to take the cash from your wallet or the car from your driveway and use it the way they want to, they can be arrested, and forced to repay you. By the same token, the lack of protection for property rights is an enormous obstacle to successful investment in many developing countries.

You also own some things that wouldn’t typically be listed on a credit application or a personal financial statement. You own your body, your mind, and everything you’ve learned in your life. You own your time, because you get to decide what to use it for. These are all basic human rights protected by things like constitutions, and they are highly useful resources.

The chart on page 31 shows some more examples of non-financial resources you might own.

(See a longer brainstorm-style list of non-financial, investable resources at www.aardsma.com/investingbook. You can suggest additions there, too.)

Include Your Vast Shared Resources

At the time of this writing, I’m working on training for my private pilot’s license. When I drive to the airport tomorrow I’ll travel over millions of dollars in roads that I don’t own, and I get to use. I’ll walk through a multi-million-dollar airport terminal that I don’t own, and I get to use. I’ll drive in my car that was produced with billions of dollars of car-manufacturing equipment that I don’t own, and I got to use, indirectly, to get a very nice car for much less than a billion dollars.

I’ll taxi the airplane (that I don’t own, and get to use) across millions of dollars of concrete taxiways, and take off on a beautiful 1.2 million-square-foot runway, that I don’t own, and get to use. A flight instructor whom I don’t own (obviously) will use his hundreds of hours of training to assist me. I’ll also be assisted by a national system of radar antennas, control towers, security personnel, and air traffic controllers that costs about $16 billion per year to operate. My cost for using it is zero dollars more than if I don’t use it. And I can use it as much as I want. I guess in some sense that makes me a $16-billionaire.

Shared resources are everywhere. A church’s building, a city library, a mentor’s insights, Google, Wikipedia—we all have access to countless shared resources.

Those last two shared resources are Internet resources. The Internet is a massive shared resource worthy of special mention. Corporations and governments spent billions of dollars creating the Internet by connecting the world over fiber optic cables. None of us own the Internet, and if you are reading this book, you almost certainly get to use it for very little cost to you. The Internet is a resource that makes things possible that simply wouldn’t have worked before, including the businesses I’ve succeeded with. The Internet makes investments in your learning, communication, marketing, digital product delivery, and almost everything else, more efficient and more accessible than ever before.

For thousands of years before you and me, other people invested their time and resources in creating technological advancements and the shared resources of advanced civilization. We all get to use them, as a free inheritance from generations past. If you are alive and breathing in this abundant, modern world, you have access to trillions of dollars in shared resources at little or no cost to you. This is not an exaggeration. How will you put those vast resources to use to produce the results you want in the future?

A fashion entrepreneur and friend of a friend used the shared resources of social media to build his rugged clothing brand from nothing. He used the shared resources of many prior textile and apparel technology inventions to inform and enable his manufacturing process. The sewing machine was essential, for example, and cost my friend nothing in invention effort or patent licensing costs. He used the shared resource of UPS to ship his product to a dispersed customer base, something that wouldn’t have worked 200 years ago. He used the Internet for all kinds of free information about how to manufacture and market his products. He used the shared resource of word-of-mouth advertising to spread the word, and on and on. The shared resources he tapped into to make his brand a success were vastly greater than the owned resources he invested.

Furthermore, most of what he invested wasn’t money. His sense of taste, his energy and insight for marketing, and his time to get it all off the ground were perhaps his biggest investments. If he had included only his bank account when evaluating the resources he could use to start that business, he would have underestimated what he was working with by 99 percent or more.

The same is true for you. Whether you have a lot of cash on hand, or none at all, you have access to abundant investable resources, vastly greater than at any previous time in the history of humanity.

Call Out Fear for What it Is

With so many resources at our disposal, why do we sometimes think and act like we don’t have what we need to make investments in our long term? We talk ourselves into doing nothing with the resources we have by telling ourselves we don’t have enough yet, or we need different resources before we can start investing in the future we want.

Even if you don’t have what you need to build the future you want, you have resources that you can start employing, exchanging, and investing to get the other resources you need.

We all have enough resources to start building our future today. It’s fear, not lack, at work when we dissuade ourselves from taking the reins as active investors of our resources. Fear that we’ll run out of survival essentials. Fear that we’ll fail in front of family and friends. Fear that we won’t get what we want after all, and the heartbreak of trying will be greater than the vague disappointment of lowering our expectations before we even begin. It’s fear that says, “I don’t have what I need to do that, so I can’t start.” Honestly, lack of resources has nothing to do with it.

My friend Will invests in financial markets from his home in Swiss farm country. He also does some work for area goat farmers. These goats have the strength and agility to jump over any fence the farmers could realistically build around their sprawling pastures. Not to worry, though: The farmers have a technique for keeping them in that doesn’t require creating real limitations.

When the goats are young and full of energy, the farmers keep them in a small pen. These goats promptly commence their best attempts to jump out of the pen. Because the fence around this small pen is high, and the goats are still small, they can’t do it. Eventually, they give up. They conclude they don’t have what it takes to jump fences. Once they reach that conclusion, they never try again. The farmers can let them out into the big pastures, with much lower fences. When the goats grow big, they never forget that fences are insurmountable. After all, they tried it 1,000 times already. They spend the rest of their lives “trapped” by fences they could hop right over.

We act a lot like those goats. We learn to see ourselves as helpless. We believe we don’t have what it takes to pursue what we really want. We keep thinking and acting that way, because it protects us from risk, failure, and disappointment. It also “protects” us from taking the actions that will lead to the results we want.

It takes courage to want what you might not get. It’s scary to set your sights on a destination you may never reach. Investing in an uncertain future is risky, and it feels even riskier.

You have abundant resources. Acknowledge your fears, and decide how to use your resources to build your future. Start with what you have, and build it into more.

Actively Decide How to Use Your Resources

Investors are deciders. As an investor, you decide how your resources will be used to produce the results you want in the future. Your resources include your self, your time, everything you own, and the vast shared resources you have access to. With every resource, we choose, consciously or not, how it will be used.

When we don’t make a conscious and intentional decision about how to use a resource, it doesn’t go away, of course, or cease to be used. It may be in storage, or continue to be used the same way it was before. Our time, for example, will be used for something (or nothing) even if we don’t consciously and intentionally decide what to do with it. It’s much easier and more natural to make passive, default, habitual resource decisions than to make conscious, proactive, intentional decisions.

Whether intentionally or by default, when we choose how to use a resource, we are choosing from the following menu of options.

Consume: Trade a Resource for an Experience

When you consume a resource, you trade it for an experience, and do not receive another investable resource in return.

When I burn natural gas in my furnace to heat my house, the resource is consumed. I trade natural gas for the experience of being warm. I don’t receive any resource in return. When I eat food, I trade it for the experience of enjoyable eating, or maybe the experience of staying alive. If I buy new clothes, I trade money for the experience of looking a certain way. If I throw something in the trash, I trade it for the experience of having less clutter around.

It’s not the type of resource used that determines whether a trade is consumption or not. If you receive something investable in return, it’s an exchange. If you don’t, it’s consumption. For a business, an advertising expense intended to be an exchange for new customers can become consumption if no new customers respond. The key question is “What will I receive in return?” If you give something investable in trade for nothing investable, it’s consumption.

Too much consumption can seriously hurt your long-term future, but consumption isn’t always bad. Consumption is a valid and sometimes-necessary resource decision. We’ll look further at the tradeoff between consumption and investment in Chapter 4.

Exchange: Trade One Resource for Another

You can trade time at a job for money, and money at the grocery store for food. You can trade cash for stock in a company, and stock in a company for cash. You can trade time practicing for a new set of skills. You can trade time in conversation or a purchased gift for a stronger bond in a relationship. You can sell something online for cash. You can plant a tree for cleaner air. You can give to causes for a better world.

When you trade a resource for another resource that’s worth more, you grow your resources. This is trading up. In a perfect world, you’d trade up with every trade you make. Reality is uncertain and execution is complex, but the principle is the same.

We all make countless resource trading decisions every day. Right now you are trading your time reading this book for a benefit you hope to receive. It never stops. The power of choice means you get to make those exchanges intentionally, with your future in mind.

Save: Store a Resource for Use at a Later Time

Very often the time when you obtain a resource does not match the best time to put it to use. As investors, we can decide to save and store a resource, for use at a later time.

None of the tools in my garage are being used at this moment, but their value remains. They are being stored for use at a later time. A building contractor might store leftover materials until another job comes up. A bakery might keep cookies and cakes in a display case until they sell. We store food in refrigerators, money in saving accounts, and product inventory in warehouses. We store information on hard drives and in books. We store knowledge and skills in our brains and bodies. Your trusted reputation is a resource stored in the minds and hearts of other people.

In central Illinois, where I live, every town has a grain elevator with tall silos for storing grain. We harvest grain once a year, but feed cattle and eat cornflakes year-round. Storage makes that possible and thereby increases the usefulness of the grain harvest.

Most investment activities require first storing up resources, then deploying them into the new investment. Many investments require a sizable chunk of resources up-front, such as buying a business, creating a product, earning a degree, or building a new relationship. You must store up money, skills, and life resources that allow free time, for example, in order to take on those investments.

An abundant base of stored resources enables you to think and act differently from someone who feels like they barely have enough resources to get by. When you have chosen to save and store resources, you gain confidence, and you open up a lot more options. You can pay in advance if it saves enough to make it worth it. You can make a loan and earn interest instead of paying interest. You can absorb the shock of an unexpected expense without derailing your plans. You can say yes to resource-intensive opportunities when they come along. You’ll be searching for those opportunities, because you want to put your stored resources to good use.

Storage retains value while offering us flexibility about when we use a resource. This simple ability to produce or acquire a resource at one time and use it at another time greatly increases our investment options. This is what makes inventions like food preservation (refrigeration, pasteurization, vacuum packing) and money preservation (banks, investment regulations) and property preservation (security systems, insurance) so valuable. “Use it later” offers myriad more options than “use it now.”

Employ: Use a Resource to Accomplish Something Without Using it Up

A hammer greatly reduces the investment of time required to drive a nail into a 2 × 4. Almost magically, after driving a nail, the hammer gave a valuable return in the form of freed-up time, yet became no less valuable in the process. The laptop I’m using to type this is being neither exchanged nor consumed in the process. A structural engineer’s knowledge is neither exchanged nor consumed when he uses it to design a bridge.

Investing is trading a resource now for something that’s worth more later. The hammer, the laptop, and the engineering knowledge cost less to obtain than the value they can provide over their lifetime. Resources like these, which give value without being used up, can be incredibly valuable long-term investments. This is one of the ways investment decisions grow your resources, almost magically turning a little into a lot more.

Many of our shared resources work this way, too. Wikipedia and the local library add value to our endeavors, and lose no value when we use them more. All kinds of tools, equipment, and information resources can be used to create value without losing their value. We have the choice to trade our time and cash for long-term employable resources like these.

My 13-year-old son earned money last winter shoveling snow for our neighbors. His goal is to purchase a new video game console. The entertainment experience he’ll receive from that video game console is consumption. He will not receive an investable resource in return. He uses a shovel to clear those driveways of snow, and earns about $10 for an hour’s hard work. The other day I suggested he consider delaying his video game consumption so he could trade some of the cash he is earning for a gas-powered snow blower. This investment in an employable snow blower resource would allow him to earn about $50 an hour instead of the $10 an hour he’s making now. The huge increase in productivity would recover his investment in the snow blower within weeks, and provide enough income to purchase 10 video game consoles (or expand his yard care business) this year. As of this writing, he’s still thinking about it.

Lend: Receive Compensation for Temporary Use of a Resource

When you save excess resources and store them, you can usually also lend them at the same time. You can lend extra money to your bank and receive interest as compensation. You can lend an extra house to tenants, and receive rent as compensation. You can lend money to a business by purchasing its stock. (The purchase of stock is both exchanging and lending. You exchange cash for a loan someone else already made.)

When a loan (in the broadest sense) is repaid at a fixed amount of money, we usually call it a loan or a bond. When it’s repaid in a share of profits, we call it equity or stock. Either way you are giving up the use of your resource for a time, in exchange for compensation.

Of course, you’d expect to receive more back then you originally lent. Renting out your extra resources in one way or another is an important avenue to growing your resources.

Borrow: Give Compensation for Temporary Use of a Resource

Borrowing, of course, is the opposite of lending. When you pay for the use of someone else’s stored resources, you are the borrower and they are the lender. They will expect to receive more back than you originally borrowed, making this an easy way to shrink your resources—unless you grow what you borrowed a lot before you return it. We’ll talk more about debt and leverage in Chapter 12.

Action Points

Use all your resources, not just financial instruments like stocks and bonds, to produce the results you want later.

Use both the resources you own and the vast system of shared resources you don’t need to own in order to use.

Confront any fears that hold you back, and get started with the resources you have.

Actively decide the use of each resource: consume, exchange, save, employ, lend, or borrow.

Engage Online

See a reader-contributed list of non-financial resources you might use to reach your goals, or add to it at www.aardsma.com/investingbook.