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The TV cartoon series "The Jetsons" gave us an insight into the transportation of the future. Flying cars darting across the skyline seemed unrealistic but this reality is approaching at an ever-increasing velocity.  Elon Musk is my mobility mentor. Not only were we born in the same country, but his dreams are wild and exaggerated. He has done more to move transportation forward in the last twenty years than any human on the planet. He taught us that electric cars, charged by the energy generated from the tiles on our roof, can be sexy and fast. His Boring Company is looking at developing the Hyperloop that could further revolutionize passenger and freight transportation. In his spare time, he is working towards the democratization of space travel through Space-X. If he has his way, we could see strip malls and McDonald's on Mars sooner than we think. I am fascinated by urban mobility. It is the lifeblood of a city. Trains carry people to and from work. Trucks deliver goods and collect refuse. Cyclists zip in and out of traffic. Pedestrians cross busy streets listening to music and chasing Pokémon. Women fly along the avenues while simultaneously applying mascara, slapping the kids in the back seats and talking to their life coaches on the phone. I lived in Mexico City for fifteen years. It is built on a lake, surrounded by two volcanoes, one of which is active. It is the central point of a country that lies within two seismically active earthquake zones. The Baja California peninsula lies near the boundary of the Pacific Plate and the North American Plate, while southern Mexico lies just north of the boundary between the North American Plate and the Cocos and Rivera tectonic plates.  It has been rocked by 61 earthquakes above 7.0 on the Richter scales since 1776 (a few months before the signing of the United States Declaration of Independence). The population of Mexico City is estimated at 21 million which makes it the second-largest metropolitan area in the western hemisphere after New York. Add to this a collapsing infrastructure, poor air quality, interference from pedestrians, the presence of a wide range of vehicle types and the inherent disregard for traffic regulations (traffic lights are only a suggestion), and it is like watching a Dr. Seuss movie on hallucinogenic drugs. When I first arrived in Mexico City, you could have spotted me from a mile away. I was the only person who stopped at the red traffic light, used turn signals, traveled the speed limit and yielded to oncoming cars. By the time I left, a NASCAR racer would have been terrified to get into the car with me. Not only did 15 years of Mexico City traffic reduce my expected lifespan by 15 years, but it had turned me into a psychopathic driver. Mobility goes to the very heart of the quality of life. The average commute in Mexico City is 3.5 hours which is brutal. The great news, however, is that mobility is on the cusp of dramatic change. In a report issued by McKinsey in collaboration with Bloomberg New Energy Finance, entitled "An Integrated Perspective on the Future of Urban Mobility", they identify key trends in mobility. Six Key Mobility Trends Trend 1: Clean and Minty Fresh In terms of urban passengers, the concentration of people in urban centers and the creation of megacities is increasing the demand for public transportation. The majority of the city buses and coaches are diesel-driven. I travel regularly to Bogota in Colombia where I am continuously amazed by the filth that comes out of their buses. Breathing these fumes is more dangerous than lying flat on your back plugged into a government hospital respirator being attended to by Carlos the Jackal.  A clear effort is being made towards battery-electric buses (BEB) and buses with alternate fuel (hybrid buses) but as in most big cities, change is slow. The biggest barrier is the upfront cost of BEB which typically costs twice as much as diesel-powered buses. Alternatively, the introduction of hybrid buses, either diesel-electric, CNG (converted from diesel), or biofuel-powered, would be much easier as they are not as costly as BEB. Presently, BEBs and hybrid buses are operating mostly in the U.S., Europe, and China. Brazil and India also have started with electric and hybrid public transport. Even though the global bus market is dominated by diesel-powered buses, the demand for BEBs is projected to grow at the fastest rate in the coming years. Trend 2: Smart, Cunning, and Autonomous In heaven, all chefs will be French, all policemen will be British and all drivers will not be Italian. I recall walking along a quiet Roman road a few blocks down from St Peters. A Fiat Cinquecento came flying past. There was the sudden screech of brakes and the noise of metal hubcaps on concrete. The gears meshed into reverse as the car backed up and then proceeded to maneuver into a parking space the size of an Ikea chest of drawers (pre-assembly). In a feat that would have made Houdini proud, the Roman driver was able to engineer his two-seater into the parking spot but not before leaving sizeable dents in the fender of the Skoda parked in front and the Ford Fiesta parked behind. He stormed out of the car and proceeded to add another dent into the door of the Skoda with his Ferragamo adorned foot. If you want to make tons of cash, open a panel beating/body shop business in Rome.  When people say that autonomous driving is pie in the sky, I think back on this story. Even malfunctioning robots could drive better than the Romans. Long haul trucks are pioneering the move to autonomous driving. A few years back, autonomous trucks and buses were not projected to be commercialized before 2025. Some studies also predicted that they would not be commercialized before 2030. Shortages of drivers, high wages, and accidents during long-haul journeys are a few factors that are accelerating the developments in autonomous drive commercial vehicles. This is going to put a dent into the business of roadside hookers – they would be well advised to bone up on their Python (the programming language and not the male anatomy) skills. Ride-hailing player Uber (Otto), Alphabet (Waymo), and few OEMs, such as Peterbilt Trucks and Embark, are working towards autonomous truck technologies. Navya Company, Navy Arma & AAA, Easy Mile, SB Drive, and Auro are the companies focusing on autonomous bus shuttle service. The Singapore government has announced that it is planning to introduce driverless buses on the road from 2022. Nanyang Technological University (Singapore) is already using driverless shuttles at its campus. Pot-smoking students are more dispensable than the general public. If you are an Oliver Stone fan, this trip into the world of truck platooning is going to be pleasurable. An army platoon is made up of a platoon leader and his soldiers. Truck platooning connects the leader to his soldiers employing artificial intelligence and autonomous driving technologies. These technologies will drive the support systems such as adaptive cruise control for speed and lane keep assist for positioning on the road. As in a military operation in the Vietnam jungle, the formation is wrapped tighter than an airport sandwich. The trucks behind take their cue from the leader who is at the front of the formation. These vehicles adapt and learn from the leader with little or no human interaction. This enables longer distances to be covered and addresses the health and safety issues associated with driver fatigue. Trend 3: Sharing is Caring Ride-hailing services have taken off as tree-hugging millennials look for ways to reduce the number of gas belching cars on the road. As at the end of 2019, Uber and Lyft boasted combined market capitalizations of almost $65 billion. The estimated valuation of Didi was $55 billion which takes the combined size of these three players to $120 billion. This is before the coronavirus got hold of them in 2020. Ride-hailing, however, is only part of the picture. One also needs to look at operator car sharing. Zipcar offers a fleet of cars with fixed parking spots that can be rented by the hour. Car2Go offers a floating fleet of cars that can be located on an app and rented for one-way trips within defined city centers. There is also peer-to-peer car sharing which is looking to disrupt the car rental business. EasyCar Club is a peer-to-peer marketplace that matches car owners with renters on an hourly basis. FlightCar allows car owners to rent out their vehicles from airport parking. How cool is that? To pay for airport parking, you need to max out your credit card and take out a second mortgage on your house. Now you can save on parking and generate some income in the process. It is like winning the lottery and discovering a cure for cancer. Finally, there is a peer-to-peer ride sharing. Bla Car matches drivers with passengers for intercity drives. Scoop is an app-based matching of pre-booked commutes with people working in the same area. The next time you are stuck in traffic and you are tempted to rip your brain out of your skull through your eye sockets, take the time to count the number of vehicles containing only one human. I would be surprised if the percentage was below 80. Pooling and sharing is the ticket to reducing the number of cars on the road, getting that traffic flowing and healing the planet. Trend 4: Connectivity – Opiate of the Masses Fear is a powerful motivator. Fifty years ago, top of the list of human fears were large fury spiders, fat slippery snakes, and communism. Today, it is connectivity. When a human is separated from their phone for longer than it takes to draw money from a cash machine, there are clear symptoms. According to WebMD, these symptoms are "racing" heart, feeling weak, faint, or dizzy, tingling or numbness in the hands and fingers, sense of terror, or impending doom or death, feeling sweaty or having chills, chest pains, breathing difficulties, feeling a loss of control and illusions of being chased by Keith Richards and a human-size hypodermic needle. The Internet of Things is defined by three characteristics: the presence of sensors, connectivity of networks, and the ability to rapidly compute incoming data. These applications are swiftly moving into mobility.  Auto connectivity goes beyond driverless cars. Firstly there is telematics which is a highly intelligent computer in your vehicle that can report on nearly every detail – from speed and acceleration to tire pressure. Insurance companies are using this to more accurately calculate premiums on policies. If you plan to dedicate your evenings to illegal street racing, you will need to find out how to override the telematics to avoid a spike in your insurance premium. Secondly, there is vehicle-to-vehicle connectivity. This allows vehicles to talk to one another – similar to what we saw with truck platooning. They can talk about their most recent oil change, break the loneliness of being hours on the road or set up support groups to vent on abusive masters. Of lesser importance, they can communicate on traffic conditions, congestion zones and weather issues. Trend 5: Gloom and Doom for Carmakers The automotive sector is being battered by winds of change that are quickly approaching gale force.  The outlook for carmakers is more challenging than pulling an ox wagon over the Swiss Alps armed only with a Swiss Army knife and a pair of flip flops. Automakers are bracing themselves for a day in which their primary business model of selling cars to customers becomes obsolete.  Automakers are being attacked from all sides. On the one hand, there is the move towards electric cars. Consumers are demanding electric vehicles at an affordable price. This is pressurizing profit margins. Consumers are also demanding more technology such as partially and fully automated driving. The research and development spend for automakers is massive and they are having to extend their investment horizons to make the return on investment palatable to shareholders. This comes at a time when automotive sales are declining faster than a Korean midsize down a mine shaft. In 2017, Bloomberg data showed a total of 85 million cars were sold. In 2018 this number slipped to 81 million and there is every indication that the number for 2019 will be below 80 million for the first time since 2014. Behind this declining trend are shared mobility services such as Uber and Lyft. Shared mobility networks are an ideal platform on which to deploy new technologies. The next generation of services will be electric and autonomous. As shared mobility services grow, their impact on other modes of transportation will have important ramifications for consumers, automakers, and policymakers. You can expect a major automaker to go tits up in the next decade. Young and old alike are reconsidering the wisdom of buying cars. Prudent families are buying one SUV to cart around the kids while dad "ubers" to and from work. Millennials and generations Zs do not want to be tied down by car ownership and are starting to recognize cars as liabilities as opposed to assets. People are beginning to understand the total cost of car ownership. When one factors in finance, maintenance, insurance, parking, fines, taxes, fuel and the stress of having to share your lane with millions of psychopaths, it may work out cheaper to ride-hail. In December 2019, I conducted a mobility experiment. In the interest of highlighting the plight of that delicious holiday fowl, I went cold turkey. I parked my car in the garage and committed to only use public transportation.  These were the rules of the experiment – Monday to Friday in the commute to and from work, in addition to any business of social meetings from 6 am to 8 pm, I was only allowed to use publically available transport. For Mexico City, that includes the following: metro, buses, bike shares, electric scooters,  and public rideshares like Uber/Didi/Cabify. I was unable to mooch off friends or colleagues. Let me explain the results with reference to the greatest show on television that explains all the mysteries of life – Seinfeld. Allow me to set the scene. Kramer uses briefs because his "boys need a house" until he discovers that he has a low sperm count. He then switches to boxers but finds that there is "nothing holding" him "in place" and he is "flipping and flopping". In the next scene, Kramer walks back into Jerry's apartment, and this is the exchange: JERRY: Well it looks like you've adjusted to the boxers. KRAMER: Wellll, I wouldn't go as far as that. JERRY: You went back to the Jockeys? KRAMER: Wrong again. JERRY: Oh, no. JERRY: Don't you see what's goin' on here??? .. No boxers, no Jockeys... JERRY: The only thing between him and us is a thin layer of gabardine... JERRY: Kramer, say it isn't so. KRAMER: Oh, it be so. I'm out there, Jerry, an' I'm lllovin' every minute of it!!! JERRY: Don't you need a little... help? KRAMER: Surprisingly, no. I'm freee, I'm unfettered... I'm like a naked innocent boy rrroamin' the countryside!! That is how I felt during those three weeks. Free and unfettered. There was no need to worry about psychotic drivers cutting into my lane, no need to stress about parking and most importantly, I could focus on important business of the day – such as improving my Tetris score. Owning a car is a drag, especially in the big cities. A businessman walks into a New York bank and asks for a loan for $10,000. The banker asked him what he can offer in guarantee. The man said he had a brand new Rolls Royce parked in the street. The banker agreed to accept the car into his parking lot until the loan was repaid. One month later, the same businessman walks into the bank and asks to repay the loan. The banker takes out his HP 12C calculator and calculates interest at $80 (one of the benefits of a low-interest-rate environment). The banker then comments that after the man had left the branch, he did a background check and found that he was a billionaire. Why was it necessary to borrow the ten grand? The man replies - where in New York can you find parking for a month for $80? Owning a car is expensive unless you are a creative billionaire. The growth trajectory of rideshare companies has been astronomical by every metric except profitability.  The biggest factor dragging down the profitability of Uber and Lyft is that approximately 25 percent of the fare needs to be paid to the human driver. Autonomous driving, the delivery of which will be accelerated with the advent of 5G, could be the inflection point for these ride-sharing companies. Uber has created a unit, Advanced Technologies Group (ATG), tasked with developing self-driving capabilities. Autonomous vehicles are critical to ridesharing profitability as customer adoption increases. Do not expect these companies to turn a profit before autonomous driving is widely adopted, but once that happens, these companies are heading into the stratosphere. Trading in these stocks is going to generate enough adrenaline to fuel a family-sized Hyundai over the Himalayas. The typical taxi ride today costs $2 to $3 per mile. A robo-taxi would cost around 70 cents per mile, according to UBS Group AG's investment bank. Elon Musk from Tesla says that he could lower that to 18 cents (let's make that 30 cents because Elon has been known to err on the bullish side). Musk believes this can be achieved by convincing Tesla owners to moonlight their autonomous cars as robo-taxis when they are not using them. Imagine that, let your car out for the night with a 6 am curfew and instead of costing you money, you could make a couple of hundred bucks. If you had told that to Henry Ford a hundred years ago, he would have called the men in the white suits and straitjacket to come and take you away. Shared, driverless electric cars will mean less pollution, traffic, and crowding because cities will no longer need to find a place to park cars that are left sitting idle for an estimated 94 percent of the time. If you are a Tesla owner in New York, your car will not only be an income-generating asset, but you will also save close to a thousand bucks a month on parking. For the first time in the history of humanity, it will be possible to turn your car from a blood-sucking vampire into an income-generating asset. Trend 6: Electric Vehicle Adoption The number of electric vehicles on the road is rising quicker than Rapunzel's dash to the phone during a Hair-in-a-Spray infomercial.  But EVs still only account for a small portion of total vehicle sales. Two factors are likely to change this in the coming years. Firstly, tightening fuel economy regulations in the U.S., Europe, and China. Automakers are responding by launching more electric options for their customers. Secondly, falling lithium-ion battery prices. Batteries are the single most expensive component in the EV and average prices per kWh fell 85 percent from 2010 to 2018. The current trajectory puts EVs on pace to be fully cost-competitive starting in the mid-2020s according to Bloomberg New Energy Finance. #finance #money #business #investing #investment #entrepreneur #financialfreedom #success #stocks #wealth #trading #realestate #stockmarket #invest #motivation #forex #bitcoin #investor #accounting #cryptocurrency #marketing #wallstreet #startup #trader #personalfinance #entrepreneurship #credit #smallbusiness #goals

Risk is an interesting animal. You can take her out, buy her flowers and even marry her. They only thing you cannot do is eliminate her. Risk, like Keith Richards' liver, cannot be killed with conventional weapons.  It can only be transferred and managed. Insurance policies do not eliminate risk. They transfer it to professionals who embrace it, manage it and monetize it. Warren Buffett built his fortune on risk. Take a look at the Berkshire Hathaway website (www.berkshirehathaway.com). The company spared no expense in the design of this eighth wonder of the modern world. Click on "Links to Berkshire Subsidiary Companies".  Numerous Berkshire subsidiaries are insurance or reinsurance companies. They retail and wholesale risk.  Risk is their most important commodity.  Without risk, there can be no return. The eternal pursuit of risk avoidance will lead to "a life of quiet desperation and death with your song inside you" (Thoreau). In 2016, David Rubenstein interviewed the Chief Executive Officer of Goldman Sachs, Lloyd Blankfein. Rubenstein asked Blankfein a question that, at first, seemed dumb. It turned out to be brilliant. He asked: “Lloyd, what is your job?” One would expect the following answer: “Well, Dave, my job is to make strategic decisions about the bank's products, customers, employees, stockholders, and goals”. Instead, he said his job was risk management. That reply blew me away. The job of the CEO of the world's most powerful and influential investment bank was risk management – not risk transfer or elimination, but management. Risk and return go hand in hand. If you want more return, you need more risk. Jeff Bezos of Amazon became the world's wealthiest person in 2018 by taking risk.  He put all his eggs in one basket.  He went all-in on a little company that sold books over the internet.  He grew it to a  $1.8 trillion valuation as at November 2021. Risk is good as long as it is managed. Bezos made a calculated bet. He knew he could convert Amazon into the world's leading e-commerce site and the world's leader in cloud computing. Now he is working on making Amazon the world's leading online grocery store (through the purchase of Whole Foods) and the world's leading streaming service (competing with Netflix). Client satisfaction is his obsession. Amazon’s mission is to optimize the customer experience. Bezos suggests you "should start with the customer and work backward". Most companies do the opposite – they start with the product or service and then work towards the customer.  In every Amazon internal meeting, there is the rule of "one empty chair". If there are five Amazonians in the meeting, there need to be six chairs. Whom/who does this chair represent? It represents the customer. Bezos does not want decisions to be made without taking the customer into account. If you start a business, and you believe in the business with all your heart, mind and soul, go all in. Commit to it and believe you will succeed. This belief, commitment, and drive will act as a risk management tool. #finance #money #business #investing #investment #entrepreneur #financialfreedom #success #stocks #wealth #trading #realestate #stockmarket #invest #motivation #forex #bitcoin #investor #accounting #cryptocurrency #marketing #wallstreet #startup #trader #personalfinance #entrepreneurship #credit #smallbusiness #goals

No one loves their bank. In a world where people tattoo brands like Harley Davidson, Netflix and Apple, why is it that there are no bank logos on body parts? If banks launch a new product, do people call up their friends, arm of a posse of disciples with camping chairs and a basket of sandwiches, and camp overnight outside the branch waiting desperately for it to open so they can storm in and fondle the new service? Do people sneak out of the office early on a Friday, head straight home, storm through the front door and log into their bank accounts so that they can binge-watch the educational video on internet banking? Do people spend hundreds of dollars on hipster leather biker jackets with their bank logos emblazoned on their backs? I think not because banking is as enjoyable as sucking on Gandhi's dusty thong. The Millennial Disruption Index reports 71% of millennials would rather go to the dentist than listen to what banks tell them. That is a monumental kick in the nuts of the banks. Millennials would rather lie flat on their backs, open their mouths and have sharp needles and drills perforate the soft vulnerable skin tissue around their teeth than interact with their banks. Notwithstanding this, banks are incredibly useful institutions provided you know how to manage your relationship with them. Here are two guiding principles that you need to tattoo onto your brain when dealing with your bank. RULE 1: Don't Hold Too Much Cash in the Bank Every financial crisis is different. COVID 19 is different to 2008, which was different to the dot.com crisis of 1999. One thing that most crises have in common is the Pavlovian response of central banks to these crises. They cut interest rates in the hope they can electrocute the economy back into coherence. Cheaper money nudges consumers to borrow money to finance their buttocks augmentation surgery and the post-operation Louis Vuitton butt pillow. As interest rates move closer to zero in some countries and deeper into negative territory in other countries, the return on your bank cash savings start to look uglier than your hairy aunt Mavis after a late night of poker and gin with the girls. How many times have you heard the advice that you need to save a portion of your salary every month and put it into a savings account? Let me outline 3 reasons why this is a losing strategy: 1) Cash is a paper asset that has no intrinsic value Ever since the world moved off the gold standard in 1971, cash stopped being an asset and turned into a liability. Before 1971, you could take your bills to the central bank and exchange them for the equivalent value in gold. Now, if you go to the central bank, they will just give you newer paper of the same value. This paper is nothing more than an IOU backed by the full faith and credit of that bank, and one thing we learned after the 2008 financial crisis is that high quality banks can fail. 2) Interest rates are at record lows We are living in a world in which interest rates are at record lows. More than 1 trillion US dollars of bonds were paying NEGATIVE interest rates in 2020. A negative interest rate means that if you invest 101 today (for example), you will receive 100 when the bond matures. This is nuts – it means that you are paying the bond issuer to look after your money. 3) Missed opportunities When you lock your money into a savings account, earning record low returns, there is an opportunity cost (in addition to an inflation cost). So instead of saving money, look to invest the money and make that money work for you. Warren Buffett, possibly the greatest investor ever, became one of the world’s wealthiest people through investing – not through saving. RULE 2: Owe the Banks MORE than they Owe You John Maynard Keynes, the third most famous Briton after David Beckham and the Spice Girls, said that if you owe the bank $100 it is your problem. When you owe the bank $1 million, it is the banks problem. In 1988, when Trump bought New York's famed Plaza Hotel, he paid $407.5 million. He got a $425 million loan. "If the world goes to hell in a handbasket, I won't lose a dollar," Trump bragged to a reporter. While I hate to use Trump as an example of sound financial engineering, I have to give him kudos for this brag. In times of uncertainty and low interest rates, you would be a fool not to leverage up. Debt is not Lucifer. Financial advisers have spent decades vilifying debt. In the 17th century, Christian's believed that the Catholic Church was the antichrist. In the 18th century, the French believed that it was Marie Antoinette after she told the starving masses that if there was no bread, let them eat cake. In the 19th century it was Napoleon, 20th century Adolf and Joseph (nice name for an ice-cream) and 21st century, the mention of DEBT caused people to lunge for the holy water. Not all debt is bad and not all debt is good. There is good debt, bad debt and ugly debt. Let’s start off with the ugly. Some credit cards charge north of 30% APR but this does not deter some people from maxing them out and then using another card to pay that one off, and so on until they get into a satanic spiral of debt. Smart people pay on a monthly basis the amount they need to avoid interest which means they can get up to 40 days of free money. Now for the bad debt. This is when people borrow against the equity in their home. This turns your home into a liability - because it takes money out of your pocket as you make the monthly payments without receiving any income. Your only hope is that the house price appreciates - but that means getting into the game of property speculation. Now you have the good debt. This is where you use the debt to buy assets that generate rental income. The interest on the debt is tax deductible and the debt allow you to generate cash flow which puts money into your pocket. The key here is using the debt to acquire high quality assets that generate a reliable cash flow. #finance #money #business #investing #investment #entrepreneur #financialfreedom #success #stocks #wealth #trading #realestate #stockmarket #invest #motivation #forex #bitcoin #investor #accounting #cryptocurrency #marketing #wallstreet #startup #trader #personalfinance #entrepreneurship #credit #smallbusiness #goals

What does it mean to be financially educated? According to the Cambridge English Dictionary, it is the ability to understand the basic principles of business and finance. This is a little vague and general. Let me flesh this out for you. In my opinion, to classify yourself as being financially educated or literate, you need to have a basic understanding of the following concepts: Concept #1: Banks have no interest in educating you The financial industry does not want you to be free or educated. Just like the medical establishment wants to keep you ill and coming back for treatment, the financial system wants you to consume like an imbecile. Through marketing and advertising, it sells you an almost unattainable lifestyle that if you reach, you simply become another one of greed`s whore. It is never enough. Banks want to keep you ignorant and coming back to buy their products. They say they want to educate you but nothing could be further from the truth. They want to sell you their rancid products with a new shiny wrap. They want to skrew you again and again, and you get to smile while they`re doing it. Concept 2: Credit drives the economy Economic activity is generated through the buying and selling of goods and services. Every year the total monetary value of goods and services bought and sold is known as the gross domestic product. If the gross domestic product in year 1 was 100 and then in year 2 was 109, we say that the economy grew by 9 percent. If GDP in year 2 was 100, it means that growth was zero. Let's now imagine a cash economy. Let's assume that there are 100 dollars in circulation. I have 50 and my friend has 20 and the bank has 30. My friend sells widgets at 10 per widget. I buy 1 widget and sell that to the bank for 15. I now have 55, my friend has 30 and the bank has 15. I deposit 40 of my 55 with the bank. We are going to move that money around between the three of us and the economy is not going to grow. The only way in which the economy is going to grow is if there is credit. The central bank needs to increase the money supply and get the cash moving through the economy by extending credit. The government will do everything possible to facilitate credit because with more growth there is more tax revenue. The government, however, knows that too much of a good thing is not good. If there is too much credit, the economy could overheat causing inflation. The government, therefore, allows the central bank to control the cost of money through interest rates. If the central bank feels that there is too much money being printed it will increase the cost of that money. Governments, in association with the central banks, will also allow people to start their own banks to facilitate the granting of credit to take some of the pressure off the central bank. The governments will allow these banks to take money from depositors and lend that money out as credit. This is the basic banking model. These banks make their money on the spread between what they pay the depositors and what they charge the lenders. Central banks and use interest rates to regulate the temperature of the economy. This is known as Goldilocks economics. The central bank does not want the economy to be too hot and does not want the economy to be too cold. They want the economy to be just like the oatmeal of Goldilocks- just right. If the economy gets too hot, it means there is a risk of inflation. If too cold, there is a risk of deflation. In the old days, banks were the only source of credit. Today, that is not the case. The monopoly of banks over the credit awarding process is being challenged by technology in a trend known as fintech. The Millennial Disruption Index reports 71% of millennials would rather go to the dentist than listen to what banks tell them. That is a monumental kick in the nuts of the banks. Millennials would rather lie flat on their backs, open their mouths, and have sharp needles and drills perforate the soft vulnerable skin tissue around their teeth than interact with their banks. You do not need to be Alan Turing (the genius that cracked the German Enigma code) to decipher the takeaway of this nugget of information. Banks suck and technology is going to drive many of them out of business. Why has traditional banking not captured the hearts and imagination of the average man? The answer is simple. In 2008, banks lost their biggest asset and that is trust. They lost the trust of their clients and technology companies moved rapidly to fill the gap with sweet sweetness. As of 2019 Facebook boasted numerous banking licenses and was experimenting with its own cryptocurrency. Amazon was experimenting with student loans. Alibaba was running one of the largest money market funds in the world and WeChat (the Chinese version of WhatsApp) was doing 820 million wire transfers during the Chinese New Year. If you trust Facebook with photos of your newborn baby, will you not trust them to handle your finances? Concept 3: You need to have a basic understanding of how businesses are funded When businesses are started, they need to be funded. They need cash, they need capital and they need it fast. Without cash, the company will shrivel up and die. Companies are funded in two ways – equity and debt. This is best understood by way of a simple example. On January 1, I start a guitar restoration business where we buy old guitars, restore them to their former glory and sell them at a profit. To start, we would need cash and/or credit. My first call is to my banker, Slim Shady who is gracious enough to offer me a loan. Slim, who is a musician when he is not ripping off unsuspecting clients, understands guitars and lends me 25,000. I now have 25,000 debt but need more. I inject 40,000 of my own money and my friend Wayne Kerr invests 20,000 for a 30 percent stake. I have the remaining 70 percent share. We now have 25,000 of debt, plus 60,000 capital resulting in total liabilities of 85,000. I can now go out and look for axes to buy and refurbish. This is our balance sheet as at 1 January Current assets (cash): 85,000 Equity capital: 60,000 Long term liabilities: 25,000 In a simple formula: Total Assets = Total Equity + Total Debt There are two key points that you need to understand from this. Firstly, if you own equity in a company, you are the owner of that company. In this small guitar restoration business, I own 70 percent of the business and Wayne Kerr owns 30 percent of the business. The owners participate in the fortunes of the business. Secondly, the bank is simply a lender of money – it is not an owner in the business. Loans are also known as debt and liabilities. Concept 4: You need to have a basic understanding of the stock market The stock market is one of the greatest generators of wealth on the face of the earth and the more you know about it, the better. Having said this, you do not need to be an expert in stocks to become financially free – a basic understanding will suffice. This is what you need to know. The stock market is a place where you can invest in thousands of public companies. In the world of finance, you have two different kinds of companies – private companies and public companies. My guitar restoration business is a private company because it is funded by myself, Wayne Kerr, and anyone else that we invite to invest in the business. At what moment does a private company become a public company? Normally, as companies grow, they need access to more money to fund their expansion. They have two options – either ask for more loans from their bank or find new shareholders to invest equity capital. Assume that Wayne Kerr is my only friend and my only source of funding. I could decide to list the company on the stock exchange and invite anyone to invest in my company. For this to happen, I need to make my financial information public and update it regularly so that my investors are kept abreast of how. The stock market provides you the opportunity of investing in thousands of companies and sharing in the fortunes of these companies. To understand the wealth generative capabilities of the stock market, consider the following examples: If you had invested $1,000 in Amazon when it was listed on the stock market in 1997, it would be worth almost $1.6 million today (May 2020). Concept 5: Know How to Buy the Whole Market Not everyone was lucky enough to recognize Amazon as the next greatest thing back in 1997. You do not need to be a great visionary to make money from the stock market. You do not need to be a genius. Sure, it helps if you are prepared to spend the time to analyze individual companies, but the majority of people do not have the time, interest, or inclination to do so. For these investors, their investment vehicle of choice is known as an ETF or exchange-traded fund. An exchange-traded fund is a fund of shares that trade on the stock market like a single share. So instead of buying a share in Amazon, you can buy a share in an ETF that invests in technology companies. In this way, you will be investing in Amazon, but also in companies like Microsoft, Apple, Tesla, Google, Facebook, Tesla, and Nvidia. I am talking about the Invesco QQQ ETF. So this is what you do – you apply a common-sense approach to investing. I walk you through the mechanics. I will profile three different types of investors based on their level of interest in the stock market. Investor 1: No Interest Let us assume you have no interest in finance, business, or investing. This is not a death blow to financial freedom. You will want to invest in a broad country or global ETF. The most globally diversified ETF is iShares MSCI World ETF and trades under the ticker symbol URTH (Jargon buster: A ticker symbol or stock symbol is an abbreviation used to uniquely identify publicly traded shares of a particular stock on a particular stock market. A stock symbol may consist of letters, numbers, or a combination of both. "Ticker symbol" refers to the symbols that were printed on the ticker tape of a ticker tape machine). URTH will exposure you to a broad range of developed market companies around the world. It provides access to the developed world in a single fund. If you had invested $100 every month into this ETF when it was first launched in 2012, your investment would be worth a little under $15,000 today (June 2020). Investor 2: A Little Interest Here I assume that you have a marginal interest in finance and the stock market. You know that CNBC is a business news channel and not a recreational drug, you have heard of the Dow Jones Industrial Average and you know that the FTSE 100 is the benchmark index of the London Stock Exchange and not a pesticide. You would invest in a more specific ETF. Instead of buying the whole world, you would refine your investment in a specific region or country. For example, you may be a fan of Taiwan. You traveled there a couple of years ago and was impressed by their bustling economy and you want to participate in the fortunes of Taiwanese companies. You could invest in the iShares MSCI Taiwan ETF (ticker symbol EWT) that trades on the New York Stock Exchange. Another great feature of ETFs is that most of them trade on US stock markets. In the case of Taiwan, there is no need for you to open a brokerage account in Taiwan – you can participate in the fortunes of Taiwanese business from the comfort of your own home (provided you have a US brokerage account). Over the past 10 years, $100 invested every month in this ETF would now (June 2020) be worth almost $19,000. Investor 3: Above Average Interest You have a real interest in investing as a hobby. You are curious about financial trends that are shaping the world. You are an avid reader of financial blogs and if you were waiting for your dentist appointment, you would rather thumb through a copy of The Economist than Men’s Health. Your interest does not go so far as to take you into analyzing specific shares, but you are interested in trends – such as the clean and renewable energy, the rise of China as a global economic power, the sharing economy, fintech and cryptocurrencies, the future of health and wellness, robotics and artificial intelligence, driverless cars, cybersecurity, etc. ETF issuers such as iShares are aware of the rising interest in global trend investing and have started to launch ETFs to tap into this market. Take for example the iShares Exponential Technologies ETF (ticker symbol XT). This ETF seeks to track the investment results of an index composed of developed and emerging market companies that create or use exponential technologies. The ETF wants to access global companies with significant exposure to exponential technologies, which displace older technologies, create new markets, and have the potential to create significant positive economic benefits. As of June 2020, the ETFs biggest holdings were in the following companies: TESLA, ADYEN, SQUARE, ADVANCED MICRO DEVICES MERCADOLIBRE, NVIDIA CORP, PAYPAL HOLDINGS, WUXI BIOLOGICS, AMAZON, and MEDIATEK. A monthly investment of $100 in this ETF would currently (to June 2020) be worth almost $8,500. Concept 6: Know How to Choose a Stockbroker In the old days, stockbroking moved at a different pace. You would park your Rolls Royce and take the elevator to your broker's office. He would open up a box of Cubans, offer you a glass of single malt, and talk about the World Series. You would instruct him to buy 1,000 shares of Bethlehem Steel. He would write the order on a ticket and hand it to his errand boy. The errand boy would jump on his bike and pedal over to the stock exchange. He would walk over to the floor broker who would ignore the kid for five minutes as he finished dictating his lunch order to his assistant. The floor broker would then saunter over to the pit and gesticulate to the market maker and execute the order. Today, the barriers to entry in the stock market are low. Any mammal with opposable thumbs, a smartphone, and a few dollars to their name can open an online brokerage account with Robinhood. Robinhood is a U.S.-based financial services company headquartered in Menlo Park, California, and requires no minimum balance. The address of Robinhood is revealing. This is not a regular broker filled with stuffy old men in pinstriped suits, Gordon Gekko suspenders, and unmatched dayglow socks with a copy of the Financial Times tucked under their flabby untoned arms. Robinhood is a fintech company, filled with kids in hoodies, looking to democratize the stock market. Most discount brokers offer commission-free trading and zero minimum deposit (they make money off your cash balances and margin lending). The top dogs are Fidelity, TD Ameritrade, TradeStation, Charles Schwab, E*TRADE, and Interactive Brokers. In choosing a broker, you want to look at the following: quality of order execution, depth of research, technological quality of their platform, trading tools offered, customer service, non-trading fees (wire and bank transfers), availability of options trading and margin rates (where brokers make most of their money). Concept 7: Understand the Most Important Concept in Finance – Compounding The world is full of wonders. You have the Great Pyramids of Giza remain, the Hanging Gardens of Babylon, the Lighthouse of Alexandria, the Temple of Artemis, and the Colossus of Rhodes. In finance, there is one single wonder that stands out head and shoulders above the rest – and that is COMPOUNDING. The reason why the majority of humans are not aware of this modern wonder is that it is built on a trait that most humans do not have – PATIENCE. Post a video on Youtube entitled “How to Become a Millionaire in 30 Years”. How many views do you think it will get? I would wager that a video of a dripping tap would get more views. We are impatient. Everyone wants to get rich quick. The reality is that getting rich requires compounding and patience. Let me explain. If investing $100 per month at a return of 10 percent will deliver $226,048, how much would I have if I found an investment that yields 20 percent? The human brain in all its feebleness would reason like this – if I am earning double the return (20 percent instead of 10 percent), it should earn double the return. In other words, I should be the proud owner of an investment worth $450,000. What would you say if I said that by doubling the annualized return you would earn TEN times more? You would say that I have gone bonkers – that I have donned a bright red honker and size 75 loafers, and am bouncing jelly beans off my belly and pulled live pigeons out of my ear. Your $100 investment at 20 percent per annum will yield $2,297,783 in 30 years!! Albert Einstein is said to have called the power of compound interest "the most powerful force in the universe" and went on to say..." he who understands it earns it; he who doesn't pay it." The reason why you earn 10 times more with twice the return over 30 years is simply that you are reinvesting your returns. You are earning returns on your returns. This may sound like Greek, but let me explain with a simple example. You invest $100 on day 1 at 20 percent. In one year, that $100 has grown into $120 which means you made $20 return. In year 2, again you earn 20%, but at $120. This means that you made $24 which is actually 24 percent in the original $100 invested. Look at how the returns take off the longer you invest. Year 1: $20 (20 percent on $100) Year 2: $24 (24 percent on $100) Year 3: $28.8 (28.8 percent on $100) ……. Year 10: $103 (103 percent on $100) ……. Year 20: $638 (638 percent on $100 ……. Year 30: $3,956 (3,956 percent on $100) By year 30, you are earning an astronomical return on you’re your initial $100 because the investment has snowballed as you reinvest your returns. #finance #money #business #investing #investment #entrepreneur #financialfreedom #success #stocks #wealth #trading #realestate #stockmarket #invest #motivation #forex #bitcoin #investor #accounting #cryptocurrency #marketing #wallstreet #startup #trader #personalfinance #entrepreneurship #credit #smallbusiness #goals

Impatience (noun) - the tendency to be impatient; irritability or restlessness. What causes impatience? Impatience is triggered when we have a goal, and realize it's going to cost us more than we thought to reach it. We are living in an age of instant gratification, same-day delivery, and super high-speed internet. We complain about being forced to wait for 40 minutes for takeoff on a transatlantic flight. We have lost sight of the fact that modern-day air technology allows us to travel from New York to London in 6 hours. In the old days, it took weeks by boat and there was always the chance that if you did not die of scurvy, you were attacked by pirates or crashed into icebergs. I Googled “long term stock investing” and came up with 269 million results. I then Googled “stock trading” and came up with 4 billion results. Why is it that trading yields 1,400 percent more results than investing? This is no surprise because trading is sexier than investing. The objective is the extraction of short-term profits. Day trading or scalping has taken off over the past ten years. To answer this question, you need to answer the following: when it comes to money management, do you want sexy or do you want boring? Do you want Marilyn Monroe in the Seven Year Itch or Fred the accountant? In a perfect world, you want your chef to be French, your sports car to be Italian, the driver in the lane next to be non-Italian, your watch to be Swiss and your policeman to be British. What about money management? There is a great quote from Paul Samuelson. Investing should be more like watching paint dry or grass grow. If you want excitement, take $800 and go to Las Vegas. This is not to say that you should invest in the money market, but I would suggest that there is greater merit in investing in long term, stable, and boring companies that are growing predictably than looking for short term wild swings. Mark Twain had the following to say about speculation: “OCTOBER: This is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August, and February. There are two times in a man's life when he should not speculate: when he can't afford it and when he can.” Now for the FACTS Two of the greatest long-term investors are Warren Buffett and the Swiss-Brazilian, Jorge Paulo Lemann. Both men made their fortunes making long term bets on companies like Coca Cola, American Express, Kraft Heinz, Bank of America and Anheuser Busch. As at the beginning of November 2019, according to the Bloomberg billionaire’s index, Buffett was the 4th wealthiest man in the world with a net worth of $86 billion and Lemann was 43rd with a net worth of $22.5 billion. We now move across to the hedge fund billionaires. Hedge funds are unconstrained funds that tend to have shorter time frames and therefore are more often associated with trading. According to Bloomberg, the richest hedge fund manager as of November 2019 was James Simons, the founder of Renaissance Technologies that has $61 billion in assets under management. The fund has delivered annual returns of 40 percent since 1988 and has paid him more than $9.5 billion in cash distributions since 2006. Second on the list is Ray Dali, the founder, and co-chief investment officer of Bridgewater Associates, a hedge fund firm that manages $160 billion in assets. Simons was worth $20.7 billion and Dalio $16.6 billion and were ranked a lowly 49th and 75th respectively. So, let's do some averaging. The average wealth of the top two investors is $54 billion while the average wealth of the top two traders is $18.6 billion. The universe is clearly saying to us that long term investing is more profitable. This is a random exercise but let me tell you one thing for sure – it is easier to replicate the strategies of Buffett and Lemann than the strategies of Simons and Dalio. Financial freedom is mostly achieved by making small incremental changes. If you set the goal of doubling your income in six months, I think there is a high probability that you will fail – unless you become a drug dealer or a YouTube influencer. Your objective should be to make small, incremental, and consistent changes to your spending patterns. Dramatic and radical changes seldom work over a long time when it comes to financing. It is the same a crash diets – you may succeed it dropping a bunch of pounds in the first few weeks, but after a couple of months, you have added those pounds and then some. You should compare your finances today with how they were yesterday and focus on small incremental changes. Set numerous small achievable goals. A fraction of a percent changed every day, compounded over many months and years will yield outstanding results. Compounding is the key to financial freedom. If you are still not convinced, let me close off with a quote from the great Warren Buffett: “The stock market is a device for transferring money from the impatient to the patient." #finance #money #business #investing #investment #entrepreneur #financialfreedom #success #stocks #wealth #trading #realestate #stockmarket #invest #motivation #forex #bitcoin #investor #accounting #cryptocurrency #marketing #wallstreet #startup #trader #personalfinance #entrepreneurship #credit #smallbusiness #goals

Who does not want to change their spending patterns? The problem is that it is easier said than done. Your spending patterns are determined by your financial DNA and were then refined by the lessons learned from your family, friends, beliefs, and society. You are either a spender or a saver/investor. For some people, controlling their spending habits is as easy as making a conscious decision and executing on that – these are the habitual savers. For others, it is an endless struggle of good versus evil. Let us start by understanding the FOUR most influential drivers of your spending patterns: Driver 1: Parents Regardless of how hard you fight this, you are a product of your parents. Parental influence is overwhelming. At times you are a carbon copy of your patents, and other times you are polar opposites as you make a conscious effort to rebel against them. When it comes to money, the most likely outcome is that you are a carbon copy. To understand the impact of parenting, it is worthwhile looking into generational trends. To refresh your memory, we are currently four dominant economically active generations currently in play: Baby boomers Also known as the Me Generation, are the people born following World War II from 1946 to 1964. The boomers were a product of the post-war spike in libido and were strongly influenced by the counterculture and revolution in the social norms of the 1960s - Beatlemania, Twiggy, JFK assassination, Woodstock, Cassius Clay, the Cuban missile crisis, a man on the moon, Vietnam and Jim Morrison. Time named the Baby Boom Generation as its 1966 "Man of the Year". Generation X Or Gen X for short is the cohort following the baby boomers (for full disclosure, I am part of this generation). The generation is generally defined as people born between 1965 to 1980. They are neatly sandwiched between the baby boomers and the millennials. Time referred to the Xs as the "unsung generation, hardly recognized as a social force or even noticed much at all". Millennials Also known as Generation Y (or Gen Y for short), are the generation following Generation X who grew up around the turn of the 3rd millennium. The generation is widely accepted as having been born between 1981 and 1996. Generation Z Or Gen Z for short, are the people succeeding the Millennials. Researchers and popular media typically use the mid-to-late 1990s as starting birth years and the early 2010s as ending birth years. This is what you need to understand. The majority of millennials are kids of the boomers and the majority of Zs are products of the Xs. To better understand the spending patterns of generation Z, do not look at their older millennial siblings. You need to look at their parents. To understand the spending patterns of the millennials, you need to look to their parents. Boomers and Millenials are the Spenders The wildness of the millennials is explained in part by their hippie upbringing from their baby boomer parents. The boomers wanted it to be easier for their kids and they succeeded. They spoiled the little buggers and created a strong sense of entitlement in them and this has lead to a generation of compulsive spending. Millennials are a nightmare in front of a financial calculator. A 2015 PWC survey showed that only 24 percent of millennials have basic financial knowledge and only 27 percent seek financial advice on saving and investing. Gen X and Z are Savers Gen Xs are products of the stress and turmoil of the seventies and the eighties. We had Nixon leopard crawling down a government passage with a flashlight between his dentures, the collapse of the Berlin Wall, assassination of Indira Gandhi, Chernobyl, the Challenger explosion, the launch of Fox television, and the Exxon Valdez oil tanker belching 240,000 barrels of oil into the ocean. Socially, the 1970s saw a spike in divorce rates. The confluence of all these factors created a cynical, pessimistic, and hardnosed generation. This has had a profound impact on our kids. The Zs, like their parents, are more financially literate at a much younger age than previous generations. This is thanks largely to the financial anxiety that we Xs have passed down. The Zs are also more likely than millennials to save a good chunk of their change. They are more likely to use budgeting apps like Mint and Acorns. They also stay out of debt. They would rather rent assets than buy them. This same financial discipline and austerity are manifested in their social activities. The Zs are not a wild bunch. You will not find them passed out on the couch at Keith Richard's annual vodka and anthrax party. Bryan Gildenberg, the chief knowledge officer at Kantar Consulting, says that Generation Z is a "very old group of young people." They drink less, take fewer drugs (except for pot, which they don't view as harmful) and have less sex. Again, there are parallels here with their Generation X parents, many of whom saw sex and drugs as dangerous due to the AIDS epidemic and Mrs. Reagan's "Just Say No" campaign. Frugality is the religion of Gen X. They love to hear words like "value for money", "responsibility" and "sustainability". They are also more likely to buy second-hand clothing. Driver 2: Culture and Society Americans are spenders while the Chinese are savers. Culture and society go a long way to explain why spending patterns of these two nations are diametrically opposed? The Chinese typically save up to 40 percent of their income. Analysts and policymakers have attempted to trace the causes of China's high savings rate and to predict how long it will last. Some point to a precautionary savings motive: Because Chinese people are worried about costs of health care, education, and old-age pensions and are unsure about how much these costs might change over time, they respond by saving more. What happens if your kid was the next Albert Einstein and needed to go to Harvard? In the US, on the other hand, which boasts more developed education, healthcare, and retirement systems, this same anxiety does not exist. This, coupled with decades of economic prosperity that goes back to the 1950s, has created an intensely consumerist society that does not think twice about driving an hour out of town for a $25 pizza! Driver 3: Religion and Spiritual Beliefs Religion can have a strong impact on spending habits, such as tithing, giving alms, donating to charity, and participating in traditional celebrations that require significant expenses. Take for example the phenomenon of the Quinceañera - the celebration of a girl’s 15th birthday, marking her passage from girlhood to womanhood; the term is also used for the celebrant herself. The quinceañera is both a religious and social event that emphasizes the importance of family and society in the life of a young woman. It is celebrated in Mexico, Latin America, and the Caribbean, as well as in Latino communities in the United States and elsewhere. Humble families do not think twice about heavily indebting themselves to pay for this celebration. Driver 4: Social Media Social media has done a sterling job in equating happiness with physical possessions and lavish experiences. Sumptuous mansions, Italian sportscars, first-class airline tickets, expensive gadgets, and shining jewelry creates the impression that happiness can only be achieved through spending. It has never been more challenging to keep up with the Joneses. The social pressure to move away from saving and into the camp of spending is immense but as with all trends, there are counter-trends. This counter-trend comes in the form of minimalism as more people realize that spending does little to enhance human happiness. Why is it hard to break spending habits? Over time, it becomes more and more difficult to change a habit because that habit has become more and more natural to who we are and how we act. And research shows that we automatically favor what is familiar to us—even if we know it's not to our benefit. The challenge is creating a new normal, which involves behavior change. Think about dieting: If you've spent years and years eating the same way, it's obviously very tough to change that pattern. That's true even if you want to change, know you should, and understand what the new pattern would look like. #finance #money #business #investing #investment #entrepreneur #financialfreedom #success #stocks #wealth #trading #realestate #stockmarket #invest #motivation #forex #bitcoin #investor #accounting #cryptocurrency #marketing #wallstreet #startup #trader #personalfinance #entrepreneurship #credit #smallbusiness #goals

Do not train children to learn by force and harshness, but direct them to it by what amuses their minds, so that you may be better able to discover with accuracy the peculiar bent of the genius of each. Plato Google the word "innovation" and you will find a tsunami of results. The world is thriving on innovation.  We spend hours on YouTube listening to Steve Jobs's interviews to get an insight into a modern-day Da Vinci. You need to think out the box. You need to go against the flow. You need to see the world not as it is but as how you want it to be.  You need to challenge the status quo and find ways to disrupt industries and companies that are stuck in a long term rut of stagnation. Education stands out like a monk in an adult bookstore as an industry that is stuck in the dark ages repeating the same Gregorian chant over and over. The current global education system is in a state of crisis.  More than 617 million children and adolescents are not achieving minimum proficiency levels (MPLs) in reading and mathematics, according to new estimates from the UNESCO Institute for Statistics (UIS). Education methods have not evolved in over 100 years when schools were created as receptacles of information. How is it possible that kids, the most curious and creative creatures around, find school boring?  Teaching techniques have not changed in a hundred years. The teacher stands in front of the class in his tweed jackets and Clark Kent styles classes and recites the five reasons why World War I was started. This may have been the best way to teach 30 years ago when schools and universities were the repositories of information, but now we have the internet. If there is anything you want to find out, you can find it on the World Wide Web. Kids do not need to be taught things. They need to be taught how to find these things and left to study at their own pace. They are naturally curious - they will not slack off provided they are stimulated and engaged.  I am not saying they should be left unattended in the classroom - they will go hog wild.  Teachers need to become facilitators of knowledge and not custodians thereof. The financial structure of schools and universities also needs to be changed. There is something wrong when Harvard runs a multi-billion dollar endowment, pays no taxes and graduates leave with 100 grand in student debt. How will the school of the future look? Technology is not a silver bullet but plays an important role. Teachers need to use technology - virtual reality augmented reality and artificial intelligence to make learning interesting. Schools also need to teach softer skills such as teamwork, problem-solving, emotional intelligence and communication skills. Learning should become a way of life and not limited to a location. We also need to promote continuous learning. Gone are the days when you study a profession and that is your profession for life. The job market is in flux and workers will need to reinvent themselves multiple times. How do universities prepare people for jobs that do not exist yet? This is the biggest challenge. They need to keep offering traditional subjects, but they also need to offer courses on coding, product development, and big data. In 2018, Concordia University-Portland’s College of Education ran a giveaway on their public Facebook page for educators (and in a private group with students and alumni) with new school supplies up for grabs. To enter, Concordia students, alumni, and Facebook visitors had to answer one of two questions: Question 1: What does innovation in education mean to you? Question 2: What’s the most innovative thing you have done—or have seen another teacher do—in the classroom? This is a sample of the responses. "Innovation in education means doing what's best for all students. Teachers, lessons, and curriculum have to be flexible. We have to get our students to think and ask questions. We need to pique their curiosity and find ways to keep them interested. Innovation means change, so we have to learn that our students need more than the skills needed to pass the state assessments given every spring. We have to give them tools that will make them productive in their future careers." Kimberly “Innovation, to me, means finding any way you can to reach all of your students. This means being willing and flexible to adjust what you teach and how you teach. We have to keep our students engaged and excited to learn. We have to create a safe place for them to make mistakes, take risks, and ask questions.” Ashley “Innovation in education is always seeking knowledge that will support new and unique ideas in instructional techniques that will reach the students in more effective and exciting ways.” Mischelle "Innovation in education is stepping outside of the box, challenging our methods and strategies to support the success of all students as well as ourselves. This transformation may be small or a complete overhaul, but it is done with purpose and supports the whole student." Whitney “Innovation in education means allowing imagination to flourish and not be afraid to try new things. Sometimes these new things fail but it’s awesome when they are a success. Without the right attitude, innovation would just be a word and the art of education would miss out on some great accomplishments.” Valerie What’s the most innovative thing you have done—or have seen another teacher do—in the classroom? “My team teacher and I used guest teacher certificates as part of our reward system. Kids had 10-15 minutes to teach the class anything they wanted. It was amazing to see them get up in front of their peers and share their passions!” Marlene “I set my math & science units for my third graders up like college classes. Students start with picking a particular major and at the end of the unit, we work on making connections on how each lesson relates to the real world and the job they each choose individually. My students absolutely love the opportunity to be treated like adults and explore future options.” Jade "We have at times had students begin creating graphic novels to have better recall regarding historical information!" Misty "My second graders grade their own tests using their tech devices. They get immediate feedback and take the time to understand the wrong answers." Jenifer 7 TRENDS LABOTOMIZING TRADITIONAL EDUCATION Trend 1: Information – Everywhere, Anytime Information has been democratized. It is all over the internet and can be accessed at any time from any internet-enabled device. Modern educators have reacted in one of two ways. They have either been living under a rock for two decades and are not aware of this democratization. Or they know about it but are praying feverishly that their clients/students are idiots. Traditional education works like a production line. Kids enter the classroom at 8am and sit in rows of chairs while the teacher delivers the class. Periods typically last for 45 minutes. This methodology goes back 100 years and has never changed. This was necessary in the past because there was no technology and there was no internet. The teacher was the receptacle of information. He or she was the oracle and held the truth on that particular subject. Today the game has changed. All the information we need is out there. Information no longer needs to be channeled. In the future, people will not be hired based on what they know. They will be hired based on their ability to apply this knowledge. So why the hell do schools still teach as if there was no democratization of information?  The answer is simple. Parents/students keep paying their tuition because there is no viable alternative. Schools and universities arrogantly believe that this will continue forever. Harvard keeps adding billions of dollars to their endowment funds. Children graduate from university with hundreds of thousands of dollars in debt, and they are ill-equipped to meet the challenges of the modern workforce. But the tide is turning as corporations start to understand the limitations of formal education. In 2018, job-search site Glassdoor compiled a list of top employers who no longer require applicants to have a college degree. Companies like Google, Apple and IBM are all in this group. In 2017, IBM’s vice president of talent Joanna Daley told CNBC that 15 percent of her company’s U.S. hires do not have a four-year degree. The message from these companies is that a traditional college degree does not necessarily equip graduates with the requisite skills to operate in their world. Technology companies, however, were not the first to recognize the limitations of a university degree. In May of 2015, Ernst and Young, one the big four accounting firms, announced something that surprised everyone. It would remove the degree classification from its entry criteria because it found 'no evidence of a positive correlation' between academic success and achievement at the company. This is crazy. Accounting is generally accepted as the most stayed and conservative of all professions. A charismatic accountant is defined as someone who looks at the other person's shoes instead of his own when engaged in a conversation. The market value of a university degree has declined while the cost of that education has increased.  In the 1980s, a college degree almost guaranteed a job in the specific field of study. This is no longer the case given the higher number of degrees and the shrinking number of jobs on account of technology and automation. I have come across numerous taxi drivers in Latin America who hold MBA degrees. Driving a taxi is a noble profession. I, however, doubt whether those entering a two-year MBA programs do so visualizing a career picking up American tourists at the airport. In the face of this, the cost of a university degree in the U.S. has more than doubled since the 1980s. Student debt in the U.S. in 2019 stood at $1.4 trillion. University education in the U.S. is now more expensive than marrying a Las Vegas showgirl. The problem is not the debt. The problem is that the skills acquired in the accumulation of this debt no long correlate with what is required in the real world. Education is overdue for disruption and this upheaval is going to start with arrogant universities that are out of touch with reality. Young, fresh, innovative schools are going to rise up and start to eat away at the fat that these universities have accumulated over the decades. This market is ready for the taking. Traditional universities should be more nervous than a flock of sheep walking through an Australian army barracks. There is a lot of money to be made and lost in the education space over the next two decades! The global education and training market in 2019 was worth around $6 trillion and expected to grow to $10 trillion in 2030. Little attention is being paid to what is being taught. Anyone with creativity and foresight will make millions. Trend 2: Technology – Not the Holy Grail, but Pretty Darn Close "Ephemeralization" is a term coined by R. Buckminster Fuller, an American architect, systems theorist, author, designer, inventor, and futurist who must have been bullied at school. Ephemeralization is the ability to do "more and more with less and less until eventually, you can do everything with nothing." Buckminster had a Henry Ford production line in mind when he coined the phrase back in the 1930s, but it is relevant today. At the heart of the transformation of education lies technology. The Khan Academy is a nonprofit organization started by a hedge fund analyst in 2008. Khan's mission is to provide free world-class education for anyone, anywhere. The organization produces short lessons in the form of videos. Its website also includes supplementary practice exercises and materials for educators. All resources are available for free to users of the website. The website and its contents are provided mainly in English but is also available in other languages including Armenian, Bengali, Bulgarian, Chinese, Czech, Danish, Dutch, French, Georgian, German, Gujarati, Hindi, Indonesian, Italian, Japanese, Korean, Norwegian, Polish, Portuguese (Brazilian and European), Serbian, Spanish, Swedish, Tamil, and Turkish.  This is ephemeralization on a cocktail of equine steroids and human growth hormones. It is impossible to deliver a world-class education free to anyone, anywhere and anytime without technology. This is scalability to the nth degree. Kids can learn what they want, where they want and what they want. If they want to run over a calculus video thirty times, they can do so. Ask your math teacher to repeat a concept thirty times and there will be a meltdown releasing enough radiation to harvest 25kg potatoes and three-legged dolphins for decades. Teachers can monitor the performance of each child and intervene when personalized instruction is needed. Artificial intelligence detects concepts that are not understood and reinforce them with additional exercises and practices. Machine learning can determine at what times of the day the students are more receptive to certain topics. The sky is the limit. The net result is kids who are engaged and interested. Teachers are more impactful and there is no need for obscene multi-billion dollar endowment funds. Technology will be used to enhance the teaching experience – it will not be used to replace teachers. Trend 3: One Size Does Not Fit All Not all kids are on the same level. Some are thinking about splitting the atom while others are trying to calculate when they last changed their underwear. How can you have two people with such different aptitudes in the same class? When I was at school, kids were sorted into classes based on grades. The smart kids in class A and the dumbass kids in class F. That was a real boost for the kids in the F class. Not only did they know they were stupid, but their stupidity was institutionally recognized. The education of the future will be personalized.  Kids will be able to cover what they want when they want and at the pace they want. This sounds like organized chaos. Let's take math as an example. Few things scare the living daylights out of kids more than an algebra pop quiz. Math is like building a house. It is done in a logical order. Until the foundation is laid, you are not going to start on the walls and until the walls are done you are not going to do the roof.  If you haven't grasped multiplication you cannot advance to fractions. If you haven't nailed fractions, you are going to break into nervous hives when it comes to algebra. In traditional education, the class moves through the syllabus at the same pace regardless of whether all the kids are ready to advance. Technology allows for personalized learning. Jimmy may be stuck on fractions. He runs the videos and exercises on fractions over and over until he nails it. The teacher is analyzing his progress from their iPad and knows when to intervene with personalized tutoring.  The smarter kids act as mentors. Traditional education teaches that quick is good. Studies have shown that some kids want to start slow, to allow the concepts to sink in and then to progress to the next level. Trend 4: Flipping the Classroom like a Pancake How about learning at home and doing your homework at school? This is the flipped classroom. At home, the kids run through instructional videos at the pace they desire. If they want to watch the video on the French revolution three times until they fully understand why the men and women in the puffy wings lost their heads, they can do so. At school, they can test their knowledge by running through some question exercises or entering into a physical debate with their classmates. At all times there is adult supervision. The teacher is not the one standing in front of the assembly line of kids. The kids are taking charge of their learning and displaying their knowledge actively and measurably. The teacher can assess who has grasped the concept and who needs attention. There is also mentorship.  Older kids can mentor the younger kids in the class. Why would they want to do this? This is going to help them in the work environment.  Jobs are built on teamwork and collaboration. Schools are not there to fill a kid's craniums with useless information. Modern schools should be equipping kids to go out and make a difference in the workplace. Soft skills such as communication and emotional intelligence are not taught. In a world that is changing so rapidly, these softer skills will become the constants necessary for success. Trend 5:  Project-Based Education Standardized testing has limitations.  You nail the test on Monday but by Tuesday you have forgotten half the material and by Friday you can hardly remember the subject of the exam. I am not calling for the beheading of standardized tests – although a poke in the eye with a blunt stick would be a good start. There is a place for them, but their weighting in student assessment needs to be reduced. You don't want to go to your doctor who tells you that he has developed his own cholesterol test. You score is 8000 - is that good or bad? He doesn’t have a clue. Standardized testing should be seen as one of many arrows in the teacher’s quiver. Modern education needs to pivot to project-based performance. This more closely assimilates a real-world work environment.  Instead of lecturing kids on capital markets and how to program in Python, break them into groups and get them to develop an algorithm that trades equity markets. The team that is generating the "best" algo gets the highest grade. "Best" can be measured in different ways. The grader can focus on more than just the return of the algo. They can also look at the historic risk, the distribution of returns, and the predicted risk, and the quality of the stocks bought and sold. Investors are not only chasing returns. They also want to ensure that Chernobyl type risks are not taken. In this way, there is a wider range of factors that can be rewarded in grading the output of the algo. Trend 6: Field Trips – throw the Kids into the Trenches I loved school field trips. Breaking out of Alcatraz for the morning was awesome. Kids need to get out into the field. Logistically this can be a nightmare. The arrival of forty oversexed kids at a condom factory could cause more mayhem than Woodstock. Field trips need to be targeted. Maybe a local bank needs help in the development of an application. You can get some kids involved by spending some time at the bank, understanding how bank systems work and then they can get to work in collaboration on the app. Lord knows the banks need all the help they can get. Trend 7: Let the Kids take Ownership Kids love college because they can select their own learning path – and they have access to copious quantities of beer. They can select the subjects they want to study and the career they want to pursue. This discovery needs to happen earlier in schools. Certain subjects will still be compulsory but kids must be able to study what they want. They are the most creative and curious human beings on the planet. A bored kid is an aberration of nature. It can only be achieved by an antiquated education system teaching them how to write calligraphy and conjugate the verb to love. They need to be given ownership of their education. They need to be able to study what interests them. This will help them find their vocation earlier in life. Traditional education thrusts a knife into the jugular of creativity. The secret to future education is to reverse this trend. Kids are not scared of being wrong. They will take a chance. If they don't know, they will have a go.  Being wrong and creative is not the same thing. Modern education and testing rewards the right answer and punishes the wrong answer. If you keep punishing the wrong answer, kids will stop taking risks and will soon become wired to believe that it is bad to be wrong. In a Ted Talk, Sir Ken Robinson tells the story of a six-year-old girl in a classroom. In most classes, the teacher noticed that she was disengaged, but when it came to art and drawing, she was attentive. The teacher walked over to her and asked her what she was doing. She said that she was drawing a picture of God. The teacher then said that nobody knows what God looks like. The girl replied that they will in a minute. If you are not prepared to be wrong, you will never come up with anything original. Traditional education teaches us out of creativity.

In the 1987 movie Wall Street, Michael Douglas as Gordon Gekko gave a speech where he said, "Greed, for lack of a better word, is good." He went on to make the point that greed is a clean drive that "captures the essence of the evolutionary spirit". I remember watching this as a kid and thinking that this was exactly what I wanted to be. He spoke to my Darwinian inner predator. Ayn Rand, famous for her colossal novel "Atlas Shrugged", maintained that capitalism is the only morally socio-political system because it frees people to act in their rational self-interest. She asserted that no politico-economic system in history has ever proved its value so eloquently or has benefited mankind so greatly. As I grew older, I started to wonder how the continuous pursuit of individual profit maximization could be good for everyone. Does the money miraculously trickle down to the masses and make society a better place financially?  Then I stumbled across the works of a little known German philosopher Karl Marx who said that capitalism did not work towards the common good. Whereas Adam Smith, the author of "Wealth of Nations" and the father of capitalism, saw the maximizing of self-interest resulting in a state of equilibrium, Karl Marx saw something else. He saw exploitation or a situation where an individual is not receiving benefits to meet his or her needs. Forget about the Rumble in the Jungle in Zaire between heavyweight champion George Foreman and Muhammad Ali.  How about Adam Smith versus Karl Marx live at the MGM Grand in Las Vegas? One thing that we learned about the 2008 financial crisis is that greed is not necessarily good. It was the toxic mix of banker greed and highly leveraged and complex financial derivatives that lead to the demise of Lehman Brothers and the biggest financial meltdown in the history of humanity. To understand this greed, you need to know how bankers are compensated. It does not promote moral behavior. When a banker steps into the office on January 1st, he knows that his world for the next twelve months is binary. He can either swing for the fences and take massive risks or he can play it safe. If he swings at every ball that is thrown at him, he may hit some and he may miss some. He will either make a lot of money or lose a lot of money. If he makes a lot of money, it is Verve Cliquot Brut all around, a fat bonus, Italian sports cars and gambling weekends to Monte Carlo. If he loses big, he may get fired (but there are lots of other jobs around) but there are no negative bonuses. He will not be called on to chip in for what he lost. He would be a fool not to seek out risk and gulp it down like a teenage kid with a beer pitcher on spring break. This is known as the privatization of profits and the socialization of losses. This very same risk-taking culture was endorsed after the financial crisis when governments bailed out reckless banks. The Emergency Economic Stabilization Act of 2008, often called the "bank bailout of 2008," was proposed by Treasury Secretary Henry Paulson, passed by the 110th United States Congress, and signed into law by President George W. Bush. The act became law as part of Public Law 110-343 on October 3, 2008, during the financial crisis of 2007–2008. The law created the Troubled Asset Relief Program to purchase distressed assets from financial institutions. If an alien from out of space, assuming that he had a better than average grasp of the English language, had to read this he would be more than a little puzzled. Why in the world would you need to create a relief fund for the greediest and historically most profitable organizations on the face of the earth? A relief fund for Wall Street is as mindless as towing a monstrous iceberg from Antarctica to Alaska to help the Eskimos make a giant pitcher of crushed ice for their margaritas. This is not to be confused with the South African who wants to tow an iceberg from Antarctica to supply Cape Town with water – that is genius. When the government bails out banks for bad behavior they are sending the wrong message. It is like rewarding a kid when they act well and supporting and comforting them when they behave badly. You are going to create a monster. Those are the kids rolling on the floor kicking and screaming in aisle 7 of your local Wal-Mart because mommy refuses to buy Junior a box of Cap'n Crunch Original. Capitalism is Broken The gap between the rich and the poor is rising and it is causing havoc around the world. According to data from Bloomberg, the wealthiest 30 people in the world controlled a combined wealth of $1.6 trillion in 2019.  This is more or less the same size as Canada, the world's tenth-largest country. That is an obscene amount of money. Before the opening of the World Economic Forum in Davos in January 2019, Oxfam launched a report on income inequality.  In the 10 years since the financial crisis, the number of billionaires has nearly doubled. Between 2017 and 2018 a new billionaire was created every two days. The world's richest man, Jeff Bezos, the owner of Amazon, saw his fortune increase to $112bn. Just one percent of his fortune is equivalent to the whole health budget for Ethiopia, a country of 105 million people. In addition, these billionaires pay minimal tax. The poorest 10 percent of Britons are paying a higher effective tax rate than the richest 10 percent (49 percent compared with 34 percent) once taxes on consumption such as VAT are taken into account. This is absolutely bonkers. This would all be easier to stomach if billionaires were salt of the earth people. Unfortunately, some are far from that. Case in point is Jeffrey Epstein, a low life, a perverted bottom feeder that sexually preyed on underage girls.  This miscreant reprobate is now weeping and gnashing his teeth for all eternity under the watchful eye of Adolf and his satanic crew of misfits. So how do you measure wealth inequality? The Gini index or Gini coefficient is a statistical measure of distribution developed by the Italian statistician Corrado Gini in 1912. It is used as a gauge of economic inequality, measuring income distribution or, less commonly, wealth distribution among a population. A society that scores 0.0 on the Gini scale has perfect equality in income distribution. Higher the number over 0 higher the inequality, and the score of 1.0 (or 100) indicates total inequality where only one person corners all the income. According to information from the World Bank published in 2018, South Africa is the most unequal country in the world. South Africa was also the country that presented the first opportunity for selective disinvestment in the 1970s. According to the World Bank report, seven of the ten most unequal countries in the world are from Africa while the remaining three are from Latin America (Brazil, Colombia, and Panama). The ten most unequal countries are emerging markets. Ukraine, Iceland, and Slovenia are the most equal in terms of income distribution. Those puzzled by the global rise of populism should put both hands on the ground, apply as much pressure to them as possible and extract their heads from the sand. Halfway through the Trump presidency, there were still democrats walking around bewildered and dazed wondering how a reality TV star could be president? Liberal Britons are no less confused with Brexit. This wave of populism is directly related to inequality. Sir Angus Deaton, the Nobel prize-winning economist said: "There is this feeling that contemporary capitalism is not working for everybody".  He adds that "We've created this meritocratic aristocracy and people who didn't make it are pissed off." Many feel the system is rigged. When the three wealthiest men in the U.S. own more than 160 million Americans, it should not come as a surprise that the U.S. has their first orange president. He came at the right time with the right message and delivered it to the right audience. Trump is a genius marketer.  His single biggest weapon is the fact that most people think he crawled out of a PT Barnum’s circus. Gender Equality - Moving Slower than a Central African Airport Official Kate Whiting, Senior Writer for the World Economic Forum published an article that made me fall off my chair. The article is entitled "7 surprising and outrageous stats about gender inequality". I was under the impression that we were making progress in the realm of gender equality. I am unhappy to say that we still have a very long way to go. Firstly, women are 47% more likely to suffer severe injuries in car crashes because safety features are designed for men. Secondly, 33,000 girls become child brides every day in communities where girls are not valued as highly as boys and a married of quickly to transfer the economic burden onto another family. Thirdly, women in rural parts of Africa spend 40 billion hours a year collecting water.  Fourthly, at the current rate of progress, it will take another 108 years to reach gender parity. Across the 106 countries covered since the first edition of the report, the biggest gaps to close are in the economic and political empowerment dimensions, which will take 202 and 107 years to close, respectively. Fifthly, only 6 countries give women equal legal work rights as men. It found that only Belgium, Denmark, France, Latvia, Luxembourg, and Sweden scored full marks on eight indicators. These indicators ranged from receiving a pension to freedom of movement. Sixthly (if such a word exists), 2 percent of AI (Artificial Intelligence) professionals are women. This could be due to lack of confidence. In 2012, just 14 percent of women starting university in OECD countries chose science-related subjects, compared with 39 percent of men. A 2015 PISA report found even high-achieving girls underachieved when they were asked to 'think like scientists'. Girls were less confident at solving science and math problems and reported higher levels of anxiety towards math. Finally, for every female film character, there are 2.24 men. The Geena Davis Institute analyzed 120 theatrical releases between 2010 and 2013 in 10 countries. They found that of the 5,799 speaking or named characters, less than a third (30.9 percent) were female and more than a third (69.1 percent) were male. The Roots of Ethical Investing An extreme example of worker exploitation can be found in my home country, South Africa. The legalization of racism in South Africa in 1948 provided the world with one of the first opportunities for selective disinvestment along ethical lines. In 1971, Leon Sullivan, an Afro-American Baptist minister, and human rights activist joined the board of General Motors. In 1977, he developed the Sullivan principles which were a code of conduct to promote corporate social responsibility. Sullivan lobbied GM and other large U.S. corporations to divest from South Africa while the system of apartheid was still in place. What does Ethical Investing Mean? Ethics is that part of philosophy that deals with the good and bad, or right and wrong in human conduct.  This is where we get into a little conundrum because we need to ask if morality is absolute or relative. An example of absolute morality would be practiced by the Christians and embodied in the Ten Commandments. Relative morality, however, also has its fair share of supporters. Marx argued that morality was a tool used to give power to the ruling class. Relativists do not believe that anyone person should dictate how others conduct their lives. Ethical investing means different things to different people. The objective of this book is to show how ethical investing has evolved and what factors are taken into account in the identification of "ethical" investments. ESG – Environmental, Social and Governance Ethical investing demands that companies, in addition to adding value to shareholders economically, also pay attention to issues such as the environment, social and governance (ESG).   Companies are given and ESG score. The higher the score, the more sustainable the business. To understand this, we will look at the German automaker Volkswagen. In 2015, Volkswagen came under the scrutiny of the United States Environmental Protection Agency (EPA). The EPA discovered that the company intentionally programmed turbocharged direct injection diesel engines to only activate their emission controls during laboratory tests. When the vehicles were out on the road transporting the kids to soccer matches, these vehicles were emitting 40 times more pollutants than in the tests. This scandal became known as Dieselgate or Emissionsgate. After this scandal, VW made an effort to get their act into gear and are going to use this example to explain how companies are scored on ESG. The numbers are correct as in October 2019 according to information provided by Bloomberg. Environmental This segment looks at total greenhouse gas emissions per million dollars in revenue (VW: 37.1 – lower value is “better”), total energy use (megawatt hours) per million dollars of revenue (VW: 102.3 – lower value is “better”), total water use (cubic meters) per million of revenue (VW: 236 – lower value is “better”), total waste (tons) per million dollars of revenue (VW: 14 – lower value is better) and the percentage of water recycled (VW: not scored – higher value is “better”). Social This segment looks at ratio of women in the total workforce to women in management (VW: 0.65 – a higher value is “better”), women employees as a percentage of total workforce (VW: 16.5 – higher value is “better”), employee turnover percentage (VW: 0.6 – the lower value is “better”), employees unionized as a percentage (VW: not scored – higher value is “better”) and lost time incident rate (VW: not scored – lower score is “better”). Governance This segment looks at the percentage of independent directors (VW: 25 – the higher value is “better”), percentage of board members that are women (VW: 25 – the higher value is “better”), director average age (VW: 58 – lower value is “better”), director meeting attendance percentage (VW: 90 – higher value is “better”), and Board Size (VW: 20 – lower value is “better”). Case Study Ethical investing is noble but how has it performed in the past? Are investors prepared to sacrifice returns in favor of investing in responsible companies? Some consumers are prepared to pay a higher price for a garment or item if they know that the manufacture and delivery process of the good was measured to have minimal impact on the environment, that no child labor was used and that women played an important role in the process. Does this same activism flow over into the world of investing? How have responsible companies performed in comparision to "irresponsible" companies? In October 2019, I ran a backtest in Bloomberg. I selected all the companies in the world that had an ESG score above 50 and compared their performance to the companies with scores below 50. I discovered that my ESG stocks have underperformed "traditional" stocks between 2009 and 2019 during the market rally. But the market does not always go up. They move around and when they get spooked, stocks fall like a stone. Merrill Lynch found this out the hard way during the 2008 financial crisis. Their byline used to be "Be Bullish". The financial crisis taught them that this was strategy did not always work. When the market turns nasty, you face a different reality. You find yourself in a dusty coliseum armed only with a butter knife and a used toothpick against a phalanx of hungry lactose intolerant tigers. These tigers are looking for meat and you, standing sheepishly in your sensible orthopedic shoes, are looking very tasty. When the Dow Jones Industrial Average declined 35 percent between February 20th and March 20th on account of the coronavirus scare, ESG stocks on average declined around 20 percent. The argument in favor of ESG stocks revolves around the debate of quality of returns. They may deliver less return, but they also expose the investor to less risk. In other words, they deliver better risk adjusted returns.

The world's concept of ownership and usage is changing. There has always been the great debate of rent versus own. Within the rental camp, there are now two subcamps – exclusive rental and shared rental. The shared economy falls within this second subcamp and makes for a compelling argument. Most people cannot tell the difference between an asset and a liability.  The definition of an asset and liability is very simple. An asset puts money in your pocket while a liability takes cash out of your pocket. Accounting is a wonderful discipline. However, it is guilty of one important disservice. It misleads people into believing that some of their assets are assets when they are liabilities. Death to Automakers Automakers are living in a state of denial. They are holding onto the antiquated belief that there is still exists a love of owning a car. There is no love in owning a car – there is love in driving a car. Car ownership opens your life to a world of complications – pushy car salespeople, rapid devaluation, hidden fees and costs, insurance, taxes, gasoline, maintenance, repairs, fines, and parking. In a world where there is a plethora of renting and sharing options, who in their right mind would you want to buy? I am not saying that you avoid all these complications when you rent or share.  You only pay for the time you use the car and not when it is gathering dust in the garage. Ride-hailing services have taken off as tree-hugging millennials look for ways to reduce the number of gas belching cars on the road. As at the end of 2019, Uber and Lyft boasted combined market capitalizations of almost $65 billion. The estimated valuation of Didi was $55 billion which takes the combined size of these three players to $120 billion. This is before the coronavirus got hold of them in 2020. Ride-hailing, however, is only part of the picture. One also needs to look at operator car sharing. Zipcar offers a fleet of cars with fixed parking spots that can be rented by the hour. Car2Go offers a floating fleet of cars that can be located on an app and rented for one-way trips within defined city centers. There is also peer-to-peer car sharing which is looking to disrupt the car rental business. EasyCar Club is a peer-to-peer marketplace that matches car owners with renters on an hourly basis. FlightCar allows car owners to rent out their vehicles from airport parking. How cool is that? To pay for airport parking, you need to max out your credit card and take out a second mortgage on your house. Now you can save on parking and generate some income in the process. It is like winning the lottery and discovering a cure for cancer. Finally, there is a peer-to-peer ride sharing. Bla Car matches drivers with passengers for intercity drives. Scoop is an app-based matching of pre-booked commutes with people working in the same area. The next time you are stuck in traffic and you are tempted to rip your brain out of your skull through your eye sockets, take the time to count the number of vehicles containing only one human. I would be surprised if the percentage was below 80. Pooling and sharing is the ticket to reducing the number of cars on the road, getting that traffic flowing and healing the planet. Your House – a Giant Turnip in the Country Blackadder was a BBC pseudohistorical British sitcom in the 1980s starring Rowan Atkinson (aka Mr. Bean). There is a scene when Blackadder (Atkinson) has the following exchange with his dim-witted servant Baldrick (played by Tony Robinson): Blackadder: So what would you do if I gave you a million pounds? Baldrick:: Oh, that's different. I'd get a great big turnip in the country. A little known fact about 2008 financial is that it has its roots in the 1990s with Bill Clinton. In 1995 Clinton took time off from using Monica Lewinsky as a human humidor and loosened housing rules by rewriting the Community Reinvestment Act. This pressurized banks to lend to low-income neighborhoods and facilitated the rapid increase in subprime lending. The reason Clinton did this was to strengthen his political base in those lower-income households. Clinton calculated that if he could facilitate homeownership and make it easier for these families to attain the American dream, there would be a greater probability of being reelected in 1996. Bill is a cunning fox. This lie of homeownership is just another way to enslave people financially.  According to Zillow, 37 percent of homes in the U.S. in 2018 were "free and clear" which means that they were not encumbered by a mortgage loan. This means that almost two-thirds were encumbered. There is nothing like a 30-year mortgage bond to tie you down financially. If you have a mortgage and a job, that is a very compelling motivational force to stay in that job until such time as that death pledge has been paid off. When I talk to people about financial freedom, the most common reason holding people back are debt obligations. Top of the list is that pesky mortgage. Also, these people firmly believe that their home is an asset. Robert Kiyosaki, in his book "Rich Dad, Poor Dad", says that the test of whether something is an asset or a liability is simple.  If it puts money in your pocket, it is an asset. If it takes money out of your pocket, it is a liability. Let's look at a house. If you living in it, and it is mortgaged, you are paying rates, taxes, and interest on the loan. It is clearly a liability. If it is "free and clear" it is still a liability, because you still have to pay rates and taxes, not to mention lights, water, and general maintenance. But property prices always go up. That is a fallacy. Speak to anyone who bought a house before the financial crisis of 2008. Real estate is like any asset – its price can rise or fall and if you are banking on your house price appreciating in value, then welcome to the world of speculation.  Real estate is a very powerful income-generating asset, but it is only an asset when it generates income. Airbnb – Converting Liabilities into Assets Airbnb is like beer. In the same way that beer has been helping ugly people have sex since 1862, Airbnb has been helping homeowners turn their liabilities into assets since 2008. This is the sharing economy at its best.  The company was conceived after its founders put an air mattress in their living room. They turned their apartment into a bed and breakfast to offset the high cost of rent in San Francisco. The goal at first was just to make a few bucks for a beer. Today it has a worldwide presence. You can rent a tent made from camel hair in the middle of the desert in Merzouga, Morocco; traditional Kazakh Ger in the Altai Mountains in Mongolia; and even a skypod which literally hangs off the side of a mountain in Peru’s Sacred Valley, outside Cuzco. The younger generation is driving this change in asset usage. They do not want to be tied down to one place and are looking for original experiences. There is also a strong focus on sharing and community. Investors can benefit from both sides of the equation. They can use Airbnb to generate cash flow from their assets and they can personally make use of their service in their business and private travels. Co-Working and Office Sharing According to Wikipedia, office sharing is a concept that allows companies that have redundant office space to share or rent workstations to smaller companies looking for flexible workspace. This creates revenue for the company that runs the office and provides a cheap, flexible alternative for companies looking for an office outside of their home. Office sharing is cool, but the first derivative of office sharing is much cooler – it is known as co-working. According to Wikipedia, coworking is an arrangement in which several workers from different companies share an office space, allowing cost savings and convenience through the use of common infrastructures, such as equipment, utilities, and receptionist and custodial services, and in some cases, refreshments and parcel acceptance services. It is attractive to independent contractors, independent scientists, telecommuting and work-at-home professionals, and people who travel frequently. Additionally, coworking helps workers avoid the isolation they may experience while telecommuting, traveling, or working at home, while also eliminating distractions. Some coworking spaces charge membership dues. Until the third quarter of 2019, the 800-pound gorilla in the office sharing/ coworking space was WeWork. At the time of writing this, WeWork was in a downward spiral. In the space of a few months, the following happened. They fired their mercurial founder chairman who had personally sold the trademark "We" to the company for $5.9 million. He subsequently returned the cash, which was big of him, but only after cashing out more than $700 million from the company before the Initial Public Offering through a mix of stock sales and debt. The company then canceled its IPO which resulted in an accelerated decline in valuation from $50 billion to less than $10 billion. Softbank, run by Japanese billionaire Masayoshi Son (who once threatened to set himself on fire if not granted a telecom license) took a $4.5 billion knock on its investment in Softbank. The decline of WeWork is not a blow to office sharing. The investment thesis of office sharing remains intact. The problems with WeWork were numerous, but the most important was that it was the tenant and the landlord. It typically rents large spaces, then creates ultra-modern workspaces out of them to re-rent out on short-term leases. It also owns some of the buildings in which it rents out spaces. The company, therefore, needed to borrow heavily. Its expansion plans were too aggressive and they got in over their heads. Spouse Sharing Bill Cosby, a comedian, and a loyal family man said that for two people to live together in marriage is the one miracle the Vatican has overlooked.   Ashley Madison is a Canadian online dating service whose tagline is "Life is short. Have an affair." In February 2019, the company announced it had reached the 60-million-member mark in 563 companies. This is known as the spouse sharing economy and business seems to be booming. #finance #money #business #investing #investment #entrepreneur #financialfreedom #success #stocks #wealth #trading #realestate #stockmarket #invest #motivation #forex #bitcoin #investor #accounting #cryptocurrency #marketing #wallstreet #startup #trader #personalfinance #entrepreneurship #credit #smallbusiness #goals

Risk is an interesting animal. You can take her out, buy her flowers and even marry her. They only thing you cannot do is eliminate her. Risk, like Keith Richards' liver, cannot be eliminated.  It can only be transferred and managed. Insurance policies do not eliminate risk. They transfer it to professionals who embrace it, manage it and monetize it. In 2016, David Rubenstein interviewed the Chief Executive Officer of Goldman Sachs, Lloyd Blankfein. Rubenstein asked Blankfein a question that, at first, seemed dumb. It turned out to be brilliant. He asked: “Lloyd, what is your job?” One would expect the following answer: “Well, Dave, my job is to make strategic decisions about the bank's products, customers, employees, stockholders, and goals”. Instead, he said his job was risk management. That reply blew me away. The job of the CEO of the world's most powerful and influential investment bank was risk management – not risk transfer or elimination, but management. Where do You Start? A good place to start is to have an intimate knowledge of the companies in which you are invested. The more you know, the lower the risks. When I ask people about how Google makes its money, the most common response is through search and advertising.  This is the obvious answer but there is a beast within Google that people often ignore - their Android operating system. The company does not disclose how much revenue is derived from Android. In 2016, Bloomberg published an article based on information that was leaked by Oracle - Google subsequently sued Oracle for the leak. It showed that 40 percent of the company's revenue ($31 billion) and 50 percent ($22 billion) of their operating profit in 2015 was derived from Android.  There is little wonder why Google wanted to keep this number under wraps because it shows what a big fat delicious cash cow Android is. It also shows how vulnerable Google is to a protracted trade war between the U.S. and China. In mid-2019, Trump signed an executive order making it illegal for U.S. companies to do business with Chinese companies. A few weeks later he rescinded the order and celebrated his incredible problem-solving skills. The press focused on the relationship between Apple and its Chinese suppliers like Hon Hai Precision. Tim Cook from Apple said that they would look to move 15 to 30 percent of their production outside of China. The press also looked closely at the relationships between U.S. companies and the controversial Chinese company Huawei and the work they are doing in 5G. Huawei had become a pariah in the U.S. in that it is often accused in the right-wing press like Fox and Friends for spying on Americans and stealing their technology. No one mentioned Google. Then Google did something quite unusual. Their top dogs petitioned the White House to rescind the order for the impact that it would have on Huawei. Why in the world is Google (or Alphabet as the holding company is now known) so interested in Huawei? After Samsung, Huawei is the biggest buyer of Android software. More than 90 percent of all the world’s phones run on Android while the rest are Apple phones using IOS. The Chinese mobile giants (Huawei, Oppo, Vivo, Lenovo, and Xiamoi) all use Android. If Alphabet is not able to sell them Android, that is a massive kick in the groin for Google. When the executive order was signed, Huawei users faced an uncertain future. Their Android operating system would not be updated and they would no longer be able to download or update American apps on the Google Play Store such as Snapchat, Instagram, Netflix, Uber, and others. I personally could not give a rat's bottom about Snapchat but when I cannot download the newest season of House of Cards or Breaking Bad, and my Uber app doesn’t work, I start looking for heads to clunk together. Huawei announced that it was seven years down the road in developing its own operating system known as Hong Meng. Huawei also announced that this new OS would not be a cheap imitation of Android. It would be 60 percent quicker and would support all the Android apps. Millennials all over the world with Huawei phones breathed a collective sigh of relief when they realized that they could keep wasting hours adding dog ears and mouse whiskers to their photos. Less relaxed was Google. If Chinese mobile phones migrated to Hong Meng, they would lose billions of dollars in revenue. Understanding the business and its revenue breakdown makes you a better risk manager.  The secret of successful portfolio management is not buying a thousand stocks through a mutual fund or an ETF. It is buying a handful of stocks in which you have a deep and intimate understanding. Buffett likes to invest in a business that is simple to understand. In a simple business, it is easier to understand the expected return and the potential risk. Value at Risk The most commonly used risk tool in portfolios is Value at Risk - also affectionately known as VaR. There is a heated debate between the father of VaR Phillipe Jorion and Nassim Taleb. Taleb is a Lebanese-American essayist, scholar, statistician, and former trader and risk analyst. He authored "Black Swan" and was one of the few people who saw the 2007/2008 financial meltdown before it happened. Taleb is a vocal critic saying that VaR is not unlike an airbag in a car. It works very well until such time as you are involved in a crash and at which point it is completely useless.  I find myself more in the Taleb airbag camp. VaR does have a role to play, although not nearly as important a role as Jorion would think. VaR is the Kevin Costner of finance – in a movie of 120 minutes, he should be given no more than 15 minutes of air time. If this is the case, why is it so widely used? The answer lies in the size and influence of the pension market globally and specifically in the United States. As at the end of 2016, according to information from the Federal Reserve, total assets under management in the pension market were $19.1 trillion which made it larger than the U.S. GDP. Half the assets under management are in public pensions and the other half in private pensions.  We are going to focus on the former. These funds manage the retirement savings of teachers, policemen, firefighters, animal control officers, correctional officers, bailiffs, transit authorities, crossing guards, coast guards, soldiers, immigration and customs inspectors, etc.  They are administered by a board of trustees. There are different kinds of trustees. Some are professionals from the world of finance and portfolio management. Others are member-nominated trustees or member-nominated directors.  They are nominated by the civil servants to ensure that their financial interests are protected. VaR is widely used because it is simple to understand by nonprofessionals such as member nominated trustees. The Essence of VaR Any person with three fingers can understand VaR because it explains risk in three numbers. Number one is the amount of money you can lose. Number two is the confidence interval and number three is the time frame over which this money could be lost. To illustrate VaR, we are going to use the most globally diversified equity ETF on the face of the earth . The iShares MSCI ACWI ETF is an exchange-traded fund incorporated in the U.S.A. The ETF tracks the performance of the MSCI All Country World Index and holds over 1200 equities in developed and emerging markets. With this ETF you own 80 percent of the world's market capitalization and in 2019 had almost $11 billion in assets under management . This confirmed that the world is not short of diversification disciples. As of the end of October 2019, the 95% 1-year VAR on this ETF was 17.55 percent. This meant that given a 95 percent confidence interval, the ETF could lose 17.55 percent or more in one year. At this point, the policeman takes out his Taser, plants it firmly on the table and says "what the %$#@ is a confidence interval"? No problem, VaR has you covered because it is very simple to convert a confidence interval (a term that very few people understand) into a probability (a concept that everyone understands). You simply take 100 and subtract the confidence interval (95) and you arrive at the 5 percent probability. This means that we are now ready to rephrase the risk of the fund to Lieutenant O Reilly who is now polishing his Taser: "there is a 5 percent probability that the fund could lose 17.55 percent or more in one year". Disaster has been averted, and the mild-mannered primary school teacher can put her bottle of mace back into her carpetbag. How are expected losses calculated?  Do we make use of a crystal ball, do we use weather forecasters or perhaps an expert in the reading of tea leaves or tarot cards? It would be really cool if that was the case but alas no. Three different forecasting models are used. I will present to you the three models in the most subjective way possible and I will then leave it up to you to decide which is prettiest, or the least ugly. We will go directly to the swimsuit edition of the beauty pageant where all is laid bare and imperfections are more difficult to hide. Contestant 1: Miss Parametric VaR Wearing the luminous lime retro styled bikini with the push-up top, Miss Parametric VaR's genealogy is the bluest of blue-chip. She is a direct descendant from Merton Black and Myron Scholes – albeit genetically modified due to the yin/yang imbalance in this relationship.  All the flaws of the Black and Scholes option pricing model can be evidenced in Miss Parametric VaR. She suffers from the assumption that market returns are normally distributed and crashes do not happen.  Miss Parametric is a cockeyed optimist. She believes that finance is underpinned by ethics, moral character, intelligence, empathy, and compassion. She is a country bumpkin and knows how to drive a tractor. Contestant 2: Miss Historical VaR A keen student of economic and renaissance history, wearing the caveman styled leopard print and weighing in at under 50 kilograms, Miss Historical VaR is a gal that is deeply rooted in the past with almost no prospect of developing and independent view of the future. After the dot.com crash in 2000 regulators went to great pains to ensure the following health warning was included in the marketing material of all financial products: past performance is no indication of future returns. Miss Historical VaR believes that this is ungodly and hankers for the days of chivalry, chaperones, and horse-drawn carriages. Contestant 3: Miss Monte Carlo VaR From the glamorous streets of Monte Carlo, where the city never sleeps, where the official color is gold and the international passport is pleasure, welcome Miss Monte Carlo in the diamond sequined one-piece bathing suit. Everyone wants to know her name. She has read "War and Peace", speaks seven languages and has a passion for working with less privileged children in northern Africa when she is not working towards world peace and finding new ways to split the atom. #finance #money #business #investing #investment #entrepreneur #financialfreedom #success #stocks #wealth #trading #realestate #stockmarket #invest #motivation #forex #bitcoin #investor #accounting #cryptocurrency #marketing #wallstreet #startup #trader #personalfinance #entrepreneurship #credit #smallbusiness #goals

There are numerous ways to leverage the meteoric rise of China. The three most common ways are starting up a business in China, selling your product or service into the Chinese market or sourcing products from China and then distributing them through your channels. Regardless of the level of engagement you choose, here are eight points that you should keep in mind. 1) The Government is Everywhere There is a widespread misconception that the government focuses only on large state-owned enterprises – known as SOEs. In reality, the government is everywhere from Alibaba down to a small business in a fourth-tier city. In September 2019, Bloomberg reported that the government of one of China's top tech hubs in Hangzhou was dispatching government officials to 100 companies to facilitate communications and expedite projects. It is important to understand the motivations of the state. Its principal priority is social stability. Economic and financial prosperity go hand in hand with social stability.  The government wants to ensure that private companies like Alibaba, the beverage giant Hangzhou Wahaha and automaker Zhejiang Geely do not start cutting jobs as the Chinese economic growth starts to decline. Government officials will also be looking to check that Communist party units are working well within the companies. Strategically, the government is more interested in some sectors than others. Oil and gas, railway transport, media, healthcare and 5G technology are examples of sectors in which they have a strategic interest because they are sectors that are directly related to social stability. This level of involvement also exists in smaller urban areas. Local governments are interested in all businesses, from small to medium to large. When you enter into a business transaction with a Chinese company, you are also indirectly dealing with the local government. 2) There is a Difference between Population and Market China has a huge population but that does not mean that it is a huge market for you. Only a small fraction of the population may be potential clients or consumers. In an extreme example, there may be no market at all for what you want to sell. Take peanut butter for example. It is the perfect vegan snack. According to data from Statista, U.S. consumption was close to $2 billion in 2019 resulting in an average per capita revenue of $6.04.  Chinese consumption was $7 million or per capita revenue of $0.01 and there is no indication that this consumption is going to take off any time soon. So if you have dreams of becoming a peanut butter billionaire in China, you may need to cool your guns and recalibrate your plans. 3)  Take Your Time Adopting the Anglo Saxon approach of getting straight to the point is not going to fly in China. Doing business in China is like distilling a single malt whiskey. If you rush, you are going to bugger it up with sloppy planning and analysis. One of the single most important factors is finding the right local partner. If you are in a rush, the chances are that you will either find the wrong partner or no partner at all. It is debatable which is worse – similar to sex, what is worse? Bad sex or no sex. The Chinese are masters in patience and the long haul. This is deeply rooted in the Confucian thinking that "it does not matter how slowly you go so long as you do not stop." If your Chinese counterparts sense that you are in a rush, they will find a way to use your impatience against you and you will walk away with a worse deal or no deal. Trust is a valuable currency in China and is the cornerstone of doing business. This is not the case in the West. You will need to build personal friendships and this takes time. There are two ways in which trust is formed. The first is trusting someone until they give you a reason not to. The second is not to trust until there is enough evidence to trust. China works on the latter basis, and hence the importance of time and patience. Friendships in China are built in social settings where everything but business is discussed. The copious consumption of alcohol in long dinners is the modus operandi. This means that you need to work on your drinking fitness or at least master the skill of surreptitiously disposing of the alcohol in all places other than your throat. There are a few tips on the drinking side. Firstly, heavy drinking can be delegated to one of the team members. He takes one for the team and leaves the rest of the team fit to resume the negotiations the following day. Another trick is to include female delegates who are not required to imbibe the same industrial quantities as their male colleagues. Note that the drink of choice in China is Bai Jiu which also happens to be the most widely sold spirit in the world. It sold 10.8 billion liters in 2018 which is more than whiskey, vodka, gin, rum, and tequila combined. It is distilled from fermented sorghum, punches alcohol by volume between 28 and 65% and can kick you harder than a menstruating swamp mule. 4) Lack of Information When Deng Xiaopeng opened China up for business, he made the analogy of "crossing the river by feeling the stones". You would be mistaken in thinking that the entry into China is via a wide smooth bridge. You need to feel your way because you are dealing with a country that does not play by the same rules as the West. In business, decisions need to be made without the same volume of information that is typical in the West. You need to gingerly feel every stone, assess if it is solid or not, and then step to the next. This can be disconcerting for many entrepreneurs. In China, there is always a story behind the story. Nothing is what it appears on the surface which means you need to ask a lot of questions. You need to probe and prod until you get to the bottom of things. It is dangerous to take things at face value. Also, there may be a person behind the person with whom you are dealing. You need to find who that person is because it is the motivations of that person that is going to determine the direction and velocity of the deal. This is a cultural issue and boils down to the insider/outsider syndrome. If you are an insider you are shown certain things. If you are an outsider, you are shown another view. Even within the insider and outsider syndrome, there are levels. 5) Be a Student of History There is great value in understanding the history of the country and the background of the company with whom you are doing business. The history of China is easy to find. It is the history of the company and the people with whom you are doing business in that company that is harder to ascertain. Einstein said that he had no special talent, he was only very curious. When it comes to China, you need to be exceptionally curious. It is not advisable to assume anything. You need to ask lots of questions. For example, find out about the history of the company with whom you are doing business. When did they start, who are the founders and the financial backers and what are their business motivations? 6) There are many Chinas China is an exceptionally complex place with many different nuances. The business culture in Shanghai is very different from the culture in tier 2 and 3 cities like Xiamen and Huzhou. If you take someone from Beijing to help close a deal in Xiamen, do not assume that the latter is going to embrace the former as a brother and comrade because they share the same passport. The person from the tier 2 city might have an inherent dislike and distrust of people from Beijing and treat them like a foreigner, or even worse than a foreigner. You need to remember that all business in China is local.  This, however, does not only apply to geography. It also applies to sectors.  Business culture is not the same in all sectors. There are marked differences in sectors such as consumer, electronics, energy, and transport. 7) Flat Organizational Structures are Rare in China Decision making is focused at the top of the organigram. You may successfully strike up a friendship with a mid to upper-level manager, but they may have minimal influence in the making of decisions. It is feasible that their job is simply to execute the orders from the top. Status is typically defined by formal position, age, and education. Also, be mindful of the fact that top managers are not typically inclined to delegate decision-making powers down to the lowly minions. 8) Ageist and Sexist If you are young and female, you will have an exceptionally difficult time breaking into the Chinese market. China placed an important premium on older men that have displayed a solid track record in business over the years. The rabid sexism should come as no surprise. China has a history of female infanticide that goes back 2,000 years. This was deeply rooted in the patriarchal nature of Chinese culture. Parents preferred to have sons that would support them in their twilight years. It has to be said that female infanticide is extremely rare in China today, but its history points to a deeply rooted sexism that existed and prevails in China. #finance #money #business #investing #investment #entrepreneur #financialfreedom #success #stocks #wealth #trading #realestate #stockmarket #invest #motivation #forex #bitcoin #investor #accounting #cryptocurrency #marketing #wallstreet #startup #trader #personalfinance #entrepreneurship #credit #smallbusiness #goals

In 2018, Donald John Trump, the 45th President of the United States declared a trade war on China. Who could have predicted this? No number of visits to spirit channelers, soothsayers and tarot card readers could have prepared us. You could have read the tea leaves, waited for Venus to come into line with the nineteenth sun of Orion’s belt, consulted the ancient oracles of Stonehenge and you still would not have come close. Trump imposed tariffs on washing machines and solar panels. The reason given was to eliminate the U.S. trade deficit with China.  On the campaign trail, Donald Trump made trade deficits out to be the Whore of Babylon. So what is a trade deficit?  Deficits exist when a country imports more than it exports. In 2018, the U.S. imported $540 billion from China and exported $156 billion to China.  This created a deficit of $384 billion according to data from Bloomberg. In that same year, the U.S. ran a $118 billion deficit with Mexico and $69 billion with Canada. The U.S. has been running trade deficits since Ray Kroc was flipping burgers and Saddam Hussein was building sandcastles on the beaches of the Caspian Sea. Back in those days, the biggest deficits were run against Libya, Japan, Saudi Arabia, and Algeria. Three of the four were on account of the American insatiable appetite for oil and the need to fill up their Oldsmobiles with gas, drive across the country to buy a pizza and return home – all on the same day. The year in which China broke into the top 5 of the trade deficit billboard charts was in 1990 when their trade deficit with the U.S. doubled from 5 to 10 billion dollars slotting in behind Japan and Canada. In 1999, China passed Japan as the U.S. largest deficit trading partner and from that date, the deficit has ballooned from $66 billion to $384 billion in 2018 as Americans developed a narcotic like addiction to cheap Chinese kit. To understand deficits, it is easier to use a simple domestic example. When a family spends more than it earns it runs a deficit. For this family to keep going financially, it needs to either open a meth lab or take out a loan to finance this gap. In the same way, the U.S. needs to go out and finance its deficit. It relies on the kindness of strangers - foreigners who lend them money.  These strangers do so through the purchase of Treasury bonds. The biggest foreign owner of U.S. Treasury bonds as of September 2019 was China, with almost $1.3 trillion followed by Japan, Belgium, and Brazil. For now and the near future, foreign demand for treasuries is more resilient than Keith Richard's liver. This will allow the U.S. deficit to rock on. Americans have reaped the benefits of lower prices on Chinese, Mexican and Canadian goods - $3 for a pair of tube socks at Walmart is not to be sniffed at. So what does Trump have against deficits? What did they ever do to him?  He supposedly built his “fortune” on other people’s money. In the 1980s, while we were growing mullets and bopping to Cindi Lauper, Trump was one of the most leveraged real estate investors in New York. In 1988, when Trump bought New York's famed Plaza Hotel, he paid $407.5 million. He got a $425 million loan. "If the world goes to hell in a handbasket, I won't lose a dollar," Trump bragged to a reporter. Trade deficits brought him into politics. In the 1980s, he bullied Japan for stealing jobs from the U.S. When Japan went into decline, he had to find another victim. He focused on China, 16-year-old Swedish climate activists, and the free press. Fortunately, or unfortunately, we have insights into how Trump thinks via his book "The Art of the Deal". The biggest insight from this trashy novel was that the world in his eyes is binary. Deals are good or bad. In the Trumpian mind, there is black and white, but no grey. He says deficits are bad because they represented a financial loss. If called upon, he would use the following example: when you buy a house for $1,000,000 and sell it for $800,000, you lose $200,000. Deficits, however, do not work like that.  The analogy is closer to buying a house for $1,000,000, slapping $200,000 down and financing the balance. Trump knows the difference. He is using deficits and tariffs as a smokescreen to distract the public away from what is at stake. The trade war of 2018/2019/2020 was not about tariffs on washing machines and solar panels. This war is about something bigger. It is about who will dominate the world in 10, 20 and 50 years.  This is Pinky and the Brain playing out in orange technicolor. Let us go back to the 1970s when the Chinese premier Deng Xiaoping met with a former peanut farmer named Jimmy Carter and announced that China was open for business. China would dedicate certain zones to the pursuit of capitalism and the free market principles espoused by Milton Friedman. At the time, more than 800 million Chinese lived in poverty. Jimmy was more than happy to have another trading partner. China was going to focus on low input mass-produced goods such as plastic flip-flops and garden furniture and was no threat to the U.S. machine. The biggest threat to the U.S. was still the U.S.S.R. In 1989, the Berlin wall came crumbling down signaling the end of Soviet communism. At this point in history, the United States felt bulletproof. In the 1990s, Clinton had other priorities, such as making Monica Lewinsky a household name. After 9/11, Bush obsessed over Saddam, ISIS, the Taliban and anyone who looked as if they may or may not have traveled to Mecca at some point in their lives. All the while, China was growing and pulling hundreds of millions of people out of poverty. Then came 2008, which was a key point in the Sino- American relationship.  First, we were treated to the summer Olympics in Beijing. This was the biggest and most expensive coming-out party in history. It was a bold statement that China was back and ready to retake its place on the world stage. A few months later, the collapse of Lehman Brothers and the biggest financial crisis in history saw all hell break loose. This altered the Chinese view of the U.S.. Up until 2008, the Chinese business model had been U.S. centric. When Lehman’s collapsed, China started to diversify.  They had previously thought that the U.S. was the smartest person in the room and were happy to have them as their dominant partner. Lehman showed that they were no smarter than Bevis and Butthead. China frantically looked for other consumer markets to whom they could sell their goods. The first port of call was its own citizens. Boasting a population of 1.4 billion rapidly urbanizing human beings, the Chinese Communist Party (CCP) put their back into increasing domestic per capita consumption. This is not easy in a country with a savings culture of Olympic proportions. The Chinese typically saved up to 40 percent of the income - most of this was into education funds for their kids. What happens if your kid was the next Albert Einstein and needed to go to Harvard? The Chinese also embarked on the belt and road initiative. This is the largest infrastructure spending plan since the Marshall Plan. It aims to spend 1 trillion yuan to connect the old silk road (the belt) and marine corridors (the road) to markets such as Africa. No, that is not a typo – the old Silk Road is the belt and the marine corridors are the road.  Belt and road caused a great deal of consternation in my continent – Africa . Our collective thoughts rushed back to British colonialism and the realization that the only good that came from it was rugby and high tea. A third change was moving away from manufacturing nylon thongs and shifting into technology and specifically hardware. The Dot.com bubble was a curious event and more curious was Silicon Valley’s reaction to it. In 1999, the tech mania lead us to believe the internet would replace old school "bricks and mortar" businesses. Private companies only had to add .com to their names and they could list on the stock exchange and make millions. The absence of solid underlying business fundamentals was no obstacle. Then the bubble burst, obliterating trillions of dollars from the stock market.  The logical response was to restore the equilibrium between the old and the new economies. This was not the case in the U.S. They stopped investing in hardware manufacturing such as chips, servers, and circuits.  Instead, they plotted a future of software and applications, spawning frivolous crowd favorites like Snapchat, Pinterest, and Match. All the while, the Chinese were hard at work building cellular towers and microprocessors. Hegel's paradox that what man learns from history is that man learns nothing from history held true. The Chinese recognized an opportunity and jumped on it like a fat kid onto a cupcake. In 2016, the U.S. presidential campaign kicked off and China was placed front and center by Trump. Americans realized that the sleeping lion had emerged from its slumber.  Former Czech President Václav Havel said that the rise of China has happened so quickly that we have not had time to be surprised. In my opinion, if the U.S. had tried to put the brakes on Chinese growth in 2008, they might have achieved something.  By the time Trump started the trade war in 2018, it was too late.  Trump's chief economic adviser assured the president that the Chinese would not retaliate against the tariffs - he could not have been more wrong. The Chinese said they would fight to the death, to which Trump's team said "o shit!" Now we need to understand Huawei because it holds the key to the trade war. Huawei is the second-largest smartphone manufacturer in the world after Samsung as of September 2019 according to data from Bloomberg. Smartphones, however, are the least interesting part of their business.  They are the world's largest telecom equipment manufacturer with almost 30 percent of the market followed by Nokia and Ericsson who are both in the mid-teens. Huawei is the frontrunner in the race for 5G. Sweden and Norway won the race for 4G and it provided a nice bump to their GDP and employment numbers. 5G is a far bigger deal because it introduces super-fast internet, which is exponentially quicker than its predecessor. So what do we know about Huawei?  According to Wikipedia, the company was founded in 1987 by Ren Zhengfei. Initially focusing on manufacturing phone switches, Huawei expanded its business to include building telecommunications networks, providing operational and consulting services and equipment to enterprises inside and outside of China, and manufacturing communications devices for the consumer market. According to financial information reported in Bloomberg, the company generated $108 billion in revenue in 2018. Only 65 publically listed companies generated more than $100 billion in revenue in that year. Huawei's revenue is on a par with BMW, Boeing, and Bank of America. The most interesting part of their financial disclosure is the amount of money they spend on Research and Development. In 2016, they spent zero on R&D – the same amount that Donald Trump donated to charity and paid in taxes. In 2017, Huawei spent $13.2 billion and in 2018 they spent $15.3 billion. In 2018, Nokia spent the equivalent of $5.4 billion and Ericsson spent $4.3 billion according to information from Bloomberg. Huawei spent 57 percent more on research and development than its two closest rivals combined. This reflects the strong drive that the company is making into 5G. Another interesting fact about Huawei is the percentage of the company that is owned by the founder. According to Huawei's website, Ren Zhengfei as of 2019 owned 1.14 percent of the company. The rest of Huawei is owned by its employees through an Employee Stock Ownership Program (ESOP). This has been in place since the beginning of the company. If you want to make a company successful, donating almost 99 percent of it to your employees is not going to hurt. So how will the ability to download all the episodes of "Game of Thrones" in 5 seconds lead the Chinese to world domination? Super-fast internet makes possible autonomous driving, genome processing and takes artificial intelligence and big data to new levels.  Not only are 5G servers quicker but they are also smarter. This makes possible the Internet of Things. The Internet of Things is a system of interrelated computing devices, mechanical and digital machines, objects, animals or people that are provided with unique identifiers (UIDs) and the ability to transfer data over a network without requiring human-to-human or human-to-computer interaction. Many companies favor Huawei’s networking and telecommunications equipment for its technological edge and low cost. The U.S. wants to hamper the ability of Huawei to build these networks because they are concerned about the security risks associated with networks maintained by a Chinese company with such close ties to the Chinese Communist Party. It is not necessarily easier to hack into a 5G network. The security concern is that it will connect more devices and this connectivity raises security red flags.  The U.S. and other nations have expressed their concerns that Chinese 5G equipment, chips, and software could be outfitted to spy on its customers – not unlike a Trojan horse within the world's infrastructure. The U.S. is also concerned that if Huawei dominates the 5G infrastructure space it could be a precursor to China becoming the world’s dominant economic and political power. Regardless of who you think will win the race for 5G, the continued growth of China is a given and you need to find ways to invest and exploit this growth. It is not always clear where Huawei ends and where the Chinese Communist Party begins. The line is blurred as evidenced by some unusual behavior out of China and Canada recently. Firstly, there was the arrest of the Huawei CFO Meng Wanzhou in 2018 in Canada for allegedly violating sanctions placed on Iran. Why Canada and not the U.S.? She smelt a big fat rat and was making a concerted effort not to enter the U.S.. Meng Wanzhou is the daughter of Huawei founder and CEO Ren Zhengfei who supposedly is a member of the Chinese Communist Party. Another event was Federal Express's refusal to deliver a P30 phone in the U.S. in June 2019. The Chinese government reacted by considering blacklisting FedEx in China. So what does China want? A common mistake in analyzing China is to do so through the lens of western values shaped by McDonald's burgers and the star-spangled banner. China is not a democracy and they do not aspire to become one.  They want power, affluence, and respect. They want to recover the respect they lost after the Opium Wars in the 1850s and want to retake their position as the world's dominant force. Do they want to colonize the world? Nothing could be further from their minds. China is the Middle Kingdom and, according to British journalist Martin Jacques, they have no interest in mixing with us lowly plebeians.  Belt and Road is an economic project to link China with new markets - not a modern version of lebensraum ala Adolf and his satanic crew. Investing in China needs to be done through local partners. When Uber entered China in 2014, they did almost everything right. They entered slowly. CEO Travis Kalanick met with politicians and made all the correct connections. They entered with a great product but they could not compete with the locals. They went head-to-head with the local leader, Didi, but could not sustain the price war and left in 2016 selling out to their rival. The lesson learned was that if you want to succeed in business in China, you need to associate with a local player. This brings into play a commonly voiced complaint of Donald Trump about forced technology transfer. When U.S. companies form these joint ventures, the Chinese partner makes the deal conditional on the sharing of technology. Given that these U.S. companies desire access to the world’s most populous market, they are happy to sign the technology transfer agreement. The rise of China also puts into doubt the future of the U.S. dollar as the world’s dominant currency. As of 2019, the share of global trade invoiced in U.S. dollars was three times more than total U.S. exports. Foreign governments accumulate dollars in reserves because they like to manage their exchange rate against the world's major trading currency. According to the IMF, in 2019, 61 percent of all reserves are in U.S. dollars, 20 percent in Euros, and 4.5 percent in Japanese yen and only 2 percent in the Chinese renminbi. In addition, foreigners hold two-thirds of all the $100 bills in circulation. Foreigners have effectively extended no-interest loans to the U.S. So what would it take to dethrone the U.S. dollar as the world’s dominant currency? Three things would need to happen: firstly a massive event that undermines global confidence in the U.S. dollar, secondly there needs to be a viable currency alternative to take its place, and thirdly the two biggest holders of U.S. treasuries (China and Japan collectively owned more than $2.2 trillion in U.S. treasuries as at 2019) would need to enter a wholesale selling of their bonds. #finance #money #business #investing #investment #entrepreneur #financialfreedom #success #stocks #wealth #trading #realestate #stockmarket #invest #motivation #forex #bitcoin #investor #accounting #cryptocurrency #marketing #wallstreet #startup #trader #personalfinance #entrepreneurship #credit #smallbusiness #goals