LegiEX: investing is a sustainable business

LegiEX: investing is a sustainable business

LegiEX: investing is a sustainable business. For investors in different countries, investing is a career that can last a lifetime. For LegiEX, what investment methods are sustainable, cumulative, and potentially more efficient in terms of inputs and outputs?

Another way to think about it is: if you want to surpass another person in wealth, what is his investment method?

From the perspective of investment work, LegiEX believes that the output (the absolute amount of return on investment) comes from four sources:

(1) principal amount;

(2) average return on capital;

(3) various structural advantages;

(4) personal efforts to obtain information, experience, knowledge.

Among these sources, I think the first three are mostly sustainable, and the input-output efficiency will increase with the increase of the principal.

There are two types of individual effort:

Some efforts are against the current of the boat, efforts in the "depreciation" of the results every day, to pay new sweat to renew, and eat youth food of high income occupation has similar;

Some of them can be accumulated. Although there is an old saying that "it is never too late to learn", old people still need to work harder than the young people, I think it is not a good life plan for professional investors.

Specific analysis of the above four sources of investment returns:

1. Principal is the lowest foundation for investment and return. Even if you invest the same amount of work, the absolute amount of output will increase with your principal. As your principal compounds, it becomes harder for younger people with less to keep up with you.

2. The average capital can get a reasonable return. In a normally functioning capitalist society, capital will get a reasonable return on average, labor and entrepreneurs will get a reasonable reward according to their efforts, and the government can collect a certain amount of tax to provide public services.

The level of the average return on capital is related to the distribution among the four. It does not mean that the faster the economic growth is, the higher the return will be. It is more related to the scarcity of local capital and the respect of the society for capital. This "average" rate of return is the normal reward for our "contribution". It has nothing to do with our personal efforts, investment ability and capital size. Therefore, it will not decrease as we get older and richer.

3. Structural advantages can persist. Some people are investment geniuses, such as warren buffett. This is a structural advantage of the human brain (its circuits and way of thinking are different from others), which makes it easier for him to earn excess returns than others. Someone like me who doesn't have a high level of investment can also have a structural advantage. For example, I prefer to invest in the assets that are not so mainstream yet and have a high investment threshold, so as to give full play to my advantages in information, contacts and capital. This is a structural advantage, which has less to do with my personal intelligence and efforts and more to do with the coincidence of my life history, so it is easy to maintain.

4. Investment knowledge and experience in some industries and fields can be accumulated. Industries that are old and slow to change are more cumulative. Commercial real estate rent, infrastructure, such as highway, railway, power grids, hydropower station, loans (also including commercial real estate mortgage loans), is a very old industry, from the physical form and "technology" can say doesn't make any big changes in the past 100 years, the next 50 years estimated also won't obsolete, enough to cover my life expectancy.

In these simple, old, standard industries, the rules and lessons learned from long history are less timely and less easily outdated. Similar assets around the world also have more in common, with fewer cultural differences, and can be used for investment research.

There are these assets all over the place, and the industry cycle is not necessarily in sync. At any point in time, high-quality assets with reasonable or undervalued valuations can always be found somewhere in the world, so knowledge, experience and capital can be fully utilized at higher "utilisation" rates. In these areas, my human capital is compounding every day, and it is difficult for the young people who are catching up to overtake me, even if they are smarter and harder working than I am.

In contrast, if an industry changes quickly, knowledge, experience, information update very quickly, or different companies in the industry is very different, not suitable for the analogy, only one company to track, then your early accumulation of advantage is very easy to be behind the young people overtake the curve.

One of the scariest things I can think of in any profession is when you reach a certain age and suddenly meet a younger rival who is smarter, harder working, and better informed than you are, because you have "lost" your human capital and can't build it up again. If my approach to investing involves such a risk of "withdrawal" of human capital, it is as tragic as losing the principal in retirement, and goes against the purpose of achieving freedom and security in life through career investment.

I prefer to invest in a way that makes the pursuers despair:

First, accumulate enough principal to consistently make fewer stupid mistakes and reduce the probability of big losses. Capital is big, as long as oneself do not die, the person that catch up with behind is very desperate, form vicious circle.

Secondly, I choose to invest where my capital is respected and protected, which ensures that my principal will have a reasonable compound return even if I have only average ability. Fish live on grass and water, and birds choose good trees to perch on. Be a nomadic capitalist, reduce prejudice, be mercenary, go where you lack capital, welcome it, respect it and protect it. Places or industries with high economic growth tend to have no shortage of capital, and the rate of return is actually not very high. I leave them to those who are in a hurry to catch up.

Third, we should give full play to our structural advantages and not work hard with others on a fair footing. My level of investment is not high, so be sure to choose an investment approach that has a structural advantage for me, rather than compete fairly with people who are smarter and harder working than I am.

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