The Velocity of Wealth Creation


What’s the difference between speed and velocity? Speed has only a magnitude, while velocity has a magnitude and a direction. In other words, it’s a “vector” physical/mathematical quantity.

What does velocity have to do with wealth? A lot!

Like it or not, time is an essential variable in the wealth equation. We’ve seen in several places how we could use time to our advantage, as intelligent investors. For example, once you find a “wonderful business”, you don’t pay the “sticker price”. You “wait” till the share price of that business drops low enough to give you a Margin Of Safety (MOS). Please review the first few articles.

The velocity of wealth is the pace and direction at which you move towards achieving your wealth objectives.

There are several factors that affect that pace. Your age, the stage of life you’re currently at (a student, an employee, a family man  a retired person, etc), the geopolitical environment you happen to be in, the influence of your family, friends, co-workers, your upbringing, the level of your self-esteem, the amount and quality of the financial knowledge you have.

At some stages, it’s wise to focus a considerable portion of your time and energy on wealth creation. This would give you the freedom to slow down at other stages, and focus on other priorities.

So your wealth creation velocity changes speed, and sometimes direction, as you move from one stage to another, or as you change any of the factors mentioned above (the list is not inclusive, you could come up with other factors relevant to you).

You could also derive from the above that your financial wealth creation, is but one of your priorities. Hence, it’s essential to have a vision of your life that encompasses all your priorities, values and roles. And a mission statement, which maps out the distribution of all of these elements across your life.

A question may arise here: Can one increase or decrease his/her wealth creation velocity, without negatively affecting other areas of their lives?

Yes they can, but not randomly or abruptly. For example, when your family responsibilities are at their minimum, you can dedicate yourself much more to wealth building (instead of wasting your resources on meaningless activities). This would pay dividends later on, when you don’t have the same amount of free time.

As a rule of thumb, the earlier you start the better. I know people who started investing in their teens. Don’t wait till before retirement to think about your financial future. It would be late, but not impossible. There are always ways to start all over again, and as the saying goes: It’s never too late!

The Wealth Maker



Value-based Investment: A Symbol or a Business?

Ben Graham had come with a paradigm shift, using today’s strategic terminology. Stocks had been seen through their ticker symbols: paper vehicles to make money in the future, relying on some emotional expectations of the price going up, luck, hype, and above all, Mr. Market’s moods.

The paradigm shift was significant. It simply devised that a stock symbol represents a company; a business in other words. For the stock price of that business (its ticker value at Bay Street, Wall Street, or any other “street” for that matter) to go up or down, keeping Mr. Market’s modes aside, something has to happen in that business.

The analysis goes even deeper. Before allocating capital to a “symbol”, an investor must know if the business behind that symbol deserves what it is being sold for. Very simple, just like grocery shopping. One wouldn’t buy a pound of tomato for $100, or a gallon of milk for $50. Yet investors do that, till today, in stock exchanges around the globe.

The reader would wonder: Why? Because they rely on second-hand information, which blows the actual value of a stock out of proportion, and then fuel that with hype that the price would go even higher. We all know too well what happens next.

Ben suggested that before you allow yourself to buy a stock, find out what its “Intrinsic Value” (IV) is. Does that gallon of milk deserve $50? Of course not. Then how much? The IV of a gallon of milk is around $3. That is common knowledge. Finding out the IV of a stock is not common knowledge. It requires deliberate research. However, that work is essential to making informed investing decisions.

To be continued…