Scarcity Induced Creativity
Less becomes more if you embrace making more out of less.
I was fascinated to read about the popular hashtag #starbucksnamefail on twitter and Instagram. It created a social media buzz for Starbucks, created the excitement that paid advertisement could struggle with, induced people to visit the cafe and share their names on the cups spelled wrong and the cycle just repeats. Even the star of Apple TV’s “The Morning Show”, Reese Witherspoon had her cup with her namefail as “Greece”. That surely got 1000s of likes and retweets, basically eyeballs for Starbucks, for FREEE.
That’s marketing induced by scarcity. That’s gaining attention with a small blank space to play with in the store. It’s a genius idea and these ‘scarcity induced creativity’ shows up in so many success stories I have read. Steve Job’s insistence on making a computer without the tray to hold CD’s forced Apple’s engineering team to come with solutions that hadn’t been tried before. And they succeeded handsomely.
Even Elon Musk’s drive to launch a rocket at less than 1/10th the cost of those built by it’s competitors kept the entire team on their toes 24/7 to come up with engineering feats never fathomed in the Aerospace before. I remember a vivid image from Ashley Vance’s book of Elon Musk staying up 20 hrs for days on, to succeed in his endeavour to launch their rockets successfully. And they indeed, did it with aplomb.
But ‘scarcity induced creativity’ is mostly spoken in terms of Corporate Success stories that cover Technology, Marketing, Branding or Sales. In spite of it, having the same impact on many investors who are seeking solutions for their end goals or their strategies.
Let’s look at the definition of scarcity first. Investopedia defines it as “Scarcity refers to a basic economic problem—the gap between limited resources and theoretically limitless wants. This situation requires people to make decisions about how to allocate resources efficiently, in order to satisfy basic needs and as many additional wants as possible.” Whereas Dictionary defines it as “insufficiency or shortness of supply; dearth; rarity; infrequency.”
As an Investor, the limitless wants would refer to Lifestyle, Security, Financial Independance, Multimillion Dollar Bank A/c, Time Freedom, Compounders in the Portfolio and psychological traits that make these possible. Fundamentally, these refer to (1) Saving Enough, (2) Having the required Skills & Mindset to grow these Savings into (3) a bigger evergrowing pile.
Whereas the limited resources would refer to dearth of time, lack of skills, not a great network to tap into, a job that leaves zero energy by the end of the day, weak mindset, no savings or worst of all, no income.
On a general note, Scarcity increases negative emotions like depression and anxiety. It also creates feelings of misfortune and envy. And with this baggage, it becomes really difficult, next to impossible to become good at investing. But what if you embraced the scarcity card dealt to you, knowing that others have been dealt a worse hand and make most of the resource you have. Even if you just have time at hand, just time, think about what can be done with that.
Gaurav Munjal, founder of multibillion dollar start up Unacademy, started with posting free videos on Youtube. You could use any phone with a camera and Youtube allows you to post your videos for free. Gary Vaynerchuk, Founder of Vayner Media & many other companies, posted videos on Youtube for 6 + years before people started taking notice.
If Videos is not your thing, then you can take onto writing online. You could use Substack, Medium or any other blogging site. You could learn about these platforms from Youtube and you could even get access to best ways to build a community of followers for your content online, for FREE. Howard Marks, Founder of Oaktree Capital, manages more than USD 100 billion dollars through their firm and has been writing memos that are the most sought after in our industry. But in his own words on Patrick O’Shaughnessy’s podcast, he stated “For 10 years no one cared about what I wrote or who I was, until one day they did.”
Or you could teach on platforms like Skillshare, Unacademy, Udemy or provide freelance services on websites like Fiverr or Upwork. These may not provides you gobs of money today, but they will provide you enough to bring home to survive and open doors for bountiful relationships and collaborations in the future.
If time is the only thing you have, then you may have to play short term games via odd jobs that come to you by luck or your networking skills. But you also can play the long term games on the side, and double up your time and efforts in it once you start gaining traction in it. There ain’t a defined path for how it will shape up, but that path has been travelled by thousands of people and their stories are available online for FREEE.
If you are bringing home the money, the second step comes down to saving enough. This sounds simple but it isn't . I’ll give you a simple example about having an AED 15 coffee st Starbucks. I see my colleagues incurring this expenditure daily. Nothing wrong with it but I choose to keep Organic Grounded Coffee in my drawer always. That costs me AED 35 and lasts me 2 months. Whereas AED 15 for 24 days in 12 months would amount to 15 * 24 * 12 = AED 4,320. Whereas my coffee expenditure is AED 210 over the year. That’s a saving of AED 4,110, which can get invested profitably and can be seen as follows -
I haven’t factored in the dividends paid by Nike in all these years. With dividends, the current value will only be higher. What if, you got creative with saving money. You don’t stop at cutting down the lazy habit of consuming artisan coffee, but look at every expense that can possibly be reduced.
I don’t want you to think of me as stingy but I do avoid any expense that isn’t necessary. I eat daily at the same organic restaurant after my workouts and I get a damn good deal for my meals. I drive a VW Passat even if I could buy a BMW cashdown today and the only reason is that my drive time isn’t more than 7 hours in the whole week. Then why spend my income on a fancy car when I could invest the same. But I did gift my wife an Infiniti on her birthday and that’s my gift to her for being the beautiful soul that she is. As for me, Passat works just fine.
If there is an expense, there is an asset allocation decision to be made here. Is it necessary? Can it be substituted? Does it have an adverse impact on my personal or career goals? Am I sticking to it because it makes me look good? Is it actually tangibly better for me or I could do without it? Does this serve my long term goals?
This kind of thinking is key for an Investor. A successful investor has take decisions on asset allocation, position sizing, entry and exits. He also has to conduct comparative analysis, industry analysis, stock selection, reviews, process audits and sometimes forensics. He also has to build his pool of worldly wisdom and knowledge of behavioral biases to keep him sharp and on his toes always. Hence being thoughtful about money comes with the territory of compounding your money.
But human mind cannot fathom the magic of compounding in the long term, it’s just not designed to think naturally about geometric progressions. It gives in easily to linear relationships i.e. if I work 10 hours a day diligently, I will secure my job and bring in some perks. Or, if I study hard now, I will be able to clear my exams in a weeks time. If I spend today on fancy things, I will create the right impression on others. These are linear in nature and results are proportionate to your efforts, sometimes even lesser. Life isn’t fair indeed.
But Investing isn’t a linear game. It’s an endeavor where payoffs are non-linear and the geometric progression of your capital growth could be staggering, if allowed to run for a very long time, uninterrupted.
The next stage is allowing for uninterrupted growth. Now this is a tricky one since we all are biased towards action i.e. there is a constant urge to buy or sell. The mind craves for a dopamine fix on constant basis and in investing it comes from over trading in your Broker Accounts. And uninterrupted growth comes from inaction i.e. buying a quality company and holding for the long term.
The former sounds very exciting but is an energy drain unless you have the psyche of a trader. I surely don’t. I would like to buy for the long haul and see my money double every 3 - 4 years. It’s not exciting and it requires a lot of inaction but it works for many Investors and rewards handsomely, as shown in the Nike example earlier.
The mindset that is needed for this kind of investing isn’t easy to sustain when you are surrounded by the ones that trade regularly, or buy stocks on tips or because they feel like it. It would require you to cultivate relationships (online or offline) with people with the long term mentality. It would require you to be in the company of people that will pound that message in you, again and again until it becomes a part of your personality. And if you don’t have these kind of people in your circle, it’s time you build a new circle. Even that information is available online, for FREEE.
Investing looks like a solo sport from the outside, but within, it’s all of us standing on the shoulders of giants that came before us. The real question is, would you like to scale higher and achieve your ambitions. YOLO doesn’t only refer to buying shitcoins. It could also mean going for the big gains, just slowly and steadily.
The mindset alone isn’t enough, you will need the skill sets too. Buying into individual companies will require you to understand the industry in detail. Post industry, you will need to analyse various metrics to evaluate the companies therein i.e. Management, Business, Financial and Valuations.
Insight into the Quality of Management will require you to view video recordings of the management, assess the execution on the business compared to what’s been said years ago, understand the breadcrumbs being left on the concalls and learn how to read between the lines.
Business Understanding comes via Annual reports, Quarterly Calls, Peer to Peer Analysis, Research Reports or Coverage from other Analysts on Valuepickr or SmartKarma or other providers. It also entails doing Porter’s Five Forces Model, assessing the tailwinds or the headwinds, unit economics, fragility of the business moat and the culture of the company.
Financial Understanding comes only with a decent grip on Accounting. You are blindfolded in this game unless you ain’t proficient with numbers i.e. ratios, percentages and probabilities. Everyone (especially the management) are pro at weaving narratives that make for a good story. But it’s the numbers that reflect the authenticity of the story or the lack of substance therein.
The last is the Price or the Valuations. You could use DCF, Reverse DCF, Sales Multiples or Earning Multiples. None of these will give you a concrete number to go by since these are based on lot of assumptions of growth rates, terminal values, cash flows, etc. But it could give you a range of values and then you need to be able to compare the current price with this range, and ask yourself if there is enough margin of error or not.
These are the books I am currently reading, along with my participation in the Intensive Valuation Course from SOIC. The intent is solely to get good at the game of stock picking. Accounting or Business Analysis doesn’t come to me naturally and I am constrained here with my 18+ years background in Sales. Add to that, my day job isn’t about Stock Picking or Business Valuations and hence I only land up working on this skill on weekends or 1-2 hrs on weekdays i.e. totally 15-20 hours/week.
But, if that effort could add even 2% more to my compounding results, the difference can be enormous. So, let me share with you the non-linear nature of Investing once again.
AED 100,000 could grow to enormous sums over many years of uninterrupted compounding, only if you allowed it to grow uninterruptedly. That would require skills, mindset, networks, time, energy and mostly the desire to really be financially independent one day, so that you could do what your heart pleases not what others need you to do.
That journey can begin today, even while your earning maybe AED 1000 a month or less. You may barely save any, but then you have time and with enough hussle on the side, that AED 1000 can grow into a bigger pie. This ain’t a pep talk since I speak from experience. My first salary was AED 150 selling TV sets in Charni Road, Mumbai in 1998.
What is easy is hoping to win a lottery or take short cuts. What you don’ty realise is that it ain’t easy for many to manage their money if it came easy. Vanderbuilts were once the richest people in the world, but have seen their wealth being squandered from one generation to another. Anil Ambani did the same.
Why do you think many lottery winners do not land up saving most of their winnings and compounding their wealth over time? The only reason is that they weren’t prepared to make most of scarcity or hussle to keep increasing the pie. They weren’t learning from the greats or learning about human psychology when they had the time. But when the windfall gains came, they got new friends, news business partners, lifestyle advisors, rare art collection advisors, boutique bankers and the works. Easy pickings always attracts the vultures from even far off places.
Scarcity that you experience today may feel like a burden or an unfortunate incident to you. But the very scarcity, makes you creative about using your time to learn new skills, when others would be chilling at a club. Scarcity of money, makes you creative about enjoying your life with little while others are blowing their income on fancy lifestyles. Scarcity of networks, makes you creative in tapping into new networks online/offline.
When I decided to switch away from Sales and move into Advisory, I opted for Kaplan Tutorials for completing my CFA. I could have studied on my own but the main reason was to make a new circle of friends, explore new opportunities via them and broaden my horizon. 1 year later, I had cleared my CFA, started a podcast with my batchmate, built my own newsletter, found amazing friendships and as luck would have it, even got promoted at my workplace,
I didn’t have the requisite skills or the network, but I put in the time to build one. Scarcity of any kind, could break a weak willed soul or get the creative juices flowing within an ambitious one.
Enjoy the glass half full. As for the part that’s empty, that’ll make up for a good story years down the line.
Enjoy the hussle. It’s worth it.
Recommendations for this Week :
Morgan Housel’s piece on Little Things will brighten up your mood. It will make you reflect on the amount of good luck that has made those successful achievements possible for you, or averted the miserable failures that you had a very close brush with.
I came across an article from Michael Maubossein, Head of Consilient Research at Counterpoint Global, that was written in 2016. It’s a gem for anyone that aspires to become a Business Analyst or a Successful Stock Picker.
a16z launches their own media company and this article by world’s foremost Venture Capitalist, Marc Andreessen will create the canvas of the future to come.