Risk and Opportunity: A love story that knows no limits

WHY DO WE DO THE THINGS WE DO?.......

It's another Monday and we have a new topic on our hands. Have you ever asked yourself why people do certain things? Even the things we do on a daily basis, why do we do them? Why do you brush your teeth? Why do you take a bath? Why do we have three meals a day? These are basic things that we were taught from childhood, but why where we taught these disciplines/habits? For starters you have to brush your teeth to keep them clean, bath to keep your body clean and eat to have energy or to grow. So basically what I'm getting at here is that there is a reason that is closely associated with why we do the things we do; even the simple things!

RISK VS. REWARD: FATAL ATTRACTION.......

Risk. When you hear that word, what does it mean to you? When we were younger our parents often told us not to go outside the gate, to avoid strangers and other rules to ensure our safety. I mean now that you are older you can do whatever you want to do because you are more knowledgeable of the world and how it works and will not knowingly put yourself in danger. However back then your parents would enforce this upon you. Why? Well they were trying to prevent the chance of you getting hit by a car on the road, getting lost on the road, avoid getting kidnapped, etc. As you grow older you naturally understand the way in which these things happen. 

But lets not get ahead of ourselves here, what am I trying to say? Your parents want the best for you and they will eventually let you be your own person and let you make your own decisions. At the time we may have been too young to understand why they did what they did to avoid the chance of something bad happening to you before you can make a right decision for yourself with better judgement. The chance of something happening to you is what we call risk.

I have used the parent-child analogy because it is easier to relate that to risk. A lot of times I will hear people tell themselves or tell me that "oh that sounds like a good idea but it is too risky for me." Granted, I accept that because that tells me that this person probably is knowledgeable enough to see that they are uncertain of the outcome of an action and would rather avoid it all together. Regardless, I am sure that most of us still take certain risks no matter how small they are because we want to achieve something. Why? Because there is a reward that awaits your action. Basically where there is risk, there is reward (something you've heard many times before).

When you learn to ride a bike, there is always the risk that you might fall. But on the flip side, you eventually learn to ride a bicycle for a lifetime! In the previous blog post, I delved into the topic of assets and liabilities a lot. Learning to buy assets or own assets is a process similar to riding a bike, there are always risks associated with investment/investing in assets. Whether you are starting a small scale business where you buy and sell certain products, or it's small scale farming; there is always going to be a risk attached to that. You could lose all the money you invested, you could get robbed, you could be doing it the wrong way and never earn what it was you initially put down. On the flip side, if you stay the course and work on getting better at whatever it is you decide to invest in, slowly but surely you will get better at it, you will improve and you will not worry about the risk of failing because you know that you will get there. Just like the way you would eventually learn to ride your bike!

A lot of people associate business people with the phrase "risk-taker". I do not necessarily agree with that. I mean of course all business people assume a certain level of risk in running and operating a business. However successful business people and investors make "calculated risks". The difference between your average Joe and an investor/business person is that they will take a risk to start up a business after properly assessing all possible risks to be taken up and rewards to be gained. They will assess the risks very thoroughly and already start to plan on how to mitigate that risk beforehand so as to reduce the chance of surprise and force a correct reaction. That is what we call a calculated risk. These are risks that could occur but the damage can be limited with certain pre-planned actions. 

For instance, a trader won a contract to supply MK 300,000 worth of cloth to a company over a one month period. They start business with only MK 200,000 worth of clothing meaning that they know that they do not have the additional capital to fulfill this particular order. They are at a risk of losing the contract if they do not fulfill their order. So knowing this beforehand they would probably draw up an agreement to supply the goods in two phases; MK 150,000 over the first two weeks and MK 150,000 over the remaining two weeks. This would give them ample time to source more cash/capital to fulfill the order. Whether they lend the money or request part payment from the company on each delivery. This is a simple demonstration of a trader who found an opportunity and took a risk to turn a profit which is their reward.

More often than not we hear the phrase that goes "the higher the risk, the higher the return". This is true, but I would say "the higher the calculated risk, the higher the return". 

OPPORTUNITY: THE FULL CIRCLE.......

We live in a world that is a plethora of opportunities. It is a digital age. Gone are those days when you had to go physically to a marketplace to conduct trade of any kind. Gone are the days when telemarketing was the order of the day. What is my point? In 2020, you actually do not need to own a building or rent a shop to conduct business. You can do it from home. Or you can do it the traditional way because there is no harm in it either to go office to office, market to market to earn money. The world is full of opportunities. We just decide to turn a blind eye. 

I have friends that I probably always tell them the same thing over and over again. I repeatedly tell them that, "You can do anything nowadays if you apply yourself." The only limitation is yourself. You are probably a customer of several businesses, business people and you are probably not always satisfied with the services you are offered. Well then why don't you show them how to do it better? Daunting huh? Not really. I am just pointing out to you that there are opportunities everywhere even when the economy looks bad. 

I like to focus on "niche" business models because they fill in those gaps that big businesses fail to since they do not have a personal touch. Also in a niche, you can easily outmaneuver competitors that are doing the same thing on a small scale. Opportunity breeds opportunity and it is up to us to take it when it arises. You should know that every time you decide to turn away from an opportunity because you are scared of the risk of losing out, someone else is there to swoop in and utilise that same opportunity you left. Are you sure you want to live a life with regret? Take that opportunity friend, you may fall but you will learn.

VERDICT.......

With every opportunity that arises, there is a risk that is attached to it but the reward for successfully planning and executing a task is priceless. It makes the process sweeter. At the beginning of this post I explored the reasons for WHY we do what we do. So to conclude this post I want you guys to ask yourself WHY Bill Gates and Mark Zuckerberg dropped out of college to start a company. Ask yourself WHY that person you want to be like is wealthy. I believe that there is a reason for everything we do in life and a purpose too. So before you begin your journey in the accumulation of assets, ask yourself WHY you want to become more financially secure. When you do, look for opportunities, assess the risk and make a calculated decision to pursue whatever it is you find and think about the reward. The process makes it all sweeter.

Asset vs. Liability

Asset vs. Liability

In the 21st Century, the use of the words "Asset" and "Liability" have been ever present among numerous individuals, businessmen and corporations. In this blog we will explore what these terms are and what we think they are. I will try to reverse-engineer the way we understand what assets and liabilities mean to us. Enjoy!

An asset is basically a useful or valuable thing, person, or quality according to an Oxford dictionary meaning. Assets could range from a printer in an office, to hiring an experienced shop clerk to run your boutique or even a personal quality such as typing at a high speed. These are all assets because they add value or are useful in your everyday life whether it is work or business or anything else. 

In accounting, an asset is any thing or resource that is owned by a company which has future economic value that can be measured and expressed in monetary terms. i.e. dollars, kwachas, euros, etc. Examples include cash, inventory/stock, supplies, buildings, equipment and many others. 

Now this all sounds good and actually agree that an asset basically means anything of value. We live in a world now where we consider things like land and houses as very valuable assets as they should be. They cost a lot of money to own and are considered the best assets one can own. But are they really assets to you? 

Picture this: Imagine buying your first piece of land for say MK 700,000 on the outskirts of your township. The excitement you would feel is that you have bought an asset. Your first one maybe. However if in 5 years from the day you bought it the land is not developed in any way and say you sell it for roughly MK 1,300,000 we would say that you made a MK 600,000 profit, almost 86%. Crazy right? Well I wouldn't be so sure of that. 

In a developing country like Malawi, we are currently in an economic downturn and the value of our Kwacha is sliding by the day. With inflation rising, the money you get from that sale of the land would probably purchase land of exactly the same size or smaller by that time. Does that mean that land was valuable? If anything it does not differ from opening a fixed deposit account at a bank to pay you interest only with the hassle of physically visiting the site or finding a buyer. The value of your "asset" would have changed on paper but in reality, it is just the same piece of land you started with.

Sticking to the piece of land, during those 5 years you would probably have to hire someone to look after your piece of land to ensure that it is being kept safely. That is money you will have to part with every month or so and money you will pay from your own pocket even though you consider that land your asset, it does not put any money in your pocket until you eventually decide to sell the land but until then it will continue to take money out of your pockets and could prove to be an expensive choice. Anything that takes away money from your pocket is what I would call a liability.

In accounting, liabailities are obligations of a company or organization; or they are amounts owed to lenders and suppliers. Liabilities often have the word "payable" in the account title. For instance, if you borrow money from a friend then you are "liable" to pay them back.

Now you may be asking yourself why I decided to take you into some sort of accounting class. Some of you reading this will be telling yourself that "hey, I already know this so what makes this blog post so special?" Let me be clear, this is not a lecture of any sort but more of an eye opener to view things we know differently. You will notice that I have highlighted certain keywords during this whole blog, here are the most important words/phrases I want you to remember: asset, liabilities and "your pocket". Simply put assets put money in your pocket whereas liabilities take money out of your pocket. I used the piece of land because I am sure our friends, family and colleagues will tell you that it is truly the biggest property or asset one can own and I do not disagree, I just think that you deserve to know whether it puts money in your pocket or takes money away from your pocket. 

Look at everything you own or want to own and ask yourself one question: do these things put money into my pocket or not? If all you own is the cellphone you are reading this blog from, ask yourself is my phone an asset? Does it put money into my pocket? 8 out of every 10 people have phones and think they are assets because they have re-sale value but they do not realise that it is a liability to them. Why? Well probably because of the 12 hours we are glued to them on a daily basis, we use 10 of those on "non-income generating activities". i.e. selfies, double taps on Instagram, candy crush, Twitter MW, WhatsApp chain messages, the list is endless. We all have our vices and we can not always use our phones for productive things but I am sure that a couple of you going through those examples are cursing at this post saying, "hey who does this guy think he is?" lol. 

I get your anger and frustration and I like it because that means we are getting somewhere. Let me tell you this, I have met people who have never double tapped an Instagram photo in their life that make 5 times your salary in a week with one app on their phone: "the dialler." Trust me, I am also in awe of them and that makes me start to ask myself the question that goes "how do I do that too?" The answer is simple: invest in assets, buy assets and put money back into your pocket. Avoid liabilities because they takeaway money from your pocket. It is a mantra, a doctrine, a code, a choice and a path one chooses to truly become free from the world and live a life without fear. I did not say it is easy and I did not say you will succeed. You will have to fail a couple of times because everything in life comes at a cost. For every Ying there is a Yang but stay the course and you shall prevail. It is not rocket science but it is an art. The art of getting unchained from the myth that it is hard to make money or I can not become financially stable to becoming a shrewd individual who owns assets that can help them afford the lifestyle they choose to lead!

I will leave you with a diagram excerpt from a book from my favourite author Robert Kiyosaki that you can ponder on. I encourage you to try and list your own assets and liabilities to see where you stand and what it means for you. So forget what you were taught, forget what you know and try to do this using the principles I explained. Should be a treat!