Investing in Your Own Human Capital

Investing in Your Own Human Capital

While investing in stocks, bonds, precious metals, looking for good rates of return on assets that we buy, etc are all very important forms of investing, monetary investments are only a small fraction of the total investing that we should be doing. The most important form of investing is investing in yourself.

Your knowledge, skills, and work ethic, and social network all help determine how successful you will be over the course of your life. Of course, luck is always involved, but as Branch Rickey said “luck is the residue of design.” Setting yourself up to be able to take advantage of opportunities, and noticing those opportunities when they arise, is really important. There is no better form of investment than educating yourself on new topics.

Economics is essentially the study of “choice.” Having a solid understanding of economics comes in handy. Microeconomics addresses concepts like opportunity cost, utility, etc and helps us make personal decisions, while macroeconomics addresses GDP, monetary theory, etc, and helps us understand the decisions that governments make. Coursera offers courses in both microeconomics and macroeconomics.

Just a warning with these two courses. Both show a clear bias towards Keynesian economics, although the proctor does a fairly decent job at explaining multiple competing theories, and it is not too off putting.

Now, if beyond investing in yourself, you decide to invest in someone else’s business, either through a startup or through publicly traded companies, you’ll probably want to have a solid grasp of the basics of corporate finance, as well as the nature of the global capital markets. Understanding the difference between book value and market value, knowing basic ratios which help identify how profitable a company is, etc will help you select specific companies. And knowing how equity markets, debt markets, etc all interact with one another, and how companies use these different markets will further help you understand the ups and downs of your investments.
Again, Coursera has some useful courses on these topics. In this case, they’re part of a five course specialization.

I added this one because of a conversation with an author on Seeking Alpha. Fear and Greed Trader argued that the “naysayers” have been wrong. It is true that we have been calling for a correction or collapse of the markets. However, at least when I address such matters, I am addressing probabilities.
One might argue that since a major correction has not happened in a long time, it will not be likely to happen. Or someone might argue that if a correction has not happened in a long time, it is long overdue and must happen soon.

However, in many ways, when a correction happens is largely independent of what has happened in the past. We can only look at the conditions of the markets now. The same is true in the opposite direction. It similar to arguing with someone who has had a winning steak while playing slots. They may argue that since they’ve had a winning steak, they are likely to keep winning. But if you understand probability theory, then you know that this is not the case.

There’s nothing wrong with simply investing in stocks. However, maybe you don’t want to just profit off of someone else’s work and imagination. Maybe you want to profit off of your own. In that case, you’ll want to gain a marketable skill, or set of skills. Programming is a big one these days, and if the project is small enough, you can even handle the entire thing yourself. If not, a skilled programmer should at least be able to produce a proof of concept, which can then be used to convince investors to get involved.

Two skill sets which should be strengthened, regardless of profession are writing and interpersonal skills. If you’re looking for investors, you’ll want to be able to write up a proper business plan in order to pitch the idea. And similarly, you’ll want to be able to draw people in and convince them of the profitability of your idea. And the idea of interpersonal skills leads us to the next investment.

It’s difficult to be successful on your own. Spending time building your network is often key to being successful. Now, you might think that you can just rely on your friends when you need something, but that’s not true. Think about it. Suppose you’re looking for a new idea to invest in. Asking your friends probably won’t help that much. If they knew someone with a novel idea, you probably would know that person already too. Or let’s say you’re looking for an open position for a job. Again, if your friends know about the option position, odds are you would too.

That’s why acquaintances, or what’s known as “weak ties” in social network theory are often at least as valuable, if not more valuable, than strong ties like friends and families, even though friends and family are going to be more likely to take on risk for you. So it’s always a good idea to get out there, meet people, and keep track of contacts. Keep a solid contact list, which includes not only how to contact the person, but some basic information so you remember who they are.

For Medium authors, if you want to ensure continued long term success, make sure to build a network of followers, and make sure to follow insightful authors as well. Make sure your network expands beyond a single social media platform though. As great as Medium is, there’s always a chance that it can fail. The same is even true with Facebook. Having a distributed network across multiple platforms will allow for long term success.

In some ways, this idea relates to my last point. Don’t focus entirely on the now. Invest in the future. Make sure that you are doing everything you can to ensure long term success. Having a few extra dollars in your pocket right away is nice, but if your revenue stream collapses because you’ve focused entirely on the present, you’re in trouble.

At the same time, don’t ignore the present. Life is short and unless reincarnation is real, we only live once. Far too often people have focused entirely on their future, thinking about all the things that they’ll do once they retire, only to die before they ever have a chance to enjoy life. Moreover, life experiences are a great investment. So enjoy your life. Take some time and resources to do things that you want to do. Just balance the amount of resources spent on growth and long term success with your current expenditures that you put towards your current enjoyment.

Investing in Your Own Human Capital

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