The Magic Point
Hello folks, before jumping onto today's post, I would like to mention that I will be soon changing the name of the newsletter from “The Learning Machine” to
“The Adventurous Money”
So the next time you see a different name in your inbox, don’t be spooked. It’s just me!
Why the change now?
Well, for starters I didn’t put much thought into the original name on the blog, But now that I have figured, what I really like writing and sharing about. The name Adventurous money makes a lot more sense. And I intend to find and share more and more parallels from different fields to help you think better about money.
I am certain it is going to be an adventure to find all those concepts.
Now onto today’s post!
I have been meddling with writing for the last year and a half. The act of writing is not a skill that comes naturally to me, and sometimes I dread spending hours thinking about what to write. Thankfully, writing is not my full-time job, or else I would have been broke by now.
However, I believe that writing, like any other skill, requires consistent effort to improve. And hopefully, one day, I'll be able to say, "Voila, I wrote well." (Wishful Thinking)
Well, I am hoping to get better at it. The point is that for me to reach where I want to be from where I am today, I need to write consistently until I surpass that magic point.
And unsurprisingly, scientists have a word for this magic point. It is called critical mass, the tipping point, or the percolation threshold. More importantly, it is a point when a system changes itself from one state to another.
In nuclear physics, It is the smallest amount of a given fissile material required to achieve a self-sustaining fission chain reaction under specified conditions (Britannica). In human words, a minimum set of conditions that needs to be fulfilled before a sustained reaction can occur.
In business, it is the point where a cash flow-negative business turns into a sustainable business model with positive cash flows.
In our kitchen, it is the point when the boiling water turns into vapor.
The scale for measuring tipping points varies widely and is difficult to measure. In the case of boiling water, the difference between 99 °C and 100 °C creates a distinction between water and steam. In business, the decision to hire another employee or open another location can mean the difference between a sustainable and unsustainable model.
The reason why critical mass can be an important lens to look through while investing is because it can help you identify the point between your freedom from work and forced work. Don’t take me wrong here; I am not trying to say work is boring and one shouldn’t work, but rather let's be honest and ask ourselves what would be different about your work if you weren’t working for that sound of "ching" that your phone emits when your paycheck gets deposited every month.
Nassim Taleb, the author of The Black Swan, refers to this tipping point as "independence" or "F*** You Money." I have written extensively on the concept of "f*** you money," and you can read about it here.
Taleb describes this concept "in spite of its coarseness, means that it allows you to act like a Victorian gentleman, free from slavery." He further states,
It is a psychological buffer: the capital is not so large as to make you spoiled-rich, but large enough to give you the freedom to choose a new occupation without excessive consideration of the financial rewards. It shields you from prostituting your mind and frees you from outside authority--any outside authority.
Nassim Nicholas Taleb, "The Black Swan"
Now that we have established, how important the point of critical mass is in your portfolio, How do you go about looking for it?
I tend to think it really requires you to think about what really matters. For instance, if the survival of a business matters, decisions with regard to money being spent really holds high importance. Similarly, if your survival after your retirement from work matters, then how your savings are utilized can be the tipping point between your independence and slavery.
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I am on a mission to change the way people think about their money and Investments.