The success of an investment is commensurate with the quantity and speed of its return.
A bigger payday that happens sooner is always better than a smaller one that occurs later. Just ask Excel. Or your Casio calculator. Or Spock.
Those guys do math pretty well. And cold quantification is all that matters with investing.
Invest in Equity A for a 3% return a year later, or invest in Equity B for a 15% return next month… go with B, baby. (Even if A’s products save lives, and B’s take them.)
And that’s all there is to it. We don’t care about flimsy “externalities,” we don’t have time for profits that only (maybe) accrue after many years, and we can’t fathom trying to wedge “qualitative returns” into an Excel formula.
All of which is ironclad numbers-only logic. It stands up to any second-guessing because the numerals don’t lie. It also, I understand, is exactly why Vulcans aren’t entrusted with captaining the USS Enterprise.
It turns out that externalities, uncertain profits (but socially valuable undertakings), and qualitative benefits do matter to us humans. A lot, actually.
And there’s much more to it than base psychology.
There’s good economic reason to believe it’s the human side (i.e., the non-numerical part) of the investing enterprise that gives societies great leaps in progress. It’s intuition. Tenacity. Perspective that sees opportunity where Excel only finds risk.
It’s what underlies entrepreneurship. And invention. And life-giving vocations like teaching and public service.
You see, there are overwhelming limits to financial quantification when it comes to understanding the “real” returns to investing. Behavioral economics is just scratching the surface of what we know viscerally: There’s something ineffably valuable about doing the “right” thing, even when the numbers look upside-down.
It’s why, despite there being essentially no prospects for financial return or direct economic gain, I’ll occasionally make “investments” in things that would normally be ignored by rational markets.
And it’s why you should, too. (Occasionally.)
Zero Return Investing
Let’s call it “Zero Return Investing” for a couple of reasons.
First, the name neatly summarizes what Excel-eating Spocks would tell us is wrong with plunking money into enterprises that don’t represent our best available financial alternative. If Investment A promises a 30% return and Investment B guarantees nothing, choosing Investment B is likely to crash your spreadsheet.
Second, “ZRI” seems to not yet be taken in the finance/economics dash to claim all conceivable three-letter acronyms as part of common-size quant metrics.
So we’ll go with ZRI.
Why should anyone make an investment that won’t pay them back (lavishly)?
Let me answer with one example from my personal life.
A neighbor recently launched a Kickstarter campaign to fund production and commercialization of an invention. Like many campaigns, there are various available levels of contribution, and higher funding levels are rewarded with a finished product (assuming funding goals are reached).
Now, the product is very cool. But it’s not something I need in my life, so I’d never buy one off the shelf.
Which means economically: I don’t demand the product sufficiently to buy one, so it fails my personal market test. And since there’s no chance of financial return on the contribution, it fails standard investing criteria.
Therefore, all things equal, I shouldn’t support the campaign. It’s inefficient for me throw away money. And it’s inefficient for me if things are brought to market that I don’t demand; it would be preferable if the inventor’s resources were reallocated toward stuff I do demand; by not supporting the campaign, I cast my vote in favor of resource reallocation.
Except all things aren’t equal.
The inventor’s a neighbor. A good neighbor. With a family.
They’re part of our wonderful community. And the value of community is extremely high. Moreover, the value of passion and creativity and earnest effort are extremely high within our community and the world more broadly.
And the quiet dignity of knowing others will support reasoned and good-hearted risk-taking is invaluable to inventors or entrepreneurs. They put themselves out there – at the price of very public failure – to try to improve the world and their lives through novel problem solving.
So, the value of supporting inventive effort may not be found simply in the present invention, but rather in the flame that is fanned by encouragement to continue trying. Even if I don’t care for the product, I care deeply about the motivations and efforts involved in generating that product; I care enormously about encouraging people who are so inclined and able to improve the world.
There are more externality-like, flimsy-qualitative reasons to support the campaign than there were famous failures by Edison to invent the lightbulb.
Now, I’m not comparing my neighbor to Edison. I’m only pointing out that the value of investing in my neighbor’s Kickstarter campaign can’t be modeled in Excel any better than the value of Edison’s 10,000 trials-and-errors could be.
But as a flesh-and-blood person, as someone’s who has benefited and suffered personally from taking chances on entrepreneurship and creative effort, and as a human who can perceive the qualitative returns from helping dignify others’ genuine efforts, I know the positive value from supporting the campaign is there.
So, contributing to my neighbor’s Kickstarter campaign is part of my ZRI portfolio now.
The ZRI Debate
Cynics will say: “Hey, FL, it’s your neighbor, bro. You benefit if the neighbors do well and suffer if they go bankrupt. Or at least you’ll get some positive returns from the neighbors because they’ll know you supported the campaign. And anyway, high-minded ‘charity’ yields psychic benefits to givers. You’re a selfish bastard.”
Fair enough. There’s always a cynical interpretation slithering around out there like that bad-news person who shows up at parties only to complain the party’s not that great. Cynics and snark artists are always welcome to put their energies into actually improving things.
But let me counter. There are lots of ways to help others that don’t involve money. So I could get what the cynic says I’m after much more cheaply.
And, moreover, the fact that I might derive some benefit – some faraway, ethereal, uncertain, non-monetary positive result – from investing in enterprises (despite numerical arguments against doing so) is exactly the point of ZRI. ZRI is bona-fide investing, just without any likelihood of financial return.
Finally, ZRI ain’t charity.
Economics has an uncertain relationship with charity since there’s an unclear efficiency argument for lots of types of financial aid. It’s a decidedly gray area.
Pioneering work by Nobel winner Robert Solow, whose models continue to be modified and used today in foreign aid policy, helps explain why “charity” can be a hard sell to hardline econo-types – charity can work against its very aims in some instances. This is not to say that all welfare programs are wasteful; rather, it’s simply to say charity is not what ZRI is about.
ZRI is different. It’s carefully aimed at rewarding the immediate predicates of world-enhancing results – things like invention, entrepreneurship and creative effort. There’s an uncertain payoff that may never materialize. There’s no money in it. There’s just that humanness that convinces you it’s the right thing to do and the economic argument that what’s being supported can be proximately connected with making the world a better place.
ZRI is something Kickstarter is very good for. Which is not to say, of course, that everything on Kickstarter is worth supporting. But it’s a good place to look for ZRI opportunities.
The place for ZRI in someone’s portfolio can be summed in two words: “small” and “occasional.”
Investing is primarily about financial returns. If your portfolio isn’t aimed at increasing your wealth, it’s pointed in the wrong direction.
So ZRI can perhaps best be viewed as quasi-consumption. Which means, like all Luchadorian consumption, it’s minimalist and thoroughly vetted.
My ZRI undertakings probably represent less than 0.01% of my portfolio. And ZRI happens only when so many valid qualitative considerations (outlined below) are satisfied – which satisfaction is itself qualitative.
“Hey FL,” you say, “if ZRI’s so small and infrequent, what’s the point at all?”
A fair question. ZRI, like Kickstarter campaigns and like crowdfunding of all stripes, depends upon not one individual’s large contributions, but upon the collection of many individuals’ small contributions.
So, even though one’s individual investment may be small and infrequent, the cumulative result of a society geared toward rewarding earnest entrepreneurial and inventive efforts at the grassroots level can be great.
ZRI can be viewed as a “vote” for economic initiative, effort or energy that is positive in the world.
Which is why I encourage you, fair Luchadores, to unclench the fists wrapped around your dinero and – on occasion, in judicious amounts – support the world with ZRI.
How Can It Best Be Done?
Let me suggest a few qualitative criteria for making the most of your ZRI dollars.
Go local. It’s kind of a trendy thing to support local stuff these days. But there’s good reason for it. By supporting the local community, you encourage the sort of valuable risk-taking that can result in big life gains for the people you know and care about. It makes ZRI more immediately visible. And it helps you know that your dollars are going to work on something that’s real since vetting local stuff is much easier.
Lead with heart. ZRI is a small, small part of the portfolio. Whereas the vast majority of your dollars are invested with your brain, this tiny chunk goes where the heart dictates. There is that psychic benefit for you by following your heart, but the more important argument is that ZRI is about passion – fueling it and funneling it. You’ll naturally be attracted to the initiatives that have real passion. Let that emotional power guide you: If it’s there in spades, that’s something you want to support; if it’s not, you can certainly find it elsewhere.
Favor tangibles. Inventive efforts that entail making things require capital as a matter of course because making stuff requires buying inputs and using tools and transporting things. The economic feedback loop of supporting “makers” is thus much stronger than for “doers” (like songwriters, for instance), returning multiples of your ZRI dollars to the community of suppliers and vendors that are needed by makers. This isn’t to say that songwriters and the like aren’t valuable and valued; they are. It’s simply a fact that making stuff requires direct physical inputs and transactions that multiply the economic effects of ZRI dollars, making each ZRI investment worth more to the community.
Make it regular. Yes, ZRI has an “occasional” place in the portfolio. But “occasional” can still be regular. Without ever really looking that hard for ZRI opportunities, a great one seems to find me every quarter or so. So, just by default, I’ve made ZRI a quarterly thing. And that amount of ZRI activity seems about right. Regular but infrequent.
So there you go, Luchadores.
Old FL, who spends so much time trying to find ways to help you make more money and keep more of that dough, is telling you to chuck your hard-earned dolares into the black abyss of zero returns.
It’s the kind of thing that probably makes you wonder whether I’ve been spending enough time training for the financial arena lately. Have I gotten soft? Stupid? Weird(er)?
Sorry to tell you, bros and babes, but the answer’s no.
At the core of every glistening and sinewy Luchador is a human heart that knows hoarding funds without regard for the rest of the world is a losing game. To win this thing, we all have to be in it together, and that means making ourselves stronger by making our communities – and the ideals underlying community and society – stronger.
Perhaps. But financial independence and life-awesomeness are high-minded pursuits.
And that’s what we’re all about here. It’s never just about numbers. It’s about life.
Party on, Luchadores, and tell me about others’ passions you have supported or want to support.
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