How to apply risk and security management in personal wealth creation
By Adonis Musvipa “also known as” The Risk Manager
Wealth is created through self-sacrifice and taking risks. On a remote island there was a fisherman. His fight for survival was to jump into the sea and make attempts to catch fish by his bare hands. It was not an easy life. All this effort resulted in catching only one fish per day which is just as much as he needed to survive. One night, totally wet, with his eyes sore from the salt water, he was lying on the beach, staring at the stars, thinking about how he could improve his life. Then he came up with a brilliant idea! “If I can just extend the reach of my hand, I might be able to watch the fish from above the water and probably catch more.” He decided that in the morning he was not going to catch fish. Instead, he would devote this day to implement his plan. He searched the woods, looking for a strong, straight branch, which with great effort he managed to break off. Then, with a sharp shell found on the beach, he tried to sharpen the tip of the stick, which took him many hours. Finally, that evening he fell on the sand exhausted from hunger. He didn’t eat that day so he could build his invention, but he was happy because in his imagination he was already sitting on the heap of fish caught with the help of it.
Falling asleep, he decided to call his invention “spear.” In the morning, motivated, he grabbed the spear and began to work. Because the salty water did not flood his eyes and a pointed end of the spear was more effective than his hands, he was able to catch two fish that day! Well, it was not a heap of fish yet but the economy of the island did grow by 100%. More importantly, it opened up for him many more possibilities. He could now fish every second day, consuming his catch from the previous day. He could also go fishing every day as before and dry the excess fish and store it for worse times. Another option was to use free time to implement new ideas, to increase his productive capacity. This would result in an increase in his wealth and expending the size of the island’s economy.
In this story, we come to a simple economic principle. Wealth is created through self-sacrifice and taking risks. The fisherman under consumed and took the risk that his plan might not work and then he would go hungry all day producing the spear needlessly. The fisherman’s underconsumption, can be simply called savings. In this case, the savings was a fish, which he would surely have caught if he had gone fishing. He used his savings, to make a spear. The spear is a capital good, because it is part of the savings, which has no value for the fisherman, but it serves him to get what he really wants. After all, the fisherman does not want to have a spear – he wants to have the fish! Capital is therefore a part of his savings, which he spent on increasing own productivity.
Let’s fast forward the above concepts to our world, to illustrate this example in real life. Two friends got a very well-paying job in a mining company called Corporation X. The employer offered each of them $2,000 USD a month. Not believing his luck, Tatenda, immediately bought a big house on credit. He also bought a luxury car, also on credit. Tatenda spent the rest of his money on eating in fancy restaurants and hanging out with friends squandering money needlessly. At the end of the month, he had no money in his account left over. Meanwhile, his colleague, Mukudzei, knew the story of the fisherman that was told in his family for generations. After getting a job he rented an average house, for which he paid low rent because he wanted to save money. He kept his monthly expenditure very low. This way, Mukudzei could save $1 500 USD every month. The years passed and Tatenda was laughing at Mukudzei. He used to say to him, “Get a life, man, stop being a scrooge!” or “How’s your car, oh sorry, I forgot that you are still using Zupco Buses.” Mukudzei felt upset, because he dreamed of a big house and a luxurious car, but he swallowed his pride and saved money. He invested his savings in various projects (goat farming, poultry, horticulture etc.). Profits from his projects amounted to $15,000. Still, however, he did not increase his spending. Suddenly, hard times fell upon Corporation X. Because of some bad choices and a Covid 19 crisis, the company had to fire 200 employees. Among them were Mukudzei and Tatenda. Mukudzei suffered a slight scratch because he had an income in the amount of $15,000 per month from his investments and a large amount of savings. Tatenda, in turn, panicked; the bank demanded payments. Finally, Tatenda decided to sell the house and car because he was not able to make the minimum payments. The value of the car – although it was in perfect condition – fell dramatically, because it was a few years old. Tatenda was really hurt by the fact that for so many years he was paying the loans and now was left with nothing.
The story of the fisherman was based on the excellent book by Peter and Andrew Schiff – “How the economy grows and why it crashes.” It is vital to be like Mukudzei, take risks, buy securities and assets, manage your risk efficiently. Mark Zuckerberg famously said: “The biggest risk is not taking any risk and not taking risk is a risk itself.
