When I was still studying in secondary school, I often wondered how come and felt it unfair that while most individuals earn $20,000-$50,000 a year; there were some individuals whom earn millions if not billions a year. All of them had 24 hours a day, were extremely hardworking, made their money through ethical means, so what was the difference? The difference was the nature of their career; this brings me to the 5 reasons why I chose Investing as a career.
- Scalability – This is the most important factor in determining the earnings ceiling of your career. In investing, the earnings an investor receives for the provision of fund management, is primarily determined by the Assets Under Management (AUM). More assets means more earnings and vice versa. As such, the earnings ceiling in investing is simply limited by the amount of money/assets there are in the entire world. This basically means that there is virtually no ceiling to earnings at all. Furthermore, the level of intensity and activity (i.e. time spent, energy exerted, etc) of the entire investment operation remains more or less the same regardless of the increase in AUM. You are still buying and selling assets at the end of the day, just with more money on the line. However, the same cannot be said for almost all hourly/daily/monthly wage earners. Take a coffee barista for example, the only way the barista can earn more money is if he or she works more hours a day and/or churns out more cups of coffee in a day. But since we all only have 24 hours a day and there’s bound to be a limit as to how much cups of coffee one can churn before the quality starts to deteriorate and exhaustion kicks in. This causes the career of a barista to have an extremely low earnings ceiling. Hence, the ability of a career to scale has tremendous impact as to how much you can earn from it.
- Economies of Scale – All careers/businesses require some kind of monetary cost. A taxi driver needs to spend money to rent a taxi. A printing company needs to spend money to buy/rent printers. A career/business that obtains cost advantages as their output increases is known to enjoy economies of scale. Likewise, a career/business that incurs a greater percentage of costs per output is know to suffer from diseconomies of scale. What I love about investing as a career is that it doesn’t take twice as many people, computers, and coffee to manage twice as much money. In fact, the activity of investing require very little capital investment to begin. All you and I really need is just, a pen, paper, calculator, computer with internet connection, and a sound financial education. Any increase in AUM, and therefore, fees, will go completely to the bottom line, resulting in a high margin business. Compare that with a printing business, where it needs to invest more capital in printers, staff, ink, paper, etc just to grow its revenues.
- Recurring Free Cashflow – Whether you like it or not, cash is king. This is especially true in business where sometimes even the best companies go bankrupt due to cashflow issues. Most companies become insolvent due to the inability of their customers to pay up. Other companies become insolvent due to its inability to finance its loans. In investing as a career, one is able to avoid both. By collecting the fee income directly from the cash in the fund (from the cash dividends paid by the companies), the investor can avoid credit risk. And since the activity of investing require little capital requirements, there’s no need to borrow money.
- All-weather – The best kind of career/business is one that can do well in both good and bad times. Unfortunately, most if not all careers/businesses do not qualify. When the recessions comes, you realise how many are not immune to the economic cycle. However, investing as a career do provide some form of reprieve. When structured well, investing as a career and do well in both good and bad times. For example, in good times, one can structure a growth fund, while in bad times, structure a dividend-income fund with strong dividend-paying companies. This way, assets move around but still within management. Big losses in asset management portfolios are borne by clients whereas big losses suffered by banks/insurers can cause the firm to become insolvent. Furthermore, the AUM of a fund can afford to decline until the level of operating costs, which is, as mentioned above, extremely low. So the nature of an investing career is indeed resilient.
- Win-Win – We all want to do well and do good. Unfortunately such jobs that allows us to do both are hard to find. What I love about investing as a career is that when structured correctly, both the fund manager and his clients can make money, a win-win situation. The clients simply leverage of the skills of the fund manager to obtain above average returns to grow their net worth while the fund manager leverages on the fees earned to further grow his own net worth. Not like a zero sum game, where if I make, you must lose.