Okay, don’t like it, investing requires consensus
What is wealth? This question was easy to answer in the past: wealth is valuables such as land, real estate, and jewelry, plus metal currencies such as gold and silver.
What is wealth today? In modern times, after the development of the financial industry, the concept of wealth has been expanded. The profitability of an economic unit, including a person, has also become wealth. For example, if a company can generate a profit of 1 million yuan a year, even if it does not own many properties and production equipment, the company may be worth tens of millions of yuan; if a player can bring tens of millions of yuan in revenue to the club in the future, his own value will already be several million yuan.
Later, people even regarded the possibility of the future as an asset. For example, a company has not been profitable, but some people believe that it will be profitable in the future, so it will become valuable and can be listed, and its equity holders can make a profit by selling some of their equity. Some people may find this a bit unbelievable. In fact, some such companies did make profits later and became very valuable, but more often they became history before the profitable future arrived.
In fact, the so-called consensus is that there are more illusory money-making opportunities than future profits.
What is consensus? For example, if everyone thinks that the price of tulip bulbs will increase in the future, someone may spend a lot of money to buy them, hoping to sell them at a higher price in the future. If only one person is selling tulip bulbs, and everyone just treats them as flowers planted in the garden, that person will not be able to make much money, because their value is basically equal to their use value, that is, their ornamental value.
However, if a group of people believe that tulip bulbs are good things, they will be sold at a premium. If many people, or even all people, agree that tulip bulbs, whether useful or not, will definitely rise in price in the future, they will become an investment product, and in the eyes of many people, this is wealth. Of course, some people think that this is just the tulip bubble of the Age of Discovery, and it will never appear again.
No one is hyping tulip bulbs anymore, but garlic, Pu'er tea, cordyceps sinensis, even the delivery notes of hairy crabs, the land on the moon, and diamonds in the cores of distant stars have all been hyped. Behind these seemingly useless objects that have been hyped for a long time, there is one thing: "consensus."
The word "consensus" is extremely valuable, even more than the future expectations of a company, and far more than real estate, cash, and jewelry. With consensus, the price of straw will be much higher than today. Isn't it the same way that many people today speculate various air coins to be more valuable than gold bars? The price of these things can rise, and it is inseparable from consensus.
For example, the prices of many antiques and paintings today come from only a small part of their own artistic value, appreciation and collection value, while most of them come from consensus. Even for companies invested by more traditional investors, part of their value comes from their profitability and future expectations, while a considerable part also comes from consensus. Therefore, consensus is a huge asset today.
Burton G. Malkiel, a very rational financial economist and investor, also emphasized in his book A Random Walk Down Wall Street that if you only use the value of a company to invest, you will lose many opportunities to make money, because the consensus of investment fanatics is a huge driving force to push up the value of assets. Like it or not, you need to use it.
The influence of faith on wealth is more profound and stable
Similar to consensus is belief. Of course, the belief we are talking about here is not religious belief, but its firmness and fanaticism are no less than religious belief. For example, in the process of industrialization in East Asian countries, the overall wealth increase is not mainly based on corporate profits, nor on the returns of stocks or bonds, but on the appreciation of real estate. In real estate, land prices actually account for the most part, and construction costs can even be ignored. This phenomenon is more obvious in central cities, especially in good communities.
This phenomenon is also known as David Ricardo's Law of Rent, but the land is already there and its value has not actually changed. The reason why it can be sold at thousands of times the price today is due to the belief in real estate.
Specifically, many people firmly believe that housing prices will always rise, that land in good locations in central cities will always be a scarce resource, that the population is constantly growing, and that more and more people will need housing. Real estate belief is a unique phenomenon in East Asian society, which may be related to the thousands of years of farming tradition there. Owning a piece of land or a property is the dream of people from all walks of life, but people of different levels of wealth have different requirements for the quality of real estate.
In the Qing Dynasty, the princes, nobles and officials would build gardens when they had money, and ordinary merchants would buy the rented houses. This is the belief in real estate. In fact, most ordinary people could not own a tile, but when the Industrial Revolution began and wealth increased dramatically, many people realized the dreams of hundreds of generations of their ancestors.
In the era when Japan's belief in real estate was the strongest, the land of the Tokyo Imperial Palace, now the Imperial Palace, plus the open space outside it, totaled 1.5 square kilometers, and the land price exceeded 1/3 of the land price in the entire California of the United States. You must know that the area of California in the United States is 420,000 square kilometers, which is larger than the land area of Japan. Moreover, California is the most populous and most developed state in the United States, equivalent to the fifth largest economy in the world (exceeding the United Kingdom and India). At the same time, California is home to Silicon Valley and Hollywood, with the highest concentration of billionaires in the world, and California has always been known for its high housing prices. But even the price of land in such a state is not worth the price of 4.5 square kilometers of land in Tokyo.
The reason for this phenomenon can no longer be explained by Ricardo's law of land rent. It does not even require the consensus of many people, but only the support of some very firm real estate believers. This situation has also occurred in South Korea, Hong Kong, China, and even some cities in mainland China.
Faith and consensus have similarities, but there are still big differences between them. People who reach consensus are just a mob, they gather quickly and disperse quickly. This is why the tulip bubble burst in an instant and many air coins were cleared overnight.
Faith is different. Believers are firm. Their number may not be large, but when faith is in crisis, believers will stand up and even maintain their faith in a martyr's way. Therefore, these people become the backbone of faith, allowing the belief in a certain kind of wealth to continue.
Today, the reason why the price of Bitcoin can be maintained at a high level for a long time is that there are a group of firm believers in decentralized, non-governmental currency. I have come into contact with many such people. They believe that any government is "evil". They will control the world's wealth by excessively issuing currency, and there is no way to stop the continuous issuance of currency. They believe that the issuance of currency that is not controlled by the government and is controlled by algorithms is not only the best solution, but also the only solution. This is a kind of belief. They are different from those who try to get rich by speculating in digital currencies. When the latter see that there is no profit, they flee faster than they enter the market, but believers in decentralized currency regard this as their mission.
Similar to these believers in decentralized currencies are some believers in globalization who claim to be apolitical and only care about business and technology. They believe that technology and business can solve all problems, that the government has become irrelevant, and even national sovereignty is dispensable. They believe that whoever has mastered the latest technology is qualified to lead the development of the world through technology and products, and that any government that attempts to maintain national sovereignty is undermining globalization.
These people not only put their beliefs into practice by investing in startups, but also publicize their ideas by writing books and giving lectures, and finally make readers and listeners feel that in the future, the country will no longer be important. Among these people, Elon Musk, Jobs' successor Tim Cook, and "technology prophet" Kevin Kelly are representative figures.
We still cannot evaluate whether this belief is true insight or problematic, but it is indeed reflected in the valuation of capital. In other words, this belief accounts for a large part of many people's wealth. And belief is related to the times. The belief of the past cannot bring today's wealth, and today's belief may not necessarily keep the wealth tomorrow.
There are not only positive numbers in the world, but also negative numbers
In summary, it is difficult to clearly define what counts as wealth today. For example, in 2022, Musk's wealth is about $250 billion; Amazon founder Bezos's wealth is about $170 billion; and the wealth of Bernard Arnault and his family of the luxury goods group Moët Hennessy-Louis Vuitton is about $200 billion. It is difficult to say how much of this is tangible money, and how much is supported by future expectations, consensus on the new energy economy, and belief in globalization.
Therefore, the debate among many media about who is the richest man in the world is meaningless, just like comparing the nutritional value of a piece of tofu and a piece of bread. In fact, Musk's real estate and cash assets are almost zero compared to $250 billion, and may even be negative considering his debts. However, the consensus on the green economy, the expectations for artificial intelligence, and the belief that humans can leave the earth make him the richest man in the world according to a certain calculation method. Of course, if he tries to cash out all the $250 billion in assets, he may only get 1/10 of it.
In fact, if you examine your so-called wealth, it is essentially no different from Musk's, just the amount is different. For most people today, wealth is not cash or cash equivalents, such as high-rated short-term bonds that can be exchanged for cash at any time.
For Chinese people, most of their wealth is the net value of their property, which is the market price minus the outstanding mortgage. Many people think that their house was purchased for 10 million yuan, so it is worth 10 million yuan today. This is actually an illusion. If the house still owes 6 million yuan in loans, its net asset value is only 4 million yuan. If you plan to spend 20 years to pay off the mortgage, and the annual interest rate of the loan is 5%, then you will actually have to pay 9.5 million yuan in the end.
In other words, although this house can be sold immediately for 4 million yuan in cash assets, if you hold it for 20 years to pay it off, you will still have to bear an interest burden of 3.5 million yuan. When the mortgage is paid off, you have paid 9.5 million yuan plus the previous down payment of 4 million yuan, a total of 13.5 million yuan, and you have obtained a house worth 10 million yuan.
Of course, some people will say that you are wrong. After 20 years, this house may be worth 20 million yuan. After I pay off the 9.5 million yuan mortgage, I will still have a profit of 10 million yuan. This is true, but this 10 million yuan is the property of the real estate belief we mentioned earlier. If you believe that belief is valuable, and at least one person has this belief like you, you can indeed think that you have these properties, because you can sell the house to him. But if the real estate belief of the whole people no longer exists, this 10 million yuan asset will disappear.
In fact, the remaining value of most Japanese houses today is less than the price at which the owners bought them, not counting the maintenance fees and loan interest paid over the past few decades. Most people in the world cannot do the math. They only know that there are positive numbers in the world, but not negative numbers; they only see the profits, but choose to ignore the costs and burdens. For the 13.5 million yuan paid and the 10 million yuan profit, people generally ignore the former and only emphasize the existence of the latter. Of course, if you have lived in the house for 20 years and enjoyed a higher quality of life for 20 years, it is also a reasonable choice.
I have said many times before that when buying your first house, you should not consider the appreciation factor too much. The most important thing is to live comfortably. However, if you really invest money in real estate, you have to consider how much of its value includes the factor of real estate belief.
When some consensus disappears, a lot of wealth on the books will naturally disappear; when a belief disappears, the situation is similar. The difference is that the former will happen overnight, leaving no escape for everyone; the latter is a slow process, and you have enough time to exit. Of course, greed is human nature, and many people have no chance to exit, always wanting to make a profit, and the result is nothing.
So, what is wealth, or what is the most valuable wealth?
For individuals, wealth is the product of two dimensional variables: one is time, and the other is each person's ability and the amount of resources that can be mobilized. We will talk about time later, but here we will briefly talk about personal ability and the resources that can be mobilized.
When you have 1 million yuan in cash or equivalent wealth, you can mobilize some resources in the world to do something, such as renting a store and hiring a few people to open a restaurant. If you have the corresponding ability, cash will flow in continuously, and such a small restaurant may have a profit of 200,000 yuan a year after deducting various expenses. Assuming that the average return on investment in the catering industry is 10%, and you can get 20%, it means that with this 1 million yuan invested, you have obtained a valuation of 2 million yuan. This is your wealth.
But if you have 100 million and your ability is up to par, you can open a large chain store, and your wealth will increase accordingly. Of course, if your ability is not up to par, this 100 million will eventually contribute to society. Some people say that this money is wasted, but in fact, wealth is immortal like material things. This 100 million will support many people, and many people will have jobs because of it. Some of them will grow up and may create more wealth.
Of course, the wealth we mentioned above is still tangible and can be quantified. For most people, intangible assets are more important, such as a person's ability to create wealth and maintain wealth. These are difficult to quantify directly, but they are very important. Almost everyone wants to be a person with massive wealth, but if those wealth are just land or gold and silver, their existence does not have much meaning, and their value will shrink over time. Only when you have the ability to control those wealth, will wealth become meaningful.
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