Human Capital Investment

From economics 101 we know that entities function to maximise their utility. The way we maximise our utility is by trading a utility which is valuable to someone else in exchange for another which is valuable to us.

Scarcity is the currency in which the world operates. Our measure of value is directly correlated with the scarcity of the entity as long as the scarcity is not below a certain threshold. If scarcity is what we value then every entity is working towards creating offerings scarce enough to be valued.

Human capital in layman words are the things we have in our minds. It might be a physical skill set or knowledge which we have gained. As with all resources, the value of our human capital is directly proportional to its scarcity.

We need to invest in our human capital, so we can get utility to trade on tomorrow. I find that human capital investment is one of the most valuable sorts of investment because human capital cannot be lost once gained if it is used often.

These are the three ways I've found that one can easily invest in their human capital.

Formal Education: If we draw an analogy with the financial market, then you can think of your teachers as the investment analyst and the school as the investment firm. An investment firm is only as good as the scarcity of the information/insight about the market that it possess. This means that the value of your education is dependent on what you can get from it. It must generate utility for someone else and be scarce enough to be valued after graduation.

This is why the best education you can get in this information age is one that trains you on how to find information because things are always in a constant state of flux.

As an aside, this is why formal education thrives on being a zero-sum game, where some can gain access to some schools and it’s scarce information and others don’t.

Employment: One of the cheapest ways to invest in human capital is through employment. If you work for a top company and are in a meaningful position, chances are you’ll gain access to insights, and skills which are not available to everyone else. The best part is you’ll typically be paid to gain this insight. This is why it is said that when you are in your 20s and hopefully investing in human capital, you should not work for a salary but instead work where you can get the best investment in your human capital. I find that the employment with the highest return on investment is in a startup with rock star founders and colleagues.

Start a company: Starting your company has the highest return on investment if done right, because unlike paid employment you get to do a wider scope of work in which you can try new things, fail and learn how to do them better. But, it is also one of the most expensive kinds of investment, emotionally, psychologically, and in terms of your time which is your most valuable asset. The best way I know to maximise your return on investment is to get mentors and advisers who are at the top of their game and can help provide you with insights, or information which is scarce. Typically these people would be members of your board of directors.

If like a lot of people in the world you have made resolutions for the year and hopefully this resolution is tied to some long term plan, then I urge you, think about the best way to invest in yourself to achieve this plan.

Happy New Year!!!!!!!

Thanks to Chris Bimpong for his insights.