The Physics of Wealth
🥺 Please follow our newly launched video channel Hacking Wealth, we need to reach a certain number of followers before Rumble will unlock a named URL. Thank you for helping us grow!
Sometimes I think about wealth like a battery: a storage device that contains the work we’ve generated over time.
Wealth can be discussed using many interesting physics analogies — potential energy, chain reactions, etc… These are very useful devices you can use build your mental models.
Let’s explore a few favorites so you can see what I mean.
Wealth as Potential Energy
Potential energy is stored energy due to an object's position or state.
Wealth can be viewed as the potential to create change or achieve goals.
Example: A large savings account is like a rock at the top of a hill. It has the potential to do work (buy a house, start a business), but that potential is only realized when the money is put into motion.
This analogy reminds me that money only creates more money when it is deployed. When money sits in cash form, or parked in another asset class that is rapidly losing purchasing power, it isn’t moving. It isn’t working to generate asset appreciation and/or current yield. It isn’t creating more opportunities for you.
Get your money moving.
Build yourself a dividend portfolio to use your money to make more money:
Wealth as Momentum
Momentum is the product of mass and velocity. It signifies an object's tendency to keep moving in the same direction.
Example: A well-established business with a strong brand and loyal customers has a lot of financial momentum. It's likely to continue generating wealth even in challenging economic times, much like a heavy truck rolling downhill.
Once you have a moneymaking situation.. you can expand it.
Once you have made a $1.00 through a vertical, it is possible to intelligently increase your revenue and optimize your operations to reduce expenses.
Then keep building on that momentum on both ends of the spectrum — driving growth and cutting costs.
Wealth Creation as a Chain Reaction
In nuclear physics, a chain reaction occurs when a single event triggers a series of similar events, releasing a large amount of energy.
Example: Investing in a successful startup can be like starting a chain reaction. The initial investment helps the company grow, leading to increased profits, which can be reinvested or used to fund other ventures, creating a cascade of wealth generation.
This is why I advocate for investing directly into businesses so you can potentially benefit from these chain reactions.
Wealth as Gravity
Money begets money.
Attracts it, too.
Example: Silicon Valley is often cited as an example of wealth's gravitational pull. The initial success of a few tech companies attracted venture capital, talent, and infrastructure, creating a self-reinforcing cycle of growth and innovation. This concentration of wealth and opportunity makes it easier for new startups to thrive and for existing companies to expand, further amplifying the region's economic power.
Position yourself (digitally if you must) near places with heavy capital concentrations to maximize your deal flow, opportunity flow and enrich your network.
Wealth Diversification as Strong Nuclear Force
Imagine an investor who puts all their money into a single tech stock. If that company faces a setback or the tech sector as a whole experiences a downturn, their entire portfolio is at risk.
On the other hand, an investor with a diversified portfolio, holding stocks in various sectors (tech, healthcare, energy, etc.) and asset classes (stocks, bonds, real estate) is less vulnerable to any single event.
Just as the strong nuclear force binds protons and neutrons together despite their natural repulsion, diversification helps a portfolio maintain its integrity even when certain parts are under stress. If one sector or asset class performs poorly, others may offset the losses, leading to greater overall stability.
The Physics of Wealth
Economic systems are complex and involve human behavior, which isn't always governed by simple physical laws.
That said, our economy and the decision makers within it operate on inputs and expected outputs.
The exploration of wealth through the lens of physics provides a unique and insightful perspective. By drawing parallels between wealth and the fundamental laws of the universe, we gain a deeper appreciation for the interconnectedness of the financial world.
Just as the universe is governed by forces like gravity and electromagnetism, the economy is shaped by forces like supply and demand, risk and reward, and innovation and competition.
However, just as the universe is not a static entity, neither is the distribution of wealth. It is subject to constant change, driven by forces like technological advancements, globalization, and shifting demographics. The physics analogies we've explored highlight both the opportunities (and challenges) associated with these dynamics.
The concept of wealth as potential energy underscores the importance of investing in human capital, infrastructure, and innovation to create a foundation for future growth. The notion of wealth as momentum emphasizes the power of compounding and the need to maintain a long-term perspective.
The idea of wealth diversification as the strong nuclear force underscores the importance of building resilient portfolios that can withstand market fluctuations. Just as a diversified atom is more stable than a single particle, a diversified investment strategy is more likely to weather economic storms.
I think the physics of wealth reveals that the pursuit of financial well-being is not just about accumulating money but also about understanding the underlying forces that shape the economic landscape. By applying the principles of physics to our financial decisions, we can make more informed choices, manage risks effectively, and build a more prosperous future for ourselves and society as a whole.
You can use this enhanced understanding to build efficient wealth engines and unify them under a wealth system.
By embracing this interdisciplinary approach, we can unlock the full potential of wealth creation so we can live our lives — not trade our time for economic units.
👋 Thank you for reading Wealth Systems. I started this in November 2023 to share the systems, technology, and mindsets that I encountered on Wall Street.
💡The BIG IDEA is share practical knowledge that can be applied toward the development and refinement of wealth building systems.
To help continue our growth please Like, Comment and Share this.
NOTE: The content provided on this blog is for informational purposes only and does not constitute financial, accounting, or legal advice. The author and the blog owner cannot guarantee the accuracy or completeness of the information presented and are not responsible for any errors or omissions or for the results obtained from the use of such information.
All information on this site is provided 'as is', with no guarantee of completeness, accuracy, timeliness, or of the results obtained from the use of this information, and without warranty of any kind, express or implied. The opinions expressed here are those of the author and do not necessarily reflect the views of the site or its associates.
Any investments, trades, speculations, or decisions made on the basis of any information found on this site, expressed or implied herein, are committed at your own risk, financial or otherwise. Readers are advised to conduct their own independent research into individual stocks before making a purchase decision. In addition, investors are advised that past stock performance is no guarantee of future price appreciation.
The author is not a broker/dealer, not an investment advisor, and has no access to non-public information about publicly traded companies. This is not a place for the giving or receiving of financial advice, advice concerning investment decisions, or tax or legal advice. The author is not regulated by any financial authority.
By using this blog, you agree to hold the author and the blog owner harmless and to completely release them from any and all liabilities due to any and all losses, damages, or injuries as a result of any investment decisions you make based on information provided on this site.
Please consult with a certified financial advisor before making any investment decisions.