CAN YOU DIVERSIFY WITHOUT THE CASH COW?
"We live in a culture that includes the principle that if somebody else has something we need, and they won’t give it to us ... we can use force to get it."
As the nation of Botswana tackles the process of economic diversification, it seems clear in the minds of all that the process involves expanding other sectors of the economy so as to spread dependency among various sectors.
It should be clear that we are not talking about reducing the mining sector, but rather increasing the efficiency and productivity of other sectors using capital from the mining sector. What that means is that we acknowledge the mining sector as our cash cow, and by milking the cash cow, we can feed other sectors. We are not, thereafter, seeking the death of the cash cow. By all means, long live cash cow! Let there be more cows to milk!
At a personal level, when most people think about a diversified portfolio, they become scatter-brains. Without a well established cash cow, they go from day one into spreading their resources so thin into so many sectors that they don’t know which is the cash cow and which needs to be fed with the milk from the cash cow.
When you think about diversification, you first must establish a cash cow. Initially, that sounds like counter-diversification. The establishment of an initial cash cow requires you to pour almost all your resources into the one thing that will produce the cash for you.
You may look like you are holding a diversified portfolio when you have twenty cows at the cattle post, paper assets on the stock exchange worth say fifty thousand, equity in your house worth say two hundred thousand, and a job that pays your living expenses. While this may look diversified, none of these assets are actually bringing any cash for you, so you have no cash cow.
What if you sold the twenty cows, sold your paper assets, and cashed some of your equity from you house and built say four low cost houses that could literally start bringing cash into your pocket at the end of every month? Then you would have a cash cow, at which time you could in earnest start thinking about diversification.
A diversified portfolio does not mean holding only paper assets (shares) in various sectors on the stock exchange; but it means holding a portfolio of real assets in various sectors as well as paper investments.
The greatest challenge however, is the establishment of a cash cow. That calls for focussed attention in one area from which you will reap cash that you can start throwing into other sectors. Namasté. Your comments and suggestions are always welcome at firstname.lastname@example.org