Assets & Liabilities

Monday, April 25, 2022 by Louie Bacaj

(This essay was first featured on the 51st edition of my newsletter)

Growing up in the hood, you saw people buy a lot of liabilities and very few assets.

In one part of The Bronx, New York, which was full of Albanian immigrants, there were more Mercedes Benzes in a few block radius than probably the entirety of the borough.

But how can that be?

When you come from poverty, the thing you desperately want to show the world is that you are no longer poor. Albania, where I was born, is one of the poorest countries in Europe but has more Mercedes Benzes per capita than many of the wealthiest European countries. More than probably even Germany, where those types of cars are manufactured. I am always stunned when I visit how people that earn on average $15 a day can own and drive so many Mercedes Benzes.

But in The Bronx, we can find our answer.

Growing up, I had a friend named Jimmy. Jimmy was a few years older than me. Jimmy was cool; he was 22 and drove a Benz. We all hung out with him because, as I said, he seemed cool. He worked two full-time jobs; he made a few dollars and bought a Mercedes by himself. Jimmy didn't have much family here. Jimmy was an immigrant like us; his entire family was back home in Albania. But when Jimmy invited us over to his apartment to hang out one day, I was shocked. We found out Jimmy lived in a dingy basement when we got there. The poor guy slept on a couch. He didn't even own a bed.

But how could this be?

Jimmy drove a hundred thousand dollar Mercedes Benz, which he financed monthly. Over a decade and a half ago, $100k was a lot of money (still is). The Benz was brand new, all black, with 19-inch rims and an AMG package. Custom tints on all windows, including the front. By the way, front tints are illegal in New York City; he told us he received several tickets for those, but he refused to take them off because they look good.

I eventually started to reason about all of this. It began to make sense; you and I can probably afford to finance a $100k Mercedes if we live in a basement and sleep on a couch too.

It was at that moment that I began to hate liabilities. I began to dislike everything that didn't appreciate in value. I began to dislike everything that might enslave me to it. Witnessing that was probably one of the best things that happened to me.

All of this, of course, is not unique to Albanian culture. I am picking on my people here, but most of my poor friends in the Bronx, even those born in the US, bought expensive jewelry, expensive clothes, and expensive cars even though we lived in the hood and were by all objective measures poor.

My favorite rapper Nipsey Hussle seems to have been affected by a similar event, judging by his interview when he was young. He talks about why other rappers buy so many liabilities.

"If you need some diamonds or some jewelry to get at a female, it's because you lack something within yourself. All that is insecurity."

Just like Jimmy, who felt he had to sacrifice for that Benz.

I didn't know too many well-off people in my life at that time, but the two distant relatives that had some money made it in two ways. They bought assets or created them by starting businesses. They both bought real estate they could rent; both were immigrants, and neither had even a high school education. So the moment I had even a little bit of money and thought about buying a home, I remembered that if those people without any education could make money from real estate, then I probably can too, and I should try that path.

But out of their story and Jimmy's is something even more critical for today's day and age. Because today we can build assets digitally and with minimal cost. But few seem to do it.

Just recently, in the Small Bets community, the idea of distribution channels and audience building came up. Which, if built sustainably, can be a massive asset to entrepreneurs. Daniel Vassallo said something off the cuff in the community, which is very profound:

"One of the critiques I get when I say that I finished my AWS book in a month is that someone always says: But you had to spend a year building an audience, etc.
But this is a bad framework to look at the costs of doing things.
There are two important artifacts in accounting: The Balance Sheet and the Profit and Loss statement. In the Balance Sheet, you list the assets which you can use for many things, and in the P&L, you list the income and costs of running the business.
Building an audience, learning SEO, improving your reputation, building knowledge, etc., are things that go into your personal balance sheet. You don't spend them when you apply them. They're assets, and we can reuse them."

Time spent building assets that we can reuse is never a waste. Just like money spent buying cash-flowing businesses or real estate is never wasted. There are far worse ways to waste time and money in the modern era.

And like Nipsey Hussle said in that interview,

"I would rather invest in some assets as opposed to trick off my money on diamonds or cars that lose value as soon as your drive them off the lot ."

There are so many ways to create digital assets in the modern era. Assets we could later reuse, but too many spend all their time consuming. Endless consumption is a liability, a trap. Like Jimmy, who desperately wanted to show the world he was no longer poor, many today fill their insecurities with consumption.

But poor Jimmy didn't realize that the Benz was actually keeping him poor. Addiction to endless consumption is enslaving a lot of people and keeping many poor too.

So forget about looking cool, and let's start building some assets because that's actually cool.