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Leverage — force multipliers people use to do 10x, 100x, or 1,000,000x what others can.

#1 introduced Leverage.
#2 covered Tools.
#3 explored People.

L E V E R A G E — Thread #4: Capital Leverage

Capital: money (or other assets like property) intended for investment.

Capital as leverage: A force-multiplier for your effort or judgement. You use capital to place bigger bets when you have the edge, or buy other forms of leverage to increase output.

“It takes money to make money” is the old saying, and it’s mostly true.

Money is a tool for making money… because it is a form of Leverage.

Can you earn $50,000/year in your sleep?

You can with $1,200,000 in stocks.

Can you earn $100,000 from one correct decision?

You can by investing $10,000.

Can you 10x your small business’ earnings?

You can if you invest in the right tools, people, and products.

Yes, the rich get richer -- not because they cheat, steal, or pay less taxes…

Because Capital is Leverage, and in large amounts continues to grow almost effortlessly.

Capital can earn money directly:
Interest (from lending)
Equity (from investing)
Dividends (from investing)
Staking (providing liquidity, etc)

Or by purchasing other forms of Leverage like tools, employees, or machines.

Capital is a beautiful form of leverage because it is infinitely extensible. You can invest $1,000,000 just like you can invest $100.

Same decision, orders of magnitude larger outcome.

Capital is the Leverage that drove many of the biggest outcomes in the 1900s. (Warren Buffett, George Soros, and Jim Simons as examples)

With great judgement and huge Capital Leverage, incredible outcomes can come from very small groups.

- Renaissance Technologies has 300 to manage $110 Billion.
- Berkshire Hathaway has 25 employees at headquarters.

Sources of money to use as Capital leverage:
- Cash (yours personally, or profits earned)
- Debt
- Equity

Each one has its place and context...

Cash could come from your savings, earnings from consulting or selling products. Cash means you own the upside and the downside. Simpler than capital partners with different priorities.

To get Debt, you’ll likely need collateral or a strong track record. Debt often means you owe the money back even if you lose it. You retain the upside, but take risk on the downside.

To get Equity, you’ll likely need strong growth and high upside. Selling equity for cash means you’re selling some of that upside, but lowering your downside risk. If equity investors lose their capital, you don’t owe it personally.

You can also bring partners to co-invest. Angel Investors and Venture Capitalists like Brianne Kimmel raise money from Limited Partners (LPs) -- so they can place bigger bets, and earn more from their insights. That’s Capital Leverage.

Getting Capital from others requires belief in your skill and judgement if raising from investors or borrowing from a bank. (“Permissioned” as @naval says)

BUT -- if it’s your cash or your profits you earned, you can invest however you want!

Capital is the currency you use to compound leverage. Profits come in → capital piles up → invest in tools, people, or products → more profits come in. → (Repeat)

The ability to build and manage Capital Leverage is important because capital can be exchanged for other forms of Leverage (Tools, People, Products).

Learn to save, borrow, and pitch investors. Then reinvest.

Capital Leverage may be the most dangerous form of Leverage for a beginner. The downside can be larger than expected, especially with debt or complicated investments like options.

Leverage is to be used on proven opportunities with high margins-of-safety.

Part of embracing the Leverage mindset is appreciating that your money is a tool -- to increase your earnings, or to protect your time.

Questions to ask yourself:
- Does this problem cost less to solve or ignore?
- How can I solve this problem with no more of my time?
- How can I spend money to make this problem go away?

You can methodically apply, increase, and compound leverage until you stand on a MOUNTAIN OF LEVERS -- accomplishing 1,000x your peers.

More to come on tools, applications, and examples.

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