The invention of the wheel revolutionized society. The wheel was effective because it reduced the area of friction between the load and the carrier. The greater the number of wheels supporting a single carrier the less weight any one of the wheels had to bear. Both the size of the wheel and the material used in making the wheel determined the degree to which friction could be minimized. Reducing the friction was important because less friction meant that more could be moved, using the same amount of power. The harder the material used in making the wheel’s rim, the smoother the surface of the wheel could be and the less the friction. Also, the smaller the area of contact between the wheel and the surface, the less the friction.

Over time, paths would become roads and roads would be made using substances which were smoother and themselves caused less friction with wheeled vehicles, adding to the amount which could be transported by each of the vehicles.

Friction can be described as the impedance of motion between objects. It is usually thought of as being a negative because it slows or prevents something from occurring. In the case of the interaction between surfaces, it is the resistance from a grinding versus the smoothness from a gliding between one object against the other. Lubrication produces more glide and less grind. The greater the glide, the more efficient the engine propelling the load-bearing vehicle. The more efficient the machine, the less power is needed to produce the same amount of motion. This principle has a universal application. The more specifically any objective is defined, the greater the probability of success.

Land, sea and air vessels are confronted by the friction of the vessel that results from moving against the natural elements of atmosphere or water. In the case of air and sea vessels the hulls are designed to create lift which results in the vessels riding higher in the air or on the water.

In personal relations the parties benefit from there being a smooth and silk-like lined path, with an absence of bumps and blockages slowing or interfering with the desired movement . Such a frictionless condition is considered to be important for progress or success

Investment is a process of assets being employed to create additional assets. Losses are the result of there being an unexpected presence of friction-causing events, for which insurance, whenever available, is an expense protecting the employed assets and limiting the level of profit. The art of investment is in the balancing of prospective returns with the cost of protecting the capital employed.

What can go wrong and how wrong it can go is the assessment the investor must consider. If investing in tradable assets like securities, the prospects for profits must be balanced with a view about how much the asset can decline. Loss and the opportunity to profit can be avoided by not making the investment or by buying some form of overly expensive price-change insurance. Such insurance can be in some form of hedging position like a put contract. The put contract is one in which another investor is paid a fee agreeing to purchase specific shares, which are the subject of the put contract, at an agreed price, at the end of a period, if required to do so. The premium paid to the other investor for the put is an added cost of the investment and may result in a lessening of profit if the stock does not decline in the covered period. This is the same as the cost of fire insurance if there is no fire.

In the case of investing in a privately-owned company it is possible to either invest in the company’s growth of profitability or in the company’s growth of revenues. Betting, by buying a royalty from the company, that the company will achieve revenue growth is less risky than betting, by buying stock in the company, that it will become more profitable. There are a great many more points of friction in achieving and maintaining profitability than in growing revenues. Therefore, investing in the company’s revenues is a circumvention of friction and is more likely to result in a higher degree of satisfaction than investing in the company’s possible profitability.

Royalty terms can require payment to the royalty investor on the receipt of revenue by the royalty issuing company and have minimum and even assured royalty payments. Especially when investing for others, more income for less risk is a preferred objective.

 

 

Arthur Lipper, Chairman
British Far East Holdings Ltd.
chairman@REXRoyalties.com
+1 858 793 7100

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