“Pride gets no pleasure out of having something, only out of having more of it than the next man… It is the comparison that makes you proud: the pleasure of being above the rest. Once the element of competition is gone, pride is gone.” -C.S. Lewis
I would like to add an amendment to this insight from writer and theologian, C.S. Lewis.
But more on that later.
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The rules of investing are quite simple:
1) Spend less than you make.
2) Invest the extra in the stock market.
3) Wait a few decades.
Most of the United States has a problem with that first rule but, if you’re the type of person who follows me on Twitter, you likely do not.
And rule number 2? Well, that’s just downright fun. If you’re like me, the dopamine hit of a new pair of sneakers can’t compare to the rush of throwing cash at a perfectly timed market dip or an exploding tech stock. Spending less than you make is simply a matter of budgeting. Investing in the market is fun.
The real rub lies in Rule 3:
Waiting.
Based on historic market returns, a portfolio invested in the S&P 500 will double in value roughly every 9 years. If you have $100,000 invested by age 30 and never invest again, it will be worth $3,200,000 by age 75. That’s a fantastic return considering it took no effort on your part after the age of 30… but you won’t be 75 for 45 more years.
It’s easy to know “If I hold on for 45 years, I will, almost without a doubt, be fantastically wealthy.” The long game is a virtually guaranteed path to freedom. But here’s the thing:
The actual act of playing the long game sucks.
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I rang in the previous New Year in Palm Beach, Florida — the most expensive zip code in the state. Everywhere I went, successful older men and women (or their paid driver) were cruising in their Ferrari, Bentley, or Rolls Royce. I watched on as 60- and 70-year old’s revved their V12-equipped supercars past the 5-year-old base model Chevy Malibu I was driving.
I’m a car guy. In grad school, I worked as a car salesman. I got my first full-time job because I serendipitously met my future boss at a Porsche track-racing event. And despite being an absolute money pit of an investment, I 100% plan on buying a supercar one day.
But I don’t want a Lamborghini when I’m 60.
I want a Lambo now.
There’s something so deliciously satisfying about having the things you want not only when you want them, but also before you’re supposed to have them. Why else did having ice cream for breakfast when you were a kid taste twice as good as it did at night?
Oh, and most of all, it feels delightful to have the things you want, when you want them, before you’re supposed to have them… and before everyone else has them.
It’s the reason that being the first to have the new pair of Jordan’s was the biggest flex at school. That people line up overnight every single year to get the newest iPhone. That a Lambo at 25 is infinitely cooler than the same Lambo at 65.
So, what is my amendment to C.S. Lewis’ quote?
Pride gets no pleasure out of having something, only having more of it than the next man… or having it sooner.
We want the spoils that 45 years of compounding interest will provide… but we want it in 4 years. We see the returns of the stock market over decades and look for ways to replicate it in years, months or even weeks. Whether it’s the next tech startup, SPAC or cryptocurrency, we’re all chasing a decade’s returns with a week’s timeframe. It would be nice if it worked.
So, what happens when we try?
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Everyone and their mother knows Warren Buffett. And if you’ve dove down the rabbit-hole of investing, there’s a decent chance you also know of his business partner: Charlie Munger. But long before their investing prowess grew to mythic proportions, there was a third musketeer in this investment troupe.
His name was Rick Guerin.
Rick Guerin was a largely successful investor in his own right. He invested alongside Buffett and Munger in some of their most lucrative deals, including See’s Candies and Blue Chip Stamps. By all estimates, he could have eventually been equally wealthy as Buffett ($101 Billion) or Munger ($2.2 Billion). Then, in the 1970’s, Guerin essentially vanished from the spotlight.
Guerin was largely lost to investing history until a hedge fund manager, Mohnish Pabrai, paid $650,000 to have lunch with Warren Buffett and broached the topic. Pabrai asked Buffett about what happened to Guerin and why he never gained the success and notoriety that Buffett and Munger had.
Buffett replied:
Charlie and I always knew that we would become incredibly wealthy. We were not in a hurry to get wealthy; we knew it would happen. Rick was just as smart as us, but he was in a hurry… in the ’73, ’74 downturn, Rick was levered with margin loans. And the stock market went down almost 70% in those two years, and so he got margin calls out the yin-yang… so Rick was forced to sell shares at … $40 apiece because he was levered.”
Just as smart. Just as knowledgeable. But he wanted it all just a little bit faster. And wanting it all just a little bit faster is the reason he never got it at all.
The hardest part about playing the long game is that so few others do, so you are stuck constantly comparing yourself against others in a race where only your engine has a governor. Your neighbors might make half as much as you but have a car that costs double what yours does. The long game involves years of knowing that you could be living life on a much higher level than the one you are on right now, but delaying gratification long enough for compound interest to set in.
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I am fairly confident that I will one day buy that Lamborghini, or a similar vehicle. But even when I do, I know that it won’t be as fun as it would have been if I was to buy it today.
An Italian sports car at 23 is a sign of massive success, high status, and, perhaps, questionable tastes. Sure, that guy is a douche… but he’s a douche that made it. That same car at 53 is a mid-life crisis from a middle-manager who saved his paychecks diligently and needed some high-end retail therapy. The car is the same, but the experience is nowhere near what it would be at 23.
I’m not saying that owning a supercar won’t still be a blast — but it would be so much more satisfying to have the thing I want, not only before I’m supposed to have it, but also before everyone else my age can have it too. Owning that car will be so much less fun in 30 years than it would be now.
But it will be better.
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Short-term investors optimize for returns. Perhaps for excitement. Certainly for what those returns can buy when they are cashed out. And, if that’s what you want, there’s nothing wrong with that.
But long-term investors optimize for something a little more transcendent than returns: Their ability to sleep at night.
I went shopping for cars last year. Just for kicks, I got pre-approved to finance a used Lamborghini Gallardo in my area with a sticker price of $89,000. For all intents and purposes, I technically have the financial capacity to buy a Lambo. If I was optimizing for fun and excitement, I would have just hit a grand slam.
But I’m playing the long-term. I’m optimizing for my ability to sleep at night.
Just because you can buy a lifestyle doesn’t mean you can afford a lifestyle. And it’s easier to sleep at night when your short-term failures don’t irrevocably damage your long-term outcomes.
If I was to buy this Lamborghini and then lose half my income, I would be screwed. At 23 years old, I would be tied down to a depreciating asset, while limiting my cash flow and jeopardizing my credit score. All because I couldn’t wait a few more years for what will one day be inevitable.
I took a ride in my used Honda Accord today. It’s no Lambo, that’s for sure, but it was also $65,000 cheaper. Nobody will be impressed with the old-man tan paint job or the practical fuel economy. Guys won’t break their necks to catch a glimpse of my new whip and girls won’t ask me to take them for a joyride. I won’t be hitting 0–60 in anywhere near 4 seconds.
But at least I will be able to sleep at night.
Thanks to compound interest, the $65,000 I saved by not buying a Lambo today will be worth roughly $2,080,000 when I’m 67… if I keep playing the long game. There are a lot of things in this life to worry about. But there’s no amount of acceleration or attention in the world worth that’s worth adding “money” to that list.
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For all but life’s essentials, you likely want what you want because other people also want it — and you want to have it before they can.
But what’s easy to lose sight of is that the things your friends own often own them. They are one health emergency away from foreclosure on the house that you have envied for years. One lost client away from repossession of that Porsche 911.
The goal of any investor is to put principal to work in the market and then leave it alone. Not for days or years, but for decades. Those decades will elapse far quicker than you can imagine.
Charlie Munger famously said:
“The first rule of compounding: Never interrupt it unnecessarily.”
Munger and Buffett knew this. Rick Guerin did not. Munger and Buffett were content to get rich slow. Rick Guerin was not. And this has made all the difference in the former becoming two of the richest men on planet earth and the latter enshrined in history as a cautionary tale.
Play the long game — it’s the only game worth playing.
Oh, and the shares that Rick Guerin sold for $40 apiece in 1974? Those were Berkshire Hathaway Class A stock.
Their current value?
$420,000 apiece.
grandson, we are so proud of you, 4year college degree in 2, debt free, publish a book, master degree before 22 years old, flourishing business. so much to be proud of, i doubt Buffett had a Lambo or Rolls Royce at 30 but he can Afford a fleet of them now and so will you. The Lord has blessed you as you are blessing others with your knowledge and abilities.