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If I had no summarize money success in a single word it would be survival. The 40% of companies’ successful enough to become publicly traded lost effectively all of their value over time. The Forbes 400 list of richest Americans has, on average, roughly 20% turnover per decade for cause that do not have to do with death or transferring money to another family member.
Capitalism is hard. But part of the reason this happens is because getting money and keeping money are two different skills.
Getting money required taking risks, being optimistic and putting yourself out there.
But keeping money required the opposite of taking risk. It requires humility and fear that what you have made can be taken away from you just as fast. It requires frugality and an acceptance that at least some of what you have made is attributable to luck, so past success cannot be relied upon to repeat indefinitely.
Michael Moritz, the billionaire head of Sequoia Capital, was asked by Charlie Rose why Sequoia was so successful, Moritz mentioned longevity, noting that some VC firms succeed for five or ten years, but Sequoia has prospered for four decades.
Not growth or brains or insight. The ability to stick aoudn for a long time without wiping out or being forced to give up, is what makes the biggest difference. This should be the cornerstone of your strategy, whether it is in investing or your career or a business you own.
There are two reasons why a survival mentality is to key with money.
One is the onions, few gins re so great that they are worth wiping yourself out over.
Compounding only works if you can give an asset years and years to grow. It is like planting oak trees. A few year of growth will never show much progress, to years can make meaningful difference and 50 years can create something absolutely extraordinary.
But getting and keeping that extraordinary growth requires surviving all the unpredictable ups and downs that everyone inevitably experiences over time.
We can spend years trying to figure out how Buffett achieved his investment return, how he found the best copied, the cheapest stock, the best managers. That is hard. Less hard but equally important is pointing out what he did not do.
He did not get carried away with debt.
He did not panic and sell during the 14 recessions he has lived through.
He did not sully his business reputation.
He did not attach himself to one strategy, one world view or one passing trend.
He did not rely on others’ money.
He did not burn himself out and quit or retire.
He survived. Survival gave him longevity. And longevity, investing constantly from age10 to at least age 90, is what made compounding work wonders. That single point is what matters most when describing his success.
Warren, Charlie and Rick make investment together and interviews business manager together. Then Rick kind of disappeared, at lease relative to Buffett and Munger’s success.
No one wants to hold cash during a bull market. They went to own assets that go up a lot. You look and feel conservative holding cash during a bull market, because you become acutely aware of how much return you are giving up by not owing the good stuff. Say cash earn 1% and stock return 10% a year. That 9% gap will grew at you every day.
But if that cash prevents you from having to sell your stocks during a bear market, the actual return you earned on that cash is not 1% year, it could be many multiples of that, because preventing one desperate, ill-timed stock sale can so more for your lifetime reruns than picking dozens of big time winners.
Compounding does not rely on earing big returns. Merely good returns sustained uninterrupted for the longest period of time, especially n times of chaos and havoc, will always win.
