The Long-Term Game
Why temperament, not timing, is the key to building resilient wealth
I wish I had known these things when I first started investing, especially about compounding, volatility, and thinking long term.
Investing is all about the long term, step by step, building resilient wealth. Keeping a short-term horizon in the market is risky, not only for your capital but also for your ability to behave rationally when things don’t go as expected.
However, staying in the game for the long term is harder than it seems. It requires conviction, the ability to separate noise from signal, and a strong sense of delayed gratification — especially for those just starting out. Surviving through the years and reaching the point where compounding starts to work is never easy.
If you make it work in your favor and extend your time horizon beyond that of others, you can build tremendous, resilient wealth. For instance, if someone invested $10,000 in an index fund in 1942, it would be worth $51 million today. Similarly, a $10,000 investment in Berkshire Hathaway at its inception in 1965 would be worth approximately $425,551,637 today.
The Challenge of Long-Term Thinking
So, why is it so difficult to think long-term? Human brains evolved to prioritize immediate survival our ancestors faced immediate dangers and needs, such as finding food and avoiding predators, which required short-term thinking.
The future is inherently uncertain, and humans tend to avoid risks, preferring guaranteed immediate outcomes over potentially greater but uncertain future benefits.
Consumer culture encourages instant gratification.
Economic pressures, such as the need for short-term financial stability, can also limit the ability to plan for the long term.
The human brain has limited capacity.
Long-term planning requires abstract thinking, which is more demanding and less natural than dealing with immediate concerns.
I suggest reading or listening to Charlie Munger’s “24 Standard Causes of Human Misjudgment.” It’s a masterpiece for understanding these concepts.
Changing Mindset
Success in investing requires a shift in lifestyle and thinking. If you are pressured financially in the short term, you cannot make long-term decisions. Teaching the brain to think long-term requires significant learning and training.
This is why Peter Lynch and Warren Buffett emphasize the importance of temperament. You can analyze companies, get the right valuations, and find the right pricing, but without the right temperament, you can’t be successful.
Staying in the Game
How do you stay in the game long-term?
The simple answer is: avoid losing all your capital. Don’t assume you’re smart enough to escape that risk, many brilliant minds in business and investing history have fallen into the same trap.
For me, the most important decision is to avoid deadly mistakes. Even when I make errors, I focus on keeping the downside limited.
Charlie Munger says that if you can’t stomach a 50% downturn, you shouldn’t be in this business. In his lifetime, Berkshire Hathaway has twice gone down by about 50%.
Staying rational is key
Stop chasing the market for short-term gains. In the short term, the stock market is a voting machine, but in the long term, it is a weighing machine, as Benjamin Graham says.
Avoid deadly mistakes that could cost you all your money. As Charlie Munger says, “All I want to know is where I’m going to die so I never go there.”
Behave rationally. Stock market volatility is not a risk but an opportunity for the long-term thinker, volatility offers great opportunities.