AI Summary #
Here is a summary of the podcast transcription:
The host emphasizes the importance of considering both the long-term and short-term aspects of investing, particularly in venture capital. He argues that many successful investors and companies focus on the long run but neglect the need to manage the short term effectively. The host uses the analogy of delaying gratification, as seen in the Marshmello test study, which suggests that managing the short term is crucial for achieving long-term success.
The host also shares his own approach to investing, holding a significant amount of cash due to market volatility and the need to avoid emotional decisions. He calculates the opportunity cost of holding cash but also considers the potential losses if he were forced to sell stocks during a downturn.
The host cites examples from successful companies like Microsoft, Google, Facebook, and Apple, which have collectively held large amounts of cash for extended periods to ensure financial stability and flexibility. He argues that this approach is essential for achieving long-term success in investing.
In contrast, the host warns against ignoring the short term and notes that “thinking too big” can lead to mistakes, such as failed mergers based on long-run synergies. Instead, he suggests focusing on managing the short term effectively to create a foundation for long-term growth.
Key takeaways from the podcast include:
- The importance of balancing long-term and short-term thinking in investing
- Managing the short term is crucial for achieving long-term success
- Holding cash can be an effective strategy in volatile markets
- Companies with large cash reserves, like tech giants, have used this approach to ensure financial stability and flexibility
- Focusing on managing the short term effectively can create a foundation for long-term growth.
AI Transcription #
Welcome back.
I’m really fortunate to serve on the Board of Directors of the Marquell Group.
Prior to joining the board, I had been a Marquell shareholder and Thayin and student for over a decade.
So it’s been really fun to see it now come from the inside.
And Tom Gainer, Marquell CEO, truly one of my favorite humans, just a remarkable individual.
He has a saying that I think is so smart, so simple but so profound.
He says, the two most important time periods in life are forever and right now.
Those are the two time periods that matter more than anything else in the world, what’s going to happen forever and what you’re doing right now at this moment.
Very great idea in the world can be taken too far.
And I think one of those ideas that might be good but can be taken too far is the idea that investors should ignore the short run.
Many years ago I was speaking with an investor and I mentioned that venture capital, like all successful in forms of investing, is a long-term game.
And the person I was talking to said, well, that’s really surprising.
What’s all we hear about in venture capital is that it’s a short-term oriented game.
Companies that only have enough cash to last them for six months in the bank before they go out of business and need to raise more, seems very short-term oriented.
And I said, look, those points are not mutually exclusive.
The fact that VC is a long-term game and those companies need to focus relentlessly on the short-term.
Those are not contradictions.
If a company only has enough cash in the bank to cover six months of operations, then the short-term is absolutely imperative.
You have to watch monthly, weekly, and even daily expenses.
And you need to question everything that takes place today, tomorrow, the next day.
But the value of that company is ultimately created in the long run.
That’s where scale takes off and that’s where compound interest really works at some magic over the years and the decades, not the months and the weeks.
And I think no matter how you invest, whether it’s venture capital or stockpaking or index funds doesn’t matter how you invest, you can take the idea of ignoring the short-term, which is a good idea too far.
Everybody has to think about the short-term.
The key is recognizing that the long run is just a collection of short runs.
And capturing long-term growth means managing the short run effectively enough to ensure that you can stick around for a long time.
And that’s why the two most important time periods are forever and right now.
You probably heard of the famous Marshmello test, which was this famous study done, I think decades ago, where the kids who had the willpower to forego eating one Marshmello right away, in exchange for two Marshmello’s ten minutes later, apparently went on to do better in life.
They had better grades, better careers or more income.
The study is interpreted as proof that those who look ahead and can delay gratification make better decisions than those who focus on the short run.
But the most important part of this study is often overlooked.
The kids who held out for the second Marshmello did not just sit there patiently.
Have you ever met a young kid before?
They cannot do that.
None of them can.
The kids who were, quote unquote, patient, were able to wait ten minutes longer because they distracted themselves.
They sang a song or they played it their shoes or they told the researchers a story.
One of the kids hid under the desk, another to jumping jacks.
And the only reason that they made it to the long run is because they effectively managed their own short run.
In this case, by diverting their attention away from something that was otherwise too tempting to resist.
And that, I think no matter how you invest, there is a great analogy for how long-term investing and long-term thinking works.
I hold a lot of my personal assets in cash.
Not a crazy amount, but more than probably most people would of my age and income.
Most financial advisors who would look at it would say, wow, you got probably a little bit too much cash here.
But I think it’s totally fine.
It totally works for me.
And sometimes people ask me, have I calculated how much long-term returns I am for going?
By holding that much money in cash, like the opportunity cost of that.
And the answer is, yes, of course I’ve done that calculation.
But I have also calculated how much I would lose if I were forced to sell stocks during a downturn.
For any reason, like there’s a family emergency or just psychologically I can’t stand it anymore, that could be far costlier than the returns I’m giving up on my cash.
And so earning a long-term return on my stocks means ensuring that I can actually hold them for the longest period possible.
Which means I’m actually obsessed with the short term.
I’m obsessed with the short run.
Not for the returns, but as just a treacherous path to the long run that needs to be treated with respect.
I need to respect the short term and pay attention to the short term specifically so that I can make it to the long-term.
Company has due this too, the good ones at least.
In his early days as CEO of Microsoft, Bill Gates once said quote, I came up with this incredibly conservative approach that I wanted to have enough money in the bank to pay a year’s worth of payroll even if we didn’t get any payments coming in.
I’ve been true to that this whole time.
So look, Microsoft could focus on the next 10 years, not in spite of, but specifically because it managed its short-term finances so conservatively.
A recession or a huge mistake wouldn’t be a fatal blow and wouldn’t require selling strategic assets just to stay alive.
And look, I think if you look at a lot of companies, particularly tech companies in the last couple decades, they do the same thing.
Google, Facebook, Apple, they’re all do the same.
They hold hundreds of billions of dollars in cash collectively.
And for most of that time, it was earning no return, 0% interest.
But by doing so, they had the flexibility and the endurance to earn much higher long-term returns on other assets without the risk of having to fire sell them in a pinch.
The only reason that the long-term works is because the short-term is so protected.
And there is a graveyard of investors and companies who were fully invested in the honorable name of long-term thinking, long-term investing.
But they learned the hard way that their mentality of idle care about the short-term has its costs.
Several years ago, the great economist Tyler Cowan said quote, Plenty of companies have made big mistakes from thinking too big and too long-term.
For instance, a lot of mergers were based off the notions of long-run synergies that never materialized.
In reality, short-term improvements are often the best way to get a good long-run planned.
Such a smart quote.
One thinking is often viewed as what’s left over when you ignore the short-term.
But it’s not, I don’t think that’s the right way to think about it.
It’s what’s left over when you’ve nursed the short-term so well that what’s left over compounds into something great after a long time.
That’s it for this episode.
And this episode was brought to you by my friends at pubic.com and their podcast The Run Down.
The Run Down is a short podcast every week that talks about what’s going on in the markets, what’s going on in the short run in the markets, in stocks, in crypto, in the economy.
Check it out The Run Down on pubic.com.
And thanks for listening.
We’ll see you next time.