Friday, March 04, 2016

Looking After Time

'The best way to make a small fortune is to start with a big one'. There is a hole in the story I shared about Trump having much less money than if he had just invested his inheritance and done finger painting instead. Unfortunately, because it makes a nice deTrumping meme. The same is true for almost anybody. Time is the most powerful investment tool. There is a famous story about what would happen if you took the $16-$24 received for the sale of Manhattan Island to Europeans in 1626, and invested it at between 5-8%. What sounds like a small figure (plus a heap of time) would probably have left you some change if you had (equivalently) 'invested the money in the S&P' and then decided to buy the approximately $1.5 trillion of property now. 


If your money is invested in productive assets, one of the best investment strategies is to sit on your hands. It is very hard to leave things alone to do their thing. We panic. Our emotions get involved. We break things. We take chances we don't need to. Finger painting is a very good idea, even if you have below average size fingers.


We tend to fire our money by spending it. If there is more going out than coming in, nothing will grow. The best investors are very conscious of not being conspicuous consumers. The best investors are custodians. Instead of everything that is produced being eaten, some is put aside and allowed to grow. Good custodians hand things over in a better condition than they received them. They live off some of the fruits, but they use some to plant more trees.


The point Deborah Friedell makes is a valid one. Donald Trump's performance, like his fingers, are below average. A lot of us would fail the same custodial test. We don't tend to hand things over in better condition than we found them. We often consume more than we need to. 

If you are looking after things well, the secret ingredient is time.
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