Weekly Thoughts


Get Rich Quick

Lessons from Einstein, Buffet, and Munger

In recent years, there have been many opportunities to get rich quick.  Somebody with little more than an idea could attract venture capital funding and suddenly have a company worth a billion dollars.  Meme stocks generated life-changing returns in days.  Putting money into crypto generated mind-boggling profits.  Investments in real estate could be flipped quickly for a payoff.  Many people took advantage of the environment and some (many?) did quite well for themselves…for now.  

Chenmark’s focus on buying and operating small businesses for the long-term has been decidedly off-trend in this backdrop.  We don’t plan to flip our business for a short-term profit.  We simply focus on acquiring small businesses at reasonable valuations and reinvesting the profits of those businesses indefinitely.  Compared to the recent go-go, fast-money environment, Chenmark is decidedly boring.

That said, our approach is consistent with one of our core beliefs in the immense power of compounding.  As articulated by Albert Einstein: “compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.”  Einstein is in good company.  Warren Buffett has said: “Time is your friend, impulse is your enemy. Take advantage of compound interest and don’t be captivated by the siren song of the market.” 

So if people like Einstein and Buffet are espousing the benefits of compounding, why don’t more people follow the advice?  A recent Seth Godin post provides some insights: 

“Sometimes we’re not that good with time.

If people got a hacking cough and a chronic disease an hour after smoking their first cigarette, it’s unlikely many people would smoke.

If earthquakes happened a day after fracking for gas was tried, they would probably have stopped.

And if entrepreneurs discovered freedom, satisfaction, and customer delight a week after starting their projects, more people would probably give it a go.

Most of us are able to respond to a feedback loop in the short run. The real opportunity and challenge is to get much better at recognizing the long loops.”

Despite our focus on long-term holds, we admit it can be frustrating to not see things come together more quickly — especially in a hot market.  In those moments, we have to remind ourselves that just as the only way to have a twenty-year track record is to invest for twenty years, the only way to compound financial returns is to play the long game.  There is simply no shortcut.  Now in our seventh year, Chenmark is starting to see the positive effects of compounding — our flywheel is speeding up.  While we are far away from where we want to be, we know it takes time to build long-term, enduring value, and we are committed to plugging away at it.  As Charlie Munger said: “understanding both the power of compound interest and the difficulty of getting it is the heart and soul of understanding a lot of things.”

Have a great week,

Your Chenmark Team

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