Jeff Bezos once asked Warren Buffett, “your investing thesis is so simple, why don’t more people copy you?”
“Because no one wants to get rich slowly,” replied Buffett.
In a video clip that plays before the Berkshire Hathaway annual shareholders meeting every year, Warren Buffett is asked how his investment approach is different from others and he provides a one word reply: “patience.”
Both Bezos and Buffett have a long-term outlook when it comes to making decisions. Bezos first letter to Amazon Shareholders in 1997 is titled, “It’s All About the Long-term,” and he goes on to articulate how Amazon intends to build an enduring franchise, but he also offers a warning:
“Because of our emphasis on the long-term, we may make decisions and weigh tradeoffs differently than some companies.”
Leaders like Bezos and Buffet have the wisdom and foresight to endure short term pain in order to achieve long-term success. They understand there are no short-cuts in life or business, and that successful strategies require years, and sometimes decades, to play out.
The world is constantly offering the prospect of immediate success and gratification, and it takes effort to avoid falling into the trap of short-term thinking. Why save money today when you can spend now on a luxury item that will provide immediate status? Or why invest in Berkshire Hathaway and wait years for your investment to grow when you can invest in a cryptocurrency that might go up by 5x or 10x in the next year?
The power of compounding has been called the eighth wonder of the world, but it takes time and patience to work its magic.
Traders Think Short-term, Investors Think Long-term
Nick Sleep, like Buffett and Bezos, has a long-term orientation when it comes to investing. Sleep is one of the best investors few people have ever heard of, amassing a 20.8 % annual return over 13 years for his Nomad Ventures Fund.
In his letters to shareholders, Sleep articulates how an investor who values time and patience has an advantage over most market participants – people who call themselves “investors” but are actually traders or speculators:
“There are, broadly, two ways to behave as an investor. First, buy something cheap in anticipation of a rise in price, sell at a profit, and repeat. Almost everybody does this to some extent. And for some fund managers it requires, depending upon the number of shares in a portfolio and the time they are held, perhaps many hundred decisions a year. Alternatively, the second way to invest is to buy shares in a great business at a reasonable price and let the business grow. This appears to require just one decision (to buy the shares) but, in reality, it requires daily decisions not to sell the shares as well! Almost no one does this, in part because it requires patience - and the locker room set does not do patience - but also because inactivity is the enemy of high fees.” – Nick Sleep, Nomad Investment Partnership Letter, 2009
Be Both Relentless & Patient
Great leaders often possess a rare mixture of being both relentless and patient. Relentless in their dogged and consistent pursuit of excellence, while simultaneously understanding that the ultimate result or destination will be obtained only through time and patience.
In an interview in Wired magazine, Jeff Bezos (who personally owns the domain “relentless.com” and points it at www.amazon.com) provided his thoughts on the value of long-term thinking:
“If everything you do needs to work on a three-year time horizon, then you’re competing against a lot of people. But if you are willing to invest on a seven-year time horizon, you’re now competing against a fraction of those people, because very few companies are willing to do that. Just by lengthening the time horizon, you can engage in endeavours that you could never otherwise pursue. At Amazon we like things to work in five to seven years. We’re willing to plant seeds, let them grow – and we’re very stubborn. We say we are stubborn on the vision and flexible on the details.” – Jeff Bezos, interview in Wired Magazine
In an article in Forbes in 2018 Bezos revealed that he tends not to work on problems that are facing Amazon today, rather he’s working on problems the company will face three years in the future:
"I very rarely get pulled into the today. I get to work two or three years into the future, and most of my leadership team has the same setup. Friends congratulate me after a quarterly-earnings announcement and say, 'Good job, great quarter,' and I'll say, 'Thank you, but that quarter was baked three years ago.' I'm working on a quarter that'll happen in 2021 right now."
Visible Short-term Wins Often Come with Hidden Long-term Costs
Failure to fully appreciate the long-term consequences of our actions often leads to decisions that appear “correct” in the short-term, but are actually mistakes. Nick Sleep writes:
“mistakes often result from overweighing an apparent short-term win, without fully recognizing the consequent, long-term cost.”
Consider the natural tension between the customer and the shareholder of a business. If a business raises prices on the customer, that may be a short-term win for shareholders as gross margins increase; however, it’s a short-term loss for the customer who is now asked to pay more.
So that begs the question, when considering the long-term, what stakeholder or “constituency” should we, as business leaders focus on? One might easily suggest the “shareholder,” but Sleep says not so fast:
“For most companies to thrive over the long-term, one constituency must be looked after before all others and, contrary to what some on Wall Street or in Westminster may suggest, that constituency is the customer.”
Long-term Thinkers Focus on “Win-Win” Solutions
In business, there are many opportunities to win at the customer’s expense. For example, a retail business may be so successful and draw so much traffic that it can effectively raise prices on the customer to increase margin, and they can justify the decision because “that’s what the traffic will bear.” However, that strategy comes at a long-term cost. The customer may wake up one day and decide prices are too high and simply shop somewhere else.
Sol Price, the founder of Fed-Mart, a predecessor firm to Costco, once penned a memo that articulates the importance of always making decisions in the long-term interest of the customer. In the passage quoted below, the term “our philosophy” refers to the strategy of Fed-Mart at that time (and Costco today) of consistently offering the lowest possible price to customers:
“Although we are all interested in margin, it must never be done at the expense of our philosophy. Margin must be obtained by better buying, emphasis on selling the kind of goods we want to sell, operating efficiencies, lower markdowns, greater turnover, etc. Increasing the retail prices and justifying it on the basis that we are still “competitive” could lead to a rude awakening as it has with so many. Let us concentrate on how cheap we can bring things to the people, rather than how much the traffic will bear, and when the race is over Fed-Mart will be there”. – Sol Price
The strategy articulated by Price in the memo above is effectively “win-win.” In the long-term, the customer wins with consistent lower prices and the shareholder wins with an ever expanding customer base. It sounds simple, but it takes courage and conviction to consistently make decisions in the interest of the long-term.
Source:
CNBC: Three Habits of theUltra-Wealthy: https://www.cnbc.com/2022/11/08/ive-interviewed-more-than-100-millionaireshere-are-the-3-habits-that-made-them-ultra-wealthy.html
Nick Sleep Letters to Nomad Shareholders: https://igyfoundation.org.uk/wp-content/uploads/2021/03/Full_Collection_Nomad_Letters_.pdf
Wired: In Conversation with Jeff Bezos, CEO of the Internet: https://www.wired.co.uk/article/ceo-of-the-internet
Forbes: Bezos Unbound: https://www.forbes.com/partners/maz/093018/F0930.feature.Bezos.html
Jeff Bezos 1997 Letter to Amazon Shareholders: https://s2.q4cdn.com/299287126/files/doc_financials/annual/Shareholderletter97.pdf
About the Author
Sean Murray is a keynote speaker, leadership coach and the author of If Gold Is Our Destiny: How a Team of Mavericks Came Together for Olympic Glory. His firm, RealTime Performance, provides leadership development and training to businesses and non-profits.
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