Never enough, Astounding Compounding, Wealthy,

 

Never enough

Enough, only six-letter words but have a very powerful effect. If one knows the criticality of the word enough, he/she would always stay satisfied with their life's decision in terms of financial as well as a life decision. In our society, many people including the wealthiest one seem to be less learned about what enough can bring to.

If the person is on the edge of survival and poverty makes them feel uttermost pain, they do fraud is understandable. It makes sense. But someone worth millions of dollars would risk their everything in pursuit of even more because they had no sense of enough.  Greed and ego consume them whole.

Warren Buffet said, "There is no reason to risk what you have and need for what you don't have and don't need."

To have a sense of what enough can give rise to, you should remember few things:

1.       The hardest financial skill is getting the goalpost to stop moving.

2.       Social comparison is the problem.

3.       “Enough” is not too little.

4.       There are many things never worth risking, no matter the potential gain.

Reputation, freedom, happiness, family, and friends, being loved by those who you want to love are invaluable. And it’s not worth taking risks for anything that might harm them. 

Astounding compounding

The majority of us know what compounding means but rarely of us know what astounding compounding can give rise to, as we've all only experienced a tiny sliver of it. Well, you know about ice ages and how they formed? According to Wladimir Köppen, moderately cool summer was the reason for ice ages. Moderately cool summer meaning when summer begins it never gets warm enough to melt previously accumulated snow therefore previously leftover ice base makes it easier for snow to accumulate the following, hence you see the snow around in summer also, which attracts even more accumulation for the following winter. And this cycle continues. Within a few hundred years there would be numerous sheets of ice because of this cycle and the human race would have been completely wiped off. An amazing thing is here is how one small change in climate could bring a humongous change in the future.

Here, the biggest takeaway is you don't need tremendous force to get tremendous results. If something is compounding, just let it grow and one day it would be logic-defying that you underestimate what is possible and where it can lead to. The same thing is with the money. Invest in the right sector and let it grow. 110% it would give you tremendous results.  

To see the power of compounding, one must have the key ingredient i.e., time. You just need to shut up and wait. Good investing and waiting for it to see its magic doesn't mean earning big returns that tend to be one-off hits, it is all about getting returns for the longest period. And that’s when the compounding runs wild.

Getting wealthy vs staying wealthy

Living in the 21^st century where you see folks earning a shitload of money and losing it in just the blink of an eye, staying wealthy is a blessing in disguise.               

Because people are so secretly envious of the people who they think have the luxury of this and that, they started comparing them with others, try to risk their everything in pursuit of more and more, they lose money. For staying wealthy, one needs to learn how to survive, it requires paranoia that what you have earned can be taken away from you just as fast.

Michael Moritz, the billionaire head of Sequoia Capital in one of his interviews was asked that how sequoia capital has survived their business for four decades. He replied "I think we've always been afraid of going out of business" also "There's a lot of truth to that … We assume that tomorrow won't be like yesterday. We can't afford to rest on our laurels. We can't be complacent. We can't assume that yesterday's success translates into tomorrow's good fortune." So you see, here, frugality and that paranoia for survival. It is necessary and it is often overlooked.

The foundation of your survival strategy should not only be “growth" or "brains" or "insight" but also the ability to stick around for the longest period, without getting wiped out, which is what makes the biggest difference.

Nassim Taleb put it this way: “Having an ‘edge’ and surviving are two different things: the first requires the second. You need to avoid ruin. At all cost.” This means for a person who is on the edge must need survival but you don't need to put yourself at risk just to achieve some things, you should avoid it at all cost.

Applying the survival mindset in the real world needs few things which are, first, you need to think as you are financially unbreakable and try to stick for the longest time to see the magic of compounding. Second, planning is the important and most important plan of every plan is to have plan B. Third, A barbell personality—optimistic about the future, but paranoid about what will prevent you from getting to the future—is vital.

You can be wrong half of the time and still make a fortune.

Sometimes what happens is you own 99% of something which would be loss-making and the other 1% are turned out to be the work of someone like Picasso which covers all of your loss and still gives you tremendous profits. A lot of things in business and investing work this way. Yes, you can be wrong half of the time and still make a fortune but this can be hard to deal with and also that's not the case every time.

A great investor doesn't put all his money in one basket. That's stupidity. Instead, he/she should always invest it in portfolios. Then sit and wait for the profits. Like venture capitalists invest in 100 start-ups knowing that 90% of them would fail but other 10% could give them that enormous profits which would cover all their losses incurred by that 90% invested loss-making start-ups.

One who learns averaging things, when losses are occurring, never goes crazy. Great investors always know how to average, when to average, to generate great wealth. Tails drive everything. One who understands how tails work would always realize that sometimes it’s okay for business, investing, and finance to go south because you know that you are good enough that you would earn your failed business, investing, and finance again.

Most of the time, people don't see the failure behind the successful product, they only noticed the profitable product. Failed attempts, poor management, bad picks all are the other side of tail-driven returns. We overlooked it and that makes our failure and setbacks feel like we are doing something wrong.

Something I’ve learned from both investors and entrepreneurs is that no one makes good decisions all the time. The most impressive people are packed full of horrendous ideas that are often acted upon. And they know the acknowledgment of how tails drive success.