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Jun 08, 2023

Time, Not Timing

William Keenan

At Patient Capital we have an adage often repeated around the office that “time, not timing is key to long term investment success.” 

In a noisy world that appears to become nosier by the day, we are constantly bombarded by an endless stream of short-term dopamine hits such as Meta Reels, Tweets, or stock quotes flashing on screens. The more these fleeting stimuli cloud our vision, the harder it is to peer into the long-term. Our long-term view is only further obscured by immediate fears of war, recession, and fiscal dysfunction domestically and abroad. History’s greatest entrepreneurs all understood that wealth is created through economic value compounded over years, decades, and even centuries.

As with many things in life, sitting back and letting compounding do its work is easier said than done. Individual investors, great investors, and the astute institutional allocators alike have all sold great businesses before reaching maturity. Famously, Warren Buffett purchased a 5% stake in the Walt Disney Corporation for $5M in 1966, and promptly sold it in 1967 for a 50% gain. Today, that same 5% stake would occupy a natural position in Berkshire Hathaway’s portfolio of American businesses and be worth a staggering $8.5B1.

A few years after the Disney investment, Mr. Buffett was serving on the board of Grinnell College, when a young entrepreneur named Robert Noyce returned to his alma mater, seeking venture capital for a new startup, NM Electronics. Grinnell invested $300,000 in the fledgling enterprise in 1970, before its initial public offering one year later under a new name, Intel Corporation. From 1974-1980, with Mr. Buffett on its board of trustees, the college gradually liquidated its 0.5% stake for a $14M profit. Had the endowment held even with the recent drop in Intel’s share price, the stake would have been worth approximately $1.7B!2 While Mr. Buffett might have missed Intel, he certainly hasn’t missed the principle of time, not timing. First becoming a billionaire in 1986 at the age of 56 and worth $104B today at 92, Mr. Buffett has accumulated more than 99% of his wealth in the later years of his life.

Buffett aside, another Renaissance man over two centuries ago understood this principle. Benjamin Franklin’s maxim: “Money makes money. And the money that money makes, makes money” resulted in a bequest of $1,000 each to his hometown and adopted hometown of Boston and Philadelphia. The bequests were originally lent out to local tradesman, where “the borrowers were to repay the loans over 10 years at 5% interest. According to Franklin’s calculations, the fund would grow dramatically. After 100 years, some of the funds would be distributed by the city leaders and after 200 years, all the remaining money would be given away.”3 By 1990, The New York Times reported that the combined bequests were worth over $6.5M. While an impressive this sum, perhaps the most astonishing revelation of this fact is that it implies a compound annual growth rate of just 4%, while a 100% allocation to US equities more broadly would compound at approximately 6% annually over the same period. Had the bequests compounded at 6%, the 1990 sum would have reached a staggering $230M.

It’s not improbable that Franklin, in his prolifically wide reading originally learned about the principle of compounding from an account much older than even the 18th century. First appearing in the written record in mid-13th century Baghdad by Abbasid historian Ibn Khalikan, Khalikan recounts the story of an Indian King, Shriram, and the mythical inventor of chess, Sissa Ibn Dahir. In the account, Sissa requests as his reward for the invention of chess, a single grain of wheat, doubled for each square on the chess board. The King gladly obliged, before realizing as his servants laid out the proceeds, that even he could not furnish such a vast sum, as it would require six times the weight of all the living things on earth!

The good news is that you do not need to be a founding father, a medieval historian, or even own Opportunity Trust or an index fund to let compounding work its magic. In 2014, Ronald Read, a former janitor and gas station attendant died at the age of 92. His $8M fortune shocked his family and the charities to which he bequeathed his wealth.4 How did someone from such humble means amass such wealth? Read consistently spent less than he earned and owned enduring blue-chip companies.

Another everyday person, Grace Groner was orphaned at the age of 12. She never married, drove, or had children.  She worked as a secretary and lived alone in a one-bedroom house. When she died at age 100, she left $7M to charity.5 How? Same cause: market compounding over time.

Edward Avedisan, an accomplished flutist in his day job at the Boston Symphony Orchestra, never made more than $100,000 in annual income, but persistently invested in companies he studied carefully. At the time of his death last December, Avedisan managed to bequeath $100M to his alma mater, Boston University’s Medical School.6

Lastly and perhaps most impressively, Anne Scheiber worked as an auditor for the IRS. Despite excellent job performance, Scheiber was actively discriminated against as a Jewish woman – never promoted and never earning more than $3,150 annually over her 19 years at the government agency. She retired at the age of 51 in 1944 and focused on managing her portfolio for the next 51 years of her life. Scheiber died at the age of 101 with a portfolio of dividend stocks worth over $22 million, generating over $750,000 in annual dividend income at the time of her death.7 Time, not timing was the secret to their success.

1 Source Bloomberg, 2 Source: Bloomberg, 3 Source: Christian Science Monitor,  4Source: Rutland Herald, 5 Source: Chicago Tribune, 6 Source: Wall Street Journal, 7 Source: Dividend Growth Investor

The S&P 500 Index is a market capitalization-weighted index of 500 widely held common stocks. Investors cannot invest directly in an index and unmanaged index returns do not reflect any fees, expenses or sales charges.

The views expressed in this report reflect those of Patient Capital Management portfolio manager(s) as of the date of the report. Any views are subject to change at any time based on market or other conditions, and Patient Capital Management disclaims any responsibility to update such views. The information presented should not be considered a recommendation to purchase or sell any security and should not be relied upon as investment advice. It should not be assumed that any purchase or sale decisions will be profitable or will equal the performance of any security mentioned. Past performance is no guarantee of future results.

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