The Risk of Trying to ‘Get Rich Quick’
I came across the transcript of a conversation between Monish Pabrai and Warren Buffett highlighting the risk of impatience…AKA the risk of trying to get rich quick.
Pabrai asked Buffet about this old partner, Rick Guerin (yes, he had another partner besides Charlie Munger). Buffett highlighted Guerin’s superb investment record but told Pabrai that Guerin used margin loans to leverage his investments because he was “in a hurry to get rich.”
As Buffett tells it, Guerin was slammed with margin calls after suffering devastating losses in the crash of 1973-74. As a result, and as you can imagine, Guerin was forced to sell shares to Buffett that were later worth an immense fortune.
Buffett goes on to say he and Munger were never in a hurry because they always knew they’d become enormously wealthy if they kept compounding over decades without too many damaging mistakes. Probably over a meal of steak, hashbrowns, and a Coke, Buffett said, “If you’re even a slightly above average investor who spends less than you earn, over a lifetime, you cannot help but get very wealthy.”
Buffet was saying that not only is impatience an enormous source of risk, but the willingness to be patient is a significant differentiator between successful and failed investors. Ok, I’ll even go so far as to add that being patient is THE significant differentiator, but far be it from me to try to improve on something Buffett says….but still.
“Yeah, but Dave, he was using MARGIN!” you say.
Look, it doesn’t have to be the use of margin or leverage that causes irreparable harm because, in reality, impatience comes in many forms. The most common being a function of excitement or hysteria, otherwise known as the “fear of missing out (FOMO) investing.” (More on that here in my Instagram reel.)
Here are just a few examples of this kind of impatient investing:
Overweighting tech stocks before they crashed by almost 80% in 2000
Overloading on real estate (and debt) in the mid-2000s
And most recently, the NFT/crypto mania that started in 2022
At the apex of each hysteria, anyone left out of those “investments” felt like they were failing, falling behind, and out in the cold. I mean, how many people remember people bragging about their internet stocks, or house flipping, or that one guy who bought a digital NFT image created by an artist known as Beeple for $69m at Christies?
In my day, the guy who sold weed in the high school smoking lounge was called “Beeple”! That was the rumor around my Honors Program study hall and chess club meetings anyway.
But today, we see they were all bubbles…with agonizing endings.
Here is the broken record fact of investing
The more exciting an investment seems, the more likely it is to cause irreparable harm. Counter perspective: when was the last time you heard anyone on CNBC talking about the Virginia General Obligation Municipal Bond with a yield to maturity of 4% maturing in 2034? (I made that actual bond up, but you get the point.)
Let the wise words of Buffett sink in and never be forgotten…successful investing requires compounding over decades and not making any catastrophic mistakes (translation: time, discipline, and patience).
It’s just like “Buy low and sell high,” which is simple to say yet hard to do. Focus on your ACTIONS, and the outcomes will materialize…and look, I didn’t even mention how you should have 12-18 months of cash to ride out any possible volatility.
Giving people unfiltered opinions and straightforward advice is our value proposition.
Oh yeah, and we also love dogs. Follow @monumentwealth on Instagram for fun dog pics and a few Reels with more opinions. Until next time…
Keep looking forward,
David B. Armstrong, CFA
President & Co-Founder
Dave got into the industry when he discovered his passion for finance in his mid-20’s. He’s a combat veteran and served as an officer in the United States Marines Corps on both active duty and in the reserves, retiring at the rank of Lieutenant Colonel. While serving on active duty, Dave was unable to spend money on deployments, so he became a self-taught investor. Along with a few bucks cash as a bouncer, his investing performance grew to be good....
IMPORTANT DISCLOSURE INFORMATION
Please remember that past performance is no guarantee of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Monument Capital Management, LLC [“Monument”]), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Monument. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. No amount of prior experience or success should be construed that a certain level of results or satisfaction will be achieved if Monument is engaged, or continues to be engaged, to provide investment advisory services. Monument is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice.
A copy of Monument’s current written disclosure Brochure discussing our advisory services and fees is available for review upon request or at www.monumentwealthmanagement.com/disclosures. Please Note: Monument does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to Monument’s website or blog or incorporated herein, and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly.
Historical performance results for investment indices, benchmarks, and/or categories have been provided for general informational/comparison purposes only, and generally do not reflect the deduction of transaction and/or custodial charges, the deduction of an investment management fee, nor the impact of taxes, the incurrence of which would have the effect of decreasing historical performance results. It should not be assumed that your Monument account holdings correspond directly to any comparative indices or categories. Please Also Note: (1) performance results do not reflect the impact of taxes; (2) comparative benchmarks/indices may be more or less volatile than your Monument accounts; and, (3) a description of each comparative benchmark/index is available upon request.
Please Remember: If you are a Monument client, please contact Monument, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. Unless, and until, you notify us, in writing, to the contrary, we shall continue to provide services as we do currently. Please Also Remember to advise us if you have not been receiving account statements (at least quarterly) from the account custodian.