In today’s blog post: Investment wisdom from an old latin phrase, a favorite of a certain Roman Emperor and motto of the Medicis. Does it encapsulate the paradoxical nature of benefitting from long-term compounding? I think so. Please read on to learn more…
[Woodlock House, County Waterford, Ireland].
Make Haste Slowly
A couple of weeks ago, I gave a presentation at our annual meeting at the actual Woodlock House in County Waterford, Ireland. I kicked it off with a reference to an old latin phrase, “festina lente.”
I had been reading The Art of Worldly Wisdom: A Pocket Oracle, a book written in 1647 by Baltasar Gracian, who was a witty Jesuit from Spain. His book of 300 aphorisms, with his commentary on them, has been translated into many languages and has earned the praise of many philosophers ever since.
Arthur Schopenhauer loved it so much that he prepared a German translation himself. Schopenhauer said it was particularly good for young people, as it would give them experience it would otherwise take years to obtain. “To read it through once,” he wrote, “is obviously not enough; it is a book made for constant use.”
And Nietzsche wrote that “Europe has never produced anything finer or more complicated in matters of moral subtlety.” (These comments come from the introduction by Christopher Maurer, who translated the edition I have).
Intrigued?
Some of the advice is straightforward (“Never compete with someone who has nothing to lose.”) Some of it is cryptic. (“Write your intentions in cipher.”) Some of it is familiar. (“Mind your own business.”) And you will surely disagree some. (“Don’t keep company with those who will make you seem less gifted.”) His commentary on these maxims can be digressive and fragmentary. But all of it is entertaining and thoughtful.
Anyway, there is a passage where Gracian talks about the motto “festina lente.” This Latin phrase is usually translated as “make haste slowly.” One must be very patient and yet ready to act swiftly. And the fastest way to achieve your goals is sometimes by doing nothing.
The motto was a favorite of the Roman Emperor Augustus. Engravers captured the idea with an emblem of a dolphin wrapped around an anchor, which they stamped on coins. Another emblem captured the same idea with a crab and a butterfly; again marrying this idea of fast and slow.
Festine lente recurs throughout history and has been captured in a variety of images, such as a rabbit coming out of a snail shell. The Medicis chose it as their motto and illustrated it with a sail-backed tortoise.
I thought the idea beautifully captured an important idea in investing that is often counterintuitive: to get where you want to go the fastest often means acting very slowly if at all.
In other words, harnessing the powers of compounding requires you to sit still most of the time. (Munger’s first rule of compounding: “Never interrupt it unnecessarily.”) This seems obvious on reflection, but it is hard to do because everything in our culture nudges us to “do something.”
Thus, giving in to those pressures, people often engage in counterproductive behavior. In my talk, I shared a quote from Akre Capital Management that really nails it:
“Examples of such counterproductive behavior are well known to all of us: trying to sell before the next recession, trying to buy just before the next bull market, “repositioning” portfolios based on what is supposed to do better in the new paradigm, dumping stocks during a downturn, which deprives oneself of the means to eventually recover. People do these things because they are intuitive, because these actions appear rational in the face of heightened concern and uncertainty. This is precisely why compounding over the long term is so challenging and rare: it demands counter-intuitive and seemingly irrational behavior.” [Bold added]
It does seem incredibly counterintuitive to say, “No, you shouldn’t try to sell before a recession.” Or: “No, you shouldn’t ‘reposition’ your portfolio based on recent events.” Don’t these seem like logical things to do?
Not if you want to enjoy the wonderful effects of compounding capital over long periods of time. The main problem with trying to do the above is they are too hard to do well enough. You have to think about trying to do these things repeatedly over a lifetime of investing. The odds against you are very great. Sure, you may be right sometimes. But you will most certainly sit out stretches of time where you could have earned great returns because you’re afraid of a recession. Odds are you won’t get those “repositionings” right repeatedly either.
Just think of all the decisions you have to make during just a single year, trying to call the twists and turns of the market. What a frazzled existence!
And don’t forget about the after-tax effects of all this activity on your returns. (I often wonder, when I see funds report returns and see high turnover in the portfolio, what the after-tax returns would look like. Over time, taxes are a tremendous drag).
During bear markets, the temptation to do something is even greater. And it is during these times when it is most important to sit still. As Gracian wrote during the bear market of 1647:
“Leave things alone. Especially when the sea – people, your friends, your acquaintances – is stirred up … It takes little to muddy a stream. You can't make it grow clear by trying to, only by leaving it alone. There is no better remedy for disorder than to leave it alone to correct itself.”
I’m kidding about the bear market of 1647. But Gracian, at times, sounds like he is giving Buffett-esque investment advice:
“Know how to wait… Never hurry and never give way to your emotions… Fortune gives large rewards to those who wait.”
It’s unpopular to be an optimist right now. Everyone seems to want to pile on with some dire prediction about what comes next. But for me, it is hard not to be optimistic when I look at what I own in the portfolio today.
My businesses are compounding capital at a high clip. They have strong competitive advantages. The people running them have skin in the game. The balance sheets have no net debt, or not much of it. I believe this collection of businesses I have today will be worth substantially more over the next decade. It would be nuts to sell them today. Better to add to them if anything – many trade at prices a third or more off their highs.
I often try to show, somehow, how my businesses are doing as businesses – without just looking at the stock price. In my last post, I shared an idea I got from Thomas Phelps in 100 to 1. He made a table with basic financial information and asked if, just looking at these figures, you would ever sell the stock. With quality companies, the answer is usually no.
I like to use similar tables. At my meeting, I tried another way to make the same point. As an example, here is Copart:
(Source: https://tikr.com/ )
Here, I’m trying to get my investors to focus on just how good a business Copart is. Year after year, it compounds capital at a high clip. Based on all the work I’ve done on Copart, I believe the next ten years will look a lot like the last ten years, insofar as returns on assets/equity are concerned. The stock price will inevitably follow. I don’t know if the next ten years will deliver a 23.4% CAGR - as it did in the past ten. But I’m betting it will be a very good result, as long as the business continues to perform. (And this is where I put my attention when it comes to my portfolio: tracking performance as a business and assessing future performance).
Another stock we own is Old Dominion Freight Lines – which is similar in some respects to Copart. They own a lot of land, have a definite competitive advantage over rivals, are family-owned and maintain a very strong balance sheet. The returns on capital are also similarly excellent:
Old Dominion has gotten better with age. There is more cyclicality here than with Copart, but Old Dominion’s lead over competitors tends to widen during downturns because it continues to reinvest where its rivals pull back. With only a 10% market share, taking about 1% per year, Old Dominion has plenty of room to run yet.
Even just five years from now, I expect to look back and be happy I owned such stalwarts. These are stocks that could be a part of my portfolio for many years. I'll have done it by "doing nothing" for long stretches of time, adding here and there when I get a chance. I will make haste... slowly.
Thank you for reading.
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Published June 21, 2022
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