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QUIET COMPOUNDING

Jun 17, 2024

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BY MORGAN HOUSEL @MORGANHOUSEL

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“Nature is not in a hurry, yet everything is accomplished,” said Chinese
philosopher Lao Tzu.

Giant sequoias, advanced organisms, towering mountains – it builds the most
jaw-dropping features of the universe. And it does so silently, where growth is
almost never visible right now but staggering over long periods of time.

It’s quiet compounding, and it’s a wonder to see.

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I like the idea of quietly compounding your money. Just like in nature, it’s
where you’ll find the most impressive results.

Every few years you hear a story of a country bumpkin with no education and a
low-wage job who managed to save and compound tens of millions of dollars. The
story is always the same: They just quietly saved and invested for decades. They
never bragged, never flaunted, never compared themselves to others or worried
that they trailed their benchmark last quarter.

They just quiety compounded.

Their entire financial universe was contained to the walls of their home, which
allowed them to play their own game and be guided by nothing other than their
own goals. That was their superpower. It was actually their only financial
skill, but it’s the most powerful one of all.

Imagine if, after your first date with a partner, you had to make every phone
call, every text, every conversation with that person public on social media. Or
even just with a small group of friends and family. You know what would happen:
People would tell you you’re doing this wrong, you’re doing that too much, you
should say more of this and less of that, on and on. You’d be so embarrassed,
nervous, and influenced by other people’s goals and different personalities that
you wouldn’t be you. None of the relationships would work.

Money is similar. People become so nervous about what other people think of
their lifestyle and investing decisions that they end up doing two things:
Performing for others, and copying a strategy that might work for someone else
but isn’t right for you.

I try to keep in mind that there are two ways to use money. One is as a tool to
live a better life. The other is as a yardstick of success to measure yourself
against other people. The first is quiet and personal, the second is loud and
performative. It’s so obvious which leads to a happier life.

Quiet compounding means four things to me:

1. An emphasis on internal vs. external benchmarks.

Always asking, “Would I be happy with this result if no one other than me and my
family could see it, and I didn’t compare the result to the appearance of other
people’s success?”

It’s impossible to win the social-comparison game because there’s always someone
getting richer faster than you. Once you stop playing the game your attention
instantly shifts internally, to what makes you and your family happy and
fulfilled. It makes it so much easier to enjoy your money, regardless of how you
choose to spend and invest it.

2. An acceptance of how different people are, and a realization that what works
for me might not work for you and vice versa.

Christopher Morley said, “There is only one success – to be able to spend your
life in your own way.”

A lot of financial mistakes come from trying to copy people who are different
from you.

So be careful who you seek advice from, be careful who you admire, and even be
careful who you socialize with. When you do things quietly you’re less
susceptible to people with different goals and personalities than you telling
you you’re doing it wrong.

3. A focus on independence over social dunking.

Once you do things quietly you become selfish in the best way – using money to
improve your life more than you try to influence other people’s perception of
your life. I’d rather wake up and be able to do anything I want, with whom I
want, for as long as I want, than I would try to impress you with a nice car.

4. A focus on long-term endurance over short-term comparison.

A lot of people want to be long-term investors but struggle to actually do it.
One reason is they get caught up in comparison – comparison to peers,
benchmarks, and wondering what other people will think of you if they find out
you lost money in the last six months.

Long-term investing is about being able to absorb manageable damage; if you
can’t do that, you’re pushed into the much harder trick of attempting to avoid
short-term volatility. You’re only durable when you care more about surviving
volatility than you do looking dumb for getting hit by it in the first place.

Instead of trying to look smarter than everyone else, you make a quiet bet that
things will slowly get better over time.

You’re not in a hurry, yet everything is accomplished.

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Collaborative Fund Management LLC, Collaborative Holdings Management LP and
Collab+Currency Management, LLC are distinct investment advisory entities, are
not a unitary enterprise and operate independently of one another. From time to
time Collaborative Fund Management LLC may draw on its relationship with
Collaborative Holdings Management LP and/or Collab+Currency Management, LLC, but
only to the extent consistent with its status as a separate investment adviser.