Tag: Compounding

The Surprising Power of The Long Game

It’s easy to overestimate the importance of luck on success and underestimate the importance of investing in success every single day. Too often, we convince ourselves that success was just luck. We tell ourselves, the school teacher that left millions was just lucky. No. She wasn’t. She was just playing a different game than you were. She was playing the long game.

The long game isn’t particularly notable and sometimes it’s not even noticeable. It’s boring. But when someone chooses to play the long game from an early age, the results can be extraordinary. The long game changes how you conduct your personal and business affairs.

There is an old saying that I think of often, but I’m not sure where it comes from: If you do what everyone else is doing, you shouldn’t be surprised to get the same results everyone else is getting.

Ignoring the effect of luck on outcomes — the proverbial lottery ticket —doing what everyone else is doing pretty much ensures that you’re going to be average. Not average in the world, but average to people in similar circumstances. There are a lot of ways not to be average, but one of them is the tradeoff between the long game and the short game.

What starts small compounds into something more. The longer you play the long game, the easier it is to play and the greater the rewards. The longer you play the short game the harder it becomes to change and the bigger the bill facing you when you do want to change.

The Short Game

The short game is putting off anything that seems hard for doing something that seems easy or fun. The short game offers visible and immediate benefits. The short game is seductive.

  • Why do your homework when you can go out and play?
  • Why wait to pay for a phone in cash, when you can put it on your credit card?
  • Why go to the gym when you can go drinking with your friends?
  • Why invest in your relationship with your partner today when you can work a little bit extra in the office?
  • Why learn something boring that doesn’t change when you can learn something sexy that impresses people?
  • Why bust your butt at work to do the work before the meeting when you can read the executive summary and pretend like everyone else?

The effects of the short game multiply the longer you play. On any given day the impact is small but as days turn into months and years the result is enormous. People who play the short game don’t realize the costs until they become too large to ignore.

The problem with the short game is that the costs are small and never seem to matter much on any given day. Doing your homework today won’t give you straight A’s. Saving $5 today won’t make you a millionaire. Going to the gym and eating healthy today won’t make you fit. Reading a book won’t make you smart. Going to sleep on time tonight won’t make you healthier tomorrow. Sure we might try these things when we’re motivated but since the results are not immediate we revert back to the short game.

As the weeks turn into months and the months into years, the short game compounds into disastrous results. It’s not the one day trade off that matters but it’s accumulation.

Playing the long game means suffering a little today. And why would we want to suffer today when we can suffer tomorrow. But if our intention is to always change tomorrow, then tomorrow never comes. All we have is today.

The Long Game

The long game is the opposite of the short game, it means paying a small price today to make tomorrow’s tomorrow easier. If we can do this long enough to see the results, it feeds on itself. 

From the outside, the long game looks pretty boring:

  • Saving money and investing it for tomorrow
  • Leaving the party early to go get some sleep
  • Investing time in your relationship today so you have a foundation when something happens
  • Doing your homework before you go out to play
  • Going to the gym rather than watching Netflix

… and countless other examples.

In its simplest form, the long game isn’t really debatable. Everyone agrees, for example, we should spend less than we make and invest the difference. Playing the long game is a slight change, one that seems insignificant at the moment, but one that becomes the difference between financial freedom and struggling to make next month’s rent.

The first step to the long game is the hardest. The first step is visibly negative. You have to be willing to suffer today in order to not suffer tomorrow. This is why the long game is hard to play. People rarely see the small steps when they’re looking for enormous outcomes, but deserving enormous outcomes is mostly the result of a series of small steps that culminate into something visible.

Conclusion

In everything you do, you’re either playing a short term or long term game. You can’t opt out and you can’t play a long-term game in everything, you need to pick what matters to you. But in everything you do time amplifies the difference between long and short-term games. The question you need to think about is when and where to play a long-term game. A good place to start is with things that compound: knowledge, relationships, and finances.

 

This article is an expansion of something I originally touched on here

Why Early Decisions Have the Greatest Impact and Why Growing too Much is a Bad Thing

I never went to Engineering school. My undergrad is Computer Science. Despite that I’ve always wanted to learn more about Engineering.

John Kuprenas and Matthew Frederick have put together a book, 101 Things I Learned in Engineering School, which contains some of the big ideas.

In the author’s note, Kuprenas writes:

(This book) introduces engineering largely through its context, by emphasizing the common sense behind some of its fundamental concepts, the themes intertwined among its many specialities, and the simple abstract principles that can be derived from real-world circumstances. It presents, I believe, some clear glimpses of the forest as well as the trees within it.

Here are three (of the many) things I noted in the book.

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#8 An object receives a force, experiences stress, and exhibits strain.

force-stress-strain

Force, stress, and strain are used somewhat interchangeably in the lay world and may even be used with less than ideal rigor by engineers. However, they have different meanings.

A force, sometimes called “load,” exists external to and acts upon a body, causing it to change speed, direction, or shape. Examples of forces include water pressure on a submarine hull, snow loads on a bridge, and wind loads on the sides of a skyscraper.

Stress is the “Experience” of a body—its internal resistance to an external force acting on it. Stress is force divided by unit area, and is expressed in units such as pounds per square inch.

Strain is a product of stress. It is the measurable percentage of deformation or change in an object such as a change in length.

#48 Early decisions have the greatest impact.

Early Decisions Have Greater Impact

Decisions made just days or weeks into a project—assumptions of end-user needs, commitments to a schedule, the size and shape of a building footprint, and so on—have the most significant impact on design, feasibility, and cost. As decisions are made later and later in the design process, their influence decreases. Minor cost savings sometimes can be realized through value engineering in the later stages of design, but the biggest cost factors are embedded at the outset in a project’s DNA.

Everyone seems to understand this point on the surface and yet few people consider the implications. I know a lot of people who make their career on cleaning up their own mess. That is, they make a poor initial decision and then work extra hours while running around with stress and panic as they clean up their own mess. In the worst organizations these people are promoted for doing an exceptional job.

Proper management of early decisions produces more free time and lower stress.

#75 A successful system won’t necessarily work at a different scale.

Systems Scale

An imaginary team of engineers sought to build a “super-horse” that would be twice as tall as a normal horse. When they created it, they discovered it to be a troubled, inefficient beast. Not only was it two times the height of a normal horse, it was twice as wide and twice as long, resulting in an overall mass eight times greater than normal. But the cross sectional area of its veins and arteries was only four times that of a normal horse calling for its heart to work twice as hard. The surface area of its feed was four times that of a normal horse, but each foot had to support twice the weight per unit of surface area compared to a normal horse. Ultimately, the sickly animal had to be put down.

This becomes interesting when you think of the ideal size for things and how we, as well intentioned humans, often make things worse. This has a name. It’s called iatrogenics.

Let us briefly put an organizational lens on this. Inside organizations resources are scarce. Generally the more people you have under you the more influence and authority you have inside the organization. Unless there is a proper culture and incentive system in place, your incentive is to grow and not shrink. In fact, in all the meetings I’ve ever been in with senior management, I can’t recall anyone who ran a division saying I have too many resources. It’s a derivative of Parkinson’s Law — only work isn’t expanding to fill the time available. Instead, work is expanding to fill the number of people.

Contrast that with Berkshire Hathaway, run by Warren Buffett. In a 2010 letter to shareholders he wrote:

Our flexibility in respect to capital allocation has accounted for much of our progress to date. We have been able to take money we earn from, say, See’s Candies or Business Wire (two of our best-run businesses, but also two offering limited reinvestment opportunities) and use it as part of the stake we needed to buy BNSF.

In the 2014 letter he wrote:

To date, See’s has earned $1.9 billion pre-tax, with its growth having required added investment of only $40 million. See’s has thus been able to distribute huge sums that have helped Berkshire buy other businesses that, in turn, have themselves produced large distributable profits. (Envision rabbits breeding.) Additionally, through watching See’s in action, I gained a business education about the value of powerful brands that opened my eyes to many other profitable investments.

There is an optimal size to See’s. Had they retained that $1.9 billion in earnings they distributed to Berkshire, the CEO and management team might have a claim to bigger pay checks, they’d be managing ~$2 billion in assets instead of $40 million, but the result would have been very sub-optimal.

Our pursuit of growth beyond a certain point often ensures that one of the biggest forces in the world, time, is working against us. “What is missing,” writes Jeff Stibel in BreakPoint, “is that the unit of measure for progress isn’t size, it’s time.”

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Other books in the series:
101 Things I Learned in Culinary School
101 Things I Learned in Business School
101 Things I Learned in Law School
101 Things I Learned in Film School