Silicon Valley’s Wang Chuan: Why is it so difficult to practice long-termism?

Wang Chuan of Silicon Valley asks: Is it hard to practice long-term thinking?

Author: investguru

My investment club has been established for more than eight years. A few days ago, I chatted with a friend and mentioned that the first gathering of the club’s members in City A in 2016 had about 20 people on site, and seven years later, only he was still in the group. In the same period, at the gathering of group members in City B, six out of ten people who were on site still remained in the group seven years later. The gathering in City A was held in a Dian cuisine restaurant opened by a group member at home, with an elegant environment and lively atmosphere. Everyone enjoyed the meal and spoke actively. The venue for the gathering in City B was much smaller, and the atmosphere was obviously more depressing. However, the difference in the retention of members between the two cities after seven years was so great that I never thought of it, which made me feel emotional.

In the internal discussions of the club, I recommended some investment targets earlier. Due to in-depth research and implementation, I achieved a combination of knowledge and action, and obtained good returns after long-term holding. The most dramatic example here is Tesla. We started discussing it in 2015, and the two sides quarreled fiercely. A few people even participated in shorting. Some people couldn’t stand the boring argument and left the group. By the summer of 2019, Tesla’s stock price had fallen more than 30% from its highest point in 2015. After four years of debate, it seems that the opposition is correct. Then there was a sudden surge of more than 20 times in two years, and everything became history. You can refer to my old articles.

Why is it so difficult to practice long-termism? Why is there such a big difference between the members of the two cities? After careful consideration, my conclusion is:

The key lies in the scarcity of resources.

Adhering to long-termism requires having enough resources to withstand surface fluctuations. If something has been persisted for four years, even if there are visible and substantial progress in various dimensions from the first principles, there are still floating losses on the books and various negative noises from the mainstream media. Even if you recognize it in your heart, you cannot continue to stick to it because of the pressure from your boss/client/family.

Most of the group members in City B are private entrepreneurs with a solid foundation, no pressure to get rich quickly, and no need to rely on investment to earn a living immediately; they do not entrust others to manage assets, so there is no pressure on short-term performance, and they can stick to it for seven or eight years without any problems.

Many members of Group A are either still in the early stages of entrepreneurship or are currently working hard in their careers, facing significant pressure to achieve short-term results, and are always looking for new opportunities that can be effective immediately.

Even if they encounter good long-term opportunities, they may either sell too early for limited returns or, in the event of a bear market, even if they agree internally, they may have to cut their losses due to performance pressure.

Moreover, many people don’t delve deeply enough into things, and when they see slightly negative news on the media or something well-packaged and tempting outside, they can’t hold on to their own beliefs.

The direction with the least evolutionary resistance for an individual or group depends on the network characteristics of their connection to the external world and the choice these network connections give them.

Resource scarcity essentially means a lack of choice. Honest choices determine the direction of least resistance in evolution, which is more accurate than any confident oath or promise.

Here’s a scary paradox:

Because of resource scarcity, they repeatedly fall into various scams that promise wealth without work;

Because of resource scarcity, even if they encounter good opportunities, they cash in and leave as soon as they make a little money, without waiting patiently for saplings to grow into towering trees;

Still due to resource scarcity, they are constantly bombarded with all kinds of noise and false harmful information that they see and hear.

When you see a friend still doing things with the same effort and inefficiency after several years, without any real progress, even a little regression due to age, and even if they don’t really want to improve when you tell them, you will feel a natural physiological pain, and then you can only sigh.

No one starts out with abundant resources. How can those with resource scarcity achieve long-term leaps? I highly recommend a new book by Dan Sullivan and Benjamin Hardy: “10X Is Easier Than 2X”. Here’s a summary of the core spirit of the book:

Many people, because of an unquestioned instinct, believe that the growth of wealth is simply a matter of doubling down on what they’re doing now, which is 2x thinking.

Long-term growth of 10x is actually easier than doubling, because once you demand yourself with a 10x vision, you will actively force yourself to filter out, abandon, and reject various opportunities (even scams) with limited long-term growth potential. You will make yourself highly focused and only do things that have the potential to grow tenfold. This filtering method also applies to people. This kind of giving up and your daily habits initially conflict with each other, and many people are reluctant to let go and have strong resistance. Therefore, you must calmly sit down and carefully deduce, and thoroughly understand from a philosophical perspective the necessity of “decisively abandoning” low-value behaviors or opportunities for long-term 10x.

Because you have resolutely rejected many low-value opportunities, you actually have more time. More time allows you to focus on in-depth research and improve your ability to identify and capture high-value opportunities at the bottom with first principles.

Because you force yourself to continuously accumulate various new small advantages in architectural design, sooner or later you will have a breakthrough and realize the dream of 10x.

Going back to the first step, re-examine your daily work and study, and then re-filter and abandon old low-value habits to start the next chapter of 10x.

If you do a thought experiment and want to increase your net worth by a thousand times in thirty years, it sounds like a lofty and difficult goal, and your first instinctive reaction is: impossible! But breaking it down, it is to increase tenfold every ten years. (The following calculation is for the purpose of simplification and does not consider tax factors). Break it down further, it is a 3.2-fold increase every five years.

How to achieve a 3.2-fold increase in five years?

Simply deducing, this requires an annual return of about 26%. But the development of things is not always moving forward without twists and turns. The actual situation is that the market often fluctuates greatly like a neurotic between bull and bear. In order to capture large returns, most of the time in five years needs to wait, accumulate information and resources, and wait for opportunities. When everyone is panicking and lacking resources, after a comprehensive analysis of various qualitative and quantitative factors of the fundamentals, I feel that an investment is likely to have a return far exceeding 3.2 times within five years, then I will take action.

Once you understand this logical framework, you have to say no to most of the noise and temptations in the market. Say no to most things. Say no to various invitations and idle chatter from the outside world that try to catch you off guard, short-term trades without certainty, things you don’t understand, things with research costs that are too high, things with potential returns that can’t be much greater than the downside risk, things that haven’t entered into a continuously self-reinforcing monopolistic state, and so on. Three-fold growth in five years at a minimum becomes a simple and rough red line. Stay away from things outside the red line and become a conscious self-discipline.

After saying no, you suddenly feel enlightened. This means that you have more free time than before and can delve into research at your own pace. Then, you can continue to discover opportunities that others cannot truly understand and fully practice. So when others think you are just lucky and survivorship bias and hindsight, you just smile and don’t explain.

Further deduction shows that in order to enjoy the fruits of your labor for the next 30 years, you must adopt a rigorous attitude, invest a lot of time and resources, maintain physical health and freedom. Otherwise, when you are in your seventies and eighties, you will suffer from dementia, poor posture, osteoporosis, incontinence, various pains, cardiovascular diseases, and so on, even if you have a lot of wealth.

So you will have time and interest to practice Tai Chi, standing piles, yoga, running, swimming, intermittent fasting, and continue to pay attention to the latest developments in other cutting-edge anti-aging technologies. This will give you more years of time and more than tenfold growth in unexpected and constantly emerging new dimensions.

The science fiction writer Frank Herbert said: “Seek freedom and become captive of your desires. Seek discipline and find your liberty.” The continuous strict abandonment of low-value things is the road to the liberation of long-termism of high-value growth.