Are you a time billionaire?

Published in the Sunday Times on 1st August 2021.

The number one followed by nine zeros. It’s got three commas. What is it? It’s a billion – which is a large number, but how large? It’s not intuitively obvious that a billion is a thousand million, or that a trillion is a million squared (a million million). In a world of millions, billions, and trillions, a sense of scale or perspective is helpful.

Time scale 

One million seconds is 12 days (a good Christmas break). One billion seconds is 31 years (a career). A trillion seconds is longer than human civilisation.

Applying time scale to large numbers has an added use dimension. Time billionaires was a phrase coined by Graham Duncan, the co-founder of East Rock Capital, to refer to someone who has a billion or more seconds left in their life (31 years). By any standards, 31 years is ultra-long term.

Every great investor understands that they should find their advantage and then leverage it to maximise returns. Some investors will have incredible experience. Others have incredible skill in a particular niche. The youngest or those with assets in excess of lifetime requirements have incredible time. 

The time billionaire can afford to be patient. The time billionaire can compound money over time. The time billionaire is not compelled to action. 

I’m conscious of the plethora of investment cliches in that last sentence but the concept creates a good framework to understand how you can lean into your greatest resource – which is time.

The Endowment Model

Someone who understood this concept intimately was David Swensen, the pioneer of the endowment model of investing who recently passed away. He was one of the world’s most admired institutional investors. He had a revolutionary approach to managing Yale’s endowment. He pioneered a move away from Treasury bonds and equities to a variety of alternatives and real assets on the basis that this was where an endowment could best take advantage of its long time horizon and tolerance for illiquidity. The lessons for time billionaires are plentiful.

Swensen leaned into the endowment’s greatest advantage and produced a thirty year plus track record that is the envy of institutional money managers the world over. Swensen understood that the underlying risk of an asset is not altered by the frequency with which it is valued. Yet he recognised that investors respond differently to assets priced daily over those less frequently. His move into private equity was arbitraging the endowments patience against the more myopic timeframe of the average stock investor.

Investing in the stock market comes with unavoidable variability in your daily, weekly and monthly financial position. You need to maintain a philosophical attitude towards this. But to the extent that public stock market investments offer you an option to act, which private equity doesn’t (given its illiquidity), a time billionaire can lean into their greatest resource and trade that option. And that trade has never been as important to consider. 

Capital formation occuring away from listed markets

Amazon had its initial public offering (IPO) in 1997, raising the hardly credible sum (by today’s standards) of $54m, giving the company a market value of $438 million at the time. Its market capitalisation today is approximately $1.8 trillion. The stock market provided the opportunity to share in the growth of one of the most successful companies in the past two decades. 

In the intervening twenty odd years, the number of companies listed on the U.S. stock market has halved, owing to a combination of companies de-listing, coupled with a dearth of IPOs. Large private-capital pools searching for higher yields in a zero interest rate environment are providing entrepreneurs with much better access to capital.  

The trend for companies to stay private longer is starving public market investors of access to the growth in a part of the economy that traditionally they could have accessed. Capital formation is still happening, just increasingly away from public markets. So it has never been as important to consider your liquidity and time constraints.

Leaning into your greatest resource

A long time horizon affords investors a perspective that looks beyond market cycles to consider private equity, or real estate, as well as trends that develop over multiple cycles. This isn’t simply about thinking long-term, laudable though that is. It’s about understanding what your investment edge is. You need to understand the extent to which time is a constraint on your investment decision making and how best you can arbitrage it. 

The question to ask yourself is, do I invest my capital based on the greatest resources that I have available to me? Investment success, however defined, is inevitably improved with time. At times you can be luckier than others. At times, you can out-smart others. But your only persistent edge in investing is in being more patient than others. As race car driver, Mario Andretti once said “win the race…as slowly as you can”.