The Principles of Long Term Wealth - Revisited (Discipline)

The Principles of Long Term Wealth - Revisited (Discipline)

June 14, 2023

In the year 2020, Warren Buffet’s net worth was $84.5 billion. Now, as staggering as a concept that may be, it pales in comparison to the following fact – $81.5 billion of his net worth came after his 65th birthday.  Yes, you read this correctly – 96% of Warren’s net worth was achieved when the average American is pondering riding into the sunset of retirement.  Where am I going with this?  There are multiple concepts you can derive from this simple statement – the power of compounding, the impressive returns he’s provided, or the fact that he has been investing since he was 10 years old.  However, my message (what I pull from this concept) is the process he has utilized throughout his investing career.  More to the point, the Discipline in his process over three quarters of a century.

Which brings us to the third and last temperamental quality - discipline. This may not appear much different from patience, but wait until the next time the market goes down 30% - with every talking head you hear in the media extrapolating the current “crisis” right over the cliff. Patience, in my view, is the ability to keep doing the right thing, but discipline is more about the act of not reacting and continuing to do what has always worked.  This requires restraint—not to do the wrong thing, most notably panicking out of the markets at a moment of maximum pessimism. As Author Nick Murray has said - Mindset, Patience, and discipline are the first casualties of a normal market decline, to be entirely replaced by the nameless terror: “This time is different.”

This furthers my point to the facts provided by what Warren has been able to accomplish over his 75-year investment time horizon.  Imagine the discipline needed for what he has experienced, just to name a few:

  • Seventeen (17) Bear Markets
  • Thirteen (13) Recessions
  • Stagflation, Deflation, and Inflation over 14%
  • Interest rates from 0% to as high as 19%
  • End-Of-The-World-As-We-Know-It events…countless.

Through all these events – you can read his early newsletters to shareholders - the message doesn’t waver from his core process.  His (and Charlie Munger’s) discipline to what has always worked, as opposed to what is working now, is the compass utilized to provide long-term wealth accumulation for generations of families. 

There is a poem (no, I don’t read many. Actually, I don’t read them at all) that I had only been familiar with its first sentence -- “If you can keep your head when all about you are losing theirs.” I considered including it in this essay to reinforce the last principle of discipline.  However, as I read it in its entirety, I believed it captured all the principles of long-term wealth we have been revisiting these prior three months.  The poem was written in 1910 by the famous author Rudyard Kipling, titled: If: A Father’s Advice To His Son. Here is the first verse:

If you can keep your head when all about you
Are losing theirs and blaming it on you,
If you can trust yourself when all men doubt you,
But make allowance for their doubting too.

And the entire poem, if you choose. If: A Father's Advice To His Son

As the poem depicts what qualities are needed to be a good person – as life’s events, in all its hydra-headed forms, get thrown at you -- so too are the three temperamental qualities needed to grow, preserve, and pass on a legacy of long-term wealth for generations.