短期与长期

Short-term vs Long-term -

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Short-term vs Long-term

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SHORT-TERM vs LONG-TERM

IGY Foundation. Thinking about how to think: Short-term vs long-term.

List of some characteristic traits (neither exclusive nor exhaustive)*

Short-term characteristics

Long-term characteristics

Inputs/causes:

Short-term characteristics

Most often agents

Comfortable with win/lose tradeoffs

Impatient

Works from second hand opinions

Spin

Commission based pay

Seeks growth/volume/quantity

Transaction/deal oriented

Transient plans and targets

Eat-what-you-kill-now mindset

Compulsive/expedient

One-off event oriented

Compartmentalises inconsistencies

Political

Takes

Focussed on how things look

Long-term characteristics

Most often principals (with principles?)

Has a win/win orientation

Patient

Works from primary data/first principles

Facts

Permanent capital appreciation oriented

Quality is everything

Seeks relationships

Focused on the right framing and mindset

Defers gratification

Thoughtful

Seeks self-reinforcing, virtuous spirals

Joined up

Entrepreneurial

Gives

Focussed on how things are

Outputs/effects:

Short-term characteristics

Drains the moat

Rents

Doesn’t rock the boat

Harvests

Shouts

Seeks social proof

Wants to be liked

Ego-driven, selfish desire for instant gratification

A handout

Denial

Fragile

Brexit/us-and-them/nationalist/populist

Addicted to artificial highs

Lots of competition for ideas

1 + 1 = 2

Can play both sides

Susceptible to excess

Scale economics kept

Long-term characteristics

Builds on rock

Owns

Iconoclastic

Plants

Whispers

Motivated by internal reward

Prepared to be misunderstood

Magnanimous

A hand up

Acceptance

Anti-fragile

Enlightened, win-win, closer integration

Connected to people

Less competition for ideas

Compound interest

Straight-talking

Avoids some of the worst mistakes

Scale economics shared

Who?:

Short-term characteristics

Short-term shareholders (share-renters)

News hungry drama feeders: some brokers, analysts, reporters, advisors, consultants

One-off charity donors seeking to avoid social awkwardness or assuage guilt/shame

Some politicians, salespeople, spin doctors

Aid that leads to aid dependency

Turn of the millennium Fannie Mae, Feddie Mac, AIG, GE, Enron.

Long-term characteristics

Long-term shareholders (share-owners)

Founders, good employees/board members

Multi-year, relationship based (anonymous?) donors

Philosophers, thinkers, statesmen/women, gurus

Foundations/charities etc. ultimately seeking to put themselves out of business

Costco, Berkshire Hathaway, Amazon

*With special thanks to Chris Begg for his sage input.

Thinking about how to think: Short-term vs long-term

Perhaps old habits die hard after all, as we start these observations on short and long-term thinking with some business analysis. It seems to Zak and me that for most companies to thrive over the long-term, one constituency must be looked after before all others and, contrary to what some on Wall Street or in Westminster may suggest, that constituency is the customer. We reason that if a firm’s relationships with its customers is profitable and enduring, then that will provide the cash flow to pay a decent salary to its employees, a fair price to suppliers, a dividend to shareholders, the tax people can have their take and, crucially, still leave something to reinvest in new and better products. A self-reinforcing virtuous spiral can be established. The sketch below penned by Jeff Bezos in the 1990s as his model for Amazon illustrates how better products lead to happy customers, lead to more cash flow, to better products, to more customers and so on, with all parties enjoying and benefitting from a growing ecosystem of win-win relationships. It’s hard to do and takes patience, and a certain orientation and discipline but, when it works, it is a beautiful (and very profitable) model.

So far so good. The financing of a charity, however, can be more troublesome. The beneficiaries of a charity, be it children, those with chronic conditions, mental health issues, food hunger and so on, by and large can’t afford the full market price of the services a charity provides; this, after all, is the charity’s raison d’être. Instead, the funding shortfall is made up by donors. The result is that, unlike the business example above, charity management often have two prime constituencies as they are required to look after the beneficiaries with one hand, whilst simultaneously maintaining and growing a donor income stream with the other. This “one man, two guv’nors” dynamic is made harder in the UK by the country’s (unintended, I think) just-in-time, fund-raising culture, whereby charities do not know what they can spend next year without having first raised it this year. Such hand-to-mouth funding fosters financial insecurity, makes long term planning difficult and it may also promote, perhaps require, a drift by the charity into constant sales/ spin-mode in an attempt to pay the bills. Under such pressure, any means to get the donor to sign up can be seen as fair game. Suffice to say, the model does not always work well.

Zak and I wrote a fair amount about mistakes in the Nomad letters (which can be found elsewhere on the IGY Foundation website) in which we discussed how mistakes often result from overweighing an apparent short-term win, without fully recognising the consequent, long-term cost. We all do this to some extent. A list of common mistakes/vices might include snacking on chocolate cake, smoking, drinking, drugs, (Pastor Zakaria will be available for confession shortly), lying, stealing, cheating…all represent a short-term high/convenience whilst borrowing something from the long-term. Companies are not immune: firms that cut (vital) investment spending to “protect (this year’s) profits” or make acquisitions to plug revenue growth holes are borrowing from their future. Of course, businesses can be well run or poorly run, and charities can be well run or poorly run too, but, in our opinion, the distinction between good and bad is often synonymous with a long-term or short-term orientation: long-term good, short-term bad.

In the morning of the Berkshire Hathaway Annual General Meeting in Omaha, Nebraska each year, the firm shows a twenty-minute video containing clips from the last fifty/sixty/seventy(?!) years. In one clip, perhaps from the 1980s, the firm’s Chairman, Warren Buffett, is asked how he differs from other investors and he provides a one word reply: “patience”. Zak and I may be biased, but we think that clip is quite a moment.

Patience is a product of confidence and trust**

If Zak and I are not confident in our analysis and/or, if we don’t trust the other guy then, without those two bedfellows, what is the case for being patient? And, without patience there is no force preventing the drift toward short-termism, with all the moat-draining behaviour that implies.

In our opinion, (reasoned) confidence, (deserved/earned) trust and (resultant) patience is what seems to be lacking in so many business, charity and political ecosystems. The table above contains a list of short-term characteristics and their long-term alternatives. The list is not exclusive (outputs and inputs are often inter-changeable) or exhaustive, but it may be the start of a map away from the worst moat-draining activities and behaviours and toward a more rational and fruitful allocation of time and resources. And, ultimately, as Charlie Munger (Berkshire’s vice-Chairman) likes to ask, don’t we all want to live in a seamless web of deserved trust? We hope that the check list may be of some benefit to you, as it has been to us, in spotting and avoiding the worst of the short-term folly.

Nick Sleep,

Winter 2022

**thank you, Peter Kaufman, for sharing that astute definition. Spot on, as usual.

Thinking about how to think: Short-term vs long-term

Perhaps old habits die hard after all, as we start these observations on short and long-term thinking with some business analysis. It seems to Zak and me that for most companies to thrive over the long-term, one constituency must be looked after before all others and, contrary to what some on Wall Street or in Westminster may suggest, that constituency is the customer. We reason that if a firm’s relationships with its customers is profitable and enduring, then that will provide the cash flow to pay a decent salary to its employees, a fair price to suppliers, a dividend to shareholders, the tax people can have their take and, crucially, still leave something to reinvest in new and better products. A self-reinforcing virtuous spiral can be established. The sketch below penned by Jeff Bezos in the 1990s as his model for Amazon illustrates how better products lead to happy customers, lead to more cash flow, to better products, to more customers and so on, with all parties enjoying and benefitting from a growing ecosystem of win-win relationships. It’s hard to do and takes patience, and a certain orientation and discipline but, when it works, it is a beautiful (and very profitable) model.

So far so good. However, the financing of a charity can be more troublesome. The beneficiaries of a charity, be it children, those with chronic conditions, mental health issues, food hunger and so on, by and large can’t afford the full market price of the services a charity provides; this, after all, is the charity’s raison d’être. Instead, the funding shortfall is made up by donors. The result is that, unlike the business example above, charity management often have two prime constituencies as they are required to look after the beneficiaries with one hand, whilst simultaneously maintaining and growing a donor income stream with the other. This “one man, two guv’nors” dynamic is made harder in the UK by the country’s (unintended, I think) just-intime, fund-raising culture, whereby charities do not know what they can spend next year without having first raised it this year. Such hand-to-mouth funding fosters financial insecurity, makes long-term planning difficult and it may also promote, perhaps require, a drift by the charity into constant sales/spin-mode in an attempt to pay the bills. Under such pressure, any means to get the donor to sign up can be seen as fair game. Suffice to say, the model does not always work well.

Zak and I wrote a fair amount about mistakes in the Nomad letters (which can be found elsewhere on the IGY Foundation website) in which we discussed how mistakes often result from overweighing an apparent short-term win, without fully recognising the consequent, long-term cost. We all do this to some extent. A list of common mistakes/vices might include snacking on chocolate cake, smoking, drinking, drugs, (Pastor Zakaria will be available for confession shortly), lying, stealing, cheating…all represent a short-term high/convenience whilst borrowing something from the long-term. Companies are not immune: firms that cut (vital) investment spending to “protect (this year’s) profits” or make acquisitions to plug revenue growth holes are borrowing from their future. Of course, businesses can be well run or poorly run, and charities can be well run or poorly run too, but, in our opinion, the distinction between good and bad is often synonymous with a long-term or short-term orientation: long-term good, short-term bad.

In the morning of the Berkshire Hathaway Annual General Meeting in Omaha, Nebraska each year, the firm shows a twenty-minute video containing clips from the last fifty/sixty/seventy(?!) years. In one clip, perhaps from the 1980s, the firm’s Chairman, Warren Buffett, is asked how he differs from other investors and he provides a one word reply: “patience”. Zak and I may be biased, but we think that clip is quite a moment.

Patience is a product of confidence and trust**.

If Zak and I are not confident in our analysis and/or, if we don’t trust the other guy then, without those two bedfellows, what is the case for being patient? And, without patience there is no force preventing the drift toward short-termism, with all the moat-draining behaviour that implies.

In our opinion, (reasoned) confidence, (deserved/earned) trust and (resultant) patience is what seems to be lacking in so many business, charity and political ecosystems. The table below contains a list of shortterm characteristics and their long-term alternatives. The list is not exclusive (outputs and inputs are often inter-changeable) or exhaustive, but it may be the start of a map away from the worst moat-draining activities and behaviours and toward a more rational and fruitful allocation of time and resources. And, ultimately, as Charlie Munger (Berkshire’s vice-Chairman) likes to ask, don’t we all want to live in a seamless web of deserved trust? We hope that the checklist may be of some benefit to you, as it has been to us, in spotting and avoiding the worst of the short-term folly.

Nick Sleep,

Winter 2022

**thank you, Peter Kaufman, for sharing that astute definition. Spot on, as usual.

List of some characteristic traits (neither exclusive nor exhaustive)*

Short-term characteristics

Long-term characteristics

Inputs/causes:

Short-term characteristics

Most often agents

Comfortable with win/lose tradeoffs

Impatient

Works from second hand opinions

Spin

Commission based pay

Seeks growth/volume/quantity

Transaction/deal oriented

Transient plans and targets

Eat-what-you-kill-now mindset

Compulsive/expedient

One-off event oriented

Compartmentalises inconsistencies

Political

Takes

Focussed on how things look

Long-term characteristics

Most often principals (with principles?)

Has a win/win orientation

Patient

Works from primary data/first principles

Facts

Permanent capital appreciation oriented

Quality is everything

Seeks relationships

Focused on the right framing and mindset

Defers gratification

Thoughtful

Seeks self-reinforcing, virtuous spirals

Joined up

Entrepreneurial

Gives

Focussed on how things are

Outputs/effects:

Short-term characteristics

Drains the moat

Rents

Doesn’t rock the boat

Harvests

Shouts

Seeks social proof

Wants to be liked

Ego-driven, selfish desire for instant gratification

A handout

Denial

Fragile

Brexit/us-and-them/nationalist/populist

Addicted to artificial highs

Lots of competition for ideas

1 + 1 = 2

Can play both sides

Susceptible to excess

Scale economics kept

Long-term characteristics

Builds on rock

Owns

Iconoclastic

Plants

Whispers

Motivated by internal reward

Prepared to be misunderstood

Magnanimous

A hand up

Acceptance

Anti-fragile

Enlightened, win-win, closer integration

Connected to people

Less competition for ideas

Compound interest

Straight-talking

Avoids some of the worst mistakes

Scale economics shared

Who?:

Short-term characteristics

Short-term shareholders (share-renters)

News hungry drama feeders: some brokers, analysts, reporters, advisors, consultants

One-off charity donors seeking to avoid social awkwardness or assuage guilt/shame

Some politicians, salespeople, spin doctors

Aid that leads to aid dependency

Turn of the millennium Fannie Mae, Feddie Mac, AIG, GE, Enron.

Long-term characteristics

Long-term shareholders (share-owners)

Founders, good employees/board members

Multi-year, relationship based (anonymous?) donors

Philosophers, thinkers, statesmen/women, gurus

Foundations/charities etc. ultimately seeking to put themselves out of business

Costco, Berkshire Hathaway, Amazon

*With special thanks to Chris Begg for his sage input.

The I.G.Y. Foundation is a Charitable Incorporated Organisation registered with the Charity Commission of England and Wales, Registered Number 1155564.