“The first rule of compounding: Never interrupt it unnecessarily.” Charlie Munger
Rick was in a hurry.
Warren Buffett, Charlie Munger and a third investor named Rick Guerin were working the same ideas in the same years. The same returns sat in front of all three. Guerin wanted his faster, so he borrowed against his stocks to buy more of them.
That move has a name: buying on margin. The broker lends you money. If your holdings fall far enough, the broker sells you out to get the loan back.
Then the market fell. In 1973 and 1974 stocks lost roughly half their value. Guerin’s margin loans got called. He had to raise cash fast. The one thing left worth selling was his Berkshire Hathaway stock. He sold it back to Buffett at around $40 a share.
Buffett told the story decades later. “Charlie and I always knew we were going to be rich, but we were not in a hurry. And Rick was in a hurry.” Those same shares are worth hundreds of thousands of dollars each today.
Guerin had the returns in reach. He lost his seat at the table.
About twenty-five years on, a fund called Long-Term Capital Management ran a bigger version of the same move. Two of its founders held Nobel prizes. Their trades were sound. To make small edges pay, they borrowed hard: roughly $5 billion of their own capital controlling more than $125 billion in positions.
For four years it printed money. Then in 1998 a handful of markets turned against them at once. In under four months the fund lost $4.6 billion. It took a rescue organized by the Federal Reserve to unwind the fund without dragging banks down too.
The strategy held up. The leverage is what killed it.
My best friend and I were comparing notes on the patterns we’ve each noticed in ourselves lately. He went first. Then he turned the question on me.
I told him mine. I build my days around improvement: I run experiments and I end each night with review questions. What’s my limiting factor? What could I improve right now?
The experiments push toward more and the questions aim the push: try the thing, raise the thing, fix whatever holds the rest back. It’s the same push Guerin felt toward his returns. The questions skip the other half: what am I giving up to get it?
My own portfolio was the example I gave him. A handful of businesses, products in a good spot, marketing as the bottleneck: growth depends on more people finding them. Say the marketing is 30 minutes a day and it’s working. Slow, real growth. Each evening the review returns the same answer: marketing is the limiting factor.
Say I double the marketing to an hour a day. It works. I get there faster.
The extra half hour is a loan, though. Guerin borrowed from a broker. I’m borrowing willpower, effort and attention.
For two or three months the faster pace holds. A year later the marketing is at zero. I overcommitted and the habit collapsed.
The version of me that stayed at 30 minutes is still marketing four years later. Slower than I wanted yet improving the whole time.
The limiting-factor question keeps its place in my evening review. It finds the bottleneck.
When growth is at zero, the bottleneck is a blocker and the move is to solve it.
When growth is already there, just slower than I’d like, the same bottleneck becomes a speed signal: faster is available, at a price.
A habit that’s already paying is compounding. Adding load raises the odds it breaks. So I leave the 30 minutes alone and let time do the work I keep trying to force.
The bottleneck shows you where you can go faster. It hides what faster costs.
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What’s one thing that’s working that you could stop trying to speed up?
