Salaries Restrict Long-Term Thinking

An investor needs to be able to think long-term. They need to train themselves to be unaffected by short-term volatility in the world. Better yet, they need to find environments that will help them think long-term. But consider the structure of the employed investor.

Typical employment for investors at a fund is a salary with a performance bonus component. It’s also different for salaried investors who have equity in the fund that employs them—this is often a stake in a high-margin business that skims fees off the top. 

This is far different from individual investors who run their own money. They need to sell ownership in businesses they own to sustain their life. They eat what they kill, so to speak. These are two different environments. 

Our environments influence our behaviour. If our goal was to be healthy, having friends who didn’t smoke, drink alcohol, ate whole foods, and exercise regularly would help. If we wanted to read a lot, having friends who spent their spare time reading all day instead of playing games would help enforce the behaviour. 

If we want to enhance a behaviour, putting ourselves into an environment where that is the norm would help us achieve our goal. This might lead to some groups serving self-confirmation biases. 

Some people will put themselves in environments where their beliefs can be challenged. Apparently, that’s what real growth is about. I’m fragile so I don’t do that to myself. It’s hard enough getting my own beliefs to stick. 

The employed investor gets a bi-weekly or monthly drip drip drip of payment regardless of performance. The fund has bought a subscription into this employee with hopes that he will do something along the lines of what was promised per the contract. It’s better than most subscriptions because the company pays after the two weeks of work is done, not before. 

That environment creates the following feedback loop: Do work, ask if it meets standards, get paid in two weeks, get quarterly feedback on meeting standards, get annual feedback on meeting standards, change the job title to show upward mobility, get a bonus, repeat. Some places use arbitrary titles like Senior, Associate, Manager, or a combination (i.e. the Senior Associate or Junior Manager) to tug at the strings of feedback. 

The employed investor is conditioned to expect feedback over and over again for things done. It’s the case for most forms of employment, nothing new there. But such a feedback loop might be diametrically opposed to the task of being a long-term business owner. 

Being accustomed to short feedback loops for themselves, they will look for the same. This kind of change was noticeable in some engineering friends who used to think about long-term projects when they were entrepreneurs but switched to looking at their life in months after joining a big tech company. 

For investors who are supposed to be long-term business owners, the absence of every two weeks of feedback (i.e. paycheque) or one year (i.e. title bump or year-end bonus) might put them on edge. They might start demanding to see results faster from their businesses given their truncated timelines as employees. They might resort to silly metrics like daily price quotations, what everyone else thinks, or quarterly performance targets as core feedback metrics. But that’s not the way for a long-term business owner to behave.

Anyone who has worked for a young company or been an entrepreneur will know that one year is a very short period of time. But employed investors who lack this experience can only rely on the theoretical understanding. Inevitably, their environmental programming—what they’ve experienced and can understand—will win out over a theoretical understanding of the shitstorm we call “running a business.” 

In that manner, full-time individual investors will have an environment that helps them think like long-term business owners.  They have to deal with financial budgets going awry from unexpected expenses hitting them from this thing called “life.” The monthly expenses might double or triple because a pipe blew up at home or something happened to a loved one. Without the drip drip drip of a paycheque to rely on, they have to look at their set of companies and decide what they will sell to cover expenses. 

This is no different for an author or screenwriter who has to spend years writing a book before they can sell it. It’s a tough life. But these individuals have to live through the volatility of life every day as they build their artistic products. 

They have to face the uncertainty of life every day with so much being outside of their control. These individuals are businesses in themselves as they deal with the constant uncertainty. The same applies to the freelancer who has to always find new clients, try to get paid on time and deal with projects getting canceled out of nowhere.

Building a business is rarely a smooth process. Most employees are blind to this reality as they focus on a narrow vertical (i.e. the employed investor at a fund) and they have no idea of all the shit that goes wrong outside their department. They believe that stability is the norm when that’s actually an artificial construct. For better or for worse, most employees are spared the chaos involved in running a business. But, being blind to this reality, how could they ever think long-term when they’ve been conditioned to expect everything to be smooth and dependable in two-week or one-year time frames? 

The monthly, quarterly, or annual chaos might look normal for the individual investor, writer, or entrepreneur. But the employed investor will look at the lack of smoothness with shock. Why wouldn’t they? They live in the realm of stability funded by a near-guaranteed (they think) stream of paycheques. 

Their environment will not allow them to think about businesses in the long-term and messy manner they are. How can they ever understand when their lives are predictable, structured, and lacking in any true volatility?

Our environment prepares us to handle different situations. Unless the employed investor has experienced the gut-wrenching reality of being a business owner, I can’t expect any to truly understand what true long-term thinking might be.