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Last Updated : Feb 12, 2019 05:18 PM IST | Source: richifymeclub

The amazing power of the long-game plan

When we start an SIP, initial contributions will never create something enormous instantly. In fact, nothing changes drastically during the initial few weeks, months, or even years.

Moneycontrol Contributor @moneycontrolcom

Dhruv Girdhar

In 1964, Gary Flandro stated that the outer planets – Jupiter, Saturn, Uranus, and Neptune – would align in a rare pattern in the late 1970s. And NASA scientists really wanted to catch hold of such event that occurred only once in two centuries. 176 years to be very precise. But how? By launching a mission that would take a road trip towards these giant marbles. In less time. With less cost.

Determined to not let go of this opportunity, they approached the then President of The United States, Richard Nixon, and apprised him of their plan. To their utter surprise, they received the green signal for the mission but with limits. A limit that would restrict them to visit just two planets at a time. That, too, for a short period of time. But NASA had other plans. The long-game plan.

Finally, in 1977, their eagerness came into existence.

One-by-one, two space probes were launched. Voyager 2 followed by Voyager 1 after 16 days. The former was intended to visit all four planets while the latter would follow a different trajectory covering Jupiter and Saturn.

Initially, these twins were commissioned for planetary exploration. But later on, their missions were extended. To explore the outer limits of the solar system. To find the traces of extraterrestrial life deep into the interstellar space. Space where no man-made object, in the history of mankind, had stepped in. NASA's long-game plan had planned a mission within a mission.

It's been 41 years now. Under the influence of ungrateful radiations and insane temperatures, they’re invading the deep space like never before. Beating the Sun's gravitational pull, a lovely small space probe is still going strong at a speed of 15km/s in a lovely big universe. By the time you scroll down to read further, it'll complete a full marathon.

But how did NASA's long-game plan help? Well, what the mission has uncovered so far was unknown to humans for the past many centuries. It’s the long-game plan that reported the presence of an active 350-years old giant cyclone on Jupiter. It's the long-game plan that showed Saturn's polar regions to the world. It's the long-game plan that solved the unsolved mysteries that baffled even the great astronomers Galileo and Copernicus.

Now, let me talk about its relevance in the field of investing.

**

When we start SIP (Systematic Investment Plan), the initial contributions will never create something enormous instantly. In fact, nothing changes drastically during the initial few weeks, months, or even years. Rather, it turns out to be extremely boring. And who loves staying monotonous throughout the journey? Well, no one.

And that's why we love playing short games. The games that produce immediate results. Going through a summary instead of reading 'The Intelligent Investor'. Tweeting rather than writing a blog post. Munching a Bournville instead of running on a treadmill. Short games are extremely addictive. Believing that just Rs 5,000 a month is not going to make us rich tomorrow, we convert it into something that makes us really happy on-the-spot. We tend to overlook the potential of a paltry amount of money ribboned with a long-game plan.

"The problem with the short game is that the costs are small and never seem to matter much on any given day. Saving $5 today won't make you a millionaire. Going to the gym won’t make you fit. Reading a book won't make you smart. Since the results are not immediate, we revert back to the short game."


- Shane Parish, Farnam Street


For instance, when we increase our monthly SIP amount by 5 percent, 10 percent, or even 12 percent every year, the end result will cease to change during the initial years of compounding. The difference in the end result between an increment of 5 percent and 12 percent seems irrelevant. In fact, it stays neck-to-neck for the first 7-10 years.

But as the game gets elongated further, this difference starts exploding. The end results start taking the shape of a snowball. The variance that looks minimal in the first place, starts growing bigger and bigger. In a long-game plan of 40 years, an annual step-up of 12 percent instead of 5 percent in a SIP of Rs 5,000 a month makes your corpus bigger by Rs 10 crore. A huge disparity.

On the contrary, this variation reduces to just Rs 4 lakh with a short-game plan of 10 years. And much less if planned even shorter.

Image source: RichifyMeClub

When days are turned into months, months into years, and years into decades, the compounding treadmill starts accomplishing higher speed. The little and tiny contributions that look unbelievably small initially, become enormous after decades of compounding. What looks extremely meaningless in a short game, becomes something that is difficult to avoid in a long-game plan.

James Clear, the author of The Atomic Habits, has written on a broad scale about forming habits with a long-game plan. As per the book, we grossly miscalculate the importance of small and little efforts that contribute towards achieving our goals. If we swim for 40 minutes for a week, we still don't get lean. If we cook for a week, we still don’t become a skilled chef. If we write for a week, we still don't become a prolific writer. But when continued for months and years, the results turn out to be worthy. Certainly, the long-game plan works in forming a habit too.

If we wrap our mentality of getting better with just 1 percent every day, we'll end up getting 37-times better at the end of the year. And this keeps compounding year after year. The below equation by James proves that following a system with a long-game plan does benefit us immensely. Unquestionably!!!

1 percent better every day for 1-year: (1.01)365 = 37.78

1 percent worse every day for 1-year: (o.99)365 = 00.03 

- James Clear, The Atomic Habits

* * *

Kathleen Magowan, despite being a teacher for 35 long years, amassed a fortune of $6 million. Throughout her life, she never attracted anyone’s attention. Neither she married. Nor she had any grandchild. Lived frugally in the same inherited house.  Sweet. Compassionate. She always preferred to maintain a low-key profile. Surprisingly, after her death in 2011, it was revealed that even her Quaker Oats boxes were worth $183K as they contained the savings bonds of the 1940s and 50s. Yes, she invested with a long-game plan.

Same goes for Anne Scheiber, who built a massive corpus of $22 million despite living on a pension of $3,100. Yes, she invested with a long-game plan. And just like Voyager 2, Warren Buffett is still going strong even at the age of 88. Yes, he has been investing with a long-game plan since the age of 11.

The article has been reproduced with permission from richifymeclub.com. You can read the original article here.
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First Published on Feb 12, 2019 05:18 pm
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