Time: The Invisible Dimension

Time is a critical factor in our lives but is often ignored — We are better at recognizing time in the case of discrete vs. continuous outcomes  — Understanding time is essential to successful investing.

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TIME: THE INVISIBLE DIMENSION

Time is the most overlooked dimension. We cannot see it, unlike the other more tangible dimensions which make up our world, but time is a crucial part of everything we do in life. From the simplest deliverables to our most complex relationships, time determines success or failure. Yet we often make decisions without ever incorporating the dimension.

Evolutionarily New

Evolutionarily, time seems to have been lost on most creatures. Is an animal ever late for work?

At birth, humans do not understand time. Toddlers have no concept of arriving early or late. They have barely discovered the concept of night and day. Waiting for a minute or an hour seems to be equally painful, particularly if ice cream is involved.

We have evolved to be driven by impulse - hungry now, scared now, tired now - and generally react in the moment. While this works for animals, as humans we come to understand that this impulsive way of living is self-centered and not optimal for the community as a whole.

Discrete Outcomes

As we come to understand time, the initial focus is on discrete outcomes, primarily being either on-time or late.  For children, being late may mean a tardy demerit, running laps, or missing the start of a show. 

As we age, discrete, time-based outcomes are all around us. Putting out the trash ten minutes late is the equivalent of not putting it out at all. Failing to respect time can have far more impactful consequences, like missing a flight or losing a job.

Most human adults are well versed in the importance of time, particularly when evaluating these discrete outcomes.

Continuity

But understanding time is more than a pass/fail test. Wisdom is often found in seeing the time dimension in areas of life where others don’t.

It is wonderful to say we love someone “forever and always” but this is a lofty goal. Inevitably our behavior may fall short of this expectation at various times. But temporary failings do not invalidate love. Love is best viewed on a continuous spectrum, throughout time, with a more reasonable expectation that perfection is unlikely to be achieved, but that the love is valid nonetheless. Which brings us to forgiveness.

It is wonderful to forgive, at any point, but timing matters. A prompt act of forgiveness, apology received or not, jumpstarts a healing process. Delaying forgiveness can be an act of aggression, to teach the trespasser a lesson. If we delay forgiveness for too long, we in turn must apologize and ask for forgiveness ourselves. Time is deeply entwined with forgiveness, and therefore all of our relationships. 

Work performance should be evaluated over the course of time, in contrast to a “what have you done for me lately” approach. Projects should be supported through near-term underperformance with a focus on long-term results. Too often missing an annual budget number is the end of a potentially value-creating endeavor. Customers should be treated fairly, with an focus on building long-term relationships, as opposed to a transactional approach that fails to consider a customer’s value over time.

Incorporating a time component into all aspects of our lives results in improved relationships and decision making.

Investing (Finally)

The time dimension plays an extraordinary role in investing, if you let it. (Unfortunately, too many active investors, and those trading around passive instruments, have excessive turnover, preventing the time dimension from working in their favor.)

Measurement of Value

Stock returns incorporate a crucial and often forgotten time dimension. The concepts of IRR and alpha, over a short period, are meaningless.

Beating the market by 3% for one year does little to change one’s lifestyle. Even five years of outperformance, a wonderful track record, is not life changing.

Ultimately, outperformance is required over ten years or longer to generate the exponential value seen in charts with compound returns.

Extending Investments

Through this lens, the ability to hold a stock for the long-term is absolutely crucial. This is the fatal flaw in MEME stocks, IPOs, and SPACs. Many investors made and lost money on each of these trades. But in every case these situations were just that— trades. In these scenarios, holding for a long period was a sure way to lose money. Being forced to sell, even at a profit, eliminates the ability to compound returns.

Truly outstanding investments can be held for a decade or more. This requires a high level of conviction in the business itself. In Bitcoin parlance, holders must have “diamond hands,” although ideally the conviction is logically backed by an investment thesis as opposed to the ostrich approach of simply burying one’s head and hoping for the best.

Finding Conviction

Businesses create or destroy value on a daily basis. Ultimately, the most successful businesses create cultures, incentives, and teams that create far more value than they destroy. Each employee at the business has either a productive or unproductive day, every day, slowly but steadily moving the ball forward (or backward) to create value over time.

By analyzing the deepest fundamentals of a business—the value created by employees on a day-to-day basis—we can find the conviction to hold for the long-term, knowing that this process will ultimately pay off, regardless of what the stock market prices a share at in the near term.

So Look For Time

Identifying and acting on the time dimension, in all aspects of life, can enhance our day-to-day lives. So show up on time, forgive quickly and fully, and invest for the long-term.