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Infinite Investing: How do we win a game that has no end?

What if we saw ourselves not as winners or losers, but builders? What if we saw investing not as a game of making or losing money, but building wealth for ourselves and for generations to come?

This an important topic that has been on my mind for a few years now, and I think it has become more relevant today than ever, during these especially challenging, confusing, and uncertain times for investors.  

If you put kids in a room, eventually they will start to play. Very often, the game they choose ends with a winner or a loser. That’s how we are conditioned to see the world. Most games operate with clear rules, time limits, and precise outcomes. Today, most of us want to win big, win often, and most of all — win fast! Our world has never been more impatient, more obsessed with immediacy, and winning, but also… more fragile.

Speaking of fast, it is possible to win a game of chess with as few as two moves. When I was a kid, I loved playing chess. I had a foldable chessboard that went everywhere with me. I thought I was good for my age, and I started to beat adult players, though maybe they let me win. I enjoyed it either way, but there was one thing I didn’t like — that there was an end to each match. Chess, soccer, tennis and many other familiar games are finite games. It’s clear who the players are, there are rules, there is a winner and a loser, and eventually the game ends. You can play countless games of chess, but each time it’s the same format: a board, an opponent, 32 pieces and, ultimately, a winner and a loser. The classic example of a finite game.

Let’s turn that concept on its head, let’s drop the limiting boundaries of a board, and consider the notion of an infinite game. Infinity is an abstract concept describing something without any limit.  Friendship, for instance; friendship can involve two or many people, there are no fixed rules, there are no winners or losers in true friendship. The primary objective of friendship is to keep it thriving.

Finite games with strict rules and time limits tend to be clear-cut and easy to comprehend. Not so much with infinite games. They can have many players, who may not all be aware of each other. There might be certain rules of conduct, but also some flexibility around them. There is no time limit, and, often, no clear end. The primary objective of an infinite game is to perpetuate the game. Players drop out when they run out of the will and the resources to keep playing.

We may falsely believe that investing is a finite game with winners and losers. In investing, we hear every day about the best and the worst performing stocks, the portfolio manager of the month, the best asset class of the year. We may even think that missing out on a particular stock whose price has soared by a factor of ten makes us a loser. There is something liberating, eye-opening, and empowering about seeing investing as the game with no end.

Stock investing, as we practice it at Sicart, is the ultimate infinite game – infinite investing. The goal is to keep growing wealth managing family fortunes over generations. The resource (i.e. a family fortune) is irreplaceable. Once it’s lost or spent, the family has to drop out of the game, and our clients would no longer be able to participate in the future investment success of the great economy around us.  If the primary objective is to be able to keep playing, and the only way to keep playing is to have the resources to do so, not losing it all takes priority over everything else.

The infinite game with the infinite investment horizon allows us at Sicart to think far beyond the immediate future and instant gratification. It gives us an incentive to plan for the future of those who will be around when we are long gone. My dear friend Anthony Deden, a Swiss-based investor, asked once in an interview with Grant Williams from Real Vision: “Why would a man do something today for which he would receive no reward in his life time?” He was discussing investing; more specifically, sharing the story of an individual who owned a date palm orchard. This man was harvesting from trees planted by ancestors, and at the same time planting trees to be harvested by his descendants.

The infinite investment horizon doesn’t mean though that we can take indiscriminate risks just because we have a long horizon. Not all risks are acceptable. Imagine betting a family fortune on the roulette wheel in Las Vegas, Monte Carlo or Macau just because its investment horizon is infinite! It sounds silly, but investment equivalents crop up all the time.

However, the longer the investment horizon, the longer we can wait: first to invest at a sensible price, and later, to sell when a stock delivers the returns we’ve been watching for. In fact, our long horizon gives us the luxury of taking a long-term view that others can’t. Anyone who measures their performance in months or quarters or even years, can’t take a long-term position in an out-of-favor stock or industry, and wait 5 years to see the returns. Players in an infinite game can do exactly that, and their decisions are made with ten, twenty or even hundred-year investment horizons. We often say that we might not be faster or smarter than anyone else, but we are definitely among the more patient. It is our clients’ time preference, and awareness of the infinite game they are in that gives us that very luxury to think beyond months, quarters or years.

When I had almost completed writing  my first book in 2015, Outsmarting the Crowd, I came across a volume titled Finite and Infinite Games by James P. Carse. It made such a big impression on me that I postponed handing in my final draft to the editor for a week or two because I knew I had to add a few more pages addressing the topic of investing as an infinite game. This is my favorite quote from his book: “The joyfulness of infinite play (…) lies in learning to start something we cannot finish.”

More recently in the book The Infinite Game, author Simon Sinek brought the topic of infinite games back to the public’s attention. He explained how politics, business, and education are all “games” that shouldn’t have the best or the worst, winners or losers, but should be seen as endless processes where the primary objective is to continue to play, improve, and thrive.

When I brought up the topic of this article to my dear friend and mentor James (Jay) Hughes (who spent a wonderful career working with prominent families around the world in his role of a true homme de confiance), he immediately reminded me of Nassim Nicholas Taleb’s book Antifragile: Things That Gain from Disorder. After a long discussion, we realized that Carse’s infinite game, and Taleb’s notion of “the antifragile” are really two sides of the same coin. For any player to be able to continue to play, the player has to be antifragile. If anything, disorder and chaos can benefit such a player – Taleb explains.

When it comes to investing, the stock market disorder, chaos and volatility expose the fragility of the investment approach, and the fragility of overpriced, overleveraged, overextended companies whose shares investors buy chasing price momentum. At the same time, these seemingly undesirable conditions actually create buying opportunities for disciplined and patient value investors; stock pickers, who have put in the time to learn what to buy, and what price to pay. What makes such a player stronger is not only the stock selection, but the advance preparation with an effective selling policy. As a result, we choose to hold ample cash, gold holdings, and a collection of very carefully selected stocks acquired opportunistically, and held patiently as we make our way through some of the most turbulent markets in history.

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Investing when seen as infinite investing:

• requires us to preserve and grow resources to be able to continue to “play”, thus never risk losing it all;
• gives us the luxury to be patient, and think long-term, and even beyond our lifetimes to promote the growth of resources over generations.
• requires us to remain “antifragile” and benefit from rather than succumb to the stock market disorder and chaos;

Investing is not a game you win or lose, it’s a game you may want to keep playing for as long as possible, ideally forever — growing wealth for generations to come. The more impatient the world grows, the more others are driven by instant gratification of short-lived wins, the more fragile other players become; the more we, and our investment approach stands out, and gives us a silent, but tremendous advantage in a game we choose to be in – the infinite investing.

Happy Investing!

Bogumil Baranowski

Published:  6/18/2020

Disclosure:

The information provided in this article represents the opinions of Sicart Associates, LLC (“Sicart”) and is expressed as of the date hereof and is subject to change. Sicart assumes no obligation to update or otherwise revise our opinions or this article. The observations and views expressed herein may be changed by Sicart at any time without notice.

This article is not intended to be a client‐specific suitability analysis or recommendation, an offer to participate in any investment, or a recommendation to buy, hold or sell securities. Do not use this report as the sole basis for investment decisions. Do not select an asset class or investment product based on performance alone. Consider all relevant information, including your existing portfolio, investment objectives, risk tolerance, liquidity needs and investment time horizon. This report is for general informational purposes only and is not intended to predict or guarantee the future performance of any individual security, market sector or the markets generally.