Make your investing an infinite game

I like to think of investing as a kind of an infinite game. Although it is not strictly an infinite game, I believe it has similar characteristics.

So what is an infinite game? It’s a game that has no definitive conclusion. It has no finish line and no one person can be declared a winner. Players playing an infinite game are doing so voluntarily. The objective is to remain in the game for as long as possible. There are no outright winners (or losers) since the game doesn’t have a hard finish line. Often, there is not even a universal metric that determines success or failure in this game.

My way of long-term investing is kind of an infinite game. Though not exactly infinite, after all we humans have a hard finish line when we pass, keeping that infinite-mindset while we play the game of investing appeals to me. As in an infinite game, there is no set endpoint or definitive winning moment in investing. Nor do all investors follow the same investing rules when playing the game.

Investing is also a finite game for many. I can think of many investors (and speculators) who most definitely do not invest with an infinite mindset. Day traders, momentum investors, hedge funds, and even many buy-side fund managers play a distinctly finite game. I just finished listening to an interview of a former sell-side equity analyst (Matt Reustle, ex Goldman Sachs) who noted that nearly all his buy-side clients were only interested in what he’d heard from the management on an upcoming quarter’s numbers. Can they make this quarter’s expected earnings? How do they feel about the next quarter?

Why I believe my investing is more like an infinite game?

As in an infinite game, I don’t have a hard finish line either. I don’t have plans to quit investing some day and starting something else instead. I plan to keep on investing (and growing) my family’s capital for as long as I can. Of course, I keep cash handy and from time to time either raise cash when prices are elevated (like today) or deploy cash into more stock buys (like in 2022).

While I do compare my portfolio’s yearly performance against broad market indexes (as in this recent post), I don’t sweat underperformances like in 2022 when my portfolio was down by a third. I invest because it is by far the easiest route to my gaining wealth and financial independence. My goal is not to beat the stock market year in and year out.

Who are the investors playing the infinite game? There are many successful long-term investors who, knowingly or unknowingly, invest as if they are playing the infinite game. Alternatively, we can call it a super long-term game. Naturally I am attracted to these investors as I also think along the same lines.

Warren Buffett: Mr. Buffett has many traits of an investor with infinite mindset. For instance, he doesn’t have a hard finish line for ending his investing career. Barring, of course, his inevitable demise (or diminished mental acuity) which he jokes about often during annual shareholder meetings. One day, he will pass on, but until then he goes on investing Berkshire’s capital.

An example of Buffett’s long-term mindset came during the Great Financial Crisis of 2008. While stocks were in the middle of a 50% drawdown, in October 2008, he wrote a surprisingly optimistic opinion piece for NY Times: Buy American. I am. Usually, his communication is meant for just the Berkshire’s shareholders, but that article was addressed to all his fellow Americans. He advised Americans not to hoard cash and invest in stocks instead:

Equities will almost certainly outperform cash over the next decade, probably by a substantial degree.

US stocks went on declining further until March 2009, about six months after his memo was published. And yet, as he predicted, stocks outperformed all other assets over the following ten years.

Just like someone playing a really long game, he wasn’t focused on the next twelve months. He was eyeing the next decade and beyond.

Bill Miller: The renowned Legg Mason fund manager whose fund outperformed the S&P 500 for 15 consecutive years (from 1991 to 2005; the longest ever by any fund) had a certain disdain for such performance metrics. He wrote this in his end-of-year 2005 letter:

While we are pleased to have performed as we have, our so-called ‘streak’ is a fortunate accident of the calendar. Over the past 15 years, the December-to-December time frame is the only one of the twelve-month periods where our results have always outpaced those of the index … If your expectation is that we will outperform the market every year, you can expect to be disappointed

Bill Miller didn’t care about beating an index every year. His focus was long-term outperformance. As one would expect from an infinite-minded investor.

Bruce Flatt: Last but not the least, I present Bruce Flatt as another successful businessman/investor who has been playing the infinite game of investing. Consider this: He’s been with the same company (Brookfield: BN & BAM) since 1990. He’s been its CEO for last 23 years and running. Brookfield stock has gained 16% annually in last twenty years.

He wrote the following in the 4Q24 shareholder letter:

Owning a house and a business (through the fractional ownership of a listed entity) are two of the great tax-free ways to compound wealth over the long term. If one can compound owner returns constantly over long periods of time at greater than 10%, the wealth created by being an owner is astonishing.

At 10% IRR, our investment would have increased 8x in about 21 years. Since Brookfield grew much faster at 16%, our investment in the company would have gone up 30x if we’d invested when he became the CEO. It’s no wonder that today he is a multibillionaire with his biggest stake still in the company he runs. In my mind, he’s another infinite-minded investor.