Einstein's Dilemma

Rules of the Game

part 1

Prepare mindset, restructure synaptic connections, dispel all previous notions and misconceptions about money and ultimately wealth. Everything that you have experienced through life, how terrible you are at playing monopoly, all changes from today.

Time

Understanding time is the foundation of everything, not just investing. A commonality that we all share, that ties us to the existence of a shared reality.

Learn to use your time wisely, you will never get it back.

The best of investors, who have been blessed with time, have reaped the rewards of compounding. Ultimately achieving time freedom, not just financial freedom or generational wealth.

A crucial aspect within time is understanding compound interest, simply the rate at which your investment doubles.

If you remember just one thing, it's the Rule of 72, financial rule just like the mathematical rule Pi = 3.14...

Calculation is simple, take 72 and divide by your annual rate of return/yield, that's the rate at which your investments will double in years.

eg. Albert invested £10,000, for a 10% annual return, 72/10 = 7.2 years

7.2 years to double £10,000 = £20,000

~15 years to achieve £40,000 at a 10% yield annually.

Albert's colleague Isaac, invested £20,000 at 20% yield - £40,000 in 3.6 years

Break: Isaac feels well chuffed; he decides to contemplate his next investment under an apple tree.

1. Time component - Consistency of return annually
2. Yield - rate of return
3. Capital - Starting investment allocation

There is always a compromise, one factor you cannot control is time!

If you're short of one element, you must increase and optimise the other variables.

Break: Picture a triangle in your mind, now take a hammer and smash the triangle, that's just rude... name this hammer RISK!

When you start optimising your yield, or magnifying your capital through leverage/margin you make that hammer bigger, now you're thinking about the hammer - risk adjusted return.

All investors are short of time, anything can happen to decrease your time horizon and derail your chances of time freedom. You can become sick, unemployed, robbed, bankrupt, divorced, etc the list is endless. Welcome to the world of RISK!

1. Time in the market beats timing the market
2. Start as early as possible
3. Compounding rewards patience
4. Time helps smooth out volatility
5. Match investments to your time horizon
6. Don't interrupt compounding
7. Invest consistently over time
8. Time reduces emotional mistakes

Models help to optimise the art of investing, I use mental models in all aspects of my life.

Multiple models build a system: the aim is to make the hammer smaller and objectively accelerate the velocity of compounding like a rocket.

Invest with risk adjusted return, maximising upside capture and minimising downside drawdown.

Being early, consistent, patient are the foundations of a great investor.

An apple drops, Isaac discovers his next model...