An Unhealthy Obsession With Money

Posted October 6, 2021 by Ben Carlson

One hundred dollars invested in Berkshire Hathaway in 1965 would have grown to more than $2.8 million by the end of 2020.  Warren Buffett’s holding company is the most impressive long-term compounding machine in history, increasing in market value at 20% per year for nearly 6 decades.  Compounding is a wonderful thing but it can also become an unhealthy obsession if you view every financial decision through that lens.

In Buffett: The Making of an American Capitalist, Roger Lowenstein tells a story from Buffett’s friend and former business partner Katherine Graham when she was publisher of the Washington Post.

Graham was in the airport with Buffett and needed to make a phone call from a payphone (remember those?). She asked Buffett for a dime (which was the going rate for a call at the time). Buffett grabbed a quarter from his pocket and walked off to get change from a cashier.  Graham snapped at him, “Warren, give me the quarter!”  Buffett was so stingy he wanted to give her exact change for the call and not a penny more.

There was another story from the book where Buffett complained to a friend about his wife purchasing $15k of new furniture for their home. He told the friend, “Do you know how much that is if you compound it over 20 years?”

I’m not going to defend extravagant furniture purchases but that’s not really the point. If you’re always worried about the future value of your money, it becomes much harder to enjoy the present value of your time.

Shelby Davis isn’t a household name like Buffett but his investing track record is almost as impressive.

Davis quit his job at age 38 in the late-1940s to become a full-time investor. His timing was impeccable as the stock market was about to enter one of the great bull markets of all-time. His timing was fortuitous but Davis was also a fantastic stock picker.  Sticking mainly to insurance stocks, Davis managed to turn $50,000 in 1947 into $900 million by the time he passed away in 1994.1

Like Buffett, Davis was a compounding machine. Like Buffett, Davis came from the value investing school of Ben Graham. And like Buffett, Davis was noticeable cheap for being so rich.

Buffett scoffed at buying expensive furniture for his wife as he did the math in his head about lost future gains from compounding while Davis gave the exact same speech to his grandson…about a $1 hot dog. He refused to buy it for the boy.  He also told his children they could only have a swimming pool if they dug the hole themselves.2   Those are relatively small things though. Once the sums became large enough, the money created a rift in the family.

In his book  The Davis Dynasty, John Rothchild recounts a fight between Davis and his daughter that made it into the pages of the New York Daily News in the early-1960s:

In the early 1940s, he funded each account with $4,000-surely not a sum that would sap anybody’s future self-reliance. By 1961, as the New York Daily News reported, each “$4,000 acorn had grown into a $3.8 million oak.”

To continue reading, please go to the original article here:

https://awealthofcommonsense.com/2021/10/an-unhealthy-obsession-with-money/