Infinite Games > Finite Games
Exponential Benefits of Playing Long Term Games
“People often overestimate what will happen in the next two years and underestimate what will happen in ten.” - Bill Gates
James Carse, the Director of Religious Studies at New York University, wrote a book, Finite and Infinite Games, that explores the difference between approaching life as a game with an end, or a game that goes on forever.
In Finite Games (short and long) there are players, there are rules and there are winners. The game is designed to end, and it's based on scarcity. Whereas in the Infinite Game, the point is to keep playing, not to win. The journey is all there is. For e.g. playing a game of cricket vs playing with Lego. In Cricket, there is a winner and a loser whereas, in Lego, everybody wins.
Without sounding philosophical, let me try to elaborate a bit more on the distinction between the two. Let’s dig deeper into Finite Games first -
You do X to get Y in return. If you don’t get the Y, you stop doing the X.
You seek Power and Status symbols to show that you won at the game of Life.
You look down on others who do not match up to your level of success.
You expect rewards or recognition for every act of yours.
A finite player is always very serious.
You compete hard to gain the top slot, sometimes at all costs, whether ethical or not.
You seek training to beat others.
It’s a Popularity Contest.
You experience envy and jealousy when your peer/rival/competitor wins.
You want things to remain the same and you fight any kind of change.
Whereas, Infinite Games look like the following -
You do X since that’s what your values and principles are, irrespective of getting anything in return or not.
You seek Simplicity and choose to play your own game that excites you the most, irrespective of what games others choose to play.
You take care of others, respect them, help them, or uplift them, irrespective of what stature they have attained in life.
You accept rewards and recognition as a by-product of being the best version of yours. You don’t expect or crave them since you are busy honing your skills and getting better at the process all the time.
An infinite player is always joyous, always exploring, experimenting, and learning.
You always are looking at collaborating so that all parties involved win. It’s like a statement from Graham Duncan “Let’s Make Money Together.”
You seek training to get educated
It’s an endeavor to move ahead together with vitality, joy, wonder, and introspection.
You look at the Winner as your worthy rival that could teach you something and uplift your game.
You are prepared for the change that comes and embrace it with both arms.
“Playing to win isn’t nearly as satisfying as playing to keep the game going.” - James P. Carse
Investing is also a Game, but it depends on you whether you choose to make it a Finite or an Infinite Game. The props remain the same i.e. Stocks, Bonds, Funds, ETFs, Commodities, and Crypto. The messengers remain the same too i.e. Bloomberg, Reuters, Business Media, Newspapers, Newsletters, and Twitter. But the strategy to play the game would vary significantly.
Let’s dive into how Finite Games in Investing look like -
You seek higher returns compared to your neighbor.
You seek returns much faster.
You consider risks very fleetingly.
You seek tips from others to make your investments work for you.
You trust blindly and take opinions at face value.
You watch TV and believe all that’s discussed on the idiot box.
You suffer from overconfidence bias and hence give more than the desired weightage to your own opinions.
You consider yourself better than many and hence avoid teamwork or collaboration or mentorship in your investment journey.
You strive to make it big on your own (Solo).
You consider yourself skilled when it might have been pure luck that you struck gold.
You keep your learnings to yourself and hope that others don’t catch onto your winning formulae.
You seek only those activities that are fun and pleasure. Hence you avoid the painful task of learning and going deep and rather opt for blind belief in others or pure speculation or betting on outcomes.
You do not have a strong understanding of mathematics, probabilities, and risks since your focus is on being counted amongst the top, which makes you focus outwards instead of inwards or on your processes.
Whereas playing an Infinite Game in the world of Investing will look like the following -
You seek returns proportionate to the risk you are willing to take on
Your No. 1 rule is ‘To Never Lose Money’ and your No.2 rule is ‘Never Forget Rule No.1’.
You consider the risks involved, the probability of incurring the risk, and the damage that it could cause you financially and otherwise.
You opt for independent thinking and never seek tips from others.
You do your own research and only invest after understanding the odds involved.
You don’t listen to TV commentators and rather choose to read extensively about businesses, industries, autobiographies, annual reports, quarterly calls, etc.
You exude humility since you realize that nothing can be known with 100% certainty and everything needs skill, luck, and adequate preparation.
You are always on guard with a skeptical hat on, not to get seduced into anything that sounds too good to be true.
You do realize that there are many people smarter than you and willing to teach you. You take advantage of this fact and make connections with teachers, trainers, and mentors in all fields of interest. Some of these relationships stay as teacher-student, some graduate into mentor-mentee, and a few graduate to life-long friendships.
You are always looking to collaborate or team up.
You have a fair understanding of the luck that has gone into making you achieve many goals to date.
You journal your learnings and willingly share the same with others so others benefit too.
You take pleasure in discomfort as you know that all long-term games require lots of pain and sacrifice in the short term. You are clear about your goals and that makes it all worth it.
You constantly strive to get a better grip on mathematics, probabilities, and risks. This commitment makes you go deeper into subjects of your interest, makes you evaluate risks from all angles possible, and gets you better at measuring the odds of success and failure in every decision of yours.
Understanding this context between Infinite & Finite Games is a very profound one. Your grip over this subject could allow you to compound your capital handsomely in years to come. Our education system and corporate culture have trained us for playing Finite Games and it has become our default mode. A lot of work goes into unlocking yourself from playing a competitive game all the time and dissecting the Compounding Formulae below could make things clearer for you.
A (Amount) is the Goal you seek to hit e.g. USD 10 million net worth by age 50 or the amount needed for your dream home or the amount needed to retire financially and start the pursuit of your hobbies or projects that excite you the most. I was just sharing with my wife the other day about the possibility of hitting a milestone of INR 100 crores (USD 13 million +).
Why 100 crores?
Because -
I can
I am building a corpus today that can compound handsomely in the mid-teens to rise up to that figure in the next 2 decades or less
I seek independence to pursue my hobbies just like my wife and sister do today. My work today makes it possible for them both to be involved in creative endeavors. I’d love to be a part of the gig economy too someday, especially in teaching the masses about Investing Successfully. I aspire to leverage technology to reach out and create an impact.
I want to travel the world and 30 days in a year doesn’t leave enough room for that. Traveling with your loved ones is a magical experience that leaves you with more humility, worldly wisdom, and calm.
The clarity of A is an important one since it has a huge bearing on your actions today. As Morgan Housel states “Use the money to gain control over your time, because not having control of your time is such a powerful and universal drag on happiness. The ability to do what you want, when you want, with who you want, for as long as you want to, pays the highest dividend that exists in finance.”
P (Principal) is the amount you save and put to work. The more you save, the better. To be able to save more, you need to choose simplicity and frugality. These virtues are possible only if you play the Infinite Game. Finite Games will seduce you into playing the competitive game, leading to expenses towards fancy things that make you look like a winner at the Game of Life.
Even Warren Buffet drives a Cadillac in spite of the billions he has amassed over his Investing Career. Kunal Shah, the owner of CRED, rides a scooter around when in Bangalore and has publicly stated that all his money has been invested in 100s of other businesses. You will see the same tendency in many others i.e. Savings that far exceed their lifestyle habits.
R (Rate of Return) can only get higher if you have the requisite skills to generate alpha i.e. returns in excess of market returns. This is where Infinite Game comes in huge measure i.e. learning from the best, building teacher-student relationships, collaborating with others, extensive reading across business reports & industry journals, weighing odds in decision making, and getting better at the game of stock picking. The other alternative would be to invest in a low-cost index and earn the market returns.
The former needs perseverance to build the skills and the latter needs the patience to let your money work for you instead of trying anything exotic with leverage or high fees.
N (No. of years) refers to the time period you could let your money compound. The longer the better. As Charles Munger says “Don’t interrupt compounding unnecessarily.”
This may sound easy but it’s not. When you have millions lying in your Investment Portfolio, the temptations run through the roof. Else how would you explain the many Riches to Rags stories that you have heard about or witnessed personally? Holding onto your horses also needs an understanding of the Infinite Game Mindset.
Warren Buffet is my hero for several reasons. But the No. 1 reason why he commands respect from millions of people around the world is his ability to play an Infinite Game, even at this age. I am providing an insightful thread on Buffet’s changing Investing style over the many decades.
If he can play the Infinite Game for 75 + years and create billions of dollars from that, how about you and me playing this for a decade and seeing the results for ourselves?
Think about it…
Recommendations for the Week #
Disneyfication - This Youtube Video is a fascinating breakdown of the modern empires that social media influencers are creating today. If you aspire to ever become a creator, this video could open the doors to imagine a future you too could possibly create.
Howard Marks Memos are a Must Read and this one highlights the futility in forecasting and opinionating on the future course of markets. What will happen tomorrow is unknown and unknowable in many cases. The sooner you realize this fact, the better you get at the Game.
3 Sides of Risk is a remarkable blog post by Morgan Housel. It will make you think about Risk Management from a whole new perspective. This topic alone could make you USD 1 million in years to come if you can only grasp the context of the piece.
Conviction by SleepWell on Twitter (@sleepwellcap) is an insightful read on building conviction for stock picking. This one is specifically for aspiring Business Analysts or Fund Managers.
Great perspectives on having clear goals.
The thread is a good one too.