Gates & Buffett: How to invest, when you have little time

Return on Invested Time (ROIT)

I often get feedback from friends or family that they cannot invest in stocks like I do. 

They just don’t have the time. 

If we’re lucky, time becomes our most precious resource at a certain moment in life. It’s the only thing that is truly finite.

While figuring out, how I can spend my time most effectively and efficiently, I came across a wonderful article written by the great Geoff Gannon

How to invest when you only have 1 hour a day to do it. This inspired me to refine my process.

So if you’re already investing or plan to, here’s a 5 step plan you can use to get the most out of that precious time you have.

We’ll zoom out before zooming back in and get to the nitty-gritty details of what you can do. 

1. How much time do you have?

2. A 168 exercise: align your priorities

3. Define your Return On Invested Time (ROIT)

4. Use the magic word 

5. Bringing it all together

Step 1: How much time do you have?

Before diving into what you can do, let’s put time into perspective. We have the great Tim Urban from waitbutwhy to help us with this.

Here’s a human life depicted in several months.

Source: waitbutwhy.com

The red dot is me. I’m halfway through my life. 

Well, that sucks.🤔

On the positive side, I still have more than 500 months or 2,000 weeks left!

And I’ve got more great news. 

You can do a lot in a single week, but, you first need to take a look at how you’re spending your weeks at the moment, and see if you’re satisfied with that.

Step 2: What are you doing?

Do you know what a 168 is?

One week has 168 hours in it. The goal is to visualize how you’re using those hours.  

Now there are things you have to do. Sleeping and eating you cannot go without. So let us assume that you get 8 hours of sleep each day. We assign 1 hour per day to eating and bathroom breaks. Over a week, you now have 105 hours left. Let’s round it down to 100.

How you spend that time is up to you. You’ll probably have a job (40 hours?). Sadly, you may have a lot of commutes to do and have to spend 10 hours each week on that. You may do sports or have some sort of hobby(3h?). You’ve got a family where you spend some time with them every evening and over the weekends (30 hours?).

But I bet, if you’re interested in companies, stocks, and the markets, you can carve out 1 hour each day or 7 hours a week. That’s only 7 hours of those 100 hours you have available each week. That seems doable, right?

If you’ve never done this, you can use the template below to see how you spend time on average in a week. The first time I did this, I was surprised by the results.

Here’s mine ⬇️

I’m pretty happy with this. The 9 hours of commute each week is long, but I have my investing podcasts to pass the time. However, I should increase the exercise portion as I get older. As you can see, I spend on average a good 20 hours each week on stock analysis and writing. If you’re interested in how I spend those 20 hours, I talk about it in my annual review.

2023 Annual review: Investment mistakes and goals for 2024

Once you’re done doing your 168, you need to compare this with your priorities in life. The first time I did my 168, I was not happy with it. I had to shift my life to get to where I wanted to be, to find balance.

Maybe you notice you’re investing a lot of time into work and not enough with the family. In my case, I noticed I spent too little time on exercise and taking care of my health. These decisions are all very personal.

So my hypothesis for going forward is that you know how you spend your time. It’s in line with your priorities and you manage to carve out some time for investing. (note: when I talk about investing, this means everything, reading a book, listening to a podcast, doing a company analysis, everything that allows you to compound your knowledge on the topic)

So what’s next?

Step 3: Return on Invested Time

After taking many courses and reading lots of books on investing, I noticed something, and this is the same in any field of study.

You’ve got diminishing returns for every book that you read.

ROIT Chart by author

If the return is defined as the amount of knowledge gained, then reading investing book after book will only get you so far. The return for the same hour spent will decrease.

However, this is less the case when reading annual reports and business presentations. There are so many businesses out there with wildly different business models, that I always learn something new when reading an annual report.

Now when it comes to investing in stocks, there might be a threshold when it comes to this knowledge, meaning there is a minimum you need to have.

Your success in the stock market is a combo of skill and luck. Skill is the combination of knowledge and experience you have.

There is a minimum threshold for knowledge when investing in the markets. You should at the minimum:

1. Learn the language of business (accounting)

2. Learn how to value a company (valuation)

If you can combine these 2 things while honing your temperament and embracing volatility, now that might just be a winning combination.

The same thing applies to the time you can spend on it, I believe there is a minimum amount you should be able to apply. Geoff Gannon talks about 1 hour each day. It might be less or more, that is up to you to decide.

However, combining both minimum thresholds gets you to the following matrix for people interested in stock picking.

Equity investing matrix, by author

If your goal is to build wealth, and you’ve chosen the asset class that is equity, then without a minimum amount of knowledge, and a minimum amount of time available, you might better be off investing in index funds.

Do you agree with this?

A short intermediate summary:

1. You’ve done a 168

2. You are aware of ROIT and diminishing returns

3. You have several hours each week to spend on the markets

4. First, read books, but it’s better to go through lots of annual reports

5. You already built up a minimum amount of knowledge of accounting and valuation

So, what’s next?

Step 4: Use the magic word

When a journalist asked Bill Gates and Warren Buffett to write down in a single word what contributed to their success, they both wrote down:

FOCUS

In the days Gates was building Microsoft, employees said that in any meeting with Bill Gates, he was the most intense one in the room. He cared deeply and was laser-focused.

A question for you:

Are you reading this article, because you just opened up your phone, and you’re scrolling through your notifications and e-mails? (it’s an honor by the way that you’re reading this, don’t get me wrong!)

Or, did you schedule a block of 1 hour this week, to read the articles you filed away?

The latter method shows focus. (For example, I use automated rules so that all emails from certain websites and substacks are automatically filed into a separate folder in my inbox called ‘Idea Funnel’. Once a week, I go through these).

You could take it a step further.⬇️

While you’re reading, are you reading casually on a phone or computer? Or do you have a notepad next to you, and you’re taking notes?

I call this focused reading. It takes more time, but I believe the ROIT or Return On Invested Time is bigger.

On a side note, Bill Gates will often have a pen when he’s reading and write down questions or comments inside the book.

Picture from Gates’s notes (60-minutes interview)

Step 5: Bringing it together

Now let’s first get back to Geoff Gannon and that fantastic article he wrote.

Here’s a summary:

• Schedule 1 hour each day of focused time for your investing

• Eliminate as many choices as possible related to stock investing:

  • Ignore portfolio management, each position is the same size when you buy

  • Forget about selling, your focus is on buying great businesses

  • Aim for 5 stocks (20% per stock or 10 stocks (10% per stock) in your portfolio

  • Aim for longer holding periods to avoid turnover (5 years+)

His goal is to make sure that during that 1 hour, you’re laser-focused on finding and buying a great investment and ignoring everything else. 

Keep it as simple as possible.

The reason to limit the number of stocks in your portfolio is simplicity. Imagine you have a portfolio of 5 stocks and your holding period is about 5 years. This means you only need to find 1 good idea every year. That means once you’ve built your portfolio, you have 365 hours each year to find 1 single great idea.

That’s very powerful.

Let’s turn it around. Imagine you have 20 stocks in your portfolio and your average holding period is 2 years. You now need 10 great ideas every year. That’s about 36 hours for each idea which is less than 1 week of work. That’s not a lot of time to find a new idea. 

Now this is theoretical and doesn’t take into account the most important factor of all in investing:

Your temperament towards volatility.

Your choice of the number of positions and sizing is very personal. And a concentrated portfolio might lead to bigger volatility. But it’s interesting to include the amount of time you have in your investing strategy.

What do I do?

I aim for 10 positions with a 10% weight on a cost basis. I like to keep things simple. But 10 still feels like a lot. Of the companies I have, there are only about 2 or 3 of them of which I believe I know more about them than the average analyst. And it took a lot of work to get there.

So Goeff might be on to something with his 5 stocks. But be careful. We are not Charlie Munger. You need a very high degree of conviction and love for volatility to run such a portfolio.

In Goeff’s case, not only is he focused on his time, his portfolio itself is super focused.

If I’m being honest, I’m never 100% focused. You need some procrastination in your life. I’m a big fan of letting my mind wander. It goes back to the Yin and Yang, finding the right balance between wandering and a laser-focused state.

But I see friends applying a focused attitude when they buy a new laptop or smartphone. They spend hours comparing all specs through different websites. And then they buy a stock after a 10-minute look at some criteria.

I know several investors who have checklists, but when they talk about an investment, they rarely ever actually complete that checklist on paper (they might do it in their heads). There is a difference between planning and actual execution.

It all comes down to deliberate practice. Putting the reps in. If you have 1 hour a week, what are you using it for? I set myself a goal of reading a certain number of annual reports every month.

A last thing to mention is your circle of competence. Your ruthlessness, and your ability to say NO often will increase your ROIT. Learning an entire new industry before you can even understand the company you want to study takes a lot of time. It might be better to stay in what you already know and say NO to ideas as often as you can.

Let's wrap it up. This is a topic I’m passionate about, but I want these articles to remain easy to digest.

Summary

1. Do a 168, how are you spending your time? How much time are you willing to invest?

2. Be mindful of your ROIT. There is a minimum threshold in time and knowledge to go out and pick stocks.

3. Focus. Add focus to each hour you spend on investing, especially if you have little time. Use the notion of deliberate practice. 

4. Align your strategy to your time constraints, position sizing, idea funneling, etc…

5. Find balance. Life is not about 100% focus all the time. Investing is a marathon, not a sprint. Stay within your circle of competence.

I hope you liked this one. After the holidays, I’ll start sending you some articles on companies again!

May the markets be with you, always!

Kevin