“Compound interest is the eighth wonder of the world. He who understands it, earns it. He who doesn’t, pays it.” — Albert Einstein

At the heart of our investment philosophy lies a deep passion for compounding capital.

This simple yet profound principle underscores the transformative power of reinvested gains over time. But as intuitive and rational as compounding appears, harnessing its full potential is astonishingly difficult. It requires discipline, patience, and a long-term perspective—qualities often at odds with the frenetic pace of Wall Street and investor behavior.

Our mission is to maximize the capital available to compound, and we’ve spent decades refining this approach. Over time, we’ve learned that time—not just returns—is the most powerful variable in the equation.

Wall Street’s Noise vs. Real Wealth Creation

The contrast between best practices for wealth creation and the transactional churn of financial markets is striking. Wall Street—be it exchanges, brokers, or media outlets like CNBC—thrives on activity. There’s always a reason to buy or sell, a narrative to chase, a trend to ride.

And yet, as we study compounding and the legacies of investors like Warren Buffett and Charlie Munger, the guidance is clear:

• Minimize activity

• Prioritize long-duration investing

• As Munger said: “Never interrupt compounding unnecessarily”

That’s become our North Star.

Doubling Capital Isn’t About Chasing Returns

For years, our goal has been straightforward: double investors’ capital every seven or eight years, implying a 10% annualized return. While we aim to exceed that, the return itself is secondary.

The true driver of wealth creation is the number of uninterrupted years that capital is allowed to compound. Time is the long hill down which Buffett’s snowball rolls, gathering mass and momentum. In hindsight, this seems painfully obvious—but attempting to perfect it has been a decades-long journey.

Volatility Is Not Risk

Holding investments for the long term is not easy—especially in a market where risk is often defined by volatility. That’s a metric we reject.

We don’t interrupt the compounding of a fantastic business just because its stock price swings. And we certainly don’t want to erode gains by triggering taxes through unnecessary trading.

Persistent compounding is a dual-edged sword:

• A wealth builder when harnessed

• A wealth destroyer when disrupted

Trading in and out of positions resets the compounding clock, stunting its exponential growth. The compounding effect doesn’t show its full power in months—or even a few years. It begins to dominate after 10 to 15 years.

That’s why we’ve taken great pains to avoid reducing positions, even when they’ve fallen sharply or risen quickly. We’re preserving the compounding chain—the real engine of wealth creation.

The Royalty Business Edge

This philosophy led us to royalty businesses - exceptional compounders with unique characteristics. Companies like Mesabi Trust, with an estimated reserve life of over 40 years, or land-based entities like Texas Pacific Land and LandBridge, exemplify the “long hill” Buffett describes.

Why do we love royalty businesses?

• Minimal operational expenses

• Little to no capital expenditures

• Virtually no risk of technological obsolescence

• Revenue tied to long-duration assets—sometimes perpetual

Their profits flow almost directly from revenues, and while the rate of return matters, time remains the critical factor.

These businesses embody the patience and durability we seek. They allow capital to compound without interference.

Compounding Cuts Both Ways

The power of compounding doesn’t only build wealth—it can quietly destroy it, too.

Take inflation. It erodes purchasing power through its own compounding effect. Government statistics may say inflation is cooling, but the deeper question is:

What about cumulative inflation—the compounding of price increases over years?

Even if the rate slows, the damage can persist.

Most Investors Won’t Do This

Over our 25+ years of experience, we’ve observed something consistent:

Most investors lack either the long-term focus or the willingness to do the necessary work.

This creates incredible opportunities for those who do.

Finding businesses that can compound for decades far outweighs chasing short-term trends.

Patience Is the Edge

Patience and discipline are vital—especially in a world full of noise, volatility, and endless distraction.

Compounding is rare. It’s rational. But it’s hard.

It requires resisting the urge to act, even when every headline says otherwise.

Over time, great businesses naturally grow to dominate a portfolio. Their compounding effect rises above the noise.

The Secret Is Time

Our passion for compounding capital isn’t just about returns—it’s about building something enduring.

If Warren Buffett had retired at age 65, you likely wouldn’t know his name. Aside from his investing acumen, his real secret weapon has been time.

He once compared investing and compounding to a snowball rolling down a hill:

“The trick is to have a very long hill, which means starting very young or living… to be very old.”

Share the Long Hill

We encourage you to share this article with your children or grandchildren.

We’re always open to conversations about long-duration investing with younger generations.

Because the earlier you understand compounding, the longer your hill becomes.

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