The First Million Is The Hardest
Welcome all new subscribers to Alpha Letter. Every week I write about interesting opportunities in the public market. I focus on stocks off the beaten path. Broken businesses. Assets trading under liquidation value. Sometimes even personal finance. I don’t like investing in large, popular companies and find a fascination with assets no one else is looking at.
Today’s piece will be about accumulating your first million and the power of compound interest. The first million is the hardest, but no impossible
But before we get in today’s piece, first a word from today’s sponsor…
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The First Million Is The Hardest
I’ve been interested in personal finances since I was a young kid. I hoarded jars of quarters, dimes, nickels and pennies in my closet. I never spent more than I made and always had a few stacks of cash in a safe just in case
(to flee the country).
As I got older I learned to buy goods in bulk and resell them online. I sold skateboards to my friends and everyone at the park. Hustled anything I could find for a quick buck. I get bored extremely easy and when the eventual boredom builds up I occupy my mind by hustling and business. Every side hustle that I have ever had was started in the wake board monotony.
When I entered the corporate workforce I soon realized the dredge of waking up everyday to go to a job that didn’t really mean much to me. I’d walk across the river and see people exercising in the sun, riding their bikes and even taking a slow stroll into the mist of the morning sunlight. I envied their leisure time. I wanted to drink Sangrias on a Tuesday afternoon in Madrid and watch the brutal bullfights as the pits of my guts turned.
I knew quickly that I wanted to accumulate enough assets to cover all of my fixed and variables expenses as soon as possible. I wanted the option to leave the workforce indefinitely if I wanted to. The option of putting a two-week notice on my bosses desk whenever I wanted drove my entire madness to accumulate as much money in the shortest amount of time as possible. It became an obsession.
I ended up creating a spreadsheet and forecasted my net worth ten years out. I assumed I would dump 70% of my income back into the stock market for 5-10 years. This would effectively allow me to accumulate a sizeable asset base while consistently adding to the market every month. This initial forecast only relied on my W2 job with no side hustles. In addition, I received a performance bonus at the end of the year that I would automatically pour back into the market. On excel things looked sweet. If my forecasts were right I’d have enough money to lay back and chill in my early thirties. Do whatever the hell I wanted.
For the first year I missed my forecasts by $100,000. The second year I was off by $250,000. But by the third year the forecasts were almost in-line where I had them. By year four I had started a successful side hustle that was pulling in more money than my day job for less time and effort. I kept my living expenses the same as when I first entered the corporate world, which gave me the privilege to dump a crazy amount of money into the market each year.
Year five came around. 2021. It was a crazy good year in the stock market. I was up over 60% before taxes. A great year-end bonus and a side hustle that was on fire. I dumped it all back into the market yet again. My living expenses were the same as when I was a young kid in college. Well maybe my expenses went up a bit. But I wasn’t out dropping thousands on high end cars and designer clothes. I was living like a normal guy in the city.
Saving 70-90% of your income for five straight years is tough, but well worth the effort. I see a lot of hate online for the people who grind and hustle to get their assets to a level where it covers all expenses as young as they can. I mean there are some cringy posts out there and I make fun of those people all of the time. But accumulating enough assets at 30 to cover all expenses indefinitely, that’s a badass thing to do.
My snowball started off small five years ago and by the end of year-five I had accumulated enough assets to drop out of the corporate rate race indefinitely. No more long hours. No more answering to a boss. Work when I want and where I want. The feeling of controlling our own financial destiny is empowering. Pure independence.
There is a good quote by legendary investor Charlie Munger about acquiring the first $100,000 that I would like to share. This quote has stuck with me through the years.
“The first $100,000 is a bitch, but you gotta do it. I don’t care what you have to do—if it means walking everywhere and not eating anything that wasn’t purchased with a coupon, find a way to get your hands on $100,000. After that, you can ease off the gas a little bit.” - Charlie Munger
This quote is a bit old and given the inflation of money I’d argue that the first million is a bitch these days, rather the first $100,000. Accumulating that first million is a huge hurdle. Financially, it is a struggle. Mentally, even more. But once you accumulate that first million, your snowball compounds quickly.
Think about it like this. A 20% return on $100,000 is only $20,000. Enough to buy lunch in today’s hyperinflating world. A 20% return on $1,000,000 is $200,000. About as much as the salary as someone in the tech industry. A 20% return on $2,000,000 is $400,000. As much as most executives at small companies make.
The first million is the hardest. But the next million is easier. And the subsequent millions after the that are even easier. Compounding interest has been described as the eighth wonder of the world by Albert Einstein. I’d argue that is true. Once you build up your initial capital base you don’t have to hustle as hard as you did in your twenties. Compound interest takes care of that.
Hustle hard and hustle fast. As my good friend Ian tweeted the other day
Also if you can invest like a badass it makes accumulating the first million even easier. So drop that technical analysis garbage and learn how to analyze a company’s financials. Fundamental analysis will take you far in the world of finance.
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