Once upon a time in 1667, the Dutch East India Company, the most valuable company in the world at the time, wanted a monopoly on nutmeg – a spice that was worth considerably more than gold. During this time, Run island, a tropical island closer to Darwin than Jakarta, was prized as the home of nutmeg.
In July of 1667, the Dutch acquired Run island via a swap with the British. They agreed to trade New Amsterdam for Run island. The Dutch now had a global monopoly on nutmeg. It has been described as “the real estate deal of the millennium”.
Unfortunately for the Dutch, the price of nutmeg eventually collapsed. The British stole seedlings and dramatically increased supply by growing them in other parts of the world. Furthermore, the arrival of other stimulants such as coffee, tea, and tobacco didn’t aid the Dutch’s situation.
Today, Run island has a population of around 2,050, and still grows nutmeg. New Amsterdam was renamed New York, and the rest is history. All of this within a very short period of time – 351 years to be exact.
They say investors have a three year time horizon, last year, this year, and next year. As human beings we’re wired in such a way that makes it difficult for us to be able to see so far into the future. Take the city of Melbourne for example.
Here’s the evolution of Melbourne city over 130 years, in images, taken from the top end of town – Spring Street:
And here’s Melbourne today – a very different picture to that of the first.
Between 1% and 3% of a city is demolished and rebuilt each year, such that over almost a lifetime, a city is completely transformed and almost recognizable.. Incremental change is so difficult for us to recognize, however over long-periods of time, it’s clear as day.
Here’s a different perspective, one that most of us can recall. Southbank, in the blink of an eye is completely transformed.
Today is no different. With not only the unprecedented level of construction within the city of Melbourne, but also the density of construction, the public are outraged that we are killing our cities. Our cities have never stopped growing, have never stopped evolving, and have never stopped progressing.
This is what progress looks like. Just because it’s new, just because this wasn’t how it used to be, just because this isn’t how we grew up, doesn’t mean we should fear what the future holds.
Melbourne was founded on the 30th of August 1835. A lot has changed since then. A city which is 183 years young, houses a population of around 4.725 million. Contrast this to the city the Dutch swapped for their nutmeg monopoly in 1667. New York City, founded in 1624 is now around 394 years young, housing a population of around 8.625 million.
By the year 2046, Melbourne’s population is expected to increase by 2.8 million people. Here’s what Melbourne’s skyline looks like looking up from the south:
Here’s what the same skyline starts to look like when Melbourne houses 10 million people:
And if you were to take all the buildings on Manhattan Island and placed them into the city of Melbourne, this is what it would look like:
Although quite staggering, it can be done.
As investors we need to fight the minute by minute news headlines that try and grab our attention each and every day. Although we are not wired to, we know deep down that true, significant, and sustainable wealth is created over long periods of time – yet we want it all now. We need to change the way we think about, and invest not only our money but in ourselves. We seem to be attracted to complexity and complication when in fact simplicity yields a more favourable outcome. We seem to prefer to make significant and material changes less frequently, when in fact small, incremental changes made more frequently, which may seem insignificant to us today, compound to and have a far greater impact than we could have ever imagined. It’s like a freight train that gains momentum – it becomes unstoppable.
Try and add 5+5+5+5+5+5+5+5+5+5 in your head. It’s pretty easy, you can do it right? The answer is 50. What if I asked you to multiply instead of add in your head, 5x5x5x5x5x5x5x5x5x5? There’s no way you’ll be able to do it, in fact, I don’t even think you’ll be able to wrap your head around it (by the way, the answer is 9,765,625).
As investors we underestimate the long-term. We underappreciate the power of compounding. Because it isn’t intuitive, we ignore it, and try to solve problems through other means. Next time you’re planning ahead, stop and think about the long-term. Stop and think about the potential of compounding.
Thanks to Tony Crabb of Cushman & Wakefield for the inspiration.