How much of a return is no longer considered "Slow"?

[hexelbyte]

Hello Everyone!

I wanted to ask this question, what % of a return, whether a business or an investment is no longer considered "slow"?

Let's say I invested in the stock market and get an average return of 8%/ year. Obvious 8% is just too slow and unreliable considering recent events.

What if I changed things up a bit a say I get a consistent return of 30%/ year where my investment doesn't rely on market direction?
How does the answer change based on that?

Obviously there are more factors that come into play, for example control over how that return is made or time dedication.

But what % of return would you consider "Well, that's no longer slow"?

Would love to hear from anyone's thoughts below!

 

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[MJ DeMarco]

Asymmetric returns are 300%, 3000% and more. These are the returns Fastlane businesses can generate.

$100K at 30% for 10 years gets you $1.37M

To me, that is TOO SLOW -- I know I can create a business that generates bigger, asymmetric returns.

$100K at 30% for 20 years gets you nearly $20M.

Mind you, inflation will erode a huge portion of this. $1.3M ten years from today will probably be equivalent to $400K in today's dollars.

The problem with standard returns (even a lofty 30%) always relates to time. Most normies don't start with $100K either. At bigger numbers, the story starts to change. 30% on 10M is a nice $3M a year.

 

[MJ DeMarco]

$100K at 30% for 20 years gets you nearly $20M.

At 25 years it becomes a whopping $70M. This is my problem with compound interest, it's only effective once you have millions... using it to get those millions will cost you decades of time, a more valuable resource.

 

[hexelbyte]

Asymmetric returns are 300%, 3000% and more. These are the returns Fastlane businesses can generate.

$100K at 30% for 10 years gets you $1.37M

To me, that is TOO SLOW -- I know I can create a business that generates bigger, asymmetric returns.

$100K at 30% for 20 years gets you nearly $20M.

Mind you, inflation will erode a huge portion of this. $1.3M ten years from today will probably be equivalent to $400K in today's dollars.

The problem with standard returns (even a lofty 30%) always relates to time. Most normies don't start with $100K either. At bigger numbers, the story starts to change. 30% on 10M is a nice $3M a year.

Straight from the man himself!

Thanks for the explanation MJ!

For sure inflation is always something that I calculate alongside investments, like how tax is also a thing to consider.

Your response also motivates me to stay focused on my main project in SaaS.
Hope someone else is affected from reading this thread!
Cheers!

 

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[biophase]

At bigger numbers, the story starts to change. 30% on 10M is a nice $3M a year.

I was going to mention this also. The returns don’t matter as much as your starting capital number. First get the big number, then worry about ROI after.

If you have a huge number, then your returns of 8% may seem fine to you.

 

[Jobless]

Consider that inflation is far higher than indicated by CPI and that all investment has a measure of risk. If you beat inflation rate + returns found in common asset classes (stocks, real estate etc.) whilst avoiding risk of catastrophic loss, it is superior and not to be considered "slow".

High returns are seldom consistent so it is more a question about balancing high vs. low risk bets, avoiding the possibility of outcomes that would end your business / investment career.

 

[Guest-5ty5s4]

Short thread but great question and great response. This is one of my favorites. Short, sweet, to the point.

 

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[Raoul Duke]

Short thread but great question and great response. This is one of my favorites. Short, sweet, to the point.

#notable

 

[Antifragile]

There is more than one way out of the box.

30% on $100k can be both slow and fast.

• Slow based on @MJ DeMarco post above.
• But if you know how to get 30% consistently in today's market... you can raise capital and get a cut from profits. This becomes fast very quickly.

And, if you have a business that's helping generate these returns on investment, the business itself will be valuable. Meaning there is another valuation that adds up.

 

[Guest-5ty5s4]

There is more than one way out of the box.

30% on $100k can be both slow and fast.

• Slow based on @MJ DeMarco post above.
• But if you know how to get 30% consistently in today's market... you can raise capital and get a cut from profits. This becomes fast very quickly.

And, if you have a business that's helping generate these returns on investment, the business itself will be valuable. Meaning there is another valuation that adds up.

In that scenario, even 4% per year can be very fast! You're right.

But, I guess the return is not really 4%. It is still actually thousands of percents, to you, internally.

 

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[Antifragile]

In that scenario, even 4% per year can be very fast! You're right.

But, I guess the return is not really 4%. It is still actually thousands of percents, to you, internally.

My point is - don’t fixate on a %. Instead think about the process. If your process generally gets 30%, you’ll be able to make it Fastlane. But if it’s a one off 30%, then it’s slow.

 

[MJ DeMarco]

If your process generally gets 30%

A regular 30% will make you a billionaire in about 35 years. (Starting at 100K).

However the problem is getting a consistent 30% ... which most people cannot unless they're leveraged in a business enterprise. This is why we have 30 and 35 year old billionaires.

 

[garyfritz]

• But if you know how to get 30% consistently in today's market... you can raise capital and get a cut from profits. This becomes fast very quickly.

I've done this. I returned almost 40% to our clients with modest drawdowns. They were starting to throw large sacks of money at us. If I had done in 2002 what I had ALREADY BEEN DOING for the previous 3 years, I'd have cleared $500k - $1M in performance fees -- and "to the moon" from there.

Then 9/11 hit, and cratered a lot of plans. Including my trading business. I've had very few profitable/reliable trading ideas since then. The world has changed.

My point is, yes you're right. You CAN make great money from OPM if you can make 30%.

But it's damn hard, and getting harder all the time.

 

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[Johnny boy]

Depends.

And this is all my opinion, since we are dealing with subjective things like what constitutes "slow" and "fast" for wealth.

If you can park millions somewhere and let it get 30% passively you have discovered something amazing.

If you hustle your a$$ off in a business and turn your 20k into 27k after a year, you're struggling.

The idea of the fastlane is using good principles that let you struggle for a year, turn a profit, scale it up, and be worth millions in anywhere from 3-10 years (wildly depends on what you're doing and how good you are at it). It's not that you work for your money and then save it for a passive return. It's about using specialized units that give us a profit margin, and multiplying that profit margin by how much money is moving through the business to give us our net return, and worrying primarily about those two things. Our most important metrics are (margin times revenue) not (principle times return times number of years to be wealthy). If I think of hitting a financial goal, I think "I make 7k per month per crew, I need 12 crews to make a million a year". It's not "I need a 100% return over 4+ years to turn my 50k into a million". We hit customer/deal size goals to hit our financial targets, not "rate of return".

For purely passive money, which is only really an auxiliary idea of the fastlane (my opinion, obviously MJ is the authority on everything related to what the definition of things are for his own terms), anything that directly pays for living expenses (without extreme frugality) and funds further reinvestment is considered "awesome". For example, parking 3 million and making 20% on it, and living on 200k a year, and reinvesting the rest, is F*cking sweet, keep killing it if that's the case.

 

[Zwelethu]

Slow or Low return. 8% is low return to 30%. The slowness of your return might actually be a good thing because I assume that risk of losing more will be greater when you want faster returns. The guys who get 20% return a year instead of the SPX500 8%, were not going any faster but just invested in different companies/markets than an index can move.

 

[hexelbyte]

After reading MJ's first book, it makes sense as to why the stock market is considered "Wealth Preservation" vs "Wealth Creation" according to the fastlane.

If you have $100,000,000 in today's money, 5% roi is $5,000,000. Low % return but still massive due to sizing.
Compare that to 50% roi with $1,000. $500 is nothing.

Issue is 50% roi is a unicorn in the stock market, especially if you take risk-adjusted returns in account.

 

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[Jon822]

I would say it's analogous to the physics equation F=ma. A constant velocity needs no force to act on it, just like a job or 7% annual returns from stocks. While it's technically possible to stumble upon a goldmine of an investment at the right time. hoping for that is unreliable and largely based on luck.

What really differentiates the Fastlane from the Slowlane is not some arbitrary percentage of return cutoff, but your ability to apply force to your business and start making it accelerate. What if your return on your business investment in the first month is -1000%? It doesn't matter because you can keep pushing it so it gets to -500% in the next month, then -100%, +100%, +1000%. etc.

 

[amp0193]

The idea of the fastlane is using good principles that let you struggle for a year, turn a profit, scale it up, and be worth millions in anywhere from 3-10 years (wildly depends on what you're doing and how good you are at it)

Our most important metrics are (margin times revenue)

2 things that majorly impact on where you fall in that 3-10 year "fast" timeframe that don't get talked about enough here:

1. Gross margin - The higher it is, the faster you grow.
2. Cash Conversion Cycle - How fast your cash investments in inventory or whatever else come back to you as revenue.


My first business spun up from $300 investment to $300,000 exit in 3 years. Margins were adequate, but cash conversion cycle was very good (completely selling through all purchased inventory within 4-6 weeks of purchase, basically doubling my money every couple of months).

It violated too many CENTS principles to last, but it was a wild ride with a 9000% annualized ROI.


I didn't fully appreciate how impactful these 2 factors were though until later, and so my current venture that I initially thought was going to be a 5 year play is shaping up to be more of a 10-15 year one.

It has mediocre gross margins (50%), and LONG cash conversion cycle. I sell through my inventory like twice a year, instead of 7-8 times a year in the previous business. It's still a decent business, and has lots of moats that keep competitors out, and has potential to be a significant outcome at the exit, it's just a slower burn that I would have signed up for had I put more thought into it initially.

To put it in terms of the OP, it may work out to 60% annualized returns, which feels really slow to me, however I did invest a large chunk of cash from the 1st business's sale, and so to the point of some others in this thread, if you start with a larger number, then lower returns might be ok.