The Compounder’s Element
Click here to buy the book.🚀 The Book in 3 Sentences
The Compounder’s Element explores the craft of capital allocation while finding joy in the investment journey.
In contrast to today’s culture of instant gratification, the book encourages readers to embrace patience as the true path to prosperity.
Endersen argues that the essence of The Compounder’s Element lies in being “in your element”—where the pursuit itself matters more than the outcome, and joy comes from the journey.
🧠 Key Takeaways
When you’re operating in your compounder’s element, the wealth-building journey itself starts to matter more than the destination. The outcome of compounding, while awesome, becomes secondary because the real joys of compounding are found in the craft itself.
If you invest in a way that isn’t true to who you are—or in companies that are outside your wheelhouse—the market will eventually reveal it. And when it does, you’ll usually end up paying for it.
When it comes to investing, staying in the game is the name of the game—because anything multiplied by zero is still zero.
Many investors start out believing the key is simply to buy “cheap” businesses, but over time they discover that in the long run it’s more important—and more rewarding—to own good businesses.
If management spends the whole call spinning a story about progress instead of just letting the numbers speak for themselves, there’s usually a reason—and it’s rarely a good one.
Cash keeps you in the game when things get rough, and it positions you to move ahead when opportunities arise. In the end, survival is everything—and the real winners are the ones still standing.
Becoming anchored to your cost basis is one of the most damaging biases in investing. It causes you to end up underweight in great companies that deserve a more prominent place in your portfolio.
✍️ Memorable Quotes
“The Compounder’s Element is about the patient pursuit of prosperity. It’s a journey where the pursuit matters more than the prosperity, because when we are in our element, the joy is in the journey.”
This quote really gets to the heart of the book. In a world obsessed with instant gratification, the compounder’s element is about embracing patience as the true path to lasting prosperity.
When you’re operating in your compounder’s element, the wealth-building journey itself starts to matter more than the destination. The outcome of compounding, while awesome, becomes secondary because the real joys of compounding are found in the craft itself.
“The beauty of the investment industry is that there are multiple paths to prosperity, but only when we match the path to our personality. We need to know who we are. What’s unseen to us, the markets will eagerly enlighten.”
Put another way, there’s more than one way to win the game of investing. But you need to know which game you’re playing.
If you invest in a way that isn’t true to who you are—or in companies that are outside your wheelhouse—the market will eventually reveal it. And when it does, you’ll usually end up paying for it.
“Rather than becoming a boring tortoise, why not be a shark and solve for the highest returns? After all, why get rich slowly when you can do it quickly? The main reason is that being in a hurry to get rich disproportionately increases the risk of getting dealt out of the game. Expecting to get a flush, you get flushed out instead. Navigating investment markets is a delicate and frequently fatal affair. Anything multiplied by zero is zero, no matter how big or strong the anything.”
In the book, Endersen lays out three types of investors.
First, you’ve got the sharks. Sharks are all about maximum growth and chasing the highest returns at any cost. They want what they want, and they want it right now. Sharks are aggressive and always go for the kill.
Then there are the elephants. Like sharks, elephants are chasing growth, but not necessarily in returns. Their focus is on growing assets under management.
The bigger the AUM, the bigger the fees. For elephants, investor returns are almost an afterthought—what really matters is scale.
And finally, you have the tortoises, which are the complete opposite of the sharks. Tortoises want strong returns too, but they’re not in a hurry to get there.
They understand that the faster you try to grow, the more risk you take on. Expecting to draw a flush, as Endersen put it, you’re more likely to get flushed out instead.
For the tortoise, survival matters more than speed. When it comes to investing, staying in the game is the name of the game—because anything multiplied by zero is still zero.
“Solving for duration has a price. Compared to the sharks and the elephants, which will at times respectively be famous or visible, the duration-seeking tortoise will be neither, spending countless years in obscurity in the investment wilderness (especially in bull markets). The tortoise’s time in the wilderness will feel undeserved and random, capricious even.”
The tortoise never gets the spotlight—unlike the sharks and elephants—because nothing the tortoise does looks “exciting.”
They’re not shorting the entire housing market, betting it all on GameStop, or chasing the hot stock of the week. And because of that, the investment community doesn’t pay much attention.
In fact, more often than not, the tortoise is on the receiving end of ridicule. People call them slow, boring, and even “boomers.” They’re never part of the in-crowd because they don’t partake in Wall Street’s latest “get rich quick” scheme.
But none of that makes the tortoise less effective. Quite the opposite, actually.
By taking the slow and steady approach, the tortoise stacks the odds in their favor. This allows them to compound wealth over a long time, while others burn out reaching for growth at all costs.
The tortoise follows a credo that the others don’t: it’s not the one who makes the most noise that wins the race—it’s the one who stays in it the longest.
“The quality friend, and the quality stock, is always getting better, often better than you expected. They are frequently at their best in bad times. When the going gets tough they are growers rather than victims. A bad friend will drag you down and probably take a disproportionate amount of your time and attention. Having low expectations may help, but this is a lousy way to go through life. (It’s interesting to observe how many investors ultimately shift from a ‘value’ style to a ‘quality/growth’ style, but rarely do investors move in the opposite direction.”
This reminds me of Warren Buffett’s quote that time is the friend of a quality business, but the enemy of a bad one.
No matter how you phrase it, it makes sense to only invest in businesses that will be better in the future than they are today. After all, isn’t that the whole point of investing?
According to Endersen, this is the realization most investors eventually come to. Many start out believing the key is simply to buy “cheap” businesses, but over time they discover that in the long run it’s more important—and more rewarding—to own good businesses.
“In the spirit of pursuing a joyful journey, in good company, a question I will ask in respect of each potential investment is whether I will look forward to the quarterly conference calls. Most calls come in one or two flavours: results, or stories. The better businesses deliver result after result, the others talk about the weather.”
You can always tell when a business is beating around the bush. If management spends the whole call spinning a story about progress instead of just letting the numbers speak for themselves, there’s usually a reason—and it’s rarely a good one.
“Cash is insurance. Insurance is survival. Survival is essential.”
If A = B, and B = C, and C = D, then cash is essential.
Why? Because cash gives you both resilience and optionality. Resilience, because it doesn’t lose value when the market drops. Optionality, because it gives you the ammunition to take advantage of great buying opportunities when others are forced to sell.
Put simply, cash keeps you in the game when things get rough, and it positions you to move ahead when opportunities arise. In the end, survival is everything—and the real winners are the ones still standing.
“To fight this tendency to anchor on past prices it is helpful to remind oneself that in a liquid market every day is a new day that is discounting a new future. The market ignores the psychological path dependency of our prior price points, and so should we.”
One of the biggest psychological hurdles every investor faces is the tendency to get anchored to their cost basis.
The moment you buy a stock, your brain latches onto that entry price as the reference point. From then on, everything you do is filtered through that lens.
The problem, though, is that as a business grows and becomes more valuable, its share price usually goes up with it. At least, it’s supposed to.
But when the price goes too far above your original cost basis, it starts to feel “expensive.” Even if the business fundamentals are stronger and the business is better than when you bought it, you hesitate to buy more because you’re anchored to a lower price.
This is one of the most damaging biases in investing. It causes you to end up underweight in great companies that deserve a more prominent place in your portfolio.
Instead of letting fundamentals determine your capital allocation decisions, you let an arbitrary historical data point—your cost basis—dictate your behavior.
Overcoming that bias is one of the hardest, but also most important, psychological battles in investing. And it’s one I’m still fighting myself.
Alchemy is Rory Sutherland’s deep dive into the weird ways people make decisions, and how out-of-the-box thinking can solve problems that reason alone can’t.