Nothing Into Something

Why Your Time Horizon Isn’t Long Enough

Photo: Pixabay

No one knows exactly how Sam Zemurray came across his first banana in 1893, but he knew it was special.  In fact, Sam became so obsessed with the yellow fruit that he traveled to Mobile, Alabama two years later in hopes of entering the banana trade.  Unfortunately, there was one problem with his plan—Sam Zemurray had almost no money.  How was an 18 year old with no financial capital, no connections, and a Russian accent going to grow bananas, ship them across the Gulf of Mexico, and then sell them to American consumers throughout the South?  Upon arriving at the docks in Mobile, Sam found his answer–the ripes.

For those of you that don’t know, there are three stages of marketable bananas:  greens, turnings, and ripes.  The greens are, as named, green in color and need time to mature before they can be eaten.  The turnings are ready to eat, but are on the verge of getting the signature brown spots that bananas are known for.  The ripes, though still good to eat, have started to freckle brown, being only a few days away from having no value.  It was in the ripes that Sam saw an opportunity.

Given their shorter shelf life, ripes almost never reached their target market in time, and, thus, were sold at a large discount.  Sam realized that if he could move these bananas to the right markets quicker, he could make a business out of it.  He didn’t have to grow a single banana, he just had to be faster than his competition.  With only $150 he bought as many ripes as he could and traveled north by rail to sell them.  After all was said and done he made $190, a $40 profit over 6 days in 1895.  Sam was in business.  The Fish That Ate The Whale by Rich Cohen tells of Sam’s continued success:

In 1899, he sold 20,000 bananas.  In 1903, he sold 574,000.  Within a decade, he would be selling more than a million bananas a year.

Sam eventually became one of the richest men in America and the head of United Fruit Company (now Chiquita Brands International).  All of this started because he found an ignored part of the trade and capitalized on it.  He took the trash of the industry and made it into an empire.  He turned nothing into something.

Sam Zemurray wasn’t the only one to accomplish such a feat.  Frederic Tudor, the “Ice King”, did a similar thing when he began transporting blocks of ice to the Caribbean using unwanted boats and cheap sawdust to prevent the ice from melting.  As Steve Johnson stated in How We Got To Now:

This was Tudor’s frugal genius: he took three things that the market had effectively priced at zero—ice, sawdust, and an empty vessel—and turned them into a flourishing business.

Both of these men took things that were deemed worthless by the market and turned them into something great.  They did this by sticking with their vision and having a long time horizon.  It is hard to imagine the 74-year-old Zemurray retiring a business legend when you hear about the 16-year-old Zemurray seeing his first banana, but that’s because great things take time.

In the finance community we talk about “having a long term mindset” so often that the phrase “long term” doesn’t mean anything anymore.  How long is the “long term” really?  My view on this completely changed after listening to Jason Zweig’s Google Talk where he said:

I measure my time horizon…in centuries.  I often say “I’m investing for the next hundred years,” because I have children.  I have causes I care about.

Imagine the weight you would place on your decisions if you thought about the impact they would have on you and your offspring over the next hundred years.  This applies to not only your investments, but all of your life choices.  Why?  Because these choices will compound through the decades and into the centuries.  They will show up in your family’s wealth, in your children’s behavior, and in how you will be remembered long after you are gone.

There is no better example of the changes that can occur over a multi-century time horizon than the expansion of the U.S. economy.  If you look at the growth in U.S. real GDP since 1790, you will be astounded (note: the y-axis is a log scale):

U.S. real GDP has grown 2,200 fold since 1800, a time when total production was equivalent to the NFL’s revenue in 2017.  By the end of the Civil War (1865), total production was equal to what Facebook lost in market cap in a single day a few months ago.  The U.S. didn’t pass $1 trillion, similar to Mexico’s GDP today, until 1926.

On per capita terms the takeaway is even more striking:

In 1800 the U.S. had the same real GDP per capita as North Korea does today!  There are only about 10 countries with a 2017 GDP per capita below what the U.S. had in 1800, which highlights the amazing progress the world has made over this time.  By 1865 U.S. real GDP per capita was similar to modern day Kenya and by 1926 it was similar to contemporary Ukraine.  All of this progress came from the tired, poor, huddled masses yearning to breathe free.

So when you consider what you want to accomplish in life, don’t forget that in order to build a great business, family, product, brand, community, or movement it will take longer than you think.  So extend your time horizon and stop focusing on the coming week or quarter and start focusing on the coming decade and century.  Your success will not be determined by your next project or your next endeavor, but by your collective work, by the totality of your actions, over a lifetime.  Because if the wretched refuse from the teeming shore can create the most powerful economic engine in the world, just imagine what you could do.

The Infinite Regression

Every Cavendish banana you have ever seen or eaten is the same.  Literally they are all genetically identical.  What makes the banana tree special is that you can cut up the stem (“rhizome”), replant the pieces, and get more banana trees of the same biological makeup.  As Rich Cohen beautiful states:

When you look at a banana, you’re looking at every banana, an infinite regression.

It is this infinite regression I want you to remember every time you see a banana.  I want you to be reminded of the plant that gave birth to itself over and over again.  From nothing into something.

If you are interested in learning more about the fascinating story behind Sam Zemurray, the banana trade, and U.S. influence in Central America, I highly recommend the superb writing in The Fish That Ate The Whale.  Thank you for reading!

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This is post 89.  Any code I have related to this post can be found here with the same numbering:

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29 Responses

  1. Anonymous commented on Sep 11

    A thought from the UK, which differs from the USA.

    1. If you created a graph from AD 1 to AD 1700 I doubt that the growth would be at anywhere near the same rate. What for the future? Will growth continue? Or will the growth rate ‘revert to mean’.

    2. In Britain the ‘poor wretched masses’, helped by occasional benevolent rulers, wanted to see M prove themselves. The peak of this aspiration was 1945-1980s. We created education and opportunities for all.

    Today is very different. ‘The masses’ do not have the same opportunities: education & training and career work opportunities are fewer; we now have a semi-permanent underclass. The cultural norms are to seek temporary short term individual pleasure rather invest in yourself for the future.

    This has led to the growth of ‘populism’: in the USA as well as Europe.

    3. Perhaps the only principle left is to take the longer view for yourself and your family. Encourage them to educate themselves and make good moral choices. Certainly in Britain the government and cultural influences will not help you and yours to do so.

  2. Anonymous commented on Sep 12

    Good point about the time horizon if a) you were born in the US over the past few hundred years and b) have participated in its economic growth. Unfortunately, not so much the same outcome for other countries. Argentina was one of the riches in early 1900s, not so much anymore. Many 100-year Argentinans may bet on the time horizon argument.

  3. Anonymous commented on Sep 12

    $150 in 1895 is equivalent to $4500 in 2018 dollars. Not quite nothing…

  4. Anonymous commented on Sep 12

    Great perspective on how adopting the long-term mindset can lead to truly amazing gains. Even small changes each year compounded across time amount to something much bigger. That’s something from almost nothing.

  5. Anonymous commented on Sep 13

    Thanks Nick. Great story.

  6. Anonymous commented on Sep 13

    Thanks for posting outside the paywall. Ritholtz will lose me if he fails to post notice of paywall links.