Principles in Brief

Other things being equal, people prefer the satisfaction of a given value now, rather than later. This time preference varies from person to person and for the same person at different periods. The higher your time preference, the more willing you are to sacrifice a benefit in the future to get what you want now. The lower your time preference, the more you are willing to forgo a benefit now to bring about a better future.

The degree of your time preference is the amount of additional satisfaction required in the future for you to give up a unit of satisfaction now. The ratio of these differing valuations represents the price of time to you. When property rights are clearly defined and respected, time preference decreases, individuals are more willing to save and businesses are more willing to invest long term.

Our long-term focus has been essential to Koch’s success, which is why our owners reinvest 90% of earnings and seek employees who are contribution motivated and have a talent that will help us create long-term value. These, invariably, are employees who have lower time preferences.

This long-term focus has caused us to develop many capabilities, such as becoming better able to select from diverse investment opportunities with different risks, returns and time horizons. To help us do this, we estimate the ratio of the risk-adjusted net present value (NPV) of different opportunities to the capital consumed. When done properly this helps us compare the benefit of a short-term profit opportunity to one that is longer term. It also provides a sense of urgency to quickly address problems and opportunities that can affect our future.

This emphasis keeps us from unduly penalizing earnings volatility – as public companies often feel forced to do – and to stay with an underperforming business when – and only when – we have hard evidence it has sufficient risk-adjusted potential. When it truly does, it can lead to a virtuous cycle of mutual benefit which furthers our long-term success.