By Jocelyn Dubé

Listen to the deep-dive discussion – How Physical Duration Drives Multiplicative Growth (27:34 min)

 

“Time is the friend of the wonderful business, the enemy of the mediocre.” — Warren Buffett

*     *     *

The Missing Dimension

Duration is one of the oldest tools in finance. Bond investors have used it for decades to measure sensitivity to interest rates — how far into the future the bulk of cash flows arrives. Short duration means cash now. Long duration means cash later. The concept is precise, mathematical, and well understood.

What is less understood is that duration applies to equities — and that when it does, it reveals something bond analysis never anticipated.

In The Infinite Investor, we apply duration as a lens for portfolio construction. Short-duration stocks (Bucket 3A — the Stalwarts) return cash soon through dividends and buybacks. Long-duration stocks (Bucket 3B — the Growth Engines) return cash later through reinvestment. The best companies contain both — dual duration — generating cash now while investing for the future.

But the framework had a gap. It described dual duration as A + B — two engines running side by side. It never asked whether the relationship between A and B could be something other than additive. This post fills that gap. And the answer changes the way we think about the entire hierarchy of compounders.

In a previous post, we introduced the concept of the gradient — the directional force that pulls capital from high-cost B toward zero-cost B. Duration is how we measure where a business sits on that gradient.

*     *     *

I. The Vocabulary of Time

For readers arriving here first: in The Infinite Investor, we decompose every business into two forces. A is the existing operations — the moat, the recurring cash flow. B is growth — the secular expansion of the addressable market, the wave that carries revenue forward. What distinguishes businesses is not the size of B but its cost. A Freesurfer is a business where the cost of B is zero — where growth arrives for free, carried by a structural wave the company did not create and does not pay for.

Duration maps these forces onto time:

Short duration (A) = cash arrives now. Dividends, buybacks, predictable quarterly earnings. The business generates wealth today. Walmart. Coca-Cola. McDonald’s. The Stalwarts.

Long duration (B) = cash arrives later. Reinvested earnings, R&D pipelines, capacity expansion. The business generates wealth tomorrow. The value depends on distant cash flows that have not yet materialized. Early-stage companies, capital-intensive growth engines.

Dual duration (A + B) = cash arrives now and later. Two engines running simultaneously. This is where things get interesting — and where the standard framework stops too soon.

*     *     *

II. The Additive World: A + B

The best companies in the world appear to be dual-duration. They generate massive cash flows today while simultaneously investing in the future. The canonical examples:

Berkshire Hathaway. The insurance subsidiaries and BNSF railroad generate cash now (A). Buffett deploys that cash into acquisitions and an equity portfolio that compounds for decades (B). Two separate activities. The A funds the B. The genius is in the capital allocation — the human decision of where to deploy the cash.

Amazon. AWS and advertising print cash now (A). That cash funds robotic logistics, AI infrastructure, and new market expansion (B). Two separate engines. AWS could exist without the logistics investments. The logistics investments depend on AWS cash. The B is built deliberately, expensively, and with execution risk.

Alphabet. Search and YouTube generate cash now (A). Waymo, DeepMind, and cloud infrastructure are bets on the distant future (B). Again, two activities that happen to live inside the same corporate entity. You can separate them. One is a cash machine. The other is a bet.

In each case, the relationship between A and B is additive. The company does two things. One generates cash. The other spends it. The short duration funds the long duration. It is elegant, powerful, and the foundation of the world’s greatest conglomerates.

But it has a cost.

The B in A + B is built. It requires capital expenditure, R&D budgets, management attention, and strategic decisions. Every dollar of growth must be earned through execution. Bezos must decide to build the next fulfillment center. Buffett must decide which company to acquire. Pichai must decide how much to invest in Waymo. If the decision is wrong, the B fails. If the leader departs, the B is at risk.

This is mechanical duration. The growth is constructed by humans, maintained by humans, and vulnerable to human error. The B has a cost — measured in capital, in attention, and in execution risk.

*     *     *

III. The Multiplicative Leap: A × B

Now consider Visa.

The business model is a toll on transactions. Every swipe, Visa collects a fraction of a percent. Free cash flow exceeds twenty billion dollars a year — returned to shareholders through buybacks and dividends. In isolation, this is a magnificent Stalwart. Pure short duration. Cash now. A.

But eighty-five percent of global transactions are still conducted in cash. Every year, more migrate to digital. Not because Visa invests in digitalization. The banks install terminals. The governments push cashless economies. The consumers adopt mobile payments. The entire world is digitalizing its payment infrastructure for its own reasons, at its own expense.

Visa stands at the center and the river widens around it. This is the B — and it is free.

Here is the critical distinction: Visa’s A and B are not two separate activities. They are the same activity viewed at two time horizons.

Every transaction that crosses Visa’s network is simultaneously a short-duration event (the toll collected today) and the expression of a long-duration secular trend (the digitalization of global payments). You cannot separate the A from the B. The toll IS the wave. The cash now IS the growth later. They are fused.

This is not A + B. This is A × B.

The difference between addition and multiplication is the difference between two engines bolted together and a single engine whose output is amplified by a natural force. In the additive world, if B fails, A continues alone. In the multiplicative world, B cannot fail because B is not built — it is received. The wave is exogenous. The wave is structural. The wave is irreversible.

This is physical duration. The growth is not constructed by humans. It is propelled by natural forces — the thermodynamic irreversibility of digitalization, the entropic expansion of capital markets, the structural shift from active to passive investing. No CEO decided to create these forces. No CEO can stop them. The B arrives at the doorstep, uninvited and unpaid for.

*     *     *

IV. The Taxonomy of Duration

Duration, seen through this lens, creates a natural hierarchy:

Type	Duration	Formula	Examples	B depends on
Stalwart	Short (A)	A only	Walmart, KO, MCD	Nothing — no B
Growth Engine	Long (B)	B only	Early ASML, biotech	Execution
Operational Compounder	Dual additive	A + B	Berkshire, Amazon, Alphabet	Human decisions
Freesurfer	Dual multiplicative	A × B	Visa, SPGI, MCO, MSCI	Natural laws

Read the table from top to bottom and you are reading the gradient. Capital migrates upward — from businesses where growth is absent, to businesses where growth is built, to businesses where growth is received. From short duration to long duration to dual additive to dual multiplicative. From mechanical to physical.

Each step up the gradient reduces the investor’s dependence on human decisions and increases dependence on structural forces. At the top, the Freesurfer, the investor’s role approaches zero. The B does not require monitoring because it is not being executed by anyone. It is happening because the world is happening.

*     *     *

V. Mechanical Duration vs. Physical Duration

The distinction deserves its own vocabulary, because it changes the way we evaluate every business in the portfolio.

Mechanical duration is growth built by humans. It depends on capital allocation decisions, R&D outcomes, management quality, and strategic execution. It is powerful but fragile. The B in A + B is always one bad CEO, one failed product, one misallocated acquisition away from collapse. Amazon without Bezos is a different company. Berkshire without Buffett is a different company. The B is mechanical because it requires maintenance.

Physical duration is growth propelled by natural forces. It depends on secular trends that are structural, directional, and irreversible. It is less explosive but far more durable. Visa without its current CEO is the same company — because the digitalization of payments does not depend on Visa’s CEO. MSCI without its current CEO is the same company — because the shift to passive investing does not depend on MSCI’s management. The B is physical because it requires no maintenance.

The implications for the investor are profound:

A portfolio built on mechanical duration requires vigilance. Is the CEO still effective? Is the R&D pipeline delivering? Is the capital being allocated wisely? Every quarter is a test. The attention cost is high.

A portfolio built on physical duration requires patience. Is the wave still there? Is digitalization still advancing? Are capital markets still expanding? The answer changes slowly — over years, not quarters. The attention cost is near zero.

The path from mechanical to physical duration is the path from the active investor to the passive one. From the Racer to the Mountain Guide. From the portfolio that needs you to the portfolio that does not.

*     *     *

VI. The Evolution — From Builder to Surfer

Every great investor’s career follows the same arc, whether they articulate it or not.

They begin as stock pickers — seeking undervalued assets, timing entries and exits, analyzing quarterly results. This is pure short duration. Cash now. The value is in the trade.

They evolve toward compounders — businesses with durable advantages and long runways for reinvestment. This is dual additive duration. A + B. The value is in the business, not the trade. But the investor still monitors the B. Is management executing? Is the reinvestment generating returns? The attention cost remains.

The few who complete the journey arrive at the Freesurfer. Dual multiplicative duration. A × B. The value is in the laws. The investor asks one question per year: is the wave still there? And then does nothing.

Chris Hohn is making this journey in real time. His portfolio is migrating from GE Aerospace and railways (mechanical duration — growth requires billions in capex) toward Visa, Moody’s, and S&P Global (physical duration — growth requires nothing). He is not abandoning quality. He is ascending the gradient. From A + B to A × B.

Buffett made the same journey over fifty years. From textile mills to insurance float to Apple to the Freesurfers he has held for decades. The arc is the same. The gradient is the same. Duration measures the distance traveled.

*     *     *

VII. The Question Duration Answers

Every lens in the framework answers a specific question:

Ergodicity asks: can I survive this?

Power Law asks: am I exposed to the winners?

Duration asks: when does the cash arrive — and who controls its arrival?

The second half of that question is what this post adds. Traditional duration only measures when. The framework now measures how — whether the cash arrives because a human built it, or because a law delivered it.

When the answer is “a human built it,” the investor must remain engaged. When the answer is “a law delivered it,” the investor can step away. The portfolio serves the investor rather than the investor serving the portfolio.

And this is the bridge to the final insight of the series. If the gradient pulls capital from A + B to A × B, and if A × B requires no human intervention, then the destination of the gradient is immobility. The portfolio that has fully ascended the gradient — the portfolio composed entirely of Freesurfers — requires nothing from the investor except time.

The buckets collapse. The activity ceases. The compounding continues.

Only time remains.

*     *     *

The Hierarchy

This post sits within a series that builds a unified framework for long-term investing:

What Chris Hohn’s Portfolio Reveals showed the gradient empirically — capital migrating from physical monopolies to information tollbooths.

The Physics of Compounding explained why the gradient exists — thermodynamic irreversibility, autocatalysis, Shannon’s Demon, and the reinforcing loop of natural laws.

This post measures the gradient through duration — and reveals the evolution from mechanical growth (A + B) to physical growth (A × B).

The next post will show where the gradient ends: The Convergence — when the buckets collapse and the investor becomes unnecessary.

*     *     *

The Averaging Up Deep Dive on this post is available on Spotify and Apple Podcasts.

Watch the Video

*     *     *

Related Posts:

What Chris Hohn’s Portfolio Reveals — About the Hierarchy of Tollbooths

The Physics of Compounding — Why Great Businesses Obey Laws, Not Decisions

The Freesurfer — A New Species of Compounder