The Real Magic Behind Warren Buffett’s Success
Many investors, including myself, admire Warren Buffet for his calm demeanor, timeless wisdom, and incredible investment success. However, the secret ingredient to his enormous net worth, which is north of $80 billion, is not his ability to time the market or pick winners – it’s simply time IN the market.
Warren Buffet started investing as a young boy at the age of 11 and by age 30, before any of us had heard of him, he had a net worth over $1 Million. Think about that for a second. How much did you have saved by the end of your 20’s? On the other end of his timeline, he never retired and never started drawing down his investments like most retirees. He continued to invest into his 80’s, reinvesting all his profits along the way. He has had nearly 80 years to invest while the average adult might only save for 30 years.
So, what would Warren Buffett be worth if he still earned his exceptional 22% annual returns but only had a normal investing time frame? According to CNBC, “…if he was a more normal person, spending his teens and 20s exploring the world and finding his passion — and, by age 30, his net worth was, say, $25,000? And let’s say he still went on to earn the extraordinary annual investment returns he’s been able to generate…but quit investing and retired at 60 to play golf and spend time with his grandchildren? What would a rough estimate of his net worth be today? Not $81 billion. $11.9 million (99.9% less than his actual net worth).”[1]
I know how compound interest works but I was as shocked as you are when I read this. Then I did some rough math.
If he earned 22% per year, his investments doubled roughly every 3.5 years. Instead of having 30 years, he had 80, an extra 50 years. So his investments would double another 14 times more than if he simply started at 30 and retired at 60.
(1) $12 million (2) $24 million (3) $48 million…(6) $384 million…(10) $6 billion…(14) $98 billion (he likely only has $81 billion because of charitable giving).
So, should you forgo retirement and never spend a dime like Mr. Buffett? Absolutely not. But don’t go chasing returns by timing the market. After all, it’s time IN the market that has the biggest impact on long term results. Find an investment plan that works for you and then stick to it for a long time. As Warren Buffett’s sidekick Charlie Munger said “The first rule of compounding: Never interrupt it unnecessarily.”
Thank you for reading,
Alex
This blog post is not advice. Please read disclaimers.
[1] Housel, Morgan. “Here's the Most Overlooked Fact about How Warren Buffett Amassed His Fortune, Says Money Expert.” CNBC, CNBC, 8 Sept. 2020, www.cnbc.com/2020/09/08/billionaire-warren-buffett-most-overlooked-fact-about-how-he-got-so-rich.html.