On compounding and starting early

On the power of compounding:

What if Buffett got serious about investing when he was age 22 – just out of college – instead of age 10? Imagine he spends his 20s learning about investments, and his net worth at age 30 was in the still-impressive 90th percentile. Using today’s net worth percentiles and adjusting them for 1960s-era inflation, that would mean he’d be worth about $24,000 at age 30.

Now we can do some fun calculations.

If, at age 30, Buffett was worth $24,000 instead of the $1 million he actually accumulated, and went on to earn the same returns, how much would he be worth today?

$1.9 billion.

That’s 97.6% lower than his actual net worth of $81 billion.

The punchline is that 97.6% of Buffett’s current success can be directly tied to the base he built in his teens and 20s.

The whole article is a wonderful read; it’s unfair to quote just this bit.

Investor Dean Williams once wrote:

“Expertise is great, but it has a bad side effect. It tends to create an inability to accept new ideas.” Those who learned how to invest in the ‘70s and ‘80s never quite shook the idea that low inflation could persist as long as it has. Those who invested through the late ‘90s will perpetually see a bubble in anything that trades over 20 times earnings. Anyone under age 25 will have an easier time seeing the potential of blockchain than those over age 55. Same was true for the internet 30 years ago.”