Wednesday, April 6, 2022

99% of Buffett's Wealth Came After Age 56

In a meeting with Warren Buffett, Jeff Bezos asked him: 

"Your investment thesis is so simple. You’re one of the richest guys in the world and it’s so simple. Why doesn’t everyone just copy you?”

Warren Buffett responded by saying:

“Because nobody wants to get rich slowly.”

The power of compounding is truly visible with Warren Buffett. He first became a billionaire at the age of 56 in 1986. This reflects his approach of getting rich slowly and enjoying the journey, rather than the destination. In his words, Buffett has been "Tap Dancing to Work" for decades.

Today, his net worth is about $125 billion at the age of 91. And that’s after he donated tens of billions of stock to charity. You can see that due to compounding, over 99% of his net worth was built after the age of 56.

He was able to achieve this by compounding his investments at a high rate of return for a long period of time. This is what makes him the best investor in the world.

We also need to note that since 2006, Buffett has donated shares to charity. While these shares were worth $41 billion at the time of donation, they have appreciated mightily since then. 

In June of 2006, he owned 474,998 “A” shares. Now, he owns 238,624 shares, worth about $100 billion. (source)

If Buffett had not donated any shares, his net worth would have been $250 billion today. Instead, it is about $125 billion.

Most of these shares are destined for philanthropy. Buffett will donate 99% of his net worth to charitable causes. This is admirable, and it is great that he will see some benefit of his donations during his lifetime. However, it is a very high tradeoff between donating money today, versus donating more money in the future.

The power of compound interest is definitely a magnificent force. If we assume a total return of 10%/year, each dollar I put to work today could turn into $117 in 50 years. In reality, due to the power of compounding, the upside is virtually unlimited, while the downside is capped to the amount invested. The investor just needs to be patient, and select investments that have a long runway and can compound at a high rate of return for decades. This is where focusing on companies with wide moats definitely helps. In my opinion, the list of Dividend Aristocrats is a good starting place to identify good long-term investments that can compound wealth for long periods of time.

I like researching different stories and viewpoints, and then trying to take the best lessons that apply in my situation. Ultimately, you are successful if you do something you enjoy and you do it for a long period of time. When you compound at a high rate of return for a long period of time, you end up with massive outcomes in your favor. This concept goes for money, knowledge, relationships, health.

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