Warren Buffet is regarded as one of the best investors in the history of mankind. He achieved a CAGR of 20% for eight decades- played the game for the longest time and became the biggest winner.
As of today, Warren Buffett’s net worth is $102 billion. Of that, $84.2 billion (approx. 80%) was accumulated after his 50th birthday.
Interestingly, Jim Simons, head of hedge fund Renaissance Technologies, has compounded money at a record 66% annually since 1988 (3X Buffet’s returns). BUT Simon’s net worth is $ 24 billion only (75% less rich than Buffet). Because Simons started investing after he was 50 years old whereas Buffet started investing at the age of 10 years and he was worth $ 9.3 million by the age of 30 years. Simons had less than half as many years to compound as Buffet.
As per Buffet, “Compounding only works if you can give asset years and years to grow. It’s like planting oak trees: A year of growth will never show much progress, 10 years can make a meaningful difference, and 50 years can create something absolutely extraordinary.”
But getting and keeping that extraordinary growth requires surviving all the unpredictable ups and downs that everyone inevitably experiences over time. We can spend years trying to figure out how Buffett achieved his investment returns: how he found the best companies, the cheapest stocks, the best managers. That’s hard. Less hard but equally important is pointing out what he didn’t do.
-He didn’t get carried away with debt.
-He didn’t panic and sell during the 14 recessions he’s lived through.
-He didn’t sully his business reputation.
-He didn’t attach himself to one strategy, one world view, or one passing trend.
-He didn’t rely on others’ money.
-He didn’t burn himself out and quit or retire. He survived. Survival gave him longevity. And longevity—investing consistently from age 10 to at least age 89—is what made compounding work wonders.
We are fortunate that India has a lot of alpha-generating opportunities. One of India’s oldest midcap funds- Nippon India Growth Fund has outperformed Warren Buffet by 3% in the last 27 years. A simple SIP of Rs. 1000 in this fund would have created a corpus of Rs.1.36 cr. (against investment of Rs. 3.23 lacs only).
Happy investing!!
