Right Here Waiting
To lose patience is to lose the battle.
— Mahatma Gandhi
Everyone knows about Warren Buffett and probably you do too. At 92 years old, the Chairman of Berkshire Hathaway and feted investor has accumulated decades of quotable quotes and insights that he frequently dishes out to the shareholders and general public. In fact over the years businessmen, keen investors and just about anyone who wants to delve a little deeper into the mind of the legend have paid mind-boggling sums just to have a private lunch with him. The latest bidder paid a record breaking S$26.5M sum just this year.
There are hundreds of books written about Mr Buffett and not one of them was an autobiography or written by him. Almost all the books are dedicated to how he invested, how he built his business, what his insights are for budding entrepreneurs. In fact the top recommended (and best selling) books about him are as follows:
The Warren Buffett Way - which details his investing insights.
The Essays of Warren Buffett: Lessons for Corporate America - anecdotes from his decades of shareholder letters.
Dear Mr. Buffett: What an Investor Learns 1,269 Miles from Wall Street - details of his value investing philosophy.
The Snowball: Warren Buffett and the Business of Life - which is a biography of the man himself.
These are great books and great insights but they all miss or don’t emphasise one of the simplest facts of his success. At the time of writing, his estimated net worth is around US$91B. Of that, US$90B was accumulated after his 55th birthday. Nearly US$75B was generated after he turned 65 years old (or the age where many in Singapore start to receive their CPF payouts).
Warren Buffett was an excellent investor, but if all you’re trying to do is to mimic his investment process, then you are missing the forest for the trees. The real key to his success was that he stayed in the markets for over 75 years. He started investing in his teens, made his first $100,000 in his mid-twenties and his first $1M when he was 30. The chart below shows the immense power of compounding in his later years. We have also written about how compounding made a humble janitor a multi-millionaire.
So consider a simple thought experiment. Assume he was still a great investor who managed to make 22% per annum over the years and he started investing at 30 years old with his $1M. Eventually he retired at 60, to play some golf, spend time with his grandkids and travelled the world. He still would have amassed a tidy sum of over $200M (although the chart barely registers it). A very decent amount, mind you. But he definitely wouldn’t be as famous as he is today - he would be “just some other wealthy fund manager”.
So the fact that compounding really comes into effect over a long period cannot be emphasised enough. Another simple experiment is shown below; two siblings, Andy and Ariel have $100,000 which they split into 10 parts and invest each part ($10,000) a year at a return of 10% p.a. Andy starts at 20 years old and Ariel starts at 30 years old. When they look at their investment at 60 years old, Andy has nearly 3 times what Ariel has. If you stretch it further for another 10 to 20 years, the compounding effect really comes into play - multiplying Andy’s wealth significantly.
So now you’re thinking - “Great insights guys, but it’s really too late for me”. It isn’t. You can help your children, and your grandchildren kickstart this process early. Help your nephews or nieces learn about this simple trick to build their wealth and keep it for multiple generations. There is no need to buy crypto, trade forex or buy some hot new growth company. There is no need to read all the investing books in the library, nor attend every investing lecture or course you can find.
All you need to do, is to put your money into excellent globally diversified assets and let it sit there for years. If you don’t have as many years as Buffett did, then you can help the next generation in your family. If you worry about how they are going to manage it, you can put it into a managed trust for them to allow it to compound over the years for them to reap the benefits of it. We all can build wealth like Warren Buffett did, we just need to have the patience.
If you want to find out how trusts can help you spread your wealth and assets over multiple generations, and to help to carry out your wishes long after you are gone, come and have a chat with us.
