Warren Buffet's Secret - The Power of Compounding


Understanding both the power of compound return and the difficulty of getting it is the heart and soul of understanding a lot of things – Charlie Munger

Compounding is one of the wonders of the world and Warren Buffet has used it to dramatic effect in getting the value of his investments to grow at spectacular rates. It is probably his greatest secret and the one that eludes the majority of students of Buffettelogy.

Warrant believes that compounding is the secret to getting really rich. Here’s how compounding can make you rich. Shown below is what 100,0000 would be worth in ten, twenty, and thirty years if allowed to compound tax-free at an annual rate of 10,15,20%.



The difference that just a few percentage points can make over a long period of time is astonishing. Your 100,000 compounding at an annual rate of return of 15% a year for 30 years will grow to 6,621,177.

Go from 15% to 20% and you will find that 1,00,000 will grow to 2,37,37,631 - Yes! 23 Million. It’s amazing, isn’t it? A difference of just 5 to 10 percentage points can have a tremendous effect on your total gains.

The point is very simple. Over longer time frames, the impact of compounding gets more visible. And that is why investment experts say "Invest for the long term".

6 comments:

  1. That was a very nice information. Though it looks easy, it is difficult to achieve that sort of returns.

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  2. Everybody knows that compounding interest is very powerful. Then, how come we are not all millionaires?

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  3. Though everyone knows compound interest is very powerful, the hard part is to accept it and implement it :)

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  4. Jonathan AkowienMay 02, 2010

    compound interest is powerful i have seen it and experience it as an investor.but one key thing that kills investors is patience to wait for your conditions to be in place,i have learnt from warren buffet he takes time to analyze and wait for the right time to invest his money.most investors want the get rich quick method of making money.

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  5. Yes Jonathan, everyone wants make quick money , which isn't possible.Patience pays.

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  6. Thanks for the wonderful insight!

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