I had written the post “The Legend of Compounding” on September 1, a couple of days after the legend Warren Buffett’s 90th Birthday. I had written about the real secret of Buffett’s wealth is Compounding.

A few days back, I read a few chapters of Morgan Housel’s book “The Psychology of Money”, where he has given Compounding and Warren Buffet’s example in a different way. Morgan says that while Buffett’s skill is investing, his secret is TIME. I cannot agree more.

He writes in the book:

“Buffett began serious investing when he was 10 years old. By the time he was 30 he had a net worth of $1 million, or $9.3 million adjusted for inflation.

What if he was a more normal person, spending his teens and 20s exploring the world and finding his passion, and by age 30 his net worth was, say, $25,000?

And let us say he still went on to earn the extraordinary annual investment returns he’s been able to generate but quit investing and retired at age 60 to play Golf and spend time with his grandkids.

What would a rough estimate of his net worth be today?

Not $84.5 billion.

$11.9 million.

99.9% less than his actual net worth.

Effectively all of Warren Buffett’s financial success can be tied to the financial base he built in his pubescent years and the longevity he maintained in his geriatric years. His skill is investing, but his secret is time. That’s how compounding works.”

Aren’t you shocked by the $11.9 million versus the $84.5 billion figure?

No matter what your investment returns are, if you do not let compounding work for you, you will not likely achieve your ENOUGH. I am not saying the goal of investing is to be a billionaire or millionaire, the goal of investing is to help you live the life you have imagined with your money or in short, to give you ENOUGH. This can never happen if you do not leave compounding alone and that is the fundamental problem with most failed investing.

Warren Buffett humbly admits “My life has been a product of compound interest.”

The choice is yours whether you want your financial life to be a product of compound interest or a product of “What’s happening in the Market, and Instant Gratification”. Do not let the cycle of Fear and Greed drive your investing outcomes; Trust compounding to do what it is supposed to do and leave it alone.

P.S. There will always be reasons for not investing or being out of the market. These reasons are your compounding’s biggest killers.

P.S.P.S. Most people do not have a sense of their investment time horizon (the essential ingredient of compounding). I will be writing an interesting one on this for you to calculate yours.