Page 56 - Morgan Housel - The Psychology of Money_ Timeless Lessons on Wealth, Greed, and Happiness-Harriman House Limited (2020)

And let’s say he still went on to earn the extraordinary annual investment
returns he’s been able to generate (22% annually), but quit investing and
COBACOBA
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.

Think of this another way. Buffett is the richest investor of all time. But he’s
not actually the greatest—at least not when measured by average annual
returns.

Jim Simons, head of the hedge fund Renaissance Technologies, has
compounded money at 66% annually since 1988. No one comes close to
this record. As we just saw, Buffett has compounded at roughly 22%

annually, a third as much.

Simons’ net worth, as I write, is $21 billion. He is—and I know how
ridiculous this sounds given the numbers we’re dealing with—75% less rich
than Buffett.

Why the difference, if Simons is such a better investor? Because Simons
did not find his investment stride until he was 50 years old. He’s had less
than half as many years to compound as Buffett. If James Simons had

earned his 66% annual returns for the 70-year span Buffett has built his
wealth he would be worth—please hold your breath—sixty-three quintillion
nine hundred quadrillion seven hundred eighty-one trillion seven hundred