> Buffet's is a success story not of compounding but of leverage

These are not mutually exclusive. Anyway, more on the latter:

"Berkshire’s more anomalous cost of leverage, however, is due to its insurance float. Collecting insurance premia up front and later paying a diversified set of claims is like taking a 'loan.' Table 3 shows that the estimated average annual cost of Berkshire’s insurance float is only 2.2%, more than 3 percentage points below the average T-bill rate.

...

In essence, we find that the secret to Buffett’s success is his preference for cheap, safe, high-quality stocks combined with his consistent use of leverage to magnify returns while surviving the inevitable large absolute and relative drawdowns this entails. Indeed, we find that stocks with the characteristics favored by Buffett have done well in general, that Buffett applies about 1.6-to-1 leverage financed partly using insurance float with a low financing rate, and that leveraging safe stocks can largely explain Buffett’s performance."

http://docs.lhpedersen.com/BuffettsAlpha.pdf

First of all, thanks for that quote and link. I learned something new and interesting.

But my point about leverage was that Buffet could raise as much money as he believes he can put to good use and since he earns fees as well as interest losing a few years wouldn't mean as much as the article claims, the thing about the specific leverage trick he is famous for is just an anecdote and my point doesn't depend on it... I think?

Upvoted. Learned a lot from this, thank you.

So if I understand you, you're saying that the $24,000-at-30 Buffet wouldn't have the leverage required to make the same percentage returns he did in real life?

Doesn't that just provide more support for the author's thesis?

No, I'm saying a person of Buffet's talent could find his way to leverage his bets as much as the bets support being leveraged.

In our world there are many people who want him to take their money and he did until he felt he couldn't use any more and then he stopped taking more money, and I am saying in the hypothetical world where he would be worth $24k at 30, by 60 there would be many people who want him to take their money and he would take as much as he think he can put to good use and then stop taking new money, and he would be worth about the same.

Of course, this is a bit of an exaggeration. There is some luck involved, both in the sense of his decisions playing out well and in the sense of him managing to put himself in positions where his personal investment skill is measured and recorded so he can later use it to attract investors in his own fund.

Also, at 20 you can take chances that you might not be able to afford at 30, by which time you may be starting a family, etc' etc'.

But I'm saying that Buffet, Simmons, all these consistently successful investors - their net worth is uncorrelated to how much money they were worth in the year when they started their fund, because there's always more people wanting to throw money at them than they could use, and they make money from fees as well as compound interest so they can play catch up to their millionaire-at-30-counterfactual-self pretty quickly.

And while "compound interest is a strong force of nature" is a very correct claim, all exponential growth processes I've seen in nature eventually flatten, so you shouldn't look at the world purely from that perspective. Buffet succeeded mostly because he is extremely talented and had some luck. Bezos succeeded mostly because he is extremely talented and had some luck. Antibiotics succeeded mostly because they save lives a lot. Radar, assembly lines, jets, rockets.

I mean, I've served as an engineer in a military force at a time of emergency. I've seen how much of a boost there is to inventiveness and getting things done when everyone starts thinking about winning instead of not being sued/etc'. I think our unit did about a year's worth of work in every week of a state of emergency. But we still would have gotten that work done.

I guess I'm saying I fully agree with the post's moral but strongly disagree with everything the author said to justify it. Maybe I should be more charitable.

So if you're arguing that $24,000 Buffet could have caught up to $1,000,000 Buffet, it seems like you're implying that $1,000,000 Buffet could have made more money from "people wanting to throw money at them", or that there's some natural limit to wealth that Buffet would have hit in either timeline.

Even in this case, isn't the author's thesis still valid? Don't focus on what the already successful person is doing right now, focus on what they did when they were in your position - i.e. young and scrappy.

Was that the author's thesis? That's not what I got from the article tbh.

"[...] it seems like you're implying [...] that there's some natural limit to wealth that Buffet would have hit in either timeline."

Yes, that's the implication. People give him more money as long as he can produce excess returns. At some point, he can no longer produce excess returns. That point is (theoretically) independent of his starting position - his knowledge/skills/luck allow him to invest, say, $100B successfully, but no more. So the reason he doesn't manage more isn't that he started with less, it's that this is the actual limit of his abilities.

(That's what parent is saying, I'm not 100% sure of this because I'm not 100% of how this plays out in a public company, etc. He's not a typical hedge-fund manager. But parent is probably pretty close to right).

As I said, I fully agree with the author's thesis, just not at all with the way he made his case.

Investing is about compounding almost by definition. You take X dollars, get a return of Y%, and now you have ((1+Y%) * X) dollars.

It's true that Buffet did use insurance float. That basically became his principal, which he then compounded through investing.

Investing is about compounding. Running an investment fund is about compounding and fees, and the limiting number is how much money your strategy can put to good use.