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Compounding should be slow
The cost of starting big
Launching a fund with $100 million on day one would have cost one private equity founder all of it. He needed about a decade of getting beaten up, learning and failing through years of misery and heartache, before he was ready to take on outside capital.
Others who try
Every month, people come to him wanting to do the same thing: raise fifty or a hundred million dollars with no experience buying a business or doing a deal. They may well be smarter than he is, and it might all work out. For him, it would have meant losing all the capital and having a completely different career.
What slow built
Grinding with little capital for a long time gave him the skills, the systems, and the realizations behind the firm he runs today. For anyone with an unconventional idea, it comes down to duration: how patient can they be, and do they really need to build everything all at once?
How did Buffett's first partnership begin?
In 1956, Warren Buffett launched an investment partnership in Omaha, Nebraska, with seven limited partners and about $105,000. The partnerships grew over thirteen years before he closed them in 1969. Berkshire Hathaway, which he began controlling in 1965, later became his main investment vehicle.
How does compounding reward patience?
A rule of thumb called the rule of 72 estimates how long money takes to double by dividing 72 by the annual growth rate. At 8 percent, doubling takes about nine years, and a second doubling takes another nine. The gains in the later stretch are much larger in absolute terms than those in the early years. Albert Einstein is often quoted calling compound interest the eighth wonder of the world, though no record shows he said it.
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