Compound Interest: Warren Buffett’s Secret to Growing His Wealth 200X

It was the year 1986.

The stock market was soaring while interest rates were dropping, and investment legend Warren Buffett was hitting a milestone … a net worth of $1 billion.

He was 56 years old.

Today, nearly four decades later, the Oracle of Omaha has grown his net worth 100-fold … to $106 billion, making him the world’s 5th-wealthiest person.

But that’s only half correct.

Because that’s after donating over $111 billion of Berkshire Hathaway’s stock. If you add up what he gave away, his net worth would be closer to $217 billion.

A 200X increase.

That would make Buffett the world’s wealthiest person, leaving French businessman Bernard Arnault and his $211 billion net worth in the dust.

Think about that.

More than 99% of Buffett’s wealth came after reaching the age of 56.

If you look at his net worth by age, the $1 billion mark has become a blip today.

For most 56-year-olds, hitting a $1 billion net worth is a massive accomplishment. We may think that such a person may eventually be worth $2 billion, or $3 billion … perhaps $5 billion, tops.

But $217 billion?

A 200X gain?

One would never expect that!

But Buffett achieved it.

What’s his secret?

A lot of it comes down to what Albert Einstein has been credited with calling the “Eighth wonder of the world” … compound interest.

Buffett calls compound interest … “the snowball.”

As Buffett says: “The important thing is finding wet snow and a really long hill.”

The “wet snow” represents excellent investments that can beat the market. The “really long hill” is the time needed for incredible outperformance.

Just as a snowball rolling down the hill should pick up more snow and get larger, investing in the right assets over time should create a fortune.

But Aaron, I don’t have that much time!

Folks, if Buffett grew his wealth 200X after his 56th birthday, you may have more time than you think.

The question is … do you have the patience and discipline?

More on that in a moment.

First, let’s use a simple analogy to help unpack…

The True Power of Compound Interest

Let’s pretend that a long-lost relative has passed away, and for an inheritance, you have a choice.

The first option is a flat $1 million.

Or, you can have a magic penny that will double in value every day for 30 days.

At first, the $1 million sounds like the better deal. After all, on day 1, the penny is just a penny.

But take a look at how quickly it grows and eventually becomes the better deal.

On day 2, you have $0.02.

On day 3, $0.04.

On day 7, the penny doubles just enough to come to the tidy sum of $0.64. Not even a buck!

By the end of the second week, day 14, you have $81.92.

On day 21, you’re up to $10,485.76, just over 10% of the way to $1 million.

On day 28, thankfully, you hit that million with $1,342,177.28.

Two days later, you hit day 30. You have $5,368,709.12.

In total, starting with a penny ended up being 5.3 times better than taking the lump of $1 million.

The above chart looks strikingly similar to the growth of Warren Buffett’s net worth, doesn’t it? That’s because Buffett has mastered the art of compounding.

In this example, doubling every day, even from a small amount, is an extreme one.

I bring all of this up because many who are over 56 think that their biggest wealth-building days are behind them.

But what if the biggest wealth-building days are in front of them?

Sure, you may not have $1 billion.

But, if Buffett can turn $1 billion into $217 billion, perhaps one can turn $250,000 into $5.4 million.

However, there is one other thing to consider.

The “wet snow.”

Warren Buffett didn’t just toss his money in the S&P 500, which has averaged about 10% returns a year.

His Berkshire Hathaway investments have earned an average annual return of about 20% over the last 56 years.

Compounding at twice the rate of the stock market is the other reason why Buffett’s net worth has continued to grow at such an incredible rate.

The question for us, then, is how is Buffett able to get twice the return of the stock market?

Buffett’s Strategy (20% a Year) vs. the Average American (2.6% a Year)

Buffett once quipped: “Risk comes from not knowing what you’re doing.”

It’s pretty risky to wing it in financial markets. But that’s what most investors do.

When the market is soaring, the ordinary investor hears his lame brother-in-law bragging about how much money he is making from the Magnificent 7. And so they get FOMO (the fear of missing out), and jump into the market right as it’s peaking.

Alternatively, when stocks are selling off, people panic and go to cash at the worst time.

That’s why, according to Forbes, the average investor earns a mere 2.6% a year!!!

That’s way below what a person gets if they just stick their money in an S&P 500 index fund and ride out the bull markets and the bear markets — achieving a 10% annual return.

And that is a far cry from the 20% Buffett achieves.

So, half the battle is emotional discipline.

But how does Buffett get a 20% return twice that of the stock market?

How did he 200X his wealth after his 56th birthday?

Well, Buffett times the market.

Not in the same way a day trader might time the market, but … he does time the market.

You’ve heard Buffett state: “Be fearful when others are greedy, and greedy when others are fearful.”

So he sells (gets fearful) when a stock gets too high.

And invests (gets greedy) when a stock is too low.

Now, if you follow Buffett, you know that he doesn’t sell a whole lot. When he owns a great company, he hangs on to it.

But he recently sold 32% of his shares in Paramount Global (Nasdaq: PARA), 77% of his shares in HP (NYSE: HPQ) and 100% of his shares in D.R. Horton (NYSE: DHI).

Those may be stocks you want to avoid.

But what is Buffett buying?

One thing you will notice about Buffett is that he is very patient. He will sit on billions of dollars, year after year, waiting for the right time to buy.

That’s what he did after the 2008 crisis, for example. Buffett was able to get some sweetheart deals lending money to banks like Bank of America (NYSE: BAC) and Goldman Sachs (NYSE: GS).

Going further back, we can see this timing at play with other positions. Buffett started buying his massive stake in Coca-Cola (NYSE: KO) after the crash of 1987.

And Buffett made his earliest big win by buying shares of American Express (NYSE: AXP) in the 1960s as a corporate scandal hit shares hard.

He sits in cash, and when the time is right, he buys and buys big.

“When it rains gold, put out a bucket, not a thimble,” he says.

This past weekend, Buffett released his annual letter to investors.

In it, he revealed that Berkshire Hathaway is sitting on a record amount of cash … $167 billion … because there “remains only a handful of companies in this country capable of truly moving the needle at Berkshire.”

He doesn’t see a whole lot of deals in the market.

Except for one sector: Energy.

He’s putting out “a bucket” in this market by buying up shares of one company: Occidental Petroleum (NYSE: OXY).

He’s been a steady buyer since 2022, accumulating 28% of the shares — 243 million shares, to be exact, worth approximately $15 billion.

And he’s got permission to buy half the company.

Want to know something crazy?

Charles Mizrahi recommended buying Occidental in his Alpha Investor newsletter a few months before Buffett started acquiring shares.

In April of 2022.

We are up on that position, and Charles thinks this company has a strong future.

Charles sees it doing as well as some of his other top winners, which are up 126%, 227%, 240%, 266% and even 564% over the last few years.

By the way, Charles’ average annual gain over the last four years is 19.54%, right there with Warren Buffett. (Well, technically beating Buffett during this same period.)

If you want these types of returns, I highly suggest you check out Charles Mizrahi’s Alpha Investor service.

There are two easy to do this:

Go here to watch a video about a new oil investing opportunity that Charles has been watching. Or, if you prefer to go directly to our order page, go here.

But If You Want Even Bigger Gains, the Opportunity to Score 1,000% Winners…

In the 1950s, Warren Buffett made much, much higher returns (over 30% a year).

He did it by investing in a niche market … one that he is no longer able to invest in because he has too much money (poor guy, right?).

And that drives him a bit crazy.

Buffett has stated that if he could tap into this market, “I think I could make you 50% a year on $1 million. No, I know I could. I guarantee that.”

50% a year is incredible.

What market is that?

It’s a group of companies we call “OMEGA stocks.”

Thankfully, here at Banyan Hill, we have Charles Mizrahi. He’s the expert who can help YOU tap into these OMEGA stocks and aim for 50% annual returns.

On Wednesday, at 1 p.m. ET, he’ll reveal everything in a special presentation.

Charles will show you how these OMEGA stocks have gained as much as 1,000% in a year, but … most investors don’t even know these stocks exist.

You can attend this event for free.

But you must register today!

Simply go here to see all the details on these OMEGA stocks.

Aaron James

CEO, Banyan Hill, Money & Markets