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The Psychology of Money

Timeless lessons on wealth, greed and happiness

By Morgan Housel


Lesson #4 - Confounding compounding

$81.5 billion of Warren Buffett’s $84.5 billion net worth came after his 65th birthday. Our minds are not built to handle such absurdities.

“The big takeaway from ice ages is that you don’t need tremendous force to create tremendous results.”

“Effectively all of Warren Buffet’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.”

“Good investing isn’t necessarily about earning the highest returns, because the highest returns tend to be one-off hits that can’t be repeated. It’s about earning pretty good returns that you can stick with and which can be repeated for the longest period of time. That’s when compounding runs wild.”