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Snowball Effect - Views on News from Equitymaster

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Snowball Effect
Jan 15, 2018

At nine, he sold gum and Coke.

At ten, he sold peanuts at football games.

At eleven, he had saved US$ 120 - about US$ 2,000 to US$ 4,000 in today's worth.

At twelve, he delivered newspapers and sold subscriptions - earning US$ 175 a month, more than most of his teachers did at that time.

Buffett started early. And realized the importance of compounding as soon as he came across a copy of the book One Thousand Ways to Make $1,000, at a local library, at the tender age of eleven. On devouring F.C. Minaker's plucky and practical business advice, Buffett declared that he would be a millionaire by the time he was 35. The power of compounding, in fact, turned him into a millionaire well before he turned 35.

But it's not his first thousand or million dollars that made Buffett the legend that he is. Rather, starting early and having a long runway (read age) enabled him to compound his wealth.

Like he said many years later...

Life is like a snowball. The important thing is finding wet snow and a really long hill.

Now, there are very few listed companies that put into practice the discipline of compounding shareholder wealth early in their lifecycle. Most are busy raising capital, spending, growing and diversifying for many many years.

And as a result, their shareholders hardly ever enjoy the benefits of snowballing wealth.

But the companies that have focused on growing shareholder wealth consistently, should be on the bucket list of every Buffett-like value investor.

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