The Power of Compounding

Disruptive Companies for 2021, Staying Humble and The Wedding Singer

Hey Friends,

One of the best books I read in 2020 was the Psychology of Money by Morgan Housel.

In it, he brilliantly illustrates the power of compounding by sharing the story of Warren Buffet.

Most people think he’s the greatest investor of all-time. But, there have been other investors like Jim Simons of Renaissance Technologies who have consistently achieved greater rates of return.

The difference between Buffet and everyone else is how long he’s been in the game.

Buffet’s fortune isn’t due to just being a good investor, but being a good investor since he was literally a child. As I write this Warren Buffet’s net worth is $84.5 billion. Of that, $84.2 billion was accumulated after his 50th birthday. $81.5 billion came after he qualified for social security in his mid-60s. - Morgan Housel

Buffet started investing when he was 10 years old.

What if he was more like the average Joe?

Let’s assume that instead of investing, he played lots of videogames during his teen years and spent the bulk of his 20’s trying to figure out what to do with his life. Then, at the ripe age of 30, he had a modest net worth of $25,000 and began investing until he retired at 60.

Let’s also assume he could generate the same legendary annual return rate of 22% throughout this period.

What would his net worth be today?

Not $84.5 billion.

Not $1 billion. Nope. Not even $100 million.

$11.9 million. That’s not a typo.

The difference between $84.5 billion and $11.9 billion comes down to Buffet’s massive time horizon.

His skill is investing, but his secret is time. That’s how compounding works. - Morgan Housel

Keep this story in mind as you kick-off 2021. Don’t get distracted by shortcuts and get-rich-quick schemes.

Anything worthwhile takes time to build.

One of my favorite quotes from 2020 comes from David Goggins—If you haven’t read his book Can’t Hurt Me, I highly recommend it.

Don’t focus on what you think you deserve.

Take aim at what you’re willing to earn.

A great way to approach 2021.

Other things I’m thinking about:

  • Richard Chu achieved a 210% return on his portfolio in 2020. He primarily invests in high-growth tech companies and recently shared his top pick for 2021. The company is called Teladoc, and it’s reshaping healthcare. You can dig into his full analysis here: Teladoc: Reshaping Healthcare.

  • An excerpt from his article:

The Teladoc - Livongo merger has created the singular global, consumer-centered virtual care platform. Together, they have formed the dominant category leader with a massive $121 billion TAM, incredible optionality with the resources and vision to outbid everyone else, and a wide moat and unmatched value proposition.

Many of the most successful companies in the world began in niches and leveraged their competitive advantages to expand into adjacent markets: Amazon with books, Tesla with luxury cars, and Teladoc and Livongo are no exception, initially tackling urgent care and diabetes respectively with an unwavering commitment to delivering a superior consumer experience. Now, both are capable of becoming the driving force behind the adoption of virtual care and new payment models, creating a better health system at a time when the industry is ripe for disruption. It’s a company that I not only like as an investment but am excited about as a healthcare consumer.

  • Some of the other companies I’m very excited about that are disrupting old antiquated industries include:

    1. Lemonade and MetroMile: Disrupting Insurance.

    2. Opendoor: Disrupting Homebuying.

    3. DraftKings: Sportsbetting.

    4. Peloton: Fitness.

The Wedding Singer

I know I’m getting older because I constantly catch myself saying things like, “why can’t they make good movies like X anymore?”

I remember making fun of my parents for making similar comments about movies and music back in the day, yet here I am.

My fiancé and I were revisiting some classic romantic comedies recently, and this scene from the Wedding Singer gave me a thunderous belly laugh:

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