How is it possible that Warren Buffett and other investors can make billions?

[Guest]

Albert Einstein once said:

Compound interest is the eighth wonder of the world. He who understands it, earns it ... he who doesn't ... pays it.

Warren Buffett understood it. It's how he built his fortune. He produced consistently great returns for a long period of time while spending very little. He made his money work for him.

 

As you can see, his average return over 50 years is 21.6%. If you add in expenses and taxes, that return falls just a bit. But, because Buffett is very frugal, he's kept that number high - about 20%.

Compounded, that's

a 1.20^50 -1 = 909940% return.

So, if Buffett started off with $1,000,000.00 in 1965, he would have $91B in 2015. However, if you add in his donations and personal taxes, that number falls to his current net worth of $66.7B.