This is How Compounding works - MUST WATCH | Mohnish Pabrai | Stocks | Investment

Mohnish Pabrai emphasizes that compounding is the magic of investing, where wealth snowballs over time through the reinvestment of returns. He illustrates how even modest annual returns can lead to substantial wealth accumulation over long periods. Pabrai advocates for patience and discipline, highlighting the power of staying invested and allowing compounding to work its wonders.

Renowned investor Mohnish Pabrai emphasizes the profound impact of compounding in the stock market. According to Pabrai, compounding is not just a mathematical concept but a powerful force that can significantly amplify wealth over time. He advocates for a patient and disciplined approach, focusing on businesses with enduring competitive advantages to harness the full potential of compounding in stock market investments.

What is Compounding? Compounding in Stock Market

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[CaedenV]

I came here to knock the video due to the thumbnail... But yeah, the math here is sound. I mean, the idea of stock picking for a 2-3x return is a bit of an unrealistic expectation every year, and will probably even out with loosing picks to bring the average back in line... But outside of that, this video is spot on.
My kids are just starting to hit those middleschool years, and I am trying to lay that foundation of understanding and expectations that when they do start working, to start investing aggressively and early. They may not want to live with mom and dad forever, but as long as they are aggressive savers and building wealth, then they are more than welcome to live with us as long as they want. We are even considering doing at least a partial "match" for their Roth when they start working to help them put their money towards other things that they need as a young adult (like a car, furnature fund, future house down payment, etc).

Because at a young age, maxing out your Roth nearly guarantees that you have half a million dollars by retirement. Do that for 4-5 years and you should have an easy $2M by retirement age. Even with inflation, that is enough safety net so that they can have a basic retirement safety net in place. $2M won't be crazy money in 60 years when they retire, but it will be enough to put a roof over their head, keep the lights on, and keep food on the table. As long as they continue investing, even a little bit, then they will have an awesome life ahead of them.

This last year I turned 40... And man did I get a late start lol. I did get into a house early, but I had a ton of debt early on, and wasn't in a career with any kind of retirement plan options, so I didn't really start saving until 35... But as we paid off debts we saved extremely aggressively to make up for lost time. In the last 5 years, through a lot of hard work and sacrifice, we have made up for the last 15 years of not investing.
The temptation is to say we are caught up, and to enjoy our income now that we are caught up to where we ought to be... But we still have 20-25 years of compounding ahead of us. Continuing to sacrifice and save aggressively for another 5 years should put us in a place where we hit critical mass. It is the point where even if we stopped investing, it should compound the rest of the way to our goal for our current lifestyle. We can then step waaaay back and either work a lot less to maintain our current lifestyle and not worry about retirement investing for 20 years. Or we can keep working hard, save only 10%, and continue growing retirement to the expanded lifestyle target. Both of those options sound amazing to me! So we continue with the sacrifice.
The one thing I wonder though is the goal of building wealth significantly beyond needs. I mean, if I have $2.5M in retirement then I'll never run out with my current lifestyle, even when accounting for inflation, and not factoring in any kind of social security. If we continued to save like crazy, I kind of fail to see the point. I could potentially hit $10M if I really tried... But... Why? My goal with money is security and safety. Accumulating significantly beyond that doesn't provide more security (security theater maybe), so all things equal I would rather spend that money on making my world a better place. Money for it's own sake is fine if you genuinely enjoy the game of it. But most of us have other goals.

[MonaMarieKafoury]

There is obviously a compounding effect in the very long term for large capital, but is not "automatic", and with the wrong strategies you can even lose more than you have.I'm still looking for companies to make additions to my $350K portfolio, to boost performance. Here for ideas...

[Benedictrud]

Purchasing a stock may seem straightforward, but selecting the correct stock without a proven strategy can be exceedingly challenging. I've been working on expanding my $210K portfolio for a while, and my primary obstacle is the lack of clear entry and exit strategies. Any advice on this matter would be greatly appreciated.

[michaeldavid]

It's a common misconception that when a stock you buy skyrockets, the smart thing to do is sell it (or at least sell some of it) to lock in your profits. But the context matters. If the stock has increased sharply because the business is performing exceptionally well, it could still be a bargain. I'm still looking for companies to make additions to my $350K portfolio, to boost performance. Here for ideas...

[CameronFussner]

Biggest lesson i learnt in 2023 in the stock market is that nobody knows what is going to happen next, so practice some humility and follow a strategy with a long term edge.

[JefferyDuns]

Most people either do not understand the power of compound interest, or are just impatient. For the average Joe, however, I think it is just best to invest in the S&P 500, and just wait, which is reliable, albeit extremely long-- lots of years.

[avaisabella-nb]

I feel investors should be focusing on under-the-radar stocks, and considering the current rollercoaster nature of the stock market, Because 35% of my $270k portfolio comprises of plummeting stocks which were once revered and i don't know where to go here out of devastation.

[Jakekhalid]

Recently, I've been pondering retirement. I've also want to put $300K into the stock market but i need an approach that will align with my risk tolerance and financial goals to secure our future..

[JorgeVazquezT.]

With markets tumbling, inflation soaring, the Fed imposing large interest-rate hike, while treasury yields are rising rapidly, which means more red ink for portfolios this second quarter of the year. How can I profit from the current volatile market? I'm still at a crossroads deciding if to liquidate my stock portfolio.

[danielguide]

With that in mind, I want to start shifting my portfolio among various equities and other digital currencies. I am aware that the second quarter has a lot of potential. I'm considering sharing my about $300, 000 portfolio spread across several asset types. Any suggestions?

[cyrilmilton]

Thanks for the video. I finally established a way to increase my net income per month.
My 2024 goal is to pay off the house by Sept 2024 (8 years total into a 30 year @ 4%). I have no debt other than mortgage. My 401k, HSA, IRA and emergency funds get maxed out. The mortgage is my last piece of debt left. I don't have any school loan or CC debt. I've made a lot of sacrifices over the years.

[MiquelMorterero]

I just sold a property in Portland and I'm thinking to put the cash in stocks, I know everyone is saying its ripe enough, but Is this a good time to buy stocks? How long until a full recovery? How are other people in the same market raking in over $450k gains with months, I'm really just confused at this point.

[GarridoLuis]

It's a common misconception that when a stock you buy skyrockets, the smart thing to do is sell it (or at least sell some of it) to lock in your profits. But the context matters. If the stock has increased sharply because the business is performing exceptionally well, it could still be a bargain. I'm still looking for companies to make additions to my $350K portfolio, to boost performance. Here for ideas

[Riggsnic_co]

The market's direction can swiftly change, with indexes frequently transitioning from a bear market to a bull market precisely when the news is most negative and investor sentiment reaches its lowest point.

[Baldwin]

80% stocks 20% cash. I plan to take advantage of the s&p 500 as leading indicators predict above 10% rise by this year, my only issue is how to properly allocate a large stock/bond 5m portfolio for substantial gains at minimum risk of inflation.

[judynewsom]

I was told to put the roughly $250, 000 in cash savings I currently have into stocks. Which long-term investing techniques should I employ to safeguard my future finances?

[kortyEdna]

I was advised to diversify my portfolio among several assets such as stocks and bonds since this can protect my inherited portfolio of about $2.5m. I’m used to just buying and holding assets which doesn’t seem applicable to the current rollercoaster market plus inflation is catching up with my portfolio. I’m really worried about survival after retirement.

[darnellcapriccioso]

Minus the increasing wealth gap, it's sad how difficult things have become in the present generation. I was wondering how to utilise some money I had. I used some of it for e-commerce business, but that sank. I'm thinking of how to use what's left to invest, but I don't really know which way to go.

[Luissierra]

As always, a great analysis. Newcomers often wonder if it's too late to navigate the financial market, but the market is always unpredictable. Trading has more advantages than simply holding, so it's important to learn before diving in. Active trades are necessary to ride the market's waves. Thanks to James Walter’s insights, daily trade signals, and my dedication to learning, I've been increasing my daily earnings. Kudos to the journey ahead!

[Emily-leop]

Opinions diverge; some claim overvaluation due to rapid gains, while others cite strong economic fundamentals justifying high valuations. Raises concern for my $600K equities going 8% up and 20% down. Should i hold on or sell off my positions and hold cash?.