Succeed in Stocks Even if you Don't Know Where to Start

🎓 Course Title: Succeed in Stocks Even if you Don't Know Where to Start

Headline: How an Illiterate 18-Year-Old McDonald’s Cook Becomes a Millionaire in 50 Years! 🚀

Introduction: I recently interviewed one of the three most influential value investors in the world. The first two are well-known figures: Warren Buffett and Charlie Munger. The third, Mohnish Pabrai, draws wisdom from both and shares a story that highlights the power of long-term investing and compounding.

The Librarian's Legacy: Mohnish Pabrai recounted the tale of a librarian who passed away in 2015 with an estate valued at $4 million. This generous individual donated their fortune to the University of New Hampshire. The story serves as a testament that anyone, regardless of their starting point, can achieve financial success through savvy investing.

The Young Investor's Journey: Imagine an 18-year-old with minimal skills who lands a job at McDonald’s earning the minimum wage of $15,000 per year. Living at home and contributing 90% of their income to the household, they can still save a significant amount by setting aside just 10%. That's $1,500 each year before taxes—a conservative estimate that doesn't even factor in employer matching.

The Magic of Compounding: With an investment return of 9%, this young person's savings would double every 8 years due to the rule of 72. By the time they retire at 68, their initial $1,500 would have grown into a substantial $75,000, even without considering the power of tax-advantaged accounts like Roth IRAs or employer-sponsored 401(k)s.

A Realistic Outlook: Using a calculator from Bankrate, we can see that this scenario results in a retirement account well into the six figures. The figure? A whopping $1,332,662! This is a realistic outcome for someone starting with modest means and investing consistently over half a century.

Investment Insights from Experts: Respected investment textbooks like “Essentials of Investments” by Bodie, Kane, and Marcus outline historical returns that far exceed the 9% we've been discussing. Over a century from 1920 to 2010, small U.S. stocks returned an impressive 11.80%, large U.S. stocks returned 9.62%, and world stocks yielded 9.21%. These are the geometric mean returns investors could expect.

The Power of Higher Returns: By investing in a simple ETF like the Diamond - S&P Dow Jones Industrial Average (DIA), our 18-year-old could have captured an even higher return of 9.62% over that period. This would have resulted in a portfolio worth $12,450,561—nearly ten times more than the initial conservative estimate!

Conclusion: The key to this financial success story is the power of compounding over a long time horizon. The Pabrai Fund, with its average returns of about 15%, demonstrates this perfectly. It's not just about starting early; it's about understanding where to invest and how to let your investments work for you.

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