Since I kicked off my investing career as a fresh faced final year Commerce student seven years ago, I've learned a hell of a lot. I'm pretty sure that I ticked off almost every item on the Motley Fool's fool list, from trying to make a quick buck on day trading to using margin loans to boost returns on "blue chip" stocks such as BHP Billiton Limited (ASX:BHP) and National Australia Bank Ltd (ASX:NAB) in the aftermath of the GFC. I also spent time trying to understand how a candlestick could predict the future of a company's share price.
Although my bank balance might not thank me for it, I'm glad I did it. Making these foolish mistakes early on in my life, while using relatively low amounts of money, has taught me lessons that have set me up for a future where I believe I can make investments that will truly change my life by providing consistent returns that gradually build wealth.
As the graphic below demonstrates, my investment returns and personal wealth have grown significantly since I started following the Warren Buffett and Motley Fool mantra of buying quality companies such as M2 Group Ltd (ASX:MTU) and Retail Food Group Limited (ASX:RFG) at reasonable (or preferably, attractive) prices and holding them for the long term.
Foolish takeaway
As a young investor, realising early on that there is no magic shortcut to wealth can be an important lesson.
There is, however, an incredibly powerful tool at everyone's disposal – it's called compounding returns. Using the example Scott Phillips used recently, Buffett's Berkshire Hathaway has increased the book value of its assets by 19.4% over the past 50 years, compared with the S&P 500's average annual gain of 9.9%. If you invested $1,000 and earned 9.9% over 50 years, this would turn into a very impressive $112,000. At 19.4 per cent, however, that $1,000 becomes almost $7.1 million.
So even if I only earn average returns, I can multiply my investments by 112 times over the next 50 years. I doubt I'll be able to emulate the Oracle of Omaha but I am confident of beating the market over the long term and, with time on my side, growing today's investments into something substantially more.
