It sounds easy to answer, "who is the best investor ever?" but it's more complicated than you think.
I think the best way to answer this deceptively tricky question is to walk through two stories of great investors:
Al
Al spent a long life becoming an investing wiz. He made some mistakes along the way, but he always learned from them, so it took Al until he was in his 50s to figure out how to become a great investor.
Al became a Fund Manager and earned an average annual return of about 50% per year, on from 2003 all the way to the end of 2022, when he finally retired. That's a total of 20 years and it means that on average, Al doubled his money every year and 8.5 months. For context, that's an unbelievable return to get, especially for such a long time.
Al started off with minimal capital, so he only had $1,000 to start with, but quickly began growing it. By the time Al retired,
he had grown his original $1,000 to $3,325,256 in just 20 years.
That's incredible and puts him in the hall of fame of investors. All the years of hard work that Al put in to learning how to become a great investor paid off.
Now let's look at another story.
John
John is over 100-years old today, being born in 1922. When John was just 5-years old, he was gifted $1000 and invested it into the S&P 500 index. He had some help and council from older family members that held the money in trust.
Then John went on living his life and just waited. He waited a long, loooong time. He didn't touch his money at all for 95 years. He just kept reinvesting the dividends and never withdrew a penny all the way to the end of the year in 2022 (just like Al).
The S&P 500 has offered an average annualized return of 10.11%, since 1927.
That means that John's $1000 grew to $10,327,960. Not bad. Not bad at all.
What this means
Back to the question, who's the best investor ever? In Al's case, he earned a significantly better return each year that John did. Compounding means that Al's returns are so much better than John's, there is just no comparison. However, Al retired and stopped after 20 years, even though he was clearly brilliant.
John on the other hand kept at it. He didn't do anything that was complex, in fact, he took the simplest approach possible and was patient. Patience is a key ingredient for compounding wealth. The late Charlie Munger once said, "the first rule of compounding is to never interrupt it unnecessarily".
In the end, John ended up with more wealth than Al, and quite a lot more too. So, who's the better investor? John ended with my, by doing very little and just waiting, while Al was incredible, but ended his investing journey early.
In another article, we mention there are several ways of getting wealthy, but only a few of them are achievable by the average person. Specifically, investing in low-cost funds that are broadly diversified, keep contributing over time, and then just sit back for a long time.
In today's world, we often want the 'secret' or 'quick-fix' for being beautiful, fit, and happy. In the world of money, there isn't really a 'secret'. It's written right in this article and countless others. The reason so few people can do it is because it requires patience.
Patience is the opposite of a quick-fix. It takes years and decades, however, that is the 'secret'.
I respect that Al could get such a high return on his investments, but less than 1% of professional investors can actually do that (see image to right), so my belief is that John is the real winner. I choose to believe that he's better because he made a smart choice and kept with it, and that every person can copy his example, perfectly.
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