I've been having some fun over recent weeks re-reading Buffett's famous Letters to Shareholders, and today will touch on a subject he covered in his own inimitable style in Berkshire's 2005 missive: frictional costs in investing, frequently referred to elsewhere as transaction costs.
The index, which opened at 66 (let's call it 60), has doubled a little bit less than 7.5 times over 100 years to reach a level of around 11,000...so 100 years/7.5 times = 13.33.
Despite the Great Depression (1929), two World Wars (1914, 1939), the stock market unravelling by more than 22% during just one trade on Black Monday (1987) and heap of other bad stuff happening, becoming wealthy in the 20th century was fundamentally very easy.
All you had to do was own the index throughout the century and you would have scored an outstanding result, both in terms of the growing dividend income streams and the compounding capital growth.
Since this approach attracts neither transaction costs nor regular capital gains taxes liabilities, it is surely hard to beat as an approach for average investors.
But then consider that - humans being what we are - each member of the family tries to "get ahead" of the others by trading shares just a little. Clearly, as a group they can become no wealthier, since the companies they own can create no more wealth in aggregate.
Remember, the family between them still owns all of corporate America, they are really only rearranging which member of the family owns which companies. The more the family trades, the less wealth they can earn.
Then more Helpers, in the guise of expert fund managers, come onto the scene, each professing to able to help the family members outperform the rest, and for a fee of perhaps 1-2% per annum will aim to help them do so.
Then financial planners and institutional consultants arrive to recommend which of the fund managers to use, although there's no guarantee, of course, that the financial planners the family members choose will be the right ones.
Not only are the family now struggling to pick the right stocks or the right stock-pickers, they are struggling to pick the right pickers of stock-pickers.
And all the while, each new layer of fees is chipping away at the net returns.
Isaac Newton could, noted Buffett drily, have added a fourth law of motion: returns decrease as motion increases!
Time in the market
Just as in the share markets where the most remarkable tales of wealth often seem to involve old ladies who dropped $10,000 into the share market seven decades ago and simply left it there, so it is in property.
The $64 billion question
Each and everyone one of these billionaires understands the dual power of leverage and compounding growth, which is why, one suspects, so many of them are to focus on giving to causes which incorporate education, which can be one of the greatest compounding forces of all.