E144: How the World’s Top Investors Compound Their Advantages

In this special solo episode of How I Invest, I break down one of the most powerful forces in investing: compounding. Over the course of 142 episodes, I’ve discovered that the best investors all leverage compounding—not just in their portfolios but in every aspect of their business. From relationships and reputation to proprietary information and top talent, compounding creates exponential advantages in a hyper-competitive market.

Highlights:

Compounding Beyond Capital: The biggest investors understand that everything compounds, including reputation, diligence, and deal-making experience.

The Power of Relationships: Trust compounds with each deal, leading to faster and more efficient decision-making.

Reputation as an Asset: Warren Buffett’s ability to negotiate superior terms stems from his compounding reputation as an ethical and skilled investor.

Proprietary Information Loops: Access to unique insights leads to better investments, which generate even more privileged information.

People as a Compounding Advantage: The best organizations attract and retain A-players, who in turn recruit other top talent, creating a self-reinforcing cycle of excellence.

The Arbitrage of A-Players: Paying A-players above market rates is a competitive advantage, as they generate exponentially greater value.

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(0:00) Episode preview (0:21) The role of compounding in investing and relationships (2:13) Trust bias, deal-making efficiency, and reputation effects (4:23) Proprietary information and the compounding of talent (6:50) AI's impact on productivity and compounding (7:49) Closing remarks