The Gutman Group

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Did you ever sit there and just wonder how the hell did the richest people in the world get so rich? We have Bill Gates (Microsoft) with $50 billion, Warren Buffett (Berkshire Hathaway) with $40 billion, Lawrence Ellison (Oracle) with $27 billion, the Walton family with $21.5 billion and not to mention the mighty Mr. Moneybags (that would be me) whose net worth is so large that any calculator in the world would simply explode by trying to calculate all those numbers.

Let me tell you a little secret: Bill Gates didn’t make that $50 billion from selling bits of string (or computer software for that matter) nor did the Walton family make all their cash from selling mountains of discounted garbage. I can also guarantee you that there weren’t any (or at least, not that many) shady business deals going on in dark allies next to any dumpsters. All these people made their massive riches through the little gift from the deepest, darkest depths of Rich Man’s Heaven known as compounded interest.

What is compounded interest you ask? Well, Albert Einstein describes compounded interest as the most powerful force in the universe. Yes, you read that correctly. Not radioactive congenial congruently concentrated vernacular waves, not subatomic dilating hydrogen splitting atomic protons and not even the deadly hydro-synthesizing corrugating sub-congenial metamorphosing atom. He said compounded interest.

So, how could the man that was fundamental to the development of the second deadliest weapon (after my fists) the world has ever seen (a.k.a. the atomic bomb) call something that can never harm a fly be the most powerful force in the universe?

You’re going to have to understand what compounded interest is in the first place. Compounded interest is making profits on top of profits on top of other profits and so on. As simply as it can be described, it is generating earnings from previous earnings. Before your head explodes, let me formulate it into something a little more tangible:

The story of compounded interest

Let’s say your dear old Uncle Bert takes one too many trips to his local buffet and his intestines implode rendering him six feet under a short while after. In a weird twist of fate/luck/insurance fraud you find yourself inheriting a million bucks. You have the following options:

a) Buy a (large) house

b) Buy twenty Corvettes

c) Buy four million sticks of gum

d) Do something useful

Let’s assume you did something useful – you start your own business. You take the money and you build a stable and start breeding Equestrian racing horses (don’t ask me why, you’re the one that decided to do this, not me). At the end of the year you find that you have made a tidy $300,000 net profit (a 30% rate of return). Instead of spending the proceeds on hookers and booze you decide to reinvest the money back into your business like a good entrepreneur – so now you have $1,300,000 invested in your business.

A year later you find that your rate of return is 30% again – this time you make $390,000, not $300,000. You made $300,000 from the $1,000,000 and another $90,000 from the $300,000. Let’s say you decide to reinvest these new proceeds back into the business like last year – now you have $1,690,000 invested.

Next year you make another 30% off of your investment – an extra $507,000. You reinvest it and your business is now worth $2,197,000.

I can go on, but I think you get the point.  This is what it means to make profits off of your profits. Oh, and how much do you think that initial investment of $1 million will be worth ten years later growing at the continuous 30%? $10.6 million. In 27 years, it will be just under $1 billion dollars.

And that, my friends is how the richest people in the world got so rich.

By the way, investing in the stock market works the exact same way – that’s how my uncle’s mother’s cousin’s grandfather’s niece’s husband’s nephew, Warren Buffett got so rich (currently the second richest person in the world) and is the predominant source of my income (investing and compounded interest, not Warren Buffett).

The beauty of investing though, is that your rate of return doesn’t depend on your business skills but on others’ business skills. That’s why I invest in companies who can grow themselves many times more than a meagre 30% a year (which is still high for most businesses) and hence the 150% or so return that The BAG Fund brings with it.

Let’s just take a look at what an investment of $10,000 will look after a few years with our rate of return (150%):

And you people wondered how I got so rich. Click here to join The BAG Fund waiting list.

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