How to be a billionaire as a "normy"

Framing the Problem

I’m just a “normy”. I don’t come from a rich family and I’m not a chip designer at Nvidia. I did, however, have a high paying finance job which allowed me to save more than $500k at a young age and I, just like many of my business school classmates, have ambitions to become a billionaire. Not right away, but at least by the time I die (let's say for arguments sake I die at 90 years old, I read all the longevity books after all). So how do you do it?

Well, the math is simple. Assuming you have $500k at age 30, you need to compound at 21% for at least 40 years to become a billionaire by age 70. If you give yourself to the age of 90, then you can compound at a more reasonable 14%. The reality though is that I’m more than happy reaching $50m, which is enough to fund my decadent lifestyle comprised of reading annual reports, going to fancy coffee shops, ordering sparkling water at expensive restaurants and staying at the occasional 5 star hotel. Ritz Carlton will do. I don't need Aman or Belmond. With $50m, I’ll probably fly premium economy to boot.

But when you calculate the numbers, $50m is surprisingly achievable with just a 13% return over 40 years. The table shows returns, number of years, and ending balance assuming you start with $500k. To clarify, the bottom right figure is $46 billion, not million.

Now the S&P500 has done 10.87% with dividends reinvested for the last 30 years which would get me to a respectable $8.7m in 30 years but this sounds awfully like the worst kind of millionaire Tom warned Cousin Greg about, so that is of little interest to me.

What I want to do is compound at 17%, implying 6.13% of outperformance. To put things in context, there are 100+ companies in the US and Canada that have achieved 17% cagr over the last 30 years and a lot of them are household names you and I can understand. They fall within our circle of competence!

On the technology side you have Apple, Microsoft, Qualcomm, Fiserv, and Jack Henry. Many of the giants of tech like Amazon, NVIDIA and Google weren’t public 30 years ago so I’m not including them. Understanding Fiserv and Jack Henry isn't exactly rocket science. Then you have a bunch of consumer companies like Costco, TJX, Ross Stores, Starbucks, Monster, Williams-Sonoma, and Deckers. Relatively straightforward to analyze and understand I’d say. Then you have serial acquirers like HEICO, Brown & Brown, and Couche Tard. And then cannibals are on the list like AutoZone and NVR.

For a technology neophyte like me, this is great news as I don’t have to pretend to understand kubernetes, middle-out compression, and sputtering to get rich. I also don't need to make a bet on a new blockbuster drug or oil discovery. In fact, there are very few biotechs or oil and gas companies making this list. Most of these companies don't participate in a technology revolution. A lot of the companies are boring industrials like Exponent, Watsco, Tractor Supply, Graco, and AAON.

In this blog, I plan on organizing these companies into what Munger would call mental models, to try and find companies that can be part of the next batch of companies that compound at 17% cagr over the next 30 years.