How I Invest with David Weisburd
E144: How the World’s Top Investors Compound Their Advantages
09 Mar 2025
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.
Full Episode
Welcome back. For episode 150, I wanted to do something completely different and record my first solo episode. But just like with my New Year's resolutions, I don't really believe in waiting for an arbitrary date to do something. So alas, I'm releasing this as episode 143. If you enjoy it, please let me know by sharing this episode with a friend, which lets us know that you value the content.
Let's dive right in. Across the first 142 episodes, the one consistent component I found across all top investors is the role of compounding in their business. Today, I'm going to cover how the world's top investors compound their advantages in a hyper-competitive capital markets.
Lesson number one, when it comes to compounding is that everything compounds when it comes to investing, whether you're investing someone else's money or your own, even areas that appear not to compound. Most investors assume that going from one investment opportunity to another is a linear exercise, but in reality, it is a compounding exercise.
Your reputation compounds, your experience compounds, your ability, diligence compounds, all of these skills compound and stack on top of each other from one deal to the next. That being said, while some things compound exponentially, others only incrementally. What compounds exponentially? Above all else, relationships compound exponentially.
This is both for obvious as well as non-obvious reasons. Relationships compound because, of course, doing the second deal or the third deal with somebody is much easier than the first deal. On the first deal, your counterpart needs to diligence both the deal at hand as well as you, the individual.
When you get to the third deal, the diligence at that point is almost entirely based on the deal presented, not on you as a counterparty. The implicit difference here is trust, which is why trust compounds within relationships. When you present a second deal, you are much more trustworthy than when you had presented the very first deal.
By the time you present the third deal, there's almost an automatic trust in the relationship and embedded trust in the diligence process. Of course, capital allocators will rarely admit this and may not even be aware of this, but indeed a bias of trust is present. This trust bias is a heuristic or a mental shortcut that serves to save investors time.
Before you go about criticizing this behavior, keep in mind that when psychologists studied people's behaviors over many decades, there was consistency as it relates to ethics. Just take a moment to think about someone that you've known for 20 years. Have their ethics changed dramatically?
I would venture to guess that although their skills and maybe even their lifestyle has changed dramatically, their ethics have remained consistent throughout the 20 years that you knew them. There's another reason why relationships compound exponentially, and that is because of the familiarity between parties. What does that mean?
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