Video Link: https://youtu.be/pf8dTJEU-Z8
In this episode, Mohnish Pabrai tells a tale about the power of compounding via the invention of chess.
In this episode, you’ll learn:
What is the power of compounding?
A tale about the invention of chess.
Why Einstein called compounding the Eighth Wonder of the World?
To check out all Collection: Mohnish Pabrai <click here>
MOHNISH PABRAI 00:08
I'm going to just talk about a very old Indian tale actually, most of us probably grow up with. And it's a tale about the invention of the game of chess. And so the game of chess was invented about fourteen hundred years ago. [inaudible]
And this guy who invented the game when he showed it to the king. The king immediately became a big chess fan and was playing all the time. And so he told the inventor of the game that – you know, ask for any reward and it shall be yours.
And so the inventor said that "what I wanted, I want you to put one grain of rice on the first square of the chessboard. And I want you to put two grains of rice on the second board of the chessboard. Now I want to put four grains on the third board – third square. And keep doubling the grains on every square and just when you get to the 64 square then that is the amount rice I like and that's all I want."
And the king thought that this is a very stupid request and he said "I wanted to give you such a big reward and this is all you want a bunch of rice?" So he told his treasurer measure out the rice this guy needs and get him out of my court. And what a week went by and the guy haven't figured it out yet.
So he called the treasurer back in and said "Why you taking so much time?" He said "Well, took me a while to run the calculation and it turns out that we don't have the rice. Not only do we not have in our granary, we don't have in the kingdom. And not only we do not have in the kingdom, it doesn't exist on planet Earth."
And you know that is the power of compounding. So if you took that amount of rice which is 1, 2, 4, 8, 16 and so on. You know, we have a bunch of people who are going to high tea soon. So how many grains of rice on that chessboard?
Anyone who raise their hands? Over here, accidentally raising of the hand? Anyone? Yeah, go ahead.
AUDIENCE MEMBER 02:44
2 to the power of 64 minus 1.
MOHNISH PABRAI 02:46
2 to the power of 64 minus 1. Okay, I won't ask you to lay out the whole number.
So you calculate that amount of rice in term of present rice prices. It works out to $300 trillion and of course, $300 trillion is a big number.
The entire net worth of every man, woman and child in United States is $70 trillion. And the entire net worth of every man, woman and child on the entire planet is just about $300 trillion.
So basically, what the guy asked for will be pretty much the entire wealth of the planet. And that's the power of compounding. And that is why Einstein called it the "Eighth Wonder of the World."