Mark Moss explains why selling appreciating assets costs you exponentially. A $1 million investment growing at 20% annually becomes $64 million in three years using the Rule of 72. Instead of selling, borrow against the asset at 7-10% while it grows at 20%, keeping the spread as profit.
And again, the human mind can't understand this. And the reason why is because the human mind thinks linear like this. So if I continue to save and if I continue to invest, I start with $100,000 and maybe I end up with $1 million over here, but that's not how the law of compounding works. The law of compounding can be summed up pretty simply, and we use something called the rule of 72. So we take the yield that we earn and we divide it by 72. So let's just say hypothetically Bitcoin's 200 moving day average is about a 30% CAGR. Compound annual growth rate, somewhere between 30 to 50%. Let's just call it 20, just for easy numbers. So I have a 20% compound annual growth rate divided by 7.2 equals 3.5 years. So what that means is my wealth doubles every 3.5 years. So if I start with $1 million, in 3.5 years, it's $2 million, and then it's $4 million, and then it's $8 million, and then it's $16 million, and then it's $32 million, and then it's $64 million, and then it's $128 million. And my wealth starts going parabolic. What this means is at the same time it took me to go 3 years here, also took me 3 years here. That means in 3 years, I made $64 million in only 3 years. That's what the law of compounding does. And so the reason why the wealthy never sell their assets is let's say that I was able to turn $1 million into $2 million and I sell it and I take this money and I go on vacation and I send my daughter to college and I buy a new house. And I buy a new car. Well, that's cool. I take that extra million I made and I buy these things that I wanted. But what I gave up is $64 million if I just would have waited another decade. That is the cost of you selling your assets. And that's what the wealthy know. So what we want to do instead is if I want this million dollars right here, what I could do is I could take a loan out for the $1 million. Now, of course, I have to pay back this loan. This could cost me 7 to 10%. But again, we've established this is going up by 20%. So if this is going up at 20%, but I have a loan at 10%, I'll take that deal every day. As long as this asset continues compounding faster than the rate of the debt that I have to pay, I'll want to do that forever. Now, one question that people would typically ask me, which is the same thing, at what point do I pay that loan off? And again, I'll reiterate, as long as the asset is continuing to go up faster than the rate of debt, why would I ever want to do that?
