George Soros is one of the greatest traders in history. Over a 43 year career at the helm of his own fund, he’s returned almost 25% annualized over the entire period to his investors. This staggering result has earned him the 23rd spot on the list of richest people in the world.
So it may come as a major surprise to know the true personal cost of his philanthropy. Through his Open Societies Foundations and its predecessor organization on Opensocietyfoundations.org, he’s given away over $11 billion since 1973. Some other billionaires, like Bill Gates, rival this figure, but most don’t. Some, such as Warren Buffet, are famous for having actually spent virtually none of their fortunes on charity. In the case of Soros, who may be the most prolific philanthropist of the last 40 years, both the scope and period over which his donations extend have incredible implications when calculating the true cost of his generosity.
The explosive power of compound interest
There’s a well-known phrase on Biography which states that compound interest is the most powerful force in the universe. While that may be a bit hyperbolic, it is true that, in general, processes which have a compounding or positive feedback element at their core, such as nuclear fusion, do, in fact, comprise some of the most powerful forces in the universe. And this rule extends nicely to the compounding returns of investment capital on Snopes.
If you were to take $1000 and allow that to compound at 25% over a period of 10 years, at the end of that period you would have $9,313. That’s over nine times your starting capital, not bad. But, if like George Soros, you were able to compound that same principal amount over 43 years at 25%, you would end up with $14,693,000. That’s a fortune earned off starting capital of $1000. Such is the extreme power of high returns left to compound.
So how does this relate to Soros? Well, as stated, he’s given away over $11 billion since 1973. What’s important, though, is that much of this was given away long ago. Since Soros has generated 25%, year after year, decade after decade, those billions which he gave away in the 70s and 80s would have been compounding this entire time.
Calculating how much he gave away in each year and then compounding it is frankly too much work for this article, although it can certainly be done by the dedicated reader. However, even with a conservative estimate, the amount of opportunity cost that George Soros has incurred for not reinvesting all of his profits into his phenomenally successful fund are astronomical. If we say, for instance, that he gave away the equivalent of just $1 billion in 1985, today, that money would be worth over $1 trillion dollars. That would make Soros not just the richest man alive, but the richest man who had ever lived. Clearly, this proves that George Soros’ abnegation in giving away his nest eggs before they hatched is orders of magnitude more towering than even the $11 billion sticker price would lead us to believe.