The formula works by dividing 72 by the expected annual return percentage. For example, at a 7% return, money doubles in approximately 10 years (72 ÷ 7 = 10.3). At 10% returns, doubling occurs in roughly seven years, while 15% returns cut the doubling time to about five years.
“It’s very important to know how long money takes to double, because then we can start doing a lot of math in our heads,” Pabrai said.
This mental calculation ability allows investors to quickly assess the long-term potential of different investment opportunities without complex financial calculators.
To illustrate the power of compound interest, Pabrai shared a compelling historical example during the interview. In 1623, Native American Indians sold Manhattan to Dutch settlers for $23. Yes, you read that right.
The example becomes even more striking when scaled down: “If you gave them 2.3 cents, 100 years later, they’d have $23, and now it would be the 23 trillion,” Pabrai noted, adding “if the runway is long enough, the starting capital doesn’t matter.”
“You could open an account at Fidelity or Interactive Brokers or Robin Hood, any of these places,” he said. “You could just ask them to give to buy you the S&P 500 index, for example, and they will get you invested in that.”
Pabrai said if you start investing at age 18, an initial $5,000 investment with a 10% return would result in approximately $500,000 by age 68, thanks to the money doubling seven times over the 50-year period.
“You can start seeing that over a lifetime, you’re going to be having too much money,” he noted.
Pabrai’s advocacy for this simple mathematical tool demonstrates how foundational financial concepts, when properly understood and applied, can transform investment outcomes. His message is clear: The path to wealth isn’t through complex strategies or market timing, but through understanding the fundamental mathematics of compound growth and having the patience to let it work over time. Plus, the simplicity of the rule—valuable for quick mental calculations—helps investors appreciate why maintaining consistent returns matters more than chasing spectacular short-term gains.
