What better way is there to learn something than from an expert in the field? And when it comes to investing, what better investor is there to learn from than Berkshire Hathaway's (NYSE:BRK-B) Warren Buffett?

But of course, you may be wondering: How did he get so good in the first place?

Of mentors and men
Most people -- OK, most investing geeks -- know that Buffett was an ardent devotee of deep value investor Benjamin Graham, who taught him to look for dollar bills selling for $0.50. (Here are some of today's bargain stocks.) Buffett's investing later evolved through his association with Charlie Munger, and now he prefers a great company at a good price over a good company at a great price.

But before all of that, when he was still quite young, he learned some fundamental lessons of his investing life through a book titled A Thousand Ways to Make $1,000.

Multiply, multiply, multiply
That book gave Buffett his legendary appreciation for compounding -- the way time and investment combine to make money multiply.

Check out how $1,000 will grow over long periods, at the market's historic average growth rate of 10%:



10 years


20 years


30 years


40 years


50 years


60 years


70 years


That 10% return, over 70 years, really adds up. It's what you might average even through periods like our current recession, when there are still good moves to make in the market.

Investing matters.

Start yesterday
The authors of A Thousand Ways to Make $1,000 also urged readers to not put off making money -- because the annualized return is only one piece of the puzzle. How long the money has to compound is the other.

Just look at that table again. The same $1,000 compounding for 60 years will add up to less than half of that amount if it compounds for 70 years. Just 10 more years delivers nearly $500,000 more!

If you start investing early, it can be hard to not end up rich. Buffett was a preteen when he read about compounding -- too bad for us that we often grasp its power when we're in our 30s or 40s, or later.

So what?
Given that you probably are in your 30s or 40s, or later (most investors are), what good does all of this advice do?

If you're 10 or 20 or 30 years from retirement and just now starting to invest, you might not end up with millions. But that doesn't mean you shouldn't start now. Even if you just invest in a broad-market index fund and earn the historical average of 10% per year, that rate of return will turn a nest egg of $100,000 into more than $670,000 in 20 years. If you add money every year, the figure will become much, much greater.

And sure, that 10% figure might seem, um, generous given our current economy, but remember that it's an average over many, many years, including those of the Great Depression. When it comes to investing -- and compounding -- you want to think in terms of decades, not years.

Great companies
But how do you get those 10% returns? You can invest in a broad-market index fund, of course. For a chance at market-beating returns, however, you'll need to add some individual companies to your mix.

Buffett looks for companies generating growing streams of money. You can screen for that to get a list of companies worthy of further research.

Here are some large-cap possibilities I got when I screened for companies with returns on equity (ROE) of 15% or more, a price-to-earnings (P/E) ratio of 20 or less, and four- or five-star ratings in our CAPS community -- all indications that a company is worth a second glance.


CAPS Stars
(Out of 5)

Return on Equity

P/E ratio

UnitedHealth (NYSE:UNH)




ExxonMobil (NYSE:XOM)




Philip Morris International (NYSE:PM)




Johnson & Johnson




Halliburton (NYSE:HAL)




Rio Tinto (NYSE:RTP)




Arcelor Mittal (NYSE:MT)








Data: CAPS, Fool.com.

Good prices
You really don't need 1,000 ways to make $1,000. Time and compounding working together are plenty, and are the foundations of Buffett's investing prowess.

Still, remember that it's also important to buy great companies at good prices. That's what we look for at Motley Fool Inside Value. Like Buffett, we're on the hunt for dollar bills selling for $0.50 -- and our current depressed market is offering a lot of bargains these days. You can even take a free, 30-day guest pass and see all of our current and former recommendations. Click here to get started -- there's no obligation to subscribe.

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This article was originally published April 17, 2009. It has been updated.

Longtime Fool contributor Selena Maranjian owns shares of Johnson & Johnson, Berkshire Hathaway, and PepsiCo. UnitedHealth Group and Berkshire Hathaway are Motley Fool Stock Advisor and Inside Value picks. Johnson & Johnson and PepsiCo are Income Investor picks. Philip Morris International is a Global Gains selection. The Fool owns shares of UnitedHealth Group and Berkshire Hathaway. The Motley Fool is Fools writing for Fools.