If you’re going to buy something that compounds for 30 years at 15 percent per annum and you pay one 35 percent tax at the very end, the way that works out is that after taxes, you keep 13.3 percent per annum. In contrast, if you bought the same investment but had to pay taxes every year of 35 percent out of the 15 percent that you earned, then your return would be 15 percent minus 35 percent of 15 percent—or only 9.75 percent per year compounded. So the difference there is over 3.5 percent. And what 3.5 percent does to the numbers over long holding periods like 30 years is truly eye-opening. If you sit on your ass for long, long stretches in great companies, you can get a huge edge from nothing but the way income taxes work. Even with a 10 percent per annum investment, paying a 35 percent tax at the end gives you 8.3 percent after taxes as an annual compounded result after 30 years. In contrast, if you pay the 35 percent each year instead of at the end, your annual result goes down to 6.5 percent. So you add nearly 2 percent of after-tax return per annum if you only achieve an average return by historical standards from common stock investments in companies with low dividend payout ratios. But in terms of business mistakes that I’ve seen over a long lifetime, I would say that trying to minimize taxes too much is
