How Buffett’s Favorite Comic Strip Reveals the Secrets of Compounding and Tax Strategies

Warren Buffett’s $26.8 billion tax payment in 2024—the largest corporate tax bill in U.S. history—represents roughly 5% of all federal corporate income taxes collected last year. But before becoming America’s biggest taxpayer, Buffett learned one of his most valuable lessons from an unlikely source: a hillbilly comic strip character named Li’l Abner.

In his collection of essays, Buffett recalls how cartoonist Al Capp’s Depression-era comic strip taught him the value of tax deferral. The story centers on Abner Yokum, the lovesick protagonist who desperately wants to marry the glamorous Appassionata Van Climax. There’s just one problem- he only has a silver dollar, and she’s only interested in millionaires.

Buffett and the Comic Connection

The story begins with Li’l Abner hopelessly smitten with Miss Van Climax, a glamorous New York temptress who only dated millionaires. Our hero possessed exactly one silver dollar and despaired of winning her affections. Seeking advice, Abner consulted Old Man Mose, Dogpatch’s resident sage, who said: “Double your money 20 times and Appassionatta will be yours”.

Buffett’s last memory of the strip shows Abner entering a roadhouse, dropping his dollar into a slot machine, and hitting a jackpot that spilled money across the floor. Following Mose’s advice to the letter, Abner meticulously picked up exactly two dollars and went off to find his next double. This slavish obedience to instructions prompted young Buffett to “dump Abner and begin reading Ben Graham”.

Years later, however, Buffett realized Old Man Mose had overlooked something important that would transform his understanding of wealth creation: taxes.

The Power of Compounding

Buffett calculated that if Abner had been subject to a 35% federal tax rate—Berkshire Hathaway’s rate in 1993—and managed to double his money annually while paying taxes each year, he would have accumulated merely $22,370 after 20 years. To reach the million dollars needed to win Appassionatta, he would have required 27.5 years of annual doubling.

Each time Abner doubled his money and paid taxes, his effective multiplier became just 1.65 instead of 2.0. This seemingly small difference compounds dramatically over time, turning what should have been over $1 million into a modest sum barely exceeding $20,000.

But here’s where the lesson becomes more interesting: what if Abner had instead held a single investment that doubled 27.5 times without selling? He would have realized approximately $200 million pre-tax, or roughly $130 million after paying a one-time 35% capital gains tax in the final year. As Buffett wryly noted: “For that, Appassionatta would have crawled to Dogpatch”.

Tax Efficiency & Buffett’s Strategies

This comic strip wisdom shows what financial experts call “tax drag”—the erosion of investment returns through inefficient tax strategies. The IRS recognizes the advantage of long-term investing by taxing capital gains held over one year more favorably than ordinary income, with rates as low as 0% for lower-income investors and maxing out at 20% for high earners—except a certain few who are subject to higher rates.

In 1977, when cartoonist Capp retired, the peak cap gains rate for individuals was 35%.

Berkshire Hathaway typifies this tax-efficient approach. Since 1965, the company has delivered compound annual returns of 19.9%, nearly double the S&P 500’s 10.4% over the same period. A $10,000 investment when Buffett took control would be worth approximately $550 million today.

The key insight: by holding investments long-term, investors defer taxes and allow the full return to compound year after year. The IRS essentially becomes a silent partner, letting investors use tax money as investment capital until they decide to sell. As Buffett famously says, his favorite holding period is “forever”—maximizing the compounding effect while minimizing tax interference.

Bottom Line

Successful investing combines patience with tax intelligence. Like Li’l Abner’s quest for Appassionatta, being financially successful becomes dramatically shorter when you structure investments to minimize taxes and maximize compounding time. The lesson is simply to buy quality investments, hold them long-term, and let compound growth work its magic while the IRS waits patiently for its eventual, much smaller cut.