Why does Naval believe "owning equity in great companies" is the ultimate investment?

Hey, that's a great question because it hits right at the heart of Naval Ravikant's philosophy on wealth. Many people have heard "own equity in great companies," but they don't quite grasp the logic behind it. Let me break it down in plain language why Naval would say that.

First, let's understand a crucial distinction: Earning Money vs. Building Wealth

These sound similar, but to Naval, they are fundamentally different.

Earning Money: This usually means "renting out" your time. You go to work, your boss pays you hourly or monthly. You work a day, you get paid for that day. If you stop working, the money stops. Your income is linearly tied to the time you put in, creating a very low ceiling (since there are only 24 hours in a day).
Building Wealth: Wealth refers to "assets that work for you while you sleep." These assets don't depend on you putting in specific hours; they appreciate in value or generate income on their own.

Once you grasp this, you'll understand that relying solely on selling your time through a job makes it very hard to achieve financial freedom. You need to own "assets." And among all asset classes, Naval believes "equity in outstanding companies" is the premier choice.

Why is "Equity in Great Companies" the Ultimate Asset?

Think of "owning company equity" as owning a small piece of a fruit-bearing tree, rather than being the worker who picks the fruit for money every day.

1. It Frees You from the "Trading Time for Money" Trap (Super Leverage)

This is the core point. When you own a company's stock (equity), you aren't buying its desks or chairs; you're buying a share in the company's future profit-generating capability.

The Company's "Leverage" Works for You: A great company has hundreds or thousands of smart employees working (labor leverage), efficient software and machinery operating (capital and code leverage), and a global sales network (media and network leverage).
You Become a "Boss": As a shareholder, even if you only own 0.0001%, you own a share of all the effort, innovation, and growth. You don't need to manage employees or write code, but all this work is creating value for you. While you sleep, employees across the ocean might be closing a big deal for the company.

Simple Analogy: You run a small noodle shop. You max out at 200 bowls a day, exhausting yourself – that's "trading time for money." But if you invest in Haidilao stock, hundreds of stores nationwide and tens of thousands of employees are effectively "working" for you, making you money. That's "wealth."

2. Enjoy Exponential Growth Powered by Compound Interest

Einstein called compound interest the eighth wonder of the world. Great companies are the perfect vehicle for this effect.

A good company reinvests its profits into R&D, new markets, scaling up, etc., to make even more money. This process is like a snowball, growing bigger and bigger.

As the company's value grows, its stock price rises.
The company may pay dividends, which you can reinvest to buy more stock, compounding your gains.

This growth is exponential, far exceeding the annual raises you get from a job. Of course, this assumes you pick truly "great" companies and have the patience to hold them long-term.

3. It's the Easiest "Wealth-Building Game" for Ordinary People

Starting a successful company from scratch is too difficult for most. It requires unique skills, immense risk tolerance, and a bit of luck.

But buying shares in excellent publicly-traded companies has a much lower barrier to entry.

High Liquidity: You can buy today and sell tomorrow (or even the same day). Compared to real estate (so much hassle to sell!) or art/antiques (finding buyers is tough!), stocks are incredibly easy to trade.
Highly Scalable: You can start with buying 100 shares and add more as you have more money. You don't need millions upfront.
Hitching a Ride: You're essentially "hitching a ride" with the smartest, most ambitious entrepreneurs. They are on the front lines, solving the hardest problems; you, as a shareholder, share in the rewards of their success.

4. It's an Optimistic Bet on the Future

Owning equity in great companies is fundamentally an act of believing in human progress – that technology will advance and lives will improve.

Buying stock in a renewable energy company is a bet that clean energy will dominate the future.
Buying stock in an AI company is a bet that AI will be earth-shattering.

You're casting a financial vote for the future you believe in. If that future unfolds, you reap substantial rewards. This is far more proactive than keeping money in a bank (eroded by inflation) or buying gold (which creates no new value itself).

Summing Up Naval's Logic:

To truly get rich, you must own assets that work for you while you sleep. Among all asset classes, equity in outstanding companies is the ultimate choice because it:

Leverages Scale: Harnesses the work of thousands of people, lines of code, and capital, utterly shattering the constraints of individual time.

Harnesses Compounding: Allows wealth to grow exponentially, like a snowball rolling downhill.

Offers Relatively Low Barriers: Provides the most accessible path for ordinary people to participate in wealth creation, combining flexibility with convenience.

Aligns with Human Progress: Allows you to share in the value created by top talent and ride the wave of societal advancement.

Therefore, Naval's core advice is this: Study diligently to master Specific Knowledge. Use this knowledge as a foundation to either build or join a promising company to gain early-stage equity. If that's beyond reach, then the next best strategy is to consistently use the money you earn from work to buy shares in publicly-traded, excellent companies that you understand and believe in – and then hold them patiently.