Thursday 16 November 2017

Compounding (5)
















Four hypothetical investors each invested $10,000 in the market from January 1, 1972, to December 31, 2013, but all four investors acted differently during the 1973 to 1974 bear market.
The Nervous Investor sold out and went to cash. The Market Timer sold out but moved back into stocks on January 1, 1983, at the beginning of a historic bull market. The Buy and Hold Investor held steady throughout the period. And lastly, the Opportunistic Investor realized that the bear market had created opportunities and contributed an additional $10,000 to his original investment on January 1, 1975.
This chart shows more than just the benefits of compounding. It also highlights the stupidity of market timing. The chart clearly shows that trying to time the market will severely impact your long-term returns -- there is plenty of other research on the topic of market timing out there that reaches the same conclusion.



Image result for compounding investment

Image result for compounding investment

Image result for compounding investment



Image result for compounding investment

Image result for compounding investment

Image result for compounding investment

Image result for compounding investment

Image result for compounding investment

Image result for compounding investment


Image result for compounding investment

Image result for compounding investment

Image result for compounding investment

Image result for compounding investment

Image result for compounding investment

Image result for compounding investment

Image result for compounding investment

Image result for compounding investment

Image result for compounding investment

Image result for compounding investment

Image result for compounding investment

Image result for compounding investment

Image result for compounding investment

Image result for compounding investment

Image result for compounding investment

Image result for compounding investment

Image result for compounding investment
It would help explain the wild divergence between total US wealth and the regular incomes of people, now followed by a financial and economic collapse that shows much of that exuberant growth was actually some kind of betting that created only illusory wealth.

Image result for compounding investment

Image result for compounding investment

Image result for compounding investment

Image result for compounding investment

Image result for compounding investment



Image result for compounding investment



Image result for compounding investment




Compounding (4)












The Subtle Power of Rate of Return Earned on Reinvested Capital 
In this table, we compare a bond paying 6.5% interest with the stocks of two companies paying dividends of 1.5% while reinvesting a like amount in growing the business.  One company earns 20% on the capital it reinvests in the business and the other earns 10%.  Reinvestment of earnings gives a business the capital to grow by funding initiatives such as developing new products, building a new plant, and expanding the sales force.  A return earned on this investment should lead to an increase in earnings, dividends and eventually stock price.  For purposes of the illustration below, we assume that the stock price increases in line with earnings growth and dividends are invested in a money market fund that pays 4%.
Clearly, earning a high rate of return on reinvested capital is the key to long-term compounded growth