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American Apparel, Inc. Message Board

  • imirishtoday imirishtoday Nov 12, 2013 7:52 AM Flag

    What smart people know...........this naturally excludes dogma


    One thing to keep in mind, when thinking about the nature of investment compounding over a long period of time, is that most of the compounding occurs at the back end of an investment. It's straightforward enough. If you buy $1,000 worth of Kellogg (K) stock and see it grow 10%, we are only talking about $100 in added wealth. But, if your Kellogg position grows to $100,000 over the course of twenty-five years, a year of 10% growth will add $10,000 to your wealth. Although the 10% sounds the same, it actually adds $9,900 more wealth in Year 25 than it did in Year 1.

    It's a trap that I have to guard against regularly, because there is a strong tendency for me to think about most things in life in linear terms-it's easy for me to forget that Exxon's dividends in Year 25 could be more than the total dividends generated by an Exxon investment in Years 1, 2, 3, 4, 5, 6, 7, and 8 combined.

    When performing your own calculations, it's really important to remember that the multiplier isn't linear.

    Look at something like Johnson & Johnson, my largest personal investment.

    A $10,000 investment in Johnson & Johnson stock in November 2003 would be worth $23,680 today.

    Yet, the same investment in November 1993 would be worth $130,587 today.

    And if we go real old-school and back it up to 1983, the same investment would be worth $639,520 now.

    That non-linear multiply is why people have attributed supernatural powers to the compounding process, using words like "magical" or in Einstein's language, going as far as to call it the 8th wonder of the world. Over a ten-year stretch, a Johnson & Johnson (JNJ) shareholder saw his wealth increase by a factor of 2.36. But over a twenty-year stretch, the wealth increases by a 13.05. And if we back it up to thirty years, each dollar got multiplied by a factor of almost 64, turning every dollar invested in Johnson & Johnson in 1983 into $63.95 today.

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    • You really aren't the sharpest knife in the drawer are you?

      You linear thinking was pretty obvious when you were bragging about potential 12,500 in annual dividends for Apple which only comes to a little over 2%.

      It appears as usual you were not smart enough to get the point , but I am sure everyone is very thankful for your remedial attempt to regurgitate compounding from my post .

      If you want to use JnJ as an example, if someone bought the stock at the closing price on 11/11/2003 the stock was 49.08, it closed yesterday at 94.27, ex dividend the stock has not doubled in a decade.

      On the other hand if someone bought the stock on 11/11/1983 adjusted for splits the price was 1.42 and on 11/11/1993 it was 7.03 for an ex dividend return of just under 500% and those type of returns continued for the next 7 years until 2000.

      What that means is for the investment in JnJ in 2003 to match the return in 1983 in terms of a 10 year return the stock would have had to run to about 240.00.

      From WW2 until 1966 and 1983 to 2000 were the golden age of stock market return in the US, all anyone had to do was match the market to make great money.From the childish way you post and your comments about age gender and race it is pretty easy to figure out you are not old enough to have been heavily invested during the big run. If as you say you have been in blue chips for the past 10 or 15 years the returns have not been that great, but feel free to keep proclaiming how wealthy you are on an anonymous stock board while constantly making childish attacks on pretty much everyone that doesn't agree with you. It doesn't make you seem like a tool!! ROFLMAO

    • ........and if instead you choose to be a troll like dogma? LOL, you get to have nothing in life and tell rich people why they're wrong! LOL!!!!!!!

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