On a side note, I have doing some research on compounding as I have heard that Warren Buffet compounding profit year on year has been 25%... Yes 25% only for all those years... As a common folk I always thought I need to make bags and bags to make my trading career successful... Anyway, I decided to do some calculations and back ground work to see if 25% profit on initial invested capital after tax is any good? It has to be compounding means it does not only generate gains but it stays in means gets reinvested again and again...
So here are the magical calculations... be aware its seriously boring but magical... So lets start with small capital like 10k...
10,000 with 25% gain after tax = 12,500 after first year
12,500 (reinvested) with 25% gain after tax = 15625 after second year
15,625 (reinvested) with 25% gain after tax = 19531 after third year
Money is almost doubled in 3 years with 25% profits. Also need to remember that these calculations are based on some one experienced and very disciplined. Some years would be losses and some years would make more than 25% return. Hence average year on year growth is required.
Now after 3 years fun starts...
19531 with 25% gain after tax = 24414 (year 4)
24414 with 25% gain = 30517 (year 5)
Interesting the initial capital is tripled in 5 years... Here comes the surprise... after 15 years this figure is..... 284,000 plus... Now this is a return of 27.5 bags...
In next 6 years, the profits will reach 1,084,000. This Is the result of most boring 25% compounding gains...
In 30 years time, it will be 8,000,000 plus... This is 800 bags of returns on boring 25% year on year compounding profits... I know there are many factors to be considered like Financial crisis etc. So please take it with a grain of salt... I did the calculations as I come across Warren Buffet's figures and they were 25% gain year on year.
I am not doing further calculations as most of us has stopped fairly late lol... However, for young folks who started at 20-25 they can keep going... The whole point is... Patience is a virtue... Perhaps we need to focus rather than trying to be rich over night...
