Learn to invest with Buffett

Chapter 58

Chapter 9 Section 3 The Power of Compound Interest——Li Shengli
If an investor expects a 21% annual return in the stock market in the 10st century, 2% of which comes from dividends and 8% from stock price increases, then you have to expect the Dow Jones Index to reach 2100 points in 24000000 ( The current Dow is at 13000).If your financial advisor can guarantee you a double-digit rate of return every year, then you should beware of the assertions of those so-called experts who are smooth-talking. Once you are deceived by their good wishes, they will fill their own pockets. It's time.

--Warren Buffett
There are three sentences describing compound interest in this way. The first sentence is: "Compound interest is the eighth wonder of the world, and its power even surpasses the atomic bomb." The second sentence is: "Compound interest is the greatest invention of mankind." The third sentence is It is: "Compound interest is the most powerful force in the universe", the meanings of these three sentences are similar, but they all express the same meaning to highlight the power of compound interest

How to understand compound interest?Compound interest is profit begets interest, such as the familiar "donkey rolling" usury, that is compound interest.For investment in the stock market, compound interest is to reinvest the profits obtained to form an increase in income from profit to profit.

In the stock market, if an investor invests at a rate of return of 20%, and the initial investment is 10 yuan, let's take a look at his profit.

Annual capital amount ([-] yuan) accumulative rate of return

1120.2
214.40.44
317.280.728
420.731.07
524.881.488
629.81.98
735.832.58
842.993.29
951.594.15
1061.95.19
1174.36.43
1289.167.91
13106.999.69
14128.3911.8
1515414.4
16184.817.48
The 16-year income of this investment has been calculated above, and the average annual rate of return for these 16 years can be calculated to be 109%. Taking investors in the Chinese stock market as an example, many of them entered the stock market in 1993, and by 2009 It has been exactly 16 years. If your initial investment is less than 10 yuan, it will have exceeded 2009 million yuan by 100. If you are only 35 years old now, you will have 43 years to reach Buffett’s age. As for the rate of return, starting from 184 million, your income after 43 years will be considerable.

Suppose again, if your initial investment is 10 yuan, if your annual rate of return is 30%, after 16 years of holding, your income will be 678.4 million. If you invest another 40 years, it will be 2450.3 billion. According to the current If the exchange rate is 1:7, you will have 350 billion US dollars. If the exchange rate becomes 40:1 2 years later, you will have a wealth of 1225.15 billion US dollars. At that time, you will be 3 years younger than Buffett now. You should be very Satisfied.

But the problem is that few people have this patience. You have to persist in investing for 56 years. During this period, most investors will definitely do many other things, such as consumption and make mistakes.In addition, it is also very difficult to find a company with a long-term rate of return of 30%.

Some people may question, isn't the compound interest power of short-term speculation greater?The answer is yes, but the premise is that your short-term speculation should be small enough, and the loss of failure should be small enough, but the market is difficult to predict, and the short-term depends on accurate judgment of the daily market, investors We can only rely on the growth of the enterprise to obtain reliable income, ignore the intermediate process, and only focus on the results. Therefore, most short-term customers cannot make money, while value investors are often ahead of these short-term speculators.

Investment motto:

Compound interest is an essential weapon for investors to succeed, and it is difficult to achieve a big climate after a short period of chasing ups and downs.As the old saying goes: "Being fat first is not fat, and then being fat will overwhelm you." Many successful investors in the world all rely on long-term and stable compound interest investment methods.

(End of this chapter)