The chart above shows that an investment
of only $500 would grow to $9,979 in 10 years assuming our
Primary Stock Portfolio's
average annual return of 34.9%
per year continues (which was our performance from December 1997 to September 2005,
as represented by the green line).
It also shows that if the $500 were instead invested in the
S&P 500, it would grow to only $1,297 if its historical
return of 10% a year continues (represented by the red
line).
As an illustration of the power of compounding over time,
the chart above assumes that our Primary Stock Portfolio
maintains its current rate of return. Is that a realistic
expectation? Well, the average stock in an average year returns
about 10%. For us to have returns of 34.9%
per year from December 1997 to September 2005
is almost unheard of. Will our performance continue to remain
that high? We don't know. We aren't good at foreseeing the
future. But we are good at picking stocks. And of course,
past performance is not indicative of future returns.
However, we don't see any evidence of the stock
market keeping up with us, let alone catching us. So even though
we don't know if our future performance will be higher or lower
than in the past, for the purpose of these examples, we will assume
a 34.9%
return for our recommendations.
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25
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