If you wanted to accumulate $1,000,000 worth of Johnson & Johnson stock over the past twenty-four years, there are two straightforward ways that you could have accomplished it: some variation of lump sum investing or dollar-cost averaging.
(1) If you wanted to make an investment in Johnson & Johnson stock on August 19th, 1989 that would be worth $1,000,000 today, you would have had to set aside $43,000 in 1989. That would be roughly the equivalent of coming up with almost $100,000 in terms of today’s purchasing power.
Originally posted 2013-08-19 23:26:41.
Benjamin Graham’s famous question that all investors should ask themselves before making any purchase decision (On what terms, and at what price?) even applies to the game show “The Price Is Right” as well.
Check out this recent anecdotal article written about contestants from the famous game show:
One of the mainstream appeals of a show like “The Price Is Right” is that it allows financially illiterate people the opportunity to receive a good or service that they could not otherwise afford. Even though it is irrational (and in some ways even perverse), no one wants to see the guy with a fully funded 401(k), a hundred grand in emergency savings, and a taxable portfolio stuffed with blue-chip stocks take home a $75,000 Jaguar. You want that car to go to the widow raising two children on $40,000 per year because you know that if they do not win that car on a game show, they’ll never own that kind of luxury item during their time here on earth.
Originally posted 2013-08-19 20:23:33.
One of the interesting things to analyze from an aerial view is the difference between how strategies are taught in the classroom and how they are executed in reality by those with real world experience. For instance, in business schools across America, students are taught that it wise for a company to take on debt in a low interest rate environment if it can earn higher returns on capital with that money when adjusted for the interest rate payouts. Of course, old-school operators understood that you cannot go bankrupt if you do not owe anybody anything and tended to eschew debt in good times because it could turn into a noose that drains cash flow in bad times.
Originally posted 2013-08-16 21:03:37.
One of the statistics that I often think about, and have mentioned with some frequency on this site, is the fact that the average equity investor compounded his wealth at 3.49% annually from 1990 through 2010 while the S&P 500 Index posted annual returns of 7.81% during that time frame.
To check out the study yourself, click here: http://www.thewpi.org/pdf_files/dalbar.2012.roccy.pdf
When I pursue investing, my long-term assumption is that I will achieve returns somewhere between 8-12% annually (assuming 3.5% annual inflation). If everything goes right, and companies like Coca-Cola, Johnson & Johnson, and Procter & Gamble are able to replicate their former glories (in terms of earnings per share growth) due to a combination of population growth, share buybacks, and price increases/productivity increases, then I imagine that figure will lean closer to 12%. If I make some big mistakes along the way like buy a decaying tech stock or a bank that experiences a blowup (think Wachovia, Washington Mutual, Lehman Brothers, etc.), then that figure may be closer to 8% over the course of my lifetime. My job is to make sure that I can still get to where I need to be even if I “only” hit that 8% annual rate over the course of my lifetime.
Originally posted 2013-08-15 23:56:35.