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Avram Fisher, Founder & Portfolio Manager of Long Cast Advisers, is a former equity analyst at CSFB and BMO covering industrials and business services. He has prior experience in private equity; as a corporate governance analyst; as a writer; reporter and private investigator; and as a lifeguard and busboy (I still clear plates when my kids don't). This blog is an open book of ideas about patient investing and about starting up a small-cap focused RIA. It is part decision-diary, part investment observations and part general musings. Nothing on this blog is a solicitation for business nor a recommendation to buy or sell securities. It is simply a way to organize and share thoughts with an expanding audience of independent, patient and talented small cap investors. www.longcastadvisers.com

Friday, March 24, 2017

compounding, after taxes and inflation, isn't as much a wonder

the 8th wonder of the world - "compounding" - is the magical return that grows on itself, over and over. it is a goal for investors, and a challenge.

yet different investors experience 15% annual returns differently and this is not well understood.


the consistent 15% return grows $100k to $1M in 17-years

the investor who experiences 3% inflation has a real 12% return and takes 20-years to achieve $1M in real terms.

the short term investor who sells their gains every year and has a marginal 28% tax rate receives a 9% after tax real compound return. 28-years later the portfolio is worth $1M.

were one to invest $100K in a store or business, how long should they expect to wait for it to return 10x capital? 28-years seems like a long time. there are many alternatives to equity in public companies that should be considered when allocating capital

the beauty of the stock market is the ease of investing in businesses. on any given day there are tens-of-thousands of businesses worldwide with public bids. wait for the right ones at the right price, buy a lot of it and expect to own it forever.

the wonder is who wouldn't want to buy businesses, that redeploy capital wisely and grow in real terms, with the eye of owning them for long periods? anything else short changes the return.

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ALL RIGHTS RESERVED. THIS IS NOT A SOLICITATION FOR BUSINESS NOR A RECOMMENDATION TO BUY OR SELL SECURITIES. I HAVE NO ASSURANCES THAT INFORMATION IS CORRECT NOR DO I HAVE ANY OBLIGATION TO UPDATE READERS ON ANY CHANGES.

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