Criticise or correct my understanding of long-term profit curve.

J

jk90029

When I see the >45 years record by Warren Buffet at

http://www.berkshirehathaway.com/letters/2013ltr.pdf

There is an important number in lower right corner.

Over the 45 years,

1) SnP500 increase roughly 10 percent annually
2) Birkshire investment show annual 20%
3) Therefore Buffet has shown ONLY 10% over-performance

Now, from 1965 to 2013 , 48 years compounding shows

10K* 1.2^48 = 10K * 6319.749, meaning that no matter how much the seed money was, there is more than 6000 times.

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I guess this 6000 might be the best since the press does NOT shows better result by any other traders. And note that this annual 20% is almost same as credit card interest rate.

Conclusion1) Probably annual 20% might be best long-term profit rate among any kind of investment in the world.

Conclusion2) Traders with more trading frequency should show more than (long-term) 20% (before brokerage), since Buffets does NOT trade often.
 
For example, if we start with 10K at the age of 30

After 45 years later(at the age of 75), 6000 times of 10K might be the best result (in the whole world), if he shows annual 20% return (after brokerage and tax).
 
To help your math, Wikipedia says in 1962, Warren's investment alone ( not including his partners) was worth 1 million dollars. Back in those days 1 million was serious money.
 
It was a huge amount at that time. I heard the father of Buffet was rich too. Probably congressman.

But note that the initial seed money is NOT important in this column.

For example, suppose A has annual 18% and B has annual 20% (ONLY 2% difference)

over 48 years, A makes 1.18^48 = 2820.567 =2820 times while B makes 1.2^48 = 6319.749 = 6300 times.

Therefore, even if A has two times money at the beginning, after 48 years B is richer than A, just for that 2% annual difference
 
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