Really understanding compounding will make all the difference in investing. I believe that Warren Buffett, the world's greatest investor, is hardwired to think geometrically. He is rich beyond dreams because he totally gets the magic of compounding, and he executes on the concept. I am going to get these numbers wrong because I'm doing them from memory but it doesn't matter. You'll get the concept. Buffett started a partnership way back when. He had a number of limited partners invest with him, and he took 20% of the gains. In the late 1960s he terminated the partnership with his famous letter, "When you no longer understand the way the game is played, it's time to leave the game." I'm paraphrasing, even though it's in quotes.
Buffet took about $100 million out of that first partnership for himself, so he was working with $100 million, keep that in mind. In 1974 when the bear market bottomed, it might have been early 1975, he started another rise...he took over Berkshire Hathaway. Buffet, since the 1970's, has been getting a compounded (remember that means exponential) growth rate of about 22 to 24%.
This is where I introduce you to the cousin of the Magic of Compounding, which is called the Rule of 72. With the Rule of 72 you can calculate how long it will take you to double your money at any given rate of return. OK? Let's take an example. If you're earning 12% on your money and you want to know how long it will take to double it (we're compounding, remember?) divide 72 by 12, and your answer is 6. It will take 6 years to double your money. Let's do another one. If you're getting 6% on your money, divide 72 by 6 and you'll see that it will take 12 years to double. If you're getting 9%, it's 72 divided by 9, or 8 years to double up.
As for Warren Buffett, he's getting 22% on his money. This means you divide 72 by 22 and gee, in only 3.27 years, or every 3 years and 4 months, he doubles his money. Since he's been at it about 35 years with that $100 million he had to play with, he's doubled his original $100 million almost nine times. You get that by taking 35 years and dividing by a double every 3 years and 4 months. It equals 10.70, or let's go with nine doubles to adjust for a rate of compounding that is varying. The key point is he's not making 9 times his money with the $100 million, that would be an arithmetic progression that would give him $900 million. He's making nine doubles, a geometric or compounded progression.
Let's see how that works.
Warren Buffet's Geometric Progression Starting Dollar Amount: $100 million Time Periods Involved: Nine 3 year and 4 month periods
Period Time Taken Compounded Gain 0 Starting Point $100,000,000 1 3 years, 4 months later $200,000,000 2 6 years, 8 months later $400,000,000 3 10 years later $800,000,000 4 13 years, 4 months later $1,600,000,000 5 16 years, 8 months later $3,200,000,000 6 20 years later $6,400,000,000 7 23 years, 4 months later $12,800,000,000 8 26 years, 8 months later $25,600,000,000 9 30 years later $51,200,000,000
I believe Buffet is worth about $47 billion. It doesn't matter, he is somewhere in his ninth double. This is the magic of compounding! Also, he never sells. This means his money is doubling every three years and four months with no tax consequences. He gets taxed only when he sells. Under normal conditions, the money compounds until he dies, then it's taxed at a capital gains rate in the far distant future. In Buffett's case, he's giving most of his wealth to the Gates? foundation to benefit society.
Teach your children to live a balanced life, and also help them master this concept and you will have very happy and very rich children. In stocks I show you how to make money at the bottom by buying depressed securities that are going to come right back, making you a fortune as they rocket off the bottom. In the future I will also show you how to make money with the Warren Buffet concept, or classical Graham and Dodd analysis. In the mean time, good luck with understanding the magic of compounding.
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I have mentioned previously that the Romance genre is almost a sure bet, and that mystery stories are a pretty close second. I also included adventure in the popular list, but particularly dwell on the historical novel because it not only has remained popular through the years, but recently has experienced somewhat of a growth period, as has the formerly almost dormant western.
I also have intimated that in no other genre, is research the most dominant requirement. A historical novel, above all else, must be accurate in its historical details. In my previous discussion, I covered some of the problems encountered in researching the historical novel.
There are a number of others, with which one must contend. If one selects a period in antiquity, such as Costain's previously mentioned The Black Rose, one will find a great deal of confusion and overlapping descriptions of both terrain and the people living there. A prime example, is offered by wandering groups of marauding nomads who invaded China's northwestern borders in the waning B.C. years. Reportedly, their depredations were so annoying as to cause erection of the first part of the Great Wall in Gansu. These Xiongnu were described and often called "Huns," by early eighteenth century writers. The grave confusion occurs because the Chinese destroyed the Xiongnu in the second century A.D., and no evidence ever has surfaced that there had ever been any westward migration of the Xiongnu. Attila, the Hun, and his hoards, did not appear and begin their devastating raids in Europe until some two hundred years later.
This is just one of the myriad problems one can experience in attempting to set a story in such a out-of-the-way time and place. The research must be thorough, because if it is not, someone is going to spot it. Before starting a novel in this era, I might suggest perusal of Frances Wood's, The Silk Road, as an excellent place to begin. It is well researched and beautifully written. Also, a novel by Sam Barone, entitled Dawn of Empire, is a well-written example of a fairly recently published novel set in a similar early era.
Another factor that I mentioned briefly in an earlier discussion, is that of geography. I recalled the tremendous change that had taken place in the seashore area just outside of Marbella, Spain in just a few short years. These changes are not unique. All of Europe has, and is, changed quite drastically. Certain, mostly desert parts, of Morocco and Algiers have changed little except for the eternal movement of the sands. The rest provides horrendous mixes of the new with the old. Parts of Ireland remain pretty much as they were, but even the once remote Ring of Kerry has encountered much change.
If one is to write about the United States, one must remember the tremendous changes that have taken place here, as well. One has only to remember, for a graphic example, some of the recent motion pictures depicting New York City at the turn of the century. Other changes that are more difficult to remember, and perhaps picture, are the 'Great American Desert' that once covered much of the southwestern part of the country, and the once untenanted Llano Estacado that now is heavily populated and even contains whole cities.
Characterization is a third major factor that one must consider in the historical genre. Individual personalities, perhaps have changed little. Anger, jealousy, pettiness, fear, magnanimity, have all existed for eons of time. However, the mores of the various societies in which these personalities live, have undergone a tremendous revolution. Those of the ancients contrast sharply with those of the Renaissance, the Elizabethan, and every other marked period of history, as they do from nationality to nationality; viz, the duena system of courtship in Spanish society, or the Creole institution of placage in Old New Orleans.
So, if one wishes to write in the historical genre, each and every one of these factors must be carefully considered and researched. It is not an easy task if one does not enjoy spending countless hours perusing numerous sources. However, if you enjoy such pursuits, you will find many rewards well worth the time.
Both Richard Stoyeck & John H. Manhold are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
Richard Stoyeck has sinced written about articles on various topics from Politics, Finances and Foreclosure Help. Richard Stoyeck's background includes being a limited partner at Bear Stearns, Senior VP at Lehman Brothers, Kuhn Loeb, Arthur Andersen, and KPMG. Educated at Pace University, NYU, and Harvard University, today he runs rockefeller Capital Partners and Sto. Richard Stoyeck's top article generates over 22200 views. to your Favourites.
John H. Manhold has sinced written about articles on various topics from Investments, Writing. John H. Manhold is a retired professor and scientific journal editor. He is an author of several textbooks, a lexicon in four languages and now novels that often require extensive research. He provides coaching on various types and phases of writing. Plea. John H. Manhold's top article generates over 1300 views. to your Favourites.