Chapter 2
Published on September 29, 2004 By Jay Walker In Business
This is a serialized version of an internet book entitled:

“The Brink’s Truck Burst Open On Wall Street! A Holistic Approach to Finding The Easy Money In Common Stocks”

This is Serialization 5. To find Serialization 4, please go here, Link, while Serialization 6 will be posted HERE.

This book will be serialized over a several month period. It will interest people who want to know whether the price of a stock is fair, or priced too high. It will aid you in outperforming the general stock market, by helping you understand what the value is of the company that underlies its stock, and by then relating that to its stock price. However, while many of these types of books are difficult to understand, this one is written in terms that most lay people should be able to understand, rather than using obscure language and difficult to understand terminology.

Insofar as the people go, this is a work of fiction. All names in this publication are fictitious and any resemblance to any person living or dead is coincidental. Copyright 1998 and 2004 by Jay Walker. All rights reserved.

Note that this book is available in its entirety via a pdf file. A comprehensive Excel spreadsheet, beta version, is also available, which performs many of the tedious, but necessary, calculations required to analyze a company and its stock price. This spreadsheet is designed to accompany the book.

The cost is $8 for the book, and $12 for the spreadsheet (USD). Please email me at to order yours.

Chapter Two

(Continued from Serialization Four)

The Miracle of Time

“Hi, Kim.”
“Hi, Jamie.”
“Kim, you’ve probably heard about the so-called magic of compound interest. You might be wondering why it’s so magical and what’s the big deal, anyway?
“Kim, compound interest is what allows your money to be worth so much more than the amount of money originally invested. Here’s a table I’ve printed up for you to look at, which shows the results of investing $100,000 and having it compound for seven, fourteen and twenty-eight year periods, at the annual rates of 7 per cent, 12 per cent, 17 per cent and 22 per cent. In fact, if you carefully consider the table, you will see that it isn’t compound interest that’s magical at all, it’s ‘time’. It’s so magical, in fact, that I call it ‘The Miracle of Time’. Look at this table, Kim.”

----------------7 per cent-------12 per cent-------17 per cent-------22 per cent
7 years----- $160,578----------$221,068---------$300,124---------$402,271
14 years------257,853------------448,711----------900,745---------1,618,220
28 years------664,884----------2,388,387-------8,113,423-------26,186,367

“Wow! I guess you’re right, Jamie. It does seem like time is the really critical thing. For instance, when I look at seven years of compounding at 7 per cent annually, my $100,000 has increased to $160,578. By comparison, at 22 per cent my money has more than quadrupled to $402,271 over that same time. In other words, at 22 per cent, I’ve made 2½ times more than at a 7 per cent rate, right?”
“That’s right, Kim. That’s the magic of compound interest. But it really pales in comparison to the miracle of time. Let’s consider that for a moment.
“Let’s say you continue to earn your rather meager 7 per cent for another 21 years, thereby totaling 28 years of investing. Meanwhile, having found my ‘perfect’ investment earning 22 per cent, I continue to sleep, Rip Van Winkle like, for the same length of time. When I awaken, I find I now have over $26 million, while you are still trying to become a millionaire. Remember when we first compared amounts?”
“Yes, Jamie, you had 2½ times more than I did.”
“That’s right, Kim, but I’ve now got over 39 times more than you do. That’s partly the magic of compound interest, but mostly the miracle of time. So, what we are looking for is to have our money invested within stocks of companies whose price will advance at the highest possible compounding rate, for the longest possible time, in order to replicate the same phenomenon.”
“Okay., Jamie, I understand the key here is to earn a high rate of return, for the longest possible period. Right?”
“Right, Kim.”
“Now, Jamie, why haven’t you discussed compound interest rates of 25 per cent, 30 per cent and 35 per cent? I mean, I’ve got a friend who says the ‘Dow Jones’ stock index has gone up by an average of over 30 per cent per annum, in several of the past few years.”
“Well, Kim, I didn’t discuss those return rates because they’re not very realistic over the long haul. While some returns may approach those rates, for short periods of time, they are usually not sustainable. And long-haul sustainability is crucial, as we shall see when I tell you about ‘The Evils of Taxation’.
“In fact, Kim, the reason you’ll find 12 per cent in that table I handed you is because it is generally accepted that the long-term annual increase in US stock market prices is between 11 per cent and 12 per cent. The exact increase depends upon which part of the stock market is being measured, but most observers agree that the long-term increase is in that range. And the U.S. stock market has been one of the best performing stock markets over the past 50 years. Many countries, such as our neighbors to the north, Canada, have not experienced as much of an increase in stock market prices. In many industrialized countries, between 8 per cent and 11 per cent annually is more normal for the long-term rise.”
“So, why then do you talk about 22 per cent, Jamie? Is that realistic?”
“Well, Kim, it’s a stretch but, believe it or not, it could be attainable. Still, a more realistic long-term goal is to aim for 15 per cent, and hopefully over time it could approach 20 per cent. In fact, my very favorite stock in the whole world has increased its intrinsic value by nearly 24 per cent annually, for over 30 years. But this stock is obviously exceptional.”
“So, Jamie, you think a long-term goal of 15 per cent is more realistic?”
“Yes, it is, and with luck, higher. And you know what they say about luck, Kim?”
“Yes, Jamie. They say that “Luck favors the prepared”!”
“That’s right, Kim. See you tomorrow when we’ll talk about ‘The Evils of Taxation’.”
“Okay. Bye, Jamie.”
“Bye, Kim.”

----------- Continued in Serialization Six ------------

No one has commented on this article. Be the first!