What would you rather have: $1 million in a month (31 days) or a penny that doubles every day for 31 days?
What about $2 million in a month versus the doubling penny? $5 million?
It’s a fun math puzzle that explains compounding. If you do the math, the penny takes a while to get rolling.
Ten days in, the doubling penny only sits at about $5. At 18 days, it finally passes $1,000. It clears $100,000 on day 25. Then the real impact kicks in. Over the last six days, it eclipses $1 million by a factor of 10. As investment analogies go, it’s a good one. Time is a fundamental ingredient for investing success.
I was reminded of the puzzle because Chuck Akre used it to kick off a presentation on his investment process. Compounding plays an important part of his process, just as it does in everyone’s.
Only Akre looks for companies that compound at a high rate of return over a long period of time. He uses the concept of a three-legged stool to explain how he does it: Continue Reading…