Get Rich Rule 72

Rule 72: Compound Interest

Let P= Principal at interest rate i after n years:

Compound Interest Formula:

$latex P'=P.(1+i)^{n}$

$latex (1+i)^{n} = 1 + ni + \frac {1}{2} (ni)^{2} + \dots $

if ni=0.72 =72%

$latex (1+i)^{n} = 2$

=> P'=2 P

ie ni=0.72, P double

so if i = ROI (Buffett recommended) = 15% => n=72/15= 4.8 ~ 5 years

=> every 5 yrs x2

=> every 10 yrs x4

If you wish to double many times to get 1 million after 10 years, reverse the calculation:

Invest $ 1 m / 2 / 2 = $250,000 now

Buffett advised to put a  MoS (Margin of Safety=50%) to buffer mistake buys and have bigger ROI,

=> invest 250K - 50% = $125 K (now)

Spread it into a portfolio of max. 5 stocks at any time => S$25 K/ stock.

If the companies are good one, they will increase equity, or ultimately acquired, and you will be paid handsomely with higher stocks. eg. Google, DELL 10 years ago.