Friday, October 22, 2010

The power of Compounding Annual Growth Rate (CAGR)!

Berkshire Hathaway Inc. A-Share 1990 to 2010

In Jan 1990 the share price for Warren Buffet's controlled company, Berkshire Hathaway Inc, (listed in NYSE) was traded at USD7,455 per share.

In 21 years time, in Oct 2010, the share had appreciated by about 14.3% per annum to USD124k per share. (yes, 1 share cost RM385k. 1 A-share in Berkshire Hathway Inc. ("A" share) = 1 double storey house in Malaysia)

In the letter to shareholders (of Berkshire Hathway Inc.) for year 2009, click here for full letter,Warren Buffett said:

Our gain in net worth during 2009 was $21.8 billion, which increased the per-share book value of both our Class A and Class B stock by 19.8%. Over the last 45 years (that is, since present management took over) book value has grown from $19 to $84,487, a rate of 20.3% compounded annually.*
That is the power of CAGR! 45 years at 20.3% p.a. will turns $19 to $84,487.

To achieve a powerful CAGR for your investment portfolio, remember the two rules from Warren Buffett,

Rule # 1 - Don't lose money
Rule # 2 - Don't forget Rule # 1.