Originally posted April 21, 2016
The two most important words in investing, as I have been writing in Richard C. Young’s Intelligence Report for decades, are compound interest.
Albert Einstein described compound interest as the greatest mathematical discovery of all time. Ben Franklin wrote on compound interest, “Tis the stone that will turn your lead into gold.” Charles Munger, longtime partner to Warren Buffett has often said, “Understanding the power of compound return and the difficulty getting it is the heart and soul of understanding a lot of things.”
Richardcyoung.com contributor, and my longest friend in the investment industry, Dave Hammer recently wrote to me about compounding:
When my great-grandfather came to this country from Scotland to work for GE around 1912, he used his first paycheck to buy one share of GE stock. Today, each of his 23 great grandchildren (who like me reinvested dividends) now has $30,000 apiece. I told this story to GE’s CFO years ago, and he used it in his investor presentations. It was a compound return of 9.5% and a great example of compounding.
In Part III, I will give you another astounding example of the power of compound interest. I will also explain how we use the miracle of compounding as the core of everything we do for clients of Richard C. Young & Co., Ltd.
See Part I by clicking here.