kcchongnz blog
Compounded Annual Growth Rate kcchongnz
The compound annual growth rate (CAGR) is a useful measure of growth over multiple time periods. However, few investors understand the concept of CAGR. This includes some ‘accountants” as shown in his comments here:
[Posted by qqq3 > Jul 24, 2018 02:34 PM | Report Abuse 
kc
compounding money is fixed rate instruments and portfolio managers with their portfolio theories.
compounding money in stock market for retail investors is an illusion.
bull market make money, bear market lose money is not called compounding......it is risk- reward.....and timing.]
This comment which aimed at attacking some writers, especially kcchongnz, all the time whenever the writer shared something, is laughable, coming from a “retired accountant”.
What is compounded annual growth rate, or CAGR?
What is CAGR?
Growth rate in investing for every year is never the same, unless you are placing your money in a fixed deposit rate for some number of years, with a fixed interest rate. Growth in business, in stock investing varies every year, some years with return of 20%, some years 10%, some years 5%, and some years even in negative figure. But over a long period of time, we can compute a number, a constant growth rate every year, or CAGR, to smoothen it over the years.
In investing, CAGR can be thought of as the growth rate that gets you from the initial investment value to the ending investment value if you assume that the investment has been compounding over the time period.
The formula for CAGR is: CAGR = (EV / BV)1 / n - 1
Where:
EV = Investment's ending value BV = Investment's beginning value
n = Number of periods (months, years, etc.)
How it works/Example:
Let's assume you invest $1,000 in Fund XYZ for five years. The year-end value of the investment is listed below for each year.
|
Year |
Ending Value |
|
1 |
$ 750 |
|
2 |
1,000 |
|
3 |
3,000 |
|
4 |
4,000 |
|
5 |
5,000 |
We can calculate the CAGR of the investment as: CAGR = (5,000 / 1,000)1/5 - 1 = .37973 = 37.97%
TIP: If you are using a financial calculator, use the yx button to raise (5,000 / 1,000) to the power of 0.20 (since 1 / 5 = 0.20).
Why it Matters:
Although average annual return is a common measure for mutual funds, CAGR is a better measure of an investment's return over time.
For example, consider Year 1 and Year 2 of our hypothetical investment in Fund XYZ. At the end of Year 1, the portfolio value had fallen from $1,000 to $750 for a return of -25%.
Year 1 Return = [(750 - 1,000) / 1,000] = -25%.
By the end of Year 2, the portfolio value had grown by +33%
Year 2 Return = [(1,000 - 750) / 750] = +33%.
Averaging the Year 1 and Year 2 returns over two years gives us an average return of 4%
Average Return = (- 25% + 33%) / 2 = 4%.
But that doesn't accurately reflect what has happened. We began with $1,000 and ended with $1,000, which is a return of 0%.
This example shows why CAGR is a better measure of return over time. Average annual return ignores the effects of compounding and it can overestimate the growth of an investment. CAGR, on the other hand, is a geometric average that represents the one, consistent rate at which the investment would have grown if the investment had compounded at the same rate each year.
Application of CAGR
Let us refer to example to try to make use of CAGR. We will refer to a comment by the most active commentator in i3investor with multiple nicks below,
[qqq3 kcchongnz > Jul 24, 2018 03:48 PM | Report Abuse
kc
share market....any thing is possible....its about how much risk I want to take, and about timing.....My $100,000 portfolio of 18 months ago is now $ 300,000 at market value..........what is the compound value in 20 years...? you work out for me.....
24/07/2018 16:33 ]
At the present moment, I am still waiting for his published portfolio of stocks to see if he really tripled his investment in 18 months. That is not to say impossible. It is possible to make a CAGR of more than 100% over 18 months. But to make a CAGR of say 30% over 20 years, haven’t heard before.
However, I did find something on his portfolio published in i3investor, exactly 18 months ago in January 2017, when he entered into the stock investing competition in i3investor in the link below,
https://klse.i3investor.com/servlets/pfs/72439.jsp
Over the 18 months period, he made 8.2%, a small fraction of the 200% he was talking about. His CAGR would be as below,
CAGR = (EV/BV)^(1/n) -1
= (108191/100000)^(1/1.5) -1 = 5.4%
This figure seems more likely over the last 18 months, probably according to the return of the broad market over the same period.
Here is another of his comments,
[qqq3 kc
in fact, not only that....I don't need to work for more than 20 years already......and I have been travelling and playing golf for more than 20 years already.....and in another 20 years, my margin account will be as big as KYY when he is 80.
24/07/2018 08:03]
Let’s say KYY mentioned by him has a margin of RM200m. This means the fellow above must have his own RM200m in 15 years’ time. What is the number of years required to build that wealth?
carrying out some simple algebra, which all accountants would be able to do it,
Number of years, n = log (EV/BV) / log (1+CAGR)
And n = 145 years.
This means qqq3 would have to live up to 210 years old compounding his return from stock investment at 5.4% to build up RM200m he was talking about. Interesting! What age is the oldest person ever lived?
Assuming qqq3 will be the best investor in history making 25% CAGR, he still requires 34 years to build that wealth. What would be his age then? The oldest man on earth?
kcchongnz
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Discussions
4 people like this. Showing 25 of 25 comments
want play compound buy blue chip....buy penny stock, very erratic one..one wrong straight KO, no more mood to talk compound already.
2018-07-24 20:59
Posted by lizi > Jul 24, 2018 08:59 PM | Report Abuse
want play compound buy blue chip....buy penny stock, very erratic one..one wrong straight KO, no more mood to talk compound already.
================
that is what I meant by hang pig head sell dog meat
2018-07-24 21:52
dear value investor kc....
why people buy Vitrox so aggressively?
because its a rare gem in Malaysia and people likes it...not because it is cheap.....
Vitrox is one of two stocks I classify as long term buys , the other being Gas Malaysia.....with different characteristics.
I find value investor sifus are scared scared people, cheapos, looking for inferior products.
2018-07-24 21:56
in fact Gas Malaysia is one of few shares I can think of that can talk compounding....no business risk one.
2018-07-24 22:13
qqq3,
so where is your portfolio 18 months ago which you said tripled in value?
Have you deleted the one in i3investor which only made 5.4% in 18 months?
You may also use Jaks as your only sailang stock, which you have been shouting all this while for the last 18 months and see what your return is.
Make sure you can last your retirement with only RM100k saved after so many years of working. You can only spend RM5000, I mean a year, not a month, for 20 years to come. That means only RM400 a month. Enough to survive ah?
So, take my advice. Be as stingy as possible, not to say using the meager amount of money to punt in the stock market, and hope to make RM200m in 20 years.
By the way, I have given up hope trying to teach a cow what compounding is. Although I like teaching,it is just impossible to teach one like you with that kind of brain. Give up!
2018-07-24 22:14
cheoky
u like hang pig head sell dog meat is your business
I don't like hang pig head sell dog meat is my business.
2018-07-25 00:14
kc
no assurance of repeat ability, u want to talk about compounding.....u study too much or what? where is your business sense?
2018-07-25 01:23
Posted by qqq3 > Jul 25, 2018 01:23 AM | Report Abuse
kc
no assurance of repeat ability, u want to talk about compounding.....u study too much or what? where is your business sense?
This article aims to teach you a very simple concept about compounded annual growth. Many people like you have no idea how to calculate return, if their investment gave them satisfactory return, or if certain goal, such as dreaming to have RM200m in 20 years time with a capital of RM100k makes sense.
This I spent quite some time and did it for free for you. Instead of showing gratitude, you have been attacking me (with no logical reason) for every article I write to share in i3investor.
Why?
Anyway, I am a compassion person, a financial advisor, and let me give you a final advice.
At the age of 60+, retired and without regular income, but a saving of just RM100k, (and assuming without any other liabilities) leave every sen of it as cash for your daily household expenses, and spend it very very carefully.
Stop trolling in forum like i3investor, spending your time talking nonsense. You are wasting your time and it doesn't help your financial situation. From what you have been writing, it doesn't earn you any respect either, instead, many readers laugh at you.
Instead, go find a job, preferable a full time job if you can and earn some money, and save in bank deposit. You never know how long you are going to live. If you are going to live another 20 years, you need a lot of money, many many times the RM100k you have.
Forget about punting in the stock market, for it has a lot of uncertainties there and you may lose all your money there. Then where you get money to live? Depend on your children? Not smart as they will have their own commitment.
It is unwise to think that someone will help you to make money in the stock market, always, as I have said, stock market is full of uncertainties.
Anyway, I seldom give "advice" to retirees, for most of them should have enough experience and wisdom in their financial well-being.
This is an exception to you.
Adios.
2018-07-25 07:52
well, I still have a million $ EPF account, I have not touched.....now, that is compounding.
EPF account can talk about compounding, not your penny stocks value investing. You never know what happens next to your penny stocks.
my stocks today is about $ 300,000......ready cash about $ 300,000....I don't know whether I will reach the size of KYY by 80, but its a good target .
2018-07-25 08:52
Posted by qqq3 > Jul 25, 2018 08:52 AM | Report Abuse
well, I still have a million $ EPF account, I have not touched.....now, that is compounding.
EPF account can talk about compounding, not your penny stocks value investing. You never know what happens next to your penny stocks.
my stocks today is about $ 300,000......ready cash about $ 300,000....I don't know whether I will reach the size of KYY by 80, but its a good target .
Me: Well, RM1m in EPF. Good on you. It is okay lah but really that is nothing to shout about after working for decades.
Lets take what you say is true, although I have some reservations as explained below. But I am happy for you, as if you lead an ordinary life, a simple life, but not playing golf everywhere as you said, you may still last for 20 years, and provided you don't have any serious illness.
As for your investment return, I still waiting for the portfolio you had 18 months ago and see how you tripled that in 18 months. I have mentioned that the portfolio I found of yours only return only 5.4% in 18 months.
I just happen to find your another portfolio published in i3investor as summarized below,
Stock price then Price now Gain/loss Gain/loss %
Bornoil 0.15 0.06 -0.09 -60%
CBIP 2.25 1.24 -1.01 -45%
Ekovest 1.42 0.715 -0.705 -50%
Ecoworld 1.29 1.24 -0.05 -4%
Taan 4.79 2.62 -2.17 -45%
Jtiasa 1.35 0.72 -0.63 -47%
Average -42%
The above portfolio of yours lost 42%. Mind you, not making 42%! There may be some dividend not included, but that won't change much.
If you lost so much money punting in the stock market before, how are you so sure you can make RM200m in 20 years time?
So listen to my free advice again. Get rid of your over-confidence. Do not talk cock again about sailang, margin etc. Keep all your money in cash to earn the highest interest rate, say 4.5%, don't waste time in public forum, find a part time job and hopefully you have enough money to last you before you expire.
2018-07-25 09:29
Stock price then Price now Gain/loss Gain/loss %
Bornoil 0.15 0.06 -0.09 -60%
CBIP 2.25 1.24 -1.01 -45%
Ekovest 1.42 0.715 -0.705 -50%
Ecoworld 1.29 1.24 -0.05 -4%
Taan 4.79 2.62 -2.17 -45%
Jtiasa 1.35 0.72 -0.63 -47%
Average -42%
============
that list do so badly?
that means many people also do badly in last one year....but I did very well the last year....even 2018 I still make money.
There must be some thing I am doing right. My confidence is very high .......
maybe I should take some money from the EPF account to invest but being held back by the Trump wars.....
u see....the above example clearly shows trading and speculations which I am doing is far superior to buy and hold in the last 12 months.
2018-07-25 10:06
oddly enough...I don't remember losing any money on any the shares above..in fact, per my memory, I make good money on Bornoil and Ekovest.
.Its a list compiled impromtu and at that time, it was supposed to be a competition list....but it was not a list of stocks I hold at any time.
2018-07-25 10:52
qqq3 Stock price then Price now Gain/loss Gain/loss %
Bornoil 0.15 0.06 -0.09 -60%
CBIP 2.25 1.24 -1.01 -45%
Ekovest 1.42 0.715 -0.705 -50%
Ecoworld 1.29 1.24 -0.05 -4%
Taan 4.79 2.62 -2.17 -45%
Jtiasa 1.35 0.72 -0.63 -47%
Average -42%
============
that list do so badly?
that means many people also do badly in last one year....but I did very well the last year....even 2018 I still make money.
There must be some thing I am doing right. My confidence is very high .......
maybe I should take some money from the EPF account to invest but being held back by the Trump wars.....
u see....the above example clearly shows trading and speculations which I am doing is far superior to buy and hold in the last 12 months.
ME: Lost 42% in the past year in your trading and speculations still think you are "doing is far superior to buy and hold in the last 12 months"?
OMG, are you high on drug or what?
So your RM100000 is left with RM58000. How is it that it has become RM300k as you said?
How long is required to get back to your RM100k with a loss of 42% in the near future?
Still so bloody confident that you will make RM200m in the next 15 years? How?
2018-07-25 16:45
u see....the above example clearly shows trading and speculations which I am doing is far superior to buy and hold in the last 12 months.
my own performance is vastly superior to that list of stocks...I am up 200%....that list is down ( by the way that list is without adjustments for bonus issues of Ekovest, Bornoil)....
u see....some years good for buy and hold....some years, bad for buy and hold and good for me.....
so why only allow buy and hold a voice and no voice for people like me?
The above record clearly show I am correct.
https://klse.i3investor.com/blogs/qqq3/151380.jsp
my only caveat is....speculation does not mean contra.....speculation / trading is you trade hoping to make money, not hoping to buy and hold. although I notice I make a lot of money on T +1 and T+2....and oddly enough....if I think long term I make money T+
+1, T+2.....If I am in a hurry, I lose money......actually very interesting.
2018-07-25 19:01
kc
I really find you are a man of no conscience...hanging pig head sell dog meat......Knowing that the last one year is bad for buy and hold.....and most buy and hold people lost money ( big time)....How can u continue to do what u have been doing?.......don't feel guilty one meh for leading people to holland.
2018-07-25 19:14
Posted by qqq3 > Jul 25, 2018 07:14 PM | Report Abuse
kc
I really find you are a man of no conscience...
MY RESPONSE: MAN OF NO CONSCIENCE? DID I LIE TO YOU THAT I MADE 200% THE LAST 18 MONTHS WHILE TWO PORTFOLIOS OF SOMEONE PUT UP IN THE THE PUBLIC FORUMS SHOWED A LOSS OF 42% AND A GAIN OF ONLY 5.4%? AND HE SAID HE IS GOING TO HAVE RM200M IN 15 YEARS TIME. HAVE I SAID ANY STUPID THING LIKE THAT BEFORE?
hanging pig head sell dog meat......
ME: WHERE DID I HANG A PIG HEAD? WHERE DID YOU SEE ME SELLING DOG MEAT?
WHAT IS THE "PIG HEAD" YOU ARE REFERRING TO? WHAT IS THE "DOG MEAT"?
Knowing that the last one year is bad for buy and hold.....
ME: WAH YOU KNOW BEFORE HAND THAT THE LAST ONE YEAR WOULD BE BAD? YOU GOD AH?
AND WHO ASKED WHO TO BUY? BUY WHAT? HOLD WHAT? SHOW EVIDENCE!
and most buy and hold people lost money ( big time)....
ME: HOW YOU KNOW OTHERS BUY AND HOLD LOST BIG TIME? SHOWS SOME EXAMPLES!
How can u continue to do what u have been doing?.......
ME: DO WHAT? WHERE YOU FIND WHAT I DID?
don't feel guilty one meh for leading people to holland.
ME: I LED WHO TO HOLLAND? I HAVE NEVER BEEN TO HOLLAND BEFORE. WHAT WAS THAT WHICH BROUGHT THEM TO HOLLAND?
I DO KNOW MANY PEOPLE WOULD HAVE GONE TO HOLLAND LISTENING TO YOU KEEP ON PROMOTING SAILANG AND MARGIN IN SENDAI WHEN IT WAS RM1.40+, AND JAKS WHEN IT WAS RM1.80+. YEAH, YOU HAVE LED MANY TO HOLLAND. NOT ME!
You are just high on drugs all the time talking nonsense!
2018-07-25 20:26
kc
the only time i3 I have showed by actual portfolio is this...still proud of it....
qqq3 Posted by qqq3 > May 24, 2018 10:12 PM | Report Abuse
I can share my portfolio...no problem
medium term investments
DRB, FLH, AeonCr, Vitrox, FLHB, Gas Malaysia,
short term trading......it arises every day.....with 10% target mostly because difficult to see big bull run.
2018-07-25 22:30
Posted by qqq3 > Jul 25, 2018 10:30 PM | Report Abuse
kc
the only time i3 I have showed by actual portfolio is this...still proud of it....
qqq3 Posted by qqq3 > May 24, 2018 10:12 PM | Report Abuse
I can share my portfolio...no problem
medium term investments
DRB, FLH, AeonCr, Vitrox, FLHB, Gas Malaysia,
short term trading......it arises every day.....with 10% target mostly because difficult to see big bull run.
ok now you have a third portfolio so far as claimed by you. No, this is not your only portfolio, but the third one. This portfolio return about 12% so far.
The first one is here,
qqq3 Stock price then Price now Gain/loss Gain/loss %
Bornoil 0.15 0.06 -0.09 -60%
CBIP 2.25 1.24 -1.01 -45%
Ekovest 1.42 0.715 -0.705 -50%
Ecoworld 1.29 1.24 -0.05 -4%
Taan 4.79 2.62 -2.17 -45%
Jtiasa 1.35 0.72 -0.63 -47%
This first portfolio lost 42%. ok, after adjustment for corporate exercises for a couple of the stocks, it is still at a loss.
Your second portfolio was the "official" one here which was in the stock pick competition for 2017,
https://klse.i3investor.com/servlets/pfs/72439.jsp
This portfolio made 5.4% so far in 18 months.
So tell us, how is that you could triple your investment from RM100k to RM300k?
How are you going to multiply to RM200m in 15 years? What CAGR is required? How old will you be then?
Please address the questions above instead of beating around the bush!
2018-07-26 00:02
Hi Kc
Thanks for the sharing. Personally I like your sharing to use some tools to better off the judgement and measurement on investment. I respect qqq3 for his way of investment too. The forum will be better in the constructive suggestion and helping each other out. I can't make both of you to shake hands and be friend. However, I hope the personal attack halt.
Regards,
Liow
2018-07-26 08:33
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This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....
qqq3
so obsessed with compounding ......., that is portfolio theory, that is what fixed rate instruments give you....not risk assets.
its an illusion, pulling wool over people's eyes when it is KC talking about compounding.......
I don't bother about compounding...I just want to make more money than I lose.....the rest will take care of itself.
Fund managers manages a portfolio....they have deep knowledge of portfolio theories and don't feast or famine based on the values of this or that share and next quarter report........kc talking about compounding? Its an illusion.
Compounding is the territory of portfolio managers..and how they allocate assets, ...........shares have a funny habit of climbing slowly and dropping sharply....some times years of equity growth disappears in an instant and become negative .....what compounding you talking about?
2018-07-24 19:43