How I Trade Stocks For a Living -- [Chapter 5]

Albert Einstein once stated that the law of compounding interest is the
"Eighth Wonder of the World".  I won't argue with that.  In regards to
finance and investing, understanding the law of compounding is paramount
to achieving success in the stock market and in other financial areas of your
life.  If you have assets it can work for you, but if you have debt it will work
against you.  A very easy way to estimate how many years it will take your
money to double given a certain interest rate, is to divide the interest rate
into the number 72.  The formula is:

Estimated # of years to double = 72 / interest rate(%) .  Some examples:
At 6%, it takes about 12 years (72/6) to double your money.
At 9%, it takes about 8 years (72/9) to double your money.
At 12%, it takes about 6 years (72/12) to double your money.
At 20%, it takes about 3.6 years (72/20) to double your money.
And at Warren Buffett's 23% return, it takes only about 3.12 years to double
your money.  Do that over a 40 year period, it would be doubling your
money on top of your money about 12 times.  That's how $10,000 became
over $50 million in Warren Buffett's world.  There's real magic in the law of
If you trade or invest in stocks without giving strong consideration to the
Rule of 72 and the law of compounding, you will not achieve the type of
success that you have the absolute potential of achieving.  Any
trading/investing system that does not use the law of compounding as the
foundation on which the system was built lacks a very crucial element that
makes it a successful system that transcends time.  Fortunately, the law of
compounding is the bedrock on which The Beanieville System was

Leave a comment

Please note, comments must be approved before they are published