Earn about 21.5% a year for 20 years and $1 becomes $50
Investor and author Will Thorndike uses about 21.5% a year for 20 years as the bar for studying exceptional chief executives and investors.
Joys of Compounding · Will Thorndike - Lessons from the Eternal Outsider - [Joys of Compounding, EP.28]Earn about 21.5% a year for 20 years and every $1 becomes $50.
That is the math behind "50X," the benchmark investor and author Will Thorndike set "to study exceptional long-term performance" among chief executives and investors.
At 20%, $1 grows to about $38 after 20 years. At about 21.5%, it grows about 50-fold. Each year's gains earn gains the next year, and that effect builds over 20 years.
Will Thorndike said he looks across at least two business cycles, because "results can be skewed by starting and ending points."
Questions people ask
How does about 21.5% a year turn into 50 times the money?
It is compounding. Each year's gains earn their own gains the next year, so growth snowballs. At 21% a year, $1 grows to about $45 after 20 years, and at 22% it grows to about $53.
How rare is that pace for 20 years?
Extremely rare. Very few public companies or investment funds have sustained it for two full decades, which include both booms and recessions. Warren Buffett's Berkshire Hathaway, at roughly 20% a year over decades, is often cited because so few others have matched it.