Investment Performance Expectations

Warren Buffett Performance

Most would say that Warren Buffett is the investment performance standard @ about 22%.

The facts:

Berkshire Hathaway Inc. (BRK-A):

  • April, 2008 $130,000.00
  • April, 1998 $ 68,000.00

About a double in 10 years or a growth rate of 7%.

Lifetime, $8,750 since 1990 to $130,000, 2008, about 16%.

Berkshire Hathaway B (BRK-B):

  • April, 2008 $4,354.00
  • April, 1998 $2,280.00

About a double in 10 years or a growth rate of 7%.

Lifetime, $1,000 since 1990 to $4,354, 2008, about 7%.

This is not to detract from Warren Buffett, but more to point out that one does not have to set their investment performance sights too high to have extraordinary success and, I might add, without having to use complicated investment strategies while assuming high investment risk.

Realistic and Maintainable Investment Returns

All investors are exposed to advertisements, articles, CDs, Websites, and seminars that use single investment incidences and exceptions to project incredible investment returns.

Keep in mind that those who even suggest or possibly promise annual investment returns of 100%, 50%, and 30% cannot deliver.

If the higher ranges of these investment rates of return were possible to achieve on a consistent basis and if an investor started with just $10,000.00, it would not be too long before that investor would have just about all of the money in the world.

Since these returns are commonly suggested to be in the realm of possibility, the purveyors, or should I say predators, of these investment returns should not have to be promoting their investment scams and each should have about all of the money in the world by now and there would not be any money left for either you or for me.

That said, keep in mind, that back here on planet earth that a $40.00 equity just going to $43.00 in a year, a 7.5% return on capital, a $30.00 equity just going to $33.00 in a year, a 10% return on capital, or a $20.00 equity just going to $22.00 in a year and declaring a $1.00 dividend, a 15% return on capital, are realistic investment return expectations for an investor seeking primarily capital growth and willing to assume moderate investment risk with occasional variances above and below these investment returns in extreme and unusual investment circumstances; best of all, as an investment advisor, you can deliver.

If you will apply a simple investment approximation, the rule of 72, by dividing 72 by a selected, annual compound rate of return to determine the number of years it will take capital to double at the assumed interest rate, you will quickly conclude that inflated investment returns cannot be a possibility.

The lower the interest rate assumption, the closer the approximation to the actual:

  • At a 10% compound annual rate of return, capital will double about every 7.2 years; 72 divided by 10.
  • At a 30% compound annual rate of return, capital will double about every 2.4 years; 72 divided by 30.
  • At a 50% compound annual rate of return, capital will double about every 1.4 years; 72 divided by 50.
  • At a 100% compound annual rate of return, capital will double about every 8 months (actual, 1 year) ; 72 divided by 100.