Tuesday, March 07, 2006

Nasdaq 2 Million

So, I recently read Warren Buffet's Annual Letter to Shareholders of Berkshire Hathaway. In it, he makes an observation about the compounding effect on the Dow Jones Industrial Average. I mean, the observation isn't anything earth-shattering, but I personally never really thought about it much, and I'd never had anyone ever point it out before.

This isn't what Buffet used as an example, but it's basically the same thing...

Today, the Nasdaq Composite Index sits at 2268.

If the Nasdaq can produce annualized gains of 7.5% up until the year 2100, then it will have compounded at that rate for approximately 94 years. And, if it is able to do so, we should see the Nasdaq Composite Index at 2,032,538 -- that's right, Nasdaq 2 Million. If the Dow was able to produce gains of that size over the same time frame, it would be sitting just shy of the 10,000,000 mark.

Mathematically obvious, but really gives you a different perspective. Anyway, thought I'd share.

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