You may not know, but Warren Buffett’s business partner and Vice Chairman of decades, Charlie Munger, died last November. Buffet credits much of his success to his friend and partner Munger, as they knew each other for almost 70 years. One piece of advice from this investing legend is worth noting, and it has to do with compounding interest.
Investing Advice From Charlie Munger
Charlie Munger once said that the first rule of compounding is to never interrupt it unnecessarily. This is powerful advice for several reasons. It first assures us that compounding is a modern wonder. While it doesn’t happen overnight, and it’s certainly not a straight line, over time, compound inflation is nearly magical. For example, if you investing $100,000 20 years ago in December of 2004, into the S&P 500, and let all of your dividends reinvest, in January of 2024 you’d have $577,649.49. It’s necessary to note that it’s not just through good economic times over the past two decades either – we’ve seen pandemics, hyperinflation, wars, market collapse and more.
This advice from Munger takes it a step further, rather than just reiterating the magic of compounding investing, but doubling down on the important fact that in order for you to get the most out of it, it’s important to never interrupt it unnecessarily.
You Can’t Time The Market
So often, we can’t leave well enough alone. Humans are prone to making poor decisions at the wrong time, often by overreacting, in good times and in bad. Rational and smart people can become very irrational when it comes to how their money is performing in the markets, and make bad decisions. You know what’s not emotional or predictable? The market – and you can’t be either. You really can’t try to time the market, because you can’t win.
Here’s an example to illustrate. One of the best performing mutual funds was Peter Lynch’s Fidelity Magellan fund from 1977-1990, with 29% annualized returns during it’s tenure. However, the average investor in this fund actually lost money. People would often buy in when the fund was growing and then panic when it would decline and get out – inevitably losing money.
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So what can you do, and how can you implement this advice? Sometimes, you have to get out of your own way. Your emotions can get the best of you, and it’s important to have an investment strategy or an investing partner such as a financial planner or investment manager to rely on when you get spooked by the market and are prone to making rash decisions. There’s no need to interrupt that compounding interest unnecessarily, let it keep working for you.
TORONTO – Canada’s main stock index was up more than 100 points in late-morning trading, helped by strength in base metal and utility stocks, while U.S. stock markets were mixed.
The S&P/TSX composite index was up 103.40 points at 24,542.48.
In New York, the Dow Jones industrial average was up 192.31 points at 42,932.73. The S&P 500 index was up 7.14 points at 5,822.40, while the Nasdaq composite was down 9.03 points at 18,306.56.
The Canadian dollar traded for 72.61 cents US compared with 72.44 cents US on Tuesday.
The November crude oil contract was down 71 cents at US$69.87 per barrel and the November natural gas contract was down eight cents at US$2.42 per mmBTU.
The December gold contract was up US$7.20 at US$2,686.10 an ounce and the December copper contract was up a penny at US$4.35 a pound.
This report by The Canadian Press was first published Oct. 16, 2024.
TORONTO – Canada’s main stock index was up more than 200 points in late-morning trading, while U.S. stock markets were also headed higher.
The S&P/TSX composite index was up 205.86 points at 24,508.12.
In New York, the Dow Jones industrial average was up 336.62 points at 42,790.74. The S&P 500 index was up 34.19 points at 5,814.24, while the Nasdaq composite was up 60.27 points at 18.342.32.
The Canadian dollar traded for 72.61 cents US compared with 72.71 cents US on Thursday.
The November crude oil contract was down 15 cents at US$75.70 per barrel and the November natural gas contract was down two cents at US$2.65 per mmBTU.
The December gold contract was down US$29.60 at US$2,668.90 an ounce and the December copper contract was up four cents at US$4.47 a pound.
This report by The Canadian Press was first published Oct. 11, 2024.
TORONTO – Canada’s main stock index was little changed in late-morning trading as the financial sector fell, but energy and base metal stocks moved higher.
The S&P/TSX composite index was up 0.05 of a point at 24,224.95.
In New York, the Dow Jones industrial average was down 94.31 points at 42,417.69. The S&P 500 index was down 10.91 points at 5,781.13, while the Nasdaq composite was down 29.59 points at 18,262.03.
The Canadian dollar traded for 72.71 cents US compared with 73.05 cents US on Wednesday.
The November crude oil contract was up US$1.69 at US$74.93 per barrel and the November natural gas contract was up a penny at US$2.67 per mmBTU.
The December gold contract was up US$14.70 at US$2,640.70 an ounce and the December copper contract was up two cents at US$4.42 a pound.
This report by The Canadian Press was first published Oct. 10, 2024.
