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Andrew Tobias
Andrew Tobias

Money and Other Subjects

Fun With Compound Interest

April 6, 2018April 6, 2018

But first: WheelTug just signed its 24th airline, Kenya, adding 32 jets to the 1,046 already in queue.  Per their press release: “WheelTug will be an excellent complement to our growing fleet and ultra-modern hub in Nairobi. It is the next stage in aviation innovation and vital for our operations.”

I know, I know: but because you bought BOREF only with money you could truly afford to lose (you promised!), I’d like to note that our prospects just seem to get better and better, even though the stock — valuing the entire company at $25 million — bears no relationship (in my view) to the opportunity.

And it’s not just airlines and non-tech types like me who are taking this seriously.  The company’s partners include Stirling Dynamics, which features WheelTug on its home screen with a link to the project description.

None of this assures success, but . . . well, it remains the best lottery ticket I’ve ever seen.  Wouldn’t it be fun if we it worked out?


And now:  It’s the oldest story in the world, but in case you have a child just reaching the age to learn it . . . compound interest is the basis of all things finance.

“Those who understand compound interest, earn it. Those who do not, pay it.”

This site retells the wonderful story of Ben Franklin leaving 1,000 pounds each to Philadelphia and Boston, and the enormous good it did over the 200-year span of his bequest.

Enjoy.


When I used to get paid absurdly well to talk about this stuff, waving my arms with youthful exuberance, one of my favorite riffs was that . . .

“If you had invested just one penny — forget a dollar — one penny! — at just two percent interest — forget five per cent or ten percent — two percent! — [slight pause, as it sank in] — the day Christ was born — [longer pause, for laughter] — how much do you think you would have today?

“Anybody?

“Anybody?  [no one ever ventured a guess]

“If you had guessed one point two five TRILLION [pause for effect] — DOLLARS! not pennies!!! — [longer pause to allow audience minds to be blown, my own arms suspended, as if holding an invisible watermelon in front of my face . . . then slowly drop left hand] — you would be LOW [right index finger jabs triumphantly on the word “low”] by a factor of a thousand times.  [Satisfied silence.  I have made my point.]

“Lesson number one: slow but steady does indeed win the race.  Fund that IRA!  Lesson number two: no wonder the Catholic church has so much money.  (And more power to it, may I be quick to add.)”

“Of course,” I would sometimes continue, “this illustration may have little practical application.  Few if any of us are going to live two thousand years.  It was Homer (not Homer Homer; Sidney Homer, author of A History of Interest Rates) who noted that, when applying these lessons to your own life, ‘the first 400 years are the hardest.'”

Yet the lessons apply nonetheless.


Thirty years having passed since I last held the invisible watermelon in front of my face, that original penny, continuing to grow at 2% a year, would by now have added yet another quadrillion dollars to your fortune.


Before taxes and inflation.


So you’d probably be broke.

Have a great weekend.

 

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John Kenneth Galbraith, The Age of Uncertainty

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