Mon 24 Oct 2011
In the book, Once Upon a Wall Street, Peter Lynch, one of the most successful mutual fund managers that Wall Street has ever seen, narrates a story.
“Consider the Indians of Manhattan, who in 1625 sold all their real estate to a group of immigrants for $24 in trinkets and beads. For 362 years the Indians have been the subjects of cruel jokes because of it – but it turns out that they may have made a better deal than the buyers who got the island. At 8% interest on $24(note: let’s suspend our disbelief and assume they converted the trinkets to cash) compounded over all those years, the Indians would have built up a net worth just short $30 trillion, while the latest tax records from the Borough of Manhattan show the real estate to be worth only $28.1 billion.
That’s 1000 times more! the power of compounding. Found this article interesting.