Story of a CAGR thread
Compound annual growth rate or CAGR is the average rate at which an investment moves from one value to another over a period of time. 1/n
Investors fascinated by advertised CAGR as a benchmark before investing should find out about the risks, rather than assuming that the CAGR were an annual constant. 2/n
Many CAGR are pre fees and pre taxes , investors should always check what is In hand net CAGR to their money 3/n
high expense ratio and performance fees is what dilutes CAGR considerably 4/n
1 year or 2 year high performance CAGR doesnot indicate that longer term CAGR would stay high. Many PMS or MF today have single digit CAGR for 2 years or 3 years. Many have not beaten fixed deposit rates 5/n
Stock investing requires a higher level of risk assumption resulting in unsteady investment growth from share price appreciation and dividends 6/n
Assuming compound interest & stock growth both the same indeed results in OVERESTIMATING your investment growth! 7/n
When compound interest are totally defined ones, there is less predictability left to do about outcome. Stocks due to non linearity and back n forth move , their outcome can not be defined by fixed or even small range bound percentages. 8/n
Its fancy to quote only long term but in this long term start and end point changes CAGR drastically for stocks. When you should time market is popular , timing though arbitrarily the start and exit is indeed very important to CAGR 9/n
CAGR of 20% for first three years but a drawdown of 20% in fourth year makes CAGR of 8.4% from start. Protecting drawdowns are far more important than just high CAGR 10/n
CAGR does not reflect investment risk. Many euphoria things like some crypto, IT stocks, infra ones had very high CAGR 11/n
CAGR does not reflect volatility. in stocks portfolio it may remain high at times and so does CAGR's volatility. 12/n
CAGR is a pro forma number that provides a "smoothed" annual yield, so it can give the illusion that there is a steady growth rate even when the value of the underlying investment can vary significantly. This volatility, or investment risk, is important to consider 13/n
3 Different entities like FMCG stock, Tech stocks and treasury may have same CAGR for example in 3 years but FMCG stock will be less volatile and low beta, Tresury might be extremely steady constant line but tech stock would give you a roller coster ride in same period 14/n
People who have tried to maintain or create fixed plus CAGR in stocks have mostly failed trying to attempt so where as successful ones like WB or lynch might nt have had CAGR target in their mind, its the people who calculated their CAGR. 15/n
Rare Stocks work like nuclear fission for few years .. some for 4-5 or some even 10 , having such stocks changes evertything about portfolio CAGR. ALso having stocks that are growing better than industry expected CAGR for next 4-5 years may result in giving good CAGR 16/n
Finding right stocks, Giving right allocation % and exit at very high returns - all three are equally important to get high CAGR in stocks 17/17
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