Although it is tempting to think "Wowza, this is a story about the enduring power of stock options to make big fortunes", it is more about the enduring power of compound interest to make fortunes. Although his benefactors are lucky he held IBM stock rather than something that went bankrupt in the interim, really, if you hold just about any diversified equity portfolio for 100 years when you're done, boom, you're worth really huge amounts of money.

Heck, my meager Roth IRA savings plus 100 years of 8% compounding would be worth about $25 million, give or take. That is below the actual performance of the American stock market these last 100 years, to boot.

(Granted, most of us can't directly benefit from 100 years of appreciation, but most of us could directly benefit from well more than 40, and if you have kids or causes that will survive you, hey, the sky is the limit.)

With the 40+% drop in 2008, I'm not sure that the 100-year average for American stock market/broad-indexes is still over 8%-per-year.

Over that time scale a 40% drop is not that big a deal.

1.08^100 = 2200 so 1$ = 2200$

(2200 * .6)^(1/100) = 1.0745, and 1$ = 1320$

PS: A 40% drop might seem like a huge deal but over time it's just not that important. ~8% vs ~7.5%

Your math is of course correct, but I would turn the interpretation around:

On a 100-year scale, a 'tiny' 0.5% drop in compound return is massively 'important' in effect. It's no consolation to the person with 40% less money that his annualized performance was only 0.5% worse; you own the $1320, not the 7.45%.

"8%" is often thrown around as a long-long-term guesstimate of stock returns; if in fact that's slipped to 'merely' 7.5% based on the last year, that's remarkable.

The hit against the annualized rate within timeframes more like the earning careers (or even lifespans) of News.YC readers is also big. Here's an interesting graph for S&P total return over the last 20 years:

http://mahalanobis.twoday.net/stories/5279642/

A dollar from 1988 was giving near (or far over) 8% annualized return until mid-2007; now it's more like 5%.

My point is there are plenty of large swings in the history of the S&P 500. It's up 15.38% from 10/9/2002, and down 41.33% from 3/24/2000. The BMW World for Iceland is down 99.44% over the last year which drastically changes their long term returns. But picking a peak or valley is not the best way to calculate returns.

http://www2.standardandpoors.com/spf/pdf/index/112808_Worldb...

IMO picking a peak or valley is less informative than what happens when you invest one inflation adjusted dollar every month over the history of a stock exchange. Add in selling off 1-4% a year and you can see what the stock market does for normal peoples investments.

That's where mean-reversion-averaging-down-buy-and-hold comes into play.

If you're into that sort of thing.

aka. Dollar-cost averaging?

Long story short: you can't predict the market. If you buy all your stock on one day, and in hindsight it turns out to have been at a peak, we'll you're screwed aren't you. If you buy your stock in periodic roughly equal sized increments over a period of time, the average cost of the stock will correspond to the stock's average over the long term. (i.e. sometimes you get it "cheap" when the market is beaten down, sometimes you get it "expensive", but it all comes out in the wash.)

This is a common strategy for long-term investors.

Interesting. What sort of period of time? Years seems like the best way to cover a decent range of the market. Got any links?

You will beat the "average" value of the market.

EX: While buying 100$ in stock at 10$/share and 100$ in stock at 20$/share means the average price was 15$ you have 15 shares for 200$ which is 13.33$ / share.

Past performance is not indicative of future results. What's 25 million going to be worth in 100 years? Might not be able to buy much.

I don't know why this is being downmodded. In 1908 the US population was roughly 90 million. Part of the huge economic growth experienced over the 20th century had to do with population growth and consolidation as the world's global superpower. Even though the rest of the world also had economic growth, other economies didn't fare so well over the same period of time.

In a way, looking at the past century and assuming that the next one will be similar in terms of return rates is like expecting Google's stock to grow spectacularly over the next decade. Once you are #1 there is not as much room for explosive growth.

This mans sounds pretty cool, although I'm not about to defend IBM either. Lots of money, yet lived frugal. Reminds me of Buffett (although I recently keep wondering why Steve Jobs, who is very frugal, bought an SL 55). Anyone know why people buy stuff like that when they typically lead pretty frugal lives relative to their monetary wealth? Same thing with Larry and Sergey buying a jet. Any ideas?

An SL 55 is about $120k. Plenty of non millionaires drive cars that cost half that (and I bet there are non millionaires that drive SL 55s) - for a billionaire, where it's a rounding error on his net worth (though probably not on his liquid cash), it basically is frugal.

Quite. He could afford to have a custom iBentley made if he wanted to. Also I don't know how the SL55 stacks up in this respect but if it's more reliable than average, then that's a frugal choice too. Remember it doesn't mean cheap it means best possible value for money.

I don't usually respond to say I agree with something because it's against hn rules, but that's a really interesting perspective. I didn't think about it that way and it makes a lot of sense.

People with enormous wealth who typically live frugally buy (or charter) private jets to preserve something far more valuable than money: their time. Buffett has a private jet as well, btw.

Buffett has a private jet company as well, btw.

Buffett was famous for criticizing biz types that used private jets until just before he acquired said company and started using one himself.

Don't know about Sergey and Larry, but Jobs has a thing for vehicles that he considers a great combo of engineering and aesthetic design.

According to Guy Kawasaki, he bought a BMW motorcycle during the development of the original Mac, which he kept parked near near the lobby of the building where Mac development took place. According to Kawasaki, Jobs referred to it as living art.

Supposedly he later kept a BMW motorcycle, (not clear if it was the same one) in the living room of Jackling house, his mansion in Woodside.

do you have any sources of steve jobs' frugality? just curious. i regularly read buffett

And donated it all to good causes on his death.