There are tons of blog posts and videos on the web that says, 20 years ago, If you had bought Eicher Motors stock instead of buying a Royal Enfield bullet worth Rs 50,000, your investment would be worth Rs. 5 crores today. It’s true!
But how do you actually measure such a return? Well, that’s what a CAGR calculator shows you. All you need to do is, just enter the starting value and the ending value of ANY asset. And also the timeframe in between. The CAGR calculator will show you the annualised return of that asset – whether it’s equity or mutual funds or real estate or bank FDs.
Let’s check the CAGR or Annualised Return of Eicher Motors in the past 20 years. So if you enter Rs. 50,000 as the starting value and Rs. 5 crores as the ending value in 20 years – it gives you a CAGR of 41.25%. Likewise, an MRF stock was worth around Rs. 500, 20 years ago, and today’s it’s worth over Rs. 50,000. So if you enter Rs. 500 as the starting value and Rs. 50,000 as the ending value in 20 years – you get a CAGR of around 25.89%. It basically means that if you are able to achieve 26% annual returns on your investment, every single year, then your investments are actually delivering better returns than MRF.
A CAGR Calculator can not only be used to calculate the returns of financial assets like stocks and mutual funds. A CAGR Calculator can be applied in your real life as well. For example, if a property was worth Rs. 10,000, 40 years ago, and today it’s worth Rs. 25 lacs – you’re basically looking at a 250-bagger. But when you actually measure its CAGR – you get 14% which is not a huge number.
Not just that. How do you know whether your investments are ACTUALLY beating inflation or not. Let’s say 10 years ago your living expenses were Rs. 40,000 a month and today it’s Rs. 1 lac a month. So if you enter Rs. 40,000 as the starting value and Rs. 1 lac as the ending value in 10 years, you get a CAGR of 9.5%. That’s the actual inflation for you AND not the rubbish numbers published in the media.
There are tons of multibagger stories on the web like Infosys, Wipro, Titan, Larsen, Eicher, MRF, Page Industries, etc. And then there are stories like, if you had bought Eicher Motors stock instead of buying a Royal Enfied bullet, your investment would be worth several crores today.
Well, that’s certainly true but what if someone bought DLF stock instead of buying an apartment in 2007? What if someone didn’t buy a smartphone and instead invested in Reliance Communications? What if someone didn’t travel by airplanes and instead invested in Kingfisher? What if someone didn’t buy gold and instead invested in PC Jewellery? What if someone didn’t buy ice creams and instead invested in Kwality? What if someone didn’t buy soft drinks and instead invested in Manpasand?
So what’s the point here? My take is, it’s really stupid to compare stocks with another asset class or one of your expenses – whether it’s a necessity or a luxury.
So it’s much, much, better to pick good quality stocks (or assets) at a fair price and focus on its portfolio level returns than trying to chase the next multibagger. Because it’s definitely not worth your time and effort unless you’re one of the so-called value investors.
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CAGR, Real Estate, and Inflation | What’s Your Inflation Adjusted Returns : https://www.youtube.com/watch?v=bf2lDZE3y1s
The Magic of 26% Annualized Returns | CAGR of Eicher Motors & MRF : https://www.youtube.com/watch?v=jhNWRUrLJU4
CAGR | Significance of Compound Annual Growth Rate : https://www.youtube.com/watch?v=UWydd66ndRE
LIC New Endowment Plan vs. Term Life Insurance : https://www.youtube.com/watch?v=88w6uGG6smU
Endowment Insurance Policy In Less Than 60 Seconds : https://www.youtube.com/watch?v=3pMloEc8YX8
Pure Term Life Insurance vs. Return of Premium Term Plan : https://www.youtube.com/watch?v=fEdVPKV_xaI
Unit Linked Insurance Plans In Less Than 60 Seconds : https://www.youtube.com/watch?v=3RgCJC9N1Yc
HDFC Life Click 2 Invest ULIP Policy Is Useless, Unless… : https://www.youtube.com/watch?v=lEVb7fW8GTc
I hope you are learning a thing or two from my videos, screencasts, and podcasts. If so, do share my stuff with your friends and family on your social media channels!
Happy Investing/Trading! 🙂
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