The math bump

[dividinde]

Calculation problem that I will illustrate with Nestlé and Implenia:

Nestlé earned 1972% in 29 years (excluding dividends). So we say that the average annual return was 1972 / 29 = 68% per year.

For Implenia, the average return over the last 11 years (listed on the stock exchange only since 2006) was 167 / 11 = 15.2% per year.

We realize that this calculation is absurd because the result is very strongly impacted by a long duration, because of the ever-increasing influence of the compound effect over the long term.

In reality, Nestle's annual return should be around 10-15% per year without taking into account the compound effect. And this figure is in my opinion much more "true" than the 68%, because it shows what annual gain a NEW investor can expect to obtain.

Hence my question: is there a formula for calculating the annualized return excluding the compound effect?

[Jerome]

Yes it's easy it's the CAGR or average annual growth rate in French

https://www.investopedia.com/terms/c/cagr.asp

A simple way to calculate it:

http://cagrcalculator.net

Personally, I prefer to use Excel:

Calculate a Compound Annual Growth Rate (CAGR)

[dividinde]

Fantastic, thank you!

If I calculated correctly, this gives us a CAGR of 11.02% for Nestlé and 9.34% for Implenia.

[Jerome]

You calculated well 😉

[Author]

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