I invested $10,000 into Amazon (AMZN) during the Dotcom bubble.
I didn’t, but if I had, it would be north of $4,000,000 as of last Friday’s close. At the time, Amazon was down over 90% so the thought of doing that was nonexistent. That’s why November 2008 during the Great Financial Crisis I invested $10,000. Today that is worth roughly $750,000. However, I didn’t do that either because the thought of doing so was unthinkable amid a recession. So that’s why I decided to invest three years later in November 2011. The $10,000 I invested is now worth about $120,000. Except, I didn’t because I thought Amazon was too big of a company with a total market capitalization of more than $100 billion1.
Not every investment is an Amazon, but the opportunity for exponential returns is possible if you allow it.
Albert Einstein called compounding the eighth wonder of the world. I truly believe it is, and when you understand how powerful exponential numbers are, you won’t want to miss the chance for your wealth to do the same.
The problem is, our understanding of exponential growth is weak. I recently spoke to a good friend of mine who had some questions about what to do with some money he had saved. He wasn’t sure what his first step should be. The feeling of losing to inflation, or losing to time, led him to feel anxious and worried that making the choice between investing or putting money down for a home could set him back years.
I told him the following example to help him feel like he didn’t have to sacrifice one for the other. Even though my friend is wicked good at math, as humans, our intuition about exponential growth is warped. The example went as such: |