How Compounding works in Stock Market.
                     HOW  
COMPOUNDIING  
WORWKOSR INKS S ITNO CK 
STOMCAKR MKAETR?KET?
WHAT IS COMPOUNDING?
• Compounding is the process in which an asset's 
earnings, from either capital gains or interest, are 
reinvested to generate additional earnings over 
time.
Source: Investopedia.com
COMPOUNDING IMPACT 
• A compounding impact is created by the 
continuous reinvestment of capital gains such 
that you reap gains on your earnings. 
• This is the mechanism that turned Warren Buffett 
into a symbol of investment. 
Source: 
ansonanalytics.com
EXAMPLE
• In 20 years, a $10,000 investment yielding 5 per 
cent a year would be worth $26,533. 
• The total benefit rises to $67,275 if you can raise 
the profit to 10 points. 
• On the Website, there are many compound 
interest calculators that you can experiment with 
to get a sense of how the rate of returns has a 
profound effect on the outcomes over varying 
time spans.
Source: interest.co.nz
WHAT DO MARKET INVESTORS 
THINK?
• Most market investors only think about 
compounding in terms of a single stock or in the 
form of a bank account where interest is 
reinvested continuously. 
Source: Investopedia.com
WHAT IS THE MAIN CONCERN?
• The thing they miss is that compounding is 
mainly a function of ensuring at all times that the 
investments you invest in remain close to their 
highs. 
• You should not have this question of a bank 
account. The money you spend may not go down 
in value, but the main concern is stocks.
Source: 
realmoney.thestreet.com
WHAT DO INDIVIDUALS THINK?
• Individuals buy only a few excellent stocks that 
they are certain can continue to grow slowly over 
a long period of time. 
• In retrospect, stuff like Apple Inc. (AAPL), 
Microsoft Corp. (MSFT) and Facebook Inc. (FB) 
can be found easily. 
Source: 
economictimes.com
COMPLICATED OPERATION
• When you measure it on a prospective basis, it is 
a far more complicated operation. 
• What stock would you buy today that over the 
past 20 years, can work like Apple has? If we 
learned that we are both going to be on our 
yachts in the Caribbean with such certainty.
Source: 
financialexpress.com
RISK OF COMPOUNDING
• The main risk of compounding is that the asset is 
false. Compounding also operates in reverse. 
• The most popular condition facing investors is 
the ownership of a stock that has not appreciated 
for many years and is incredibly expensive. 
Source: Investopedia.com
STOCK PORTFOLIO AS A SINGLE 
ASSET
• It alters your concentration if you think about 
your stock portfolio as a single asset. 
• You work on properly handling the stocks you 
hold, rather than simply trying to locate a couple 
of good stocks to hold. 
• Your wealth base will expand if you do this 
successfully, and the compounding impact will be 
of great value.
Source: 
economictimes.com
WHERE INVESTORS FAIL?
• Many individuals, when they suffer so many 
significant drawdowns, struggle to compound 
their savings accounts. 
• They're not keeping their accounts close enough 
to their highs. They suffer a tremendous loss and 
then have to go through the very unproductive 
process of only getting back to where they were.
Source: Investopedia.com