The whole concept of compounding is that numbers grow faster than you expect a few years down the line when growing at a constant rate because this growth is exponential. This is why we all put money away and invest it in the stock market to begin with.

Just to get an idea of the unimportant future price of the dow, take the equation Ae^(rt) ; where A is the current price of the dow (lets say 8300) , e is 2.718 (for non-math people, this is a constant number) , r is the annual growth rate, and t is the number of years (lets 91 to get us to 2099).

With 2% growth, the Dow ends at 51K. 3% – 127K. 4% – 315K.

The range between 2-4% is already d times the lower bound (315-51 is larger than 5X 51). There is absolutely no way that anyone could come close to accurately predicting the growth rate with any confidence, and as we see the Dow’s price in 2099 is EXTREMELY sensitive to this unpredictable number.

Time is better spent trying to find undervalued companies. Also, Joe I would like to hear your thoughts on why you think AEO is no longer a good investment. I never bought the stock, but I do think that they are in one of the best positions for the future among their competitors.

the Dow Jones Industrial Average surged from 66 to 11,497 during the 20th century. That is a huge rise – yet it averages out to just 5.3% compounded annually, Buffett writes. What’s more, were the DJIA to repeat that 5.3% average annual gain throughout the 21st century, its value on Dec. 31, 2099, would approach 2 million.

http://money.cnn.com/2008…

-RY