Compounding & Math
In the compound growth formula FV = P(1 + r)^t, this is what the variable $P$ represents
What is the starting principal?
This asset represents a fractional ownership share in a public corporation
What is a stock?
The measure tracked by the U.S. Bureau of Labor Statistics that monitors average price changes for a representative market basket of consumer goods and services
What is the Consumer Price Index (CPI)?
Known as the "Father of Value Investing," he introduced the concept of "Mr. Market" and demanded a margin of safety when buying stocks
Who is Benjamin Graham?
This order type prioritizes immediate execution speed at the best available market price, but does not guarantee an exact execution price
What is a market order?
This quick financial rule estimates how many years it will take for an investment or price to double by dividing 72 by the annual percentage rate
What is the Rule of 72?
This asset is essentially an IOU or debt loan made by an investor to a government or corporation that pays fixed interest
What is a bond?
The term for what happens to your money's buying power when goods and services become more expensive across the economy
What is a decrease in purchasing power?
This legendary investor shifted from buying "cheap" stocks to buying excellent companies at sensible prices, relying heavily on insurance float capital at Berkshire Hathaway
Who is Warren Buffett?
This order type sets a strict price control constraint (e.g., "buy only at $50 or lower"), but carries the risk that the trade may never execute
What is a limit order?
The phenomenon where returns are earned on both the initial principal and on previously earned returns over time
What is compound growth (or compounding)?
Unlike traditional mutual funds that price once a day at Net Asset Value (NAV), this fund type trades continuously on an exchange throughout the market day
What is an ETF (Exchange-Traded Fund)?
If your investment earns a 7% nominal return during a year with 4% inflation, this is your approximate real return
What is 3.0%? (Calculated as 7% - 4% = 3%)
The former manager of the Fidelity Magellan Fund who achieved a 29.2% annualized return and emphasized the "Two-Minute Story Test"
Who is Peter Lynch?
The regulated central venue where stock buyers and sellers meet under structured trading rules
What is an exchange?
In the compound growth formula FV = P(1 + r)^t, this variable represents time expressed in years
What is t?
Spreading money across different assets and sectors to limit the impact of any single investment failure
What is diversification?
The central banking entity that may raise target interest rates to slow consumer spending and cool off high inflation
What is the Federal Reserve (or "The Fed")?
The founder of Vanguard who championed low-cost, broad market index funds over active stock picking
Who is John Bogle?
The cognitive mistake where an investor selectively seeks out information that supports their existing belief while ignoring disconfirming facts
What is confirmation bias?
In "The Compounding Race" worksheet, investing $1,000 at a 7% annual rate for 10 years results in this future value
What is $1,967.15 (or approx. $1,967)?
This type of fund pools money to mirror a specific market index, providing broad market exposure at a low cost
What is an index fund?
An investment's percentage growth rate before adjusting for the eroding effects of inflation is known as this return
What is the nominal return?
Warren Buffett's longtime partner who advocated using multi-disciplinary "mental models" and the problem-solving technique of "inversion"
Who is Charlie Munger?
While risk willingness measures your psychological comfort during market drops, this concept measures your financial ability to absorb losses without failing your goals
What is risk capacity?