Sample Issue Microsoft at 50 and the Miracle of Compounding

It seems probable that as the equity market continued its epic crash on Friday, April 4, most investors failed to note the great significance of that date in American economic history. It was, in fact, the 50th anniversary of the founding of Microsoft by Bill Gates and Paul Allen. Seeded with a few thousand dollars of the owners' capital, Microsoft's market capitalization surpassed $3 trillion before the recent tech selloff.

You couldn't invest in Microsoft when it was founded; the company didn't go public for another 11 years, in March 1986. But suppose that instead you had invested $100,000 in the S&P 500 Index right around the date of Microsoft's founding, 50 years ago. Suppose further that you had just left that account to compound, paying any taxes generated by your fund out of your own pocket.

By my count (SWIW pages 68-69), “the stock market” suffered 11 bear markets between April 1975 and the end of March of this year, or about one on an average of four and a half years. (That's deliberately not counting the unpleasantness of this past month.)
The average drawdown was 26%; the largest was 56.8% over 17 months in the Global Financial Crisis.

Your $100,000 investment in April 1975 compounded at 11.7% a year to a total of $25
million at the end of March. (Source: S&P 500 Historical Return Calculator on the website “Of Dollars and Data.”)

Microsoft is testimony to the boundlessness of American ingenuity and innovation, most particularly in technology. The S&P 500 is testimony to mainstream equities' unrivaled power to capture and compound that progress—while totally overwhelming all manner of economic, financial, political and geopolitical crises.

As the great Charlie Munger said, “The first law of compounding is to never interrupt it unnecessarily.” The best time to buy the great companies in America is when you have the money. The best time to sell them is when you need the money. Everything else is the madness of market timing.