Beyond the Average: Mastering the Hidden Mathematics of Compounding A unified framework for leveraging Skewness, Ergodicity, and the Power Law. Posted on December 15, 2025 Investing is rarely a problem of asset selection; it is a problem of mathematical categorization. Most portfolio failures stem from a “Category Error”: treating a volatile asset that requires harvesting…
Tag: Compounding
The Volatility Tax and How to Defeat It: A Mental Model for How to Survive the Maths of the Market
We are all taught the same fundamental truth of investing: Stocks go up over time. We are shown a chart of the S&P 500 moving from bottom-left to top-right and told, “Just buy, hold, and wait.” For the index, this is true. But for individual stocks, this is often a dangerous lie. The reality of…
Stocks Duration
Short duration or short-term stocks are returning near-term cash to their owners while long duration stocks are expected to return cash, or the greater part of it, later, such as growth, early stage, or not-profitable stocks. In a similar fashion than bonds, rising interest rates will affect long-term stocks more than the short duration ones…
Share Buybacks, Dividends and Optimal Capital Allocation
A company repurchasing its own shares may suggest that it is no longer able to reinvest its excess cash at high rates of return. Take IBM in the past ten years. Its share repurchase program, even at a so-called “deep discount”, was not necessarily welcomed as it was perceived as potentially impeding innovation and long…
Growth and Multiple Expansion: the “Twin Engines” of 100-Baggers
Stock price rises over time based on the quality of earnings and on how long those earnings can be reinvested at high rates of return. A business generating consistent high ROE and growth in revenue and book value compounds its re-invested earnings at a rate of return at least equal to its ROE, assuming no…
Great Businesses Compound Earnings At High Rates
GREAT BUSINESSES COMPOUND THEIR EARNINGS AT HIGH RATES The characteristics which growth stocks enjoy were studied by security analyst Thomas Phelps in a book published in 1972 entitled 100 to 1 in the Stock Market. $10,000 compounding at 26% for 20 years turns into $1,000,000. How high the price of a stock rises over time…