Answers
1. Trick question. Price does not matter in isolation! To determine the size of the company you need to know the total number of shares owned by others and how much debt. Value is then determined by how much are earnings growing and how much risk is there to future growth.
2. The correct answer is $100 per month. This is the power of compounding and being focused on long term returns. You would only need to contribute $60,000 total ($100 x 12 months x 50 years) to grow a portfolio to $1,000,000. Invest as much as you can when you are young.
3. 110%. Maximizing your return has a large impact over time. Don't settle for mediocre returns or pay fees that can't be justified by better results.
4. Down 40%. The house price declined by $100,000 which means that your investment (or your equity) declined from $250,000 to $150,000. This is the risk (and often a benefit) of using debt/leverage on your investments.
5. The largest one day gain is 9.29% (Mar 13, 2020) and the largest one day drop is 20.47% (Oct 19, 1987). Typically the largest daily declines are larger than gains, but fortunately there are much more up days than down.
6. Stocks don't always work out but your odds improve with longer time horizons. Over the past 50 years the worst:
- 5 year return was -40% (Mar 2004 to 2009)
- 10 year return was -47% (Mar 1999 to 2009)
- 15 year return was +10% (Aug 1967 to 1982)
- 20 year return was +50% (Mar 2000 to 2020)
*Additionally, if the market is already down 10% or more from its highs, your odds improve drastically.
7. Pepsi has been a superior investment since its IPO in 1972 (and across most time horizons). Coca Cola holds a significantly larger market share (42% vs. 31%), but the effectiveness of the management team and the cost of acquisitions often have as much impact as the brand itself.
