Originally Posted by
SailorRob
After joking with a mate that at this rate OCA would take until 2040 to reach $2, I decided to take a look at what this scenario could look like as an investment.
I was stunned to find that it would be a very decent investment and in all likelihood beat the returns you would get from putting your money with 95% of professional investors over the same 18 year time period. If the shares go to $2 now it will destroy your returns.
From here to $2 in 18 years, the share price would produce a compounded 4.1% return. If dividends kept in lockstep (so the yield remained the same and the dividend also grew at 4.1%) and you paid 25% tax on the dividend and then reinvested into the company at the prevailing share price you would compound your investment at 7.92%.
Now if the share price stayed at 97c for the first 10 years and then grew steadily to $2 by the 18th year, you'd compound at 8.75%, but if the share price stayed at 97c for 17 years before jumping to $2, then you'd compound at a phenomenal 9.5%. This would turn a million into 5.5 million. At the original 7.92% it would be 4.41 million.
Obviously the share price staying static while dividends grow is unlikley, but this shows the effect of having a share price go nowhere. The longer it stays lower the better and you can of course commit external capital.
Given the choice 999 of 1000 investors would want and pray for only $3.46 million and reject the $5.5 million, throwing away 2 million dollars as they prey for the share price to go up NOW which would mean only getting a compound 6.92% return.