Warning: More finance stuff (Click to show)
Your capital gains are the same irrespective of your amount of equity invested... So try 7%. I.e. less than you claim is a reasonable alpha. Aight.
I'm not even going to comment on the first part. The same compounding is why you should care if you say lose every cent you save for the first 5 years your still better off investing for 10@ 18 over 15@7 -- assuming equal or greater contributions each year.
You realize this is what quoting past returns is implying right? Otherwise past returns mean nothing... other than the existence of such assets, which I don't think anyone was denying. The value premium is a) not that large and b) evaporating so this come back to some form actually picking beyond that.
Just briefly, luck does play a part. FWIW, i run portfolios going at 27% pa for the last five years.
Getting to outperformance requires time spent on acquiring knowledge and experience. it is not innate. You cannot magically wave a wand and start getting high returns. on the other hand, earning 7% whilst learning is effortless and less risky.
It is not a pure maths exercise. I am specifically addressing a young graduate owning a home with a mortgage. in my own situation, i would of course maintain cheap debt to obtain high returns, and hence accord with your reasoning.
i do not know what a value premium is. All i know is picking good companies with good management at fair prices, and compounding will do the rest. Dont need to be a rocket scientist to identify good companies such as CSL or COH ten years ago, and to steer clear of highly leveraged names.
References Graham and Dodd and claims not to know what a Value premium is... I don't even know anymore... The value premium is a quantification in some sense of the advantages of the type of companies espoused by Graham and Dodd.
I'd argue you should at-least have the risk appetite to invest in an index fund over paying down debt.