CAGR
My Cash Deposit Earns 5% How Are Your Stocks Doing?
CAGR stands for Compound Annual Growth Rate. Essentially it’s taking your returns (or losses) and leveling them over a percentage (%) per year much as savings account or credit card does.
How Do I Calculate CAGR?
You could also use this spreadsheet if it helps: CAGR Spreadsheet
How Does the CAGR Help Me Make Money?
The best part of the CAGR is it boils down your stock swings and lets you compare as most people commonly think about returns on investment. I also like to use it as a primary screen for stocks. If a companies earnings has been increasing steadily at 8% and yet it’s CAGR is 5% over 15 years there is likely a disconnect.
One group that does this better then any other I know is a group from The Motley Fool called The BMW Method. They look for stocks that have statistically too low of a CAGR to invest in.
Is There an Easier Way to View CAGR then Calculating Every Time?
Sort of. If you graph a stock chart on a logarithmic scale instead of linear you are essentially turning the steep curve of a CAGR into a straight line. This may be easier for you to recognize.
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