Photo by Ben White on Unsplash

In Part 1 we looked at at the historical returns of dollar cost averaging.

In Part 2 we compared dollar cost averaging with lump sum investing.

In this final part, we will look at the effect of market timing on both dollar cost averaging and lump sum investing. We’ll look at investment starting points during the 10 year low points, 10 year high points, and 10 year midway points.

Our goal is to try to see if it’s worth trying to time the market? Although many would say any attempt is futile at best.

Investing at Lows

Since 1920 there’s been ten points…

Photo by Cassie Matias on Unsplash

In Part 1 (Historical returns of Dollar Cost Averaging) of the dollar cost averaging study we looked at 5, 10 and 15 year returns of a dollar cost averaging investment study in the S&P 500 index with start dates from every year since 1920.

I now set out to do a study of the results to see how a lump sum investment would have done historically if one were to have invested a lump sum at different starting in each month beginning in 1920.

This would be for a scenario where someone gets a lump sum amount of cash, think…

Read enough about investing and you’ll undoubtedly come across the strategy of Dollar Cost Average. The strategy is simple: divide the total sum you wish to invest into the market into equal parts and invest in the market at regular intervals.

I set out to do a study of the results to see how the strategy would have done historically if one were to have started investing a set sum over the course of three years with different starting in each month beginning in 1920.

For example, assume you had $108,000 to be invested over three years in the sum…

There’s been a lot of talk about United States billionaires recently, mostly about their money, taxes and giving — should they be taxed differently? and how? Are they philanthropic enough? And so on.

I was interested in something else — how did they acquire their wealth?

Billionaires in US

  1. ~600 billionaires in the United States [Forbes, Bloomberg]
  2. 43 new additions in 2018 [Forbes]

Macro Stats

  • How did they become a billionaire?

I was in the email marketing industry for over 13 years as the founder of StreamSend (founded in 2004, acquired 2017) — I saw, first hand, a story of David vs Goliath.

I have a lot of respect for Ben Chestnut, Dan Kurzius and the MailChimp team (founded in 2001). Ben and I had similar origin stories — immigrant parents, SMB exposure, email marketing coming out of consulting. So how could I not have admiration and respect? They used creativity, and lateral thinking, to not only kick our rear ends, but they also managed to get a public company delisted!

Once upon on a time….

I’ve recently read a great book: “7 Powers: The Foundations of Business Strategy” by Hamilton Helmer.

The Powers discussed are the “set of conditions that create the potential for persistent differential returns”. Said another way, they help create competitive moats that help a company grow and sustain differential margins.

I think strategically considering Power can be especially powerful for startups and early investors. As Hamilton said: “your first step is invention: breakthrough products, engaging brands, innovative business models. The first step, yes, but it can’t be the last step.” …

I’ve been digging into the math behind the VC or Angel investments. This post is a summary.

Success Measure: IRR Returns

A key measure of success for investors is IRR. So it’s important to first understand IRR and the inputs. IRR is the Internal Rate of Return. IRR in it’s basic form is basically the compound annual growth rate of return that an investment got. The simple inputs are:

  • Time (e.g. years)
  • Multiple of the amount invested (e.g. 10x back from my $1K investment = $10K)

The below charts show the IRR% based on those two inputs. …

Dan Forootan

Founder, Investor

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