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Investing 101: The Rule of 72 (and 144)
Compounding allows money to grow at an exponential rate, which is often a concept that we as humans have difficulty grasping. For example, $100 growing at 10% gets to $1,700 at the end of a 30-year period, but naturally, our brains couldn’t calculate this exponential amount. A good method to get around this is through the ‘Rule of 72’. The Rule of 72 states that the number of years it takes for invested money to double is 72 divided by the interest rate. For example, money growing at 10% annually will require 7 years to double (72 / 10 = ~7 years). The Rule of 72 can also be expanded to 144 – this would provide us with the time it takes to quadruple invested capital. For example, it would take 14.4 years to quadruple invested money growing at 10% annually (144 / 10 = 14.4 years).
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It peaked in 2023 and got clobbered last year. Then, it got hit with tariffs and shares sank again. Is -25% since last January. It reports next week. Last March's report was actually okay, beating sales and earnings. But we expected that because the company pre-announced results. That's why the street punished it for weak guidance. He remains hopeful, because he expects the 46% tariff on Vietnam, which makes a lot of LULU product, will face a much lower tariff. However, shares have rebounded 18% the past month. They have a strategic plan focused on product innovation, guest experience and market expansion. Expectations are low for this quarter with even some analysts expecting an upside surprise in earnings and same-store US sales. He likes this set up and would buy now.
EPS of $1.52 missed estimates of $1.56; revenue of $9.08B was marginally better than estimates. Scotiabank's transition is advancing, driving overall adjusted operating leverage and international segment efficiency improvement, aided by progress toward C$800 million in cost savings this year and primacy expansion. The bank may reach 5-7% 2025 EPS growth. Trade risks still weigh on domestic and Latin America economies, reflected in a higher-performing provisions ratio. Slower activity in domestic banking might extend as clients face uncertainty. Canadian net interest margin eased. Wealth growth is exposed to market volatility, while Capital Market's M&A fees could ease, despite a healthy pipeline. The bank expects 2H impaired provisions at or over 2Q's 57 bps, above prior guidance and expected 2H moderation. Performing reserves in 2Q may help. Scotiabank is set to buy back 20 million shares. All-in, we would be comfortable here. The bank is managing a difficult and uncertain time fairly well so far.
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