To set things into perspective lets assume I bought shares worth 10,000 LKR in company X. If company X provides 10% returns annually, at the end of year one ill have a capital gain of 1,000 LKR which would value my stock at 11,000 LKR. Assuming it has a 10% increase on year 2 as well it makes my capital to 12,100 LKR.

Likewise, so one it goes? And that’s compounding if i’m not mistaken yes? Thanks in advance!

3 points ShallWe69

yes the 10% is calculated for existing capital. assuming you don't sell part of the shares to reset the capital to original price.

also note that in equities, company doesn't return a fixed percentage. regardless the concept still applies

parent

1 points CoinlessComedian

Thank you! Understood

parent root
3 points unwantedagent

If the company gives dividends you can invest back the dividend to buy more shares, that way each time your next dividend will be higher than the earlier dividend (given the company is consistent in dividends )

parent

1 points CoinlessComedian

Thank you!

parent root
3 points Elephantastic4

Compounding in stocks is a mathematical observation of long-term growth, not a functional mechanic of the price. Stocks don't pay 'interest' on last year's gains; they just trade at a new price every day based on perceived value. And some stocks will pay dividends, and the price will adjust again.
Some years stock price can be up 5%, 10% or down 10%. But on a long time horizon you will see steady CAGR

parent

1 points CoinlessComedian

Thank you!!

parent root
2 points iamsrithuva

I feel it is a master of the interest.....

parent