So compound interest in a bank account makes sense to me. However I am having trouble grasping this concept when it is applied to stocks. Using this compound interest calculator: http://www.moneychimp.com/calculator/compound_interest_calculator.htm
With $100 principal. $0 Annual Addition. 1 year to grow. An annual interest rate of 700%(A helluva stock pick). Compounded 365 times annually. I get to $102,630.76. AWESOME! However I don't understand this at all.
My current understanding: I buy 100 shares of company XYZ at $1 a share. So that accounts for the $100 in principal. Those shares go up 700% making each share worth $8 a share. Since I own 100 shares I now have 100 shares x $8/share = $800.
I know the discrepancy is in the number of times it is compounded annually. If I put in the calculator to compound it 365 times annually it radically changes the answer from if I put 1. However I do not understand why it would not compound more than once total for a stock. If you own a $100 wrist watch and it doubles in value and you sell it for $200 that doubling wouldn't compound so why would a $100 stock compound if it doubled?
Hopefully some of you are screaming at your screens seeing my obvious mistake and can fill me in. Thanks for your help explaining this! I really should know this and have watched many videos and read many articles but there is something big not clicking here for me.
Submitted September 24, 2019 at 10:06PM by strungestbean https://ift.tt/2mZjPN2
