Some investors may wonder whether the return of long-term investment index funds is equal to ROE? The saying "ROE is about equal to long-term investment income" comes from Warren Buffett's good partner Charlie Munger.
If the profit of an enterprise has been 6% of its capital for 40 years, your average annual return will not be different from 6% after 40 years. If the profit of the enterprise in 20-30 years is 18% of the capital, even if the price is high at that time, the return is still satisfactory. Why do you say that? This is because the compound interest of the stock comes largely from the annual profit reinvested in production.
Suppose a company makes a profit of 1 million yuan;
如果ROE=6%，则投入100万，来年会产出6万元，
如果ROE=18%，则投入100万，来年会产出18万元，
Therefore, the higher the ROE, the higher the yield under the same input. However, the ROE will continue to change in the actual investment, and the financing capacity of enterprises will also be different. Therefore, the long-term ROE is very important, but we will not only look at this when investing.
