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November 26, 2010

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kunal

RoR does not depend on 'size of the pie', it is simply a function of how much you grow the pie in the given time. You give historic data to prove that bigger chunk of investment in companies returns a strong rate. There is no logic behind this statement.

for example, you own companies A, B and C with 5% in each.
The companies grow by these amounts:
RoR(A) is 20%
RoR(B) is 50%
RoR(C) is 0%

your net RoR is thus 23%

now you increase your stake to 20% in each of these 3 companies
if the companies grow by the same amounts, the net RoR will still be 23%

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