Markets Doubling in 5 Years!By John Honovich, Published Jul 10, 2013, 12:00am EDT
Which is more impressive?
(A) This market is doubling in the next 5 years!
(B) This market is growing an average of 14.87% per year
Well, they are technically the same thing. A market that grows at 14.87% per year will double in a 5 year period. However, (A) sounds far more impressive.
Recently, IHS has adopted the 'doubling in X' tactic for their press releases, which has caused many people to mistakenly believe that these market segments are experiencing some form of gold rush.
Determining Annual Growth Rate
If someone tells you a market is going to double (or triple) in X number of years, you can easily figure out the real annual growth rate by using a Compounded Annual Growth Rate calculator, like so:
Assessing Growth Rates
First of all, ignore the 'doubling' or 'tripling' claims. Also, do not pay any attention to speculation, like "This market is going be $3 gazillion in 2032" (e.g., the comical PSIM 'study'). If you pick a long enough time frame, you can throw out incredibly large projections for most anything.
Also, remember that market projections almost always assume that no recession will happen during the time period covered, which is unfortunately, not realistic.
Here are some rules of thumbs for annual growth rates:
- The Global economy grows on average 2 - 3% per year, so practically speaking never expect to see less than this, especially in a press release
- Technology markets typically grow much faster than the global economy, because the products are newer, less widely used and (ostensibly) improve how people can accomplish important tasks
- Tech markets growing 10-20% annually is fairly modest
- Exploding markets typically grow an average of 30%+ per year or even 50%+ per year (e.g., smartphone projected to grow 32.7% in 2013 [link no longer available], tablets grew 78.4% in 2012).
So the next time you see a market doubling in 5 years, remember that is pretty 'ho hum' growth. And use a CAGR calculator to figure out the actual growth rate.
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