3298...Selling Manhattan

Just cruising the 'net and ran into this deal that Native Americans made back in the day, a deal that, upon reflection, was an excellent one, depending, of course, on their investment strategy.

The sale of Manhattan by the natives to Peter Minuit in 1626 often includes a mention of the estimated sale price. The actual exchange was apparently for some trade goods which is estimated to have been worth $24. Often the view that the natives were short-changed is expressed in the same breath. I don’t know what the value of Manhattan would be today, but if we assume that $24 grew at a real rate of return of 5 – 6% (extrapolating the long term rate of return for real estate as sourced from Dr. James DeLisle’s paper: ‘Real Estate: A Distinct Asset Class or an Industry Sector?’, 1995), we might have a better idea…

$24 x 5% real rate of return x 382 years = $2.98 Billion
$24 x 6% real rate of return x 382 years = $111.44 Billion

It’s amazing the impact of 1% isn’t it? :)

If we try to figure out what $24 dollars was worth in today’s dollars back in 1626 we just calculate using the long term rate of inflation which most seem to agree on as being roughly 3%. Applying the math, we find that the natives received about $1.9 million in today’s dollars for Manhattan.

But if the natives had taken that money and invested in the stock market (bare with me) and earned a 7% real rate of return, they would have just over $4 trillion. Who’s laughing now! :)

Hey, its RRSP season and I’m losing my mind… give me a break! :)

Kinda cool.

WFDS