Wednesday, November 24, 2004

So what's the deal about quick 2% gains?

Let's go back to my amount on deposit on January 1, 2004.

$1227.67

To some people that is a lot of money! I'm guessing it's about one house payment to most people and only then if you don't live in NYC or the west coast. The reality is that one couldn't live in America for very long on that amount of money.

In other words, I won't be living off THAT any time soon!

Honestly, in most circles, this isn't even worth discussing in terms of buying and trading stocks.

But let's say I'm going to invest it anyway and I buy a solid stock in a well known company. I want to buy and hold it in hopes that it will go up. I want to become financially independent.

Let's say I get really, really lucky and by the end of the year this stock is up 50%.
I'll have holdings valued at $1841.50 and possibly some extra (if the stock I chose paid a dividend.)

What do you think the chances are that I'll actually find a stock that will go up 50% in value?

Now - let's say instead that I take that money, buy a stock that is on the move and sell it as soon as it reaches a 2% gain after commissions (let's just assume that's 3.5% total gain for each trade.) If I do that 32 times in one year (about 3 times a month), I'll have $2,334.31. That's a 90% increase. If I continue to make that number of successful trades, the effect will snowball as I'm compounding my earnings back in with each trade.

What are the chances that I'll actually be able to do this three times a month? I'm not sure ... Statistically, there's also no way I'll be able to do this without ever having one that goes against me.

I've been doing this seriously for one month now and I'm up approximately 17% for the year.

Like I said, follow along and I'll report my progress honestly and regularly.

I learned a lot of this from Gary B. Smith's columns (when they were free) on TheStreet.com. I combined this with the CANSLIM method taught in the newspaper Investors Business Daily (and available on line - I do pay for this service.) I'd gladly pay for Gary B's if I could afford $100 month! You can catch Gary on FoxNews Saturday mornings at 10. He's a regular guest on Bulls and Bears. He is my investing hero and when I get to the point that I can afford to pay for his columns, I will do so gladly!

2 Comments:

Blogger Dominic said...

Good Morning,

I like your blog idea. I am very interested in seeing your results. I have been a stock investor(speculator) off and on for three to four years with same some in the hundreds to thoudsands of dollars(that's 100's to 1-2 thousand of dollars to make it clear :)). My only problem is trading discipline.

I wish you the best and I would love to see you make it huge.

10:07 AM  
Blogger Leisel said...

Question... do you know how taxes would affect the earnings? I have mostly dealt with funds in an IRA or 401K and those are in mutual funds, so no taxes to worry about yet, so I am sort of clueless as to how the taxes affect your non-tax-deferred investments. Would you pay a higher percentage in taxes on your often turned over stocks, vs. your one time long term high return stock?

- Leisel

3:38 AM  

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