This is a thought experiment. I read around the web of people who turned a tiny amount of cash into a crazy amount of cash in a short time. Usually, this is done through sports betting, or other types of gambling – something that you are relatively uninformed about, and something that boils down to luck.
I was thinking earlier how great it would be to turn $100 into $1000, or even crazier, $100,000 in a relatively short amount of time. Would this even be possible? To figure out, I created an experiment. Let’s say (hypothetically) I started out with $100 and made my first investment on November 1st, 2017. Let’s also say that I could foresee what would happen in the markets before it actually happened, and invest my money accordingly. Here are the trades I would make to grow this investment:
(All data is sourced from Seeking Alpha’s Afterhour Gainers/Losers news reports, and/or Google Finance)
November 1: Buy Electro Scientific Industries (ESIO) in the morning, because they are to report earnings. At the close, it is up 38.6% due to a major earnings beat and I sell.
November 2: Buy DCIX in the morning, on news that they have a 1 for 7 reverse split. Stay long through the weekend.
November 6: Sell DCIX Monday morning at open, up a crazy 707.6%. They are in for a downturn because they are well overvalued now, and the day trader rally is finally complete. In the afternoon, buy WTW because they report earnings after the bell. They spike up 11.5%, and I sell aftermarket, at the peak.
November 7: I short Lending Club (LC) as they report earnings. Due to light revenues, they drop -17% after hours and I profit $212.
November 8: I buy into OTIC, a pharma company during the daytime. Afterhours, they are up 136% due to a successful phase 2 drug trial. I sell after hours at peak.
November 9: Today is a shorting day. I short KNOA, and after hours it is down -22.6%. Why? Nobody knows. I make $778.82.
November 10: Mattel, that toy company reports earnings today after the bell. I buy in and after hours am up 21.6%.
November 13: I buy Buffalo Wild Wings (the stock, not the food), because there are reports of a high buyout from Roark Capital. They jump 22% and I sell.
November 14: SORL Auto reports earnings today, so I buy in. Aftermarket, they jump 45% and I do a dance of joy, then sell for a profit of $2820.5.
November 15: I buy Smart Global Holdings Inc, and they go up 21.3% aftermarket.
November 16: I buy IPDN Thursday at the close.
November 17: It’s Friday! I sell IPDN at 12:30, up 61%. Thanks, day traders. Then I buy Xunlei (XNET), a Chinese tech company at the close.
November 20: I make no moves on Monday and stay long in XNET.
November 21: I sell XNET at 11:30 for a return of 54%. I then short GES a clothing company. Aftermarket they are down 12% due to the ‘Amazon Effect’. I make $3290.16.
November 22: I go long in SD, an energy company. Afterhours they are up 12%. I sell. I buy OMGT, an OTC hotel stock.
November 23: Happy Thanksgiving, markets are closed. By now, I’ve made at least 1 trade for 14 days and grown $100 into $34,393.2. Not bad.
November 24: I sell OMGT at 11:30 AM, up 150%. This makes me $50,000 in one day!
November 27: I buy CERC premarket because TheStreet upgrades its rating. It hops up 64% and I sell at 2:30 when it peaks.
In 15 trading days, I’ve made $141,012 from only $100.
Here’s The Takeaway
There are three main takeaways from this article:
1. The Power Of Compounding Growth/Intrest
This topic is so important, I will write another post about it in the near future. But, this is a perfect example of compounding growth. Money grows on money made. More profit, more growth and vice-versa. Say you cashed out your profits every time you made a return in the stock market. You would never, ever make any real cash. But, reinvesting your profits can be huge and if done correctly, investors can see exponential return.
2. How Investing Can Make A Small Amount Of Money Into A Huge Amount
No investor in the history of the world is ever, ever this successful. It is simply impossible. However, it is possible to make a small amount large amount of money. Long-term investing, though boring, will make you a lot of money. Your money will grow and grow and grow, and if reinvested, will grow exponentially. Say you invested $100,000 in the stock market and waited 20 years. With a return of 7% per year (the average of the stock market), in 20 years you would have $386,968.20, without investing anything other than the initial cash. That’s not bad.
3. Why You Shouldn’t Actually Do What I Did Above
Well, actually, maybe you should. Try starting out with one hundred dollars, and see where you can take it. But, be prepared to lose it all, especially if you do what I did above – investing in all or nothing trades. One wrong trade will make your potential earnings into $0. But remember, what I did above was with prior knowledge about the market. I went back, and found the highest growing stock each day, then ‘invested’ my hypothetical money into it. For this experiment, there was no risk. In real life, it is extremely risky. Keep in mind the old saying, “only invest money that you can afford to lose“.