Thread: "I think I could make you 50% a year on $1 million...."

"...No, I know I could. I guarantee that." - Warren Buffet.

This is a well known quote from Buffet. What strategy would you take to return 50% on $1 million? A few I've thought of:

• Bet it all on or against companies that are in a good market space but insolvent and struggling to stay out of bankruptcy?
• One example is Teck Resources which hit lows around $3 in Dec 08 recovering to around $16 in July 09 and now reaching $61.
• Many other copper, gold, silver and nickel focused companies had similarly huge gains recovering strongly after facing insolvency due rapid mineral price falls at the onset of the GFC.
• You could also bet against companies if you are confident they won't recover.
• Obviously this strategy has a huge downside risk and signs of recoveries can take more than our one year time frame.

• Look for companies that have a strong financial position (significant cash, high eps...) and are depressed due to whatever reason and bet they'll recover?
• Issue with this if you want 50% annual returns is that such returns will only come over a longer period of time.
• Also in the world of computerised analysis it is hard to find companies as undervalued as in Buffet's early days (he often bought solid companies with more equities than the market cap and pe ratios of 1).

• Look for companies undergoing insider buying/selling and buy/short in the hopes of making 5-10% returns monthly (reinvesting monthly gains). Set stop loss orders to limit the carnage if the price moves against you?
• Risk is that despite insider buying in their favor any number of unforeseeable events could send prices rapidly falling/rising against your position.

• Listen out for major events and think about what they'll do to share and commodity prices on a macro level, place orders to reflect your beliefs.
• One example is in late December on hearing flooding was closing down mines in Queensland you'd have done like me and taken up positions on smaller coking coal producers expecting them to gain heavily.
• On the ASX cza is one such examples that shot up 25% in 3 weeks on news of floods.
• You'd also take news on serious events like Russian wheat export bans, rare earth export bans, quantitive easing plans, defaults in the Eurozone etc... to take positions on commodity, currency and share prices.

Obviously if you want to make these kind of returns year after year on a principle of $1m you've got to be on the ball and have a constant stream of good information. You'd need to pay up for a bloomberg/reuters terminal or similar and would need a platform that allows you to quickly make trades in shares, currencies and commodities in a variety of markets.

Do you think you could make such returns. Would you use a strategy I listed or something else?

Thanks for posting that.

Originally Posted by jake24

Thanks for posting that.

Posted by PhxMJ to jake24;

PhxMJ - Aug 28th, 2010, 10:52 PM - permalink
You are a stranger in this forum, if you continue to post links to your free book and other short, one phrase posts, you will be banned. Several of your posts have already been removed because they have been non-contributory.

I would use a combination of strategies in a variety of markets. Haha, not a good answer, but that's what I'm doing.

I don't have nearly anything close to a million dollars though, so it's a lot easier for me to get in and out of positions in rather illiquid stocks.

You could just sit from morning to night buying and selling shares for 1%-5% returns based solely on news reports from CNBC, Bloomberg, BNN (canada), etc.

For instance I was watching CNBC yesterday. They had an exclusive story that they broke on a company (don't remember which one). Two minutes later, the stock decreased by 3% (I didn't look at the charts to see if it would drop further).

Same happened today with lululemon. Up 6% last I checked.

Aside from investing in my own company which generally does me better than 50% per year.

I would consider "shorting" AT&T about 6 months out from when it will lose it's exclusivity with the Iphone.

Almost a guaranteed loss in stock value.

To "not be a noob".

You would need to get in early enough and be able to sit on your investment for 6 months to a year.

And when the "big move" happened you would want your T/P (take profit) set before time.

How much money do you want to earn per share you are shorting.

And stick to your plan. Do NOT get greedy and expect AT&T to fall out of the sky and go belly up.

But I'm betting you could earn a pretty solid return on your money shorting them properly before they lose Iphone proprietary carrier status.

My 2 pennies.

Justin

Originally Posted by GlobalWealth

Michael,
this is possible, but improbable. I have had returns of -10% in '08, 110% in '09, and 40% in '10. That's an 38% average return over the last 3 years.

When I read the quote I thought exactly the same as you, "possible but improbable". As I said in my first post in the world of computer screening unlike when he began there is no longer good companies that have slipped through the cracks and become valued at multiples of 1 or at less than the value of their cash holdings.

Very impressive 3 year average you have esp when year 1 of the period closed -10%.

Originally Posted by GlobalWealth

If you read some books about traders like Market Wizards, you will see that many traders achieve this return over the long term. But it isn't easy. And it isn't passive or part time.

It is a full time job requiring a full time commitment. I spend an enormous amount of time reading every day just looking for trends and triggers. Sometimes I go days or weeks without making a trade. Sometimes I make several trades per day.

I'll put tha t book on my amazon list. In your trading what kind of resources do you use for information?

Originally Posted by GlobalWealth

Keeping your emotions in checking and following your trading rules are imperative. For me, risk management is the biggest issue. I spend most of my day figuring out ways of how not to lose money.

No easy task considering the huge volatility in a number of currencies at this point in time. Thanks for the response Bobby.

Originally Posted by RyanDrake

Posted by PhxMJ to jake24;

PhxMJ - Aug 28th, 2010, 10:52 PM - permalink
You are a stranger in this forum, if you continue to post links to your free book and other short, one phrase posts, you will be banned. Several of your posts have already been removed because they have been non-contributory.

Wow... I THANKED A PERSON FOR POSTING SOMETHING I LIKED.... Go ahead and ban if you want and quit harrassing me you moron!!.. This forum sucks anyway.

Originally Posted by jake24

Wow... I THANKED A PERSON FOR POSTING SOMETHING I LIKED.... Go ahead and ban if you want and quit harrassing me you moron!!.. This forum sucks anyway.

This is the first time I ever posted something addressed to you.

First off, the original post was asking a question.

If you wanted to thank someone for their post you press the little "Thanks" button at the bottom.

The first person who approached you about this was the FORUM OWNER.

Edit: Look at that, you're banned.

Going back to the original post, very true that for my strategy to work, the stocks would have to be very liquid. Most stocks, even those that are generally illiquid, surge/increase volume significantly when people react to breaking news, so that you can get in and out of almost any position quickly.

Originally Posted by GlobalWealth

I read a lot. WSJ, Seeking Alpha, Zero Hedge, Yahoo Finance, Bloomberg, and a few others.

I developed my trading strategy reading many, many books about investing, trading, finance, economics, experience, hard knocks, big losses, etc.

I also interact with lots of other business people. I rarely speak to other investors/traders and when I do I don't really take tips or advice.

I have found that when I follow someone else's stategy, I tend to lose money. I don't like losing money.

I also subscribe to some investment newsletters. However, I read them for ideas and in depth research. But I still do my own research. I don't like making a trade based on someone else's ideas. Sometimes I agree with the analyst, sometimes not.

For TV stations, if you had to choose between CNBC and Bloomberg which would it be? I don't take any of the hosts' advice, but I like having breaking news streamed constantly in audio format.