5,000 to $11 million in 30 Years
In 1982, an investment of $5,000 in Home Depot (HD) would be worth over $11 million today.
I know someone that made that EXACT investment!
What's funny is that HD now makes up close to 80%of his portfolio and the other stocks that he "trades" make up just about 20%. And, even though he loves charting and swears by the X's and O's of Dorsey Wright, the reality is active money management hasn't done nearly as well as his one MAJOR HOME RUN.
However, he was in a very different position in 1982 than most people in America. He owned his own business, had real estate, and lived in a growing city where money was flowing. The $5,000 investment in HD was nothing more than a flyer?—?throw away cash. He could have easily put in $50,000 and been worth 10 times what he his today, but that's where lessons can be learned.
With this in mind, I've created a system of self-renewal! One where you can build positions in the stocks you want, or take a whole bunch of flyers, while continuously generating new revenue for your account.
Here it is.
1. Use cash to buy the right stocks.
(Well Duh!)
2. Margin against these stocks to sell options and arbitrage.
(Wait, What?)
#1 is pretty easy to get. You ONLY want to own stocks on cash. Stocks tend to be volatile, moving up and down 50% or more YEARLY. With that kind of fluctuation, it's easy to lose your shirt if you buy shares on margin.
#2 is where the rubber meets the road, as they say. This means, using margin to leverage the positions you build in stocks to trade (for short term income) options and arbitrage.
ALL of the most successful money managers have used leverage to trade options and arbitrage to generate better returns for their clients and shareholders.
Arbitrage is just a fancy word for mergers and acquisitions that arise from corporate activity. In these situations there are exact dates and prices involved, and to the smart investor, the trade can present up to 100% annualized returns.
Options are a derivative contract depending on the outcome of an underlying stock price movement within a well defined time frame. For example, HD options have monthly expiration dates. If you thought HD's price was going to keep rising, you could sell PUTS to other traders (who think it's price is going to drop) and make money just by allowing the option contract to expire worthless.
Our time is limited and you will probably need a lot of help understanding this in detail, so please reach out to me at wallstpig.com for more. However, here's how it works in practice.
Step One.
Buy Stock
One that you plan to hold for a long time. FOREVER is a good place to start. Pretend your money will be tied up in this investment for 20 years.
Step Two.
Sell Puts
Do this in stocks you like, but at prices that are far below the current trading price. This provides a further margin of safety.
Step Two(a)
Arbitrage
Only trade deals that have been announced. DO NOT SPECULATE. There's really no need to speculate since if you are patient you can find plenty of deals that have been announced. This requires reading the financial news, but is well worth it. Try to only get involved in deals that are All Cash, which the acquirer is paying cash for the acquiree.
Step Three
Recycle
Put all the cash back earned through dividends, options, and arbitrage BACK INTO your portfolio. Investing regularly this way helps avoid the ups and downs by getting involved at both points.
Again, time is limited and you will probably need some bit of help understanding this in detail, so please reach out to me at wallstpig.com for more. Keep an eye open for later posts.
I know someone that made that EXACT investment!
What's funny is that HD now makes up close to 80%of his portfolio and the other stocks that he "trades" make up just about 20%. And, even though he loves charting and swears by the X's and O's of Dorsey Wright, the reality is active money management hasn't done nearly as well as his one MAJOR HOME RUN.
However, he was in a very different position in 1982 than most people in America. He owned his own business, had real estate, and lived in a growing city where money was flowing. The $5,000 investment in HD was nothing more than a flyer?—?throw away cash. He could have easily put in $50,000 and been worth 10 times what he his today, but that's where lessons can be learned.
- You never make as much money as you want! (My friend was very smart just to invest and hang onto HD, allowing the dividends to be re-invested back to buy more shares.
- Holding positions in companies that are growing is a far more effective tool to building wealth than trading in and out of stocks. (As a newsletter publisher, I realize this, but it's hard to build a subscriber base around a few stocks bought over and over.)
With this in mind, I've created a system of self-renewal! One where you can build positions in the stocks you want, or take a whole bunch of flyers, while continuously generating new revenue for your account.
Here it is.
1. Use cash to buy the right stocks.
(Well Duh!)
2. Margin against these stocks to sell options and arbitrage.
(Wait, What?)
#1 is pretty easy to get. You ONLY want to own stocks on cash. Stocks tend to be volatile, moving up and down 50% or more YEARLY. With that kind of fluctuation, it's easy to lose your shirt if you buy shares on margin.
#2 is where the rubber meets the road, as they say. This means, using margin to leverage the positions you build in stocks to trade (for short term income) options and arbitrage.
ALL of the most successful money managers have used leverage to trade options and arbitrage to generate better returns for their clients and shareholders.
Arbitrage is just a fancy word for mergers and acquisitions that arise from corporate activity. In these situations there are exact dates and prices involved, and to the smart investor, the trade can present up to 100% annualized returns.
Options are a derivative contract depending on the outcome of an underlying stock price movement within a well defined time frame. For example, HD options have monthly expiration dates. If you thought HD's price was going to keep rising, you could sell PUTS to other traders (who think it's price is going to drop) and make money just by allowing the option contract to expire worthless.
Our time is limited and you will probably need a lot of help understanding this in detail, so please reach out to me at wallstpig.com for more. However, here's how it works in practice.
Step One.
Buy Stock
One that you plan to hold for a long time. FOREVER is a good place to start. Pretend your money will be tied up in this investment for 20 years.
Step Two.
Sell Puts
Do this in stocks you like, but at prices that are far below the current trading price. This provides a further margin of safety.
Step Two(a)
Arbitrage
Only trade deals that have been announced. DO NOT SPECULATE. There's really no need to speculate since if you are patient you can find plenty of deals that have been announced. This requires reading the financial news, but is well worth it. Try to only get involved in deals that are All Cash, which the acquirer is paying cash for the acquiree.
Step Three
Recycle
Put all the cash back earned through dividends, options, and arbitrage BACK INTO your portfolio. Investing regularly this way helps avoid the ups and downs by getting involved at both points.
Again, time is limited and you will probably need some bit of help understanding this in detail, so please reach out to me at wallstpig.com for more. Keep an eye open for later posts.