$15,000 to Over $750,000 in 7 yrs Impossible? Think again!

[tech/a]

There are endless posts on.

(1) Can I turn $5000 into $50000 in X years?
(2) What software do I need?
(3) How do I workout which shares to buy?
(4) I'm about to sign up for XYZ course am I doing the right thing?
(5) How does a trader with limited funds get into trading?

To name but a few.--You get the idea.

Trading is really simple and as Radge has said more than once.
(1) Find something that works
(2) Test it.
(3) Trade it.---My apologies Nick but thats the gist of it.

Once you have that there are many things you can do to turn average profits into STELLAR returns.
To this end this post is intended to demonstrate that which is not so obvious to those consumed with the initial basics of a Share Trading/Investing Business.

Ive selected a System which returns an average 15% a year.Anyone could design a system with similar returns.
Ive done this purposely to make a point. Its not a system which is available to the public but is offered here as a demonstration only.

Firstly I tested it over 10000 portfolio's.
It starts with a modest $15,000 which I have also selected for a reason which will become apparent later.

(1) Firstly the Montecarlo results which show 100% chance of profit over 10000 simulations.

(2) The second shows the Initial Drawdown and the deviation in that drawdown over the 10000 portfolio's as you can see it is small with the actual average initial drawdown being 12%.

The period of trading is 1999 to 1/9/06.
Brokerage is set at a whopping $50 each way.
12.5% of capital is chosen as the allocation to each trade.

(3) The Third shows that if we started with $15,000 in 99 today we would have $46,000.

(4) Lastly we have a Positive expectancy of over 5 a very important piece of info.

Following this post will be tables showing returns if.

Without altering this very average system we
(1) Reinvest the profits from closed trades.
(2)Then we do (1) and Trade it on Margin ($15,000 being the minimum for BT margin lending)
(3) Then we do (1 & 2) and we wait till we have $30,000 rather than $15,000
to start trading/investing.

 

[tech/a]

Re: A demonstration $15,000 to Over $750,000 in 7 yrs Impossible? Think again!

Now we simply Re invest the profits.

15K to over 100K not bad.

 

[tech/a]

Re: A demonstration $15,000 to Over $750,000 in 7 yrs Impossible? Think again!

Both re invest and Trade margin.(40% margin selected).

$15,000 to over $750,000 even better.

 

[tech/a]

Re: A demonstration $15,000 to Over $750,000 in 7 yrs Impossible? Think again!

Now we will do both of the above and start with $30,000

 

[tech/a]

Re: A demonstration $15,000 to Over $750,000 in 7 yrs Impossible? Think again!

So how important is exit/entry/how you choose a prospect,Tech analysis or fundamental???

I dont care how much you tweek the way you trade you wont come close to the improvement you'll get with the way you USE your and other peoples money

 

[clowboy]

Re: A demonstration $15,000 to Over $750,000 in 7 yrs Impossible? Think again!

Tech/A

Unless Bt have reduced their min loan amount and not told me about it the min loan size for a margin loan with them is 20k.

Aside from that a very helpful post.

 

[NettAssets]

Re: A demonstration $15,000 to Over $750,000 in 7 yrs Impossible? Think again!

This also proves how hard it is to live on your trading and also build capital.

From these figures if you start with $15000 and only draw $4500 per year out you end up with less than the original $15000 after 7 years.
The power of compounding is magic but you have to leave it in the pot to grow.
Thanks for that TA
John

 

[brisvegas]

Re: A demonstration $15,000 to Over $750,000 in 7 yrs Impossible? Think again!

how about paying the tax as we go and do it properly so we get a realistic profit figure . certainly maximum tax rate last few years .



................... bris

 

[maffu]

Re: A demonstration $15,000 to Over $750,000 in 7 yrs Impossible? Think again!

Tech/A

Unless Bt have reduced their min loan amount and not told me about it the min loan size for a margin loan with them is 20k.

Aside from that a very helpful post.

I saw a table for minimum margin loans recently, i think in the Telegraph 'Money' Section. Macquarie Bank offer a minimum 5k margin loan and there were a few others that offered $10,000 minimum loans.

 

[mit]

Re: A demonstration $15,000 to Over $750,000 in 7 yrs Impossible? Think again!

Tech/A

Unless Bt have reduced their min loan amount and not told me about it the min loan size for a margin loan with them is 20k.

Aside from that a very helpful post.

Commsec have a $20k minimum. But that is the minimum amount you can borrow. AFAIK you could have $2k capital in the account if they will lend you the money.

 

[MichaelD]

Re: A demonstration $15,000 to Over $750,000 in 7 yrs Impossible? Think again!

(1) Reinvest the profits from closed trades.
(2)Then we do (1) and Trade it on Margin ($15,000 being the minimum for BT margin lending)
(3) Then we do (1 & 2) and we wait till we have $30,000 rather than $15,000
to start trading/investing.
Now we simply Re invest the profits.
Both re invest and Trade margin.(40% margin selected).
Now we will do both of the above and start with $30,000

Nice, but not quite so simple;

If doing the above, do you;
(4) live off Centrelink payments since there is no income from all these reinvested riches?, or
(5) lower living expenses by being confined to jail for tax evasion on all those fully reinvested closed profits?

Accounting for tax makes a MASSIVE impact on the compounding numbers.

 

[clowboy]

Re: A demonstration $15,000 to Over $750,000 in 7 yrs Impossible? Think again!

maffu,

without seeing the report I could not be certain but generally it is 20k min for all lenders, the exception is regular savings plans etc. IE BT also offers 5k min with a monthly $500 advance. I would say the macquarie one is similar.

Just had a quick look at the macquarie site and it states a 20k min loan, they offer a reg savings plan but it did not state if that was a lower min.

Mit,

What is AFAIK?

 

[Julia]

Re: A demonstration $15,000 to Over $750,000 in 7 yrs Impossible? Think again!

maffu,



Mit,

What is AFAIK?

I imagine it's "as far as I know".

Julia

 

[tech/a]

Re: A demonstration $15,000 to Over $750,000 in 7 yrs Impossible? Think again!

Nice, but not quite so simple;

If doing the above, do you;
(4) live off Centrelink payments since there is no income from all these reinvested riches?, or
(5) lower living expenses by being confined to jail for tax evasion on all those fully reinvested closed profits?

Accounting for tax makes a MASSIVE impact on the compounding numbers.

Michael.

The example is using $15K starting capital--thats beer money
The Method I selected also returns a pultry 15%

Lets up the anti!

Now try a method with a 20% return and a Starting capital of $250K.

50% tax and drawing a wage is no problem.Would you prefer to work with the first table as thats the alternative!!!
But you knew that anyway!


Pik 1 Same parameters 20% return on $15K (Thats only 5% better performance!!!!)
Pik 2 reinvest
Pik 3 Add margin.
Pik 4 Start with $250K

Now try with 30% ---You get the picture!!!

A $15k or $20K BT initial capital Basis for starting a margin loan is of no consequence to the exercise.

And yes it REALLY IS THAT EASY.

 

[MichaelD]

Re: A demonstration $15,000 to Over $750,000 in 7 yrs Impossible? Think again!

Now try a method with a 20% return and a Starting capital of $250K.

50% tax and drawing a wage is no problem.

Ah, now we're getting interesting.

That initial capital makes a pretty impressive difference to system performance, does it not? There's a big message there for newbie traders trying to convert pocket change into a quick million.

The other issue which makes it "not so simple" is just how/when do you withdraw funds for wages/tax? You haven't quoted average win/lose hold times, but presumably winners are held for 6 - 24 months or so. Hard to draw a wage/pay the tax man in July if all your funds are invested in a system which only rarely trades (not that there's anything wrong with a system that doesn't trade much).

 

[tech/a]

Michael.

In all examples the Tax issue need not be addressed at June 30th As you can see below average trade holding for THIS method is 268 days so it is highly likely that those largest winners will be those held longest and the largest WILL be held for over 365 days so a reduction of 25% in tax.

Now as to the practicality of running it.

Most if not all examples ($15k-250k) can be run by people who also work.
.
Infact Id recommend that you do.
Not because of the cashflow but because of the sheer Boredom

The easiest, most consistant and largest profits I would argue are manufatured SLOWLY.

As for funds (If needed) simply liquidate the number of shares from the portfolio to the value you need each month.

There are 3 variables that can make a huge difference.
(1) Initial Capital.
(2) % of profit re invested.
(3) Leverage. in this case I have used 2.5x

Relative drawdown is 9.6% so the maximum I would feel happy with is 3x

Note the difference to the bottom line in the Second table (last Profit summary table).

The point Im making is that a 20% a year return can give spectacular profit
most however dont think past entry!!!!

 

[stink]

Michael.

In all examples the Tax issue need not be addressed at June 30th As you can see below average trade holding for THIS method is 268 days so it is highly likely that those largest winners will be those held longest and the largest WILL be held for over 365 days so a reduction of 25% in tax.

Now as to the practicality of running it.

Most if not all examples ($15k-250k) can be run by people who also work.
.
Infact Id recommend that you do.
Not because of the cashflow but because of the sheer Boredom

The easiest, most consistant and largest profits I would argue are manufatured SLOWLY.

As for funds (If needed) simply liquidate the number of shares from the portfolio to the value you need each month.

There are 3 variables that can make a huge difference.
(1) Initial Capital.
(2) % of profit re invested.
(3) Leverage. in this case I have used 2.5x

Relative drawdown is 9.6% so the maximum I would feel happy with is 3x

Note the difference to the bottom line in the Second table (last Profit summary table).

The point Im making is that a 20% a year return can give spectacular profit
most however dont think past entry!!!!

Hey Tech,

Another great post mate.

One question, when you say leverage is 2.5x do you mean 2.5x your intial starting capitol?

Cheers Stink

 

[tech/a]

Stink as an example.

$10,000 down $25,000 borrowed. Total position size $35,000

So in essence you would be borrowing 2.5x your starting capital.

Those who buy houses put 20% down then borrow another 80%
Thats 4x and no one bats an eye!!

Not only that if you live in it its not giving you a return!!!

Pretty dumb use of funds dont you think?
Wouldnt it be more prudent to trade first if your getting yourself into debt then buy the house with no debt,all the time your money is working for you!!

 

[stink]

Stink as an example.

$10,000 down $25,000 borrowed. Total position size $35,000

So in essence you would be borrowing 2.5x your starting capital.

Those who buy houses put 20% down then borrow another 80%
Thats 4x and no one bats an eye!!

Not only that if you live in it its not giving you a return!!!

Pretty dumb use of funds dont you think?
Wouldnt it be more prudent to trade first if your getting yourself into debt then buy the house with no debt,all the time your money is working for you!!

Thanks Tech,

Yeah i thought that was how it was worked out.

I appreciate the example to mate, saved me having to ask for one

I am guilty of doing exactly that in relation to purchasing a house, i have some intial equity in it though so i just have to be smart in how i use it.

If i knew then what i do now about the SM then i am sure my financial situation would be very different.

Anyway better late then never

Regards Stink

 

[tech/a]

I am guilty of doing exactly that in relation to purchasing a house, i have some intial equity in it though so i just have to be smart in how i use it.

Yeh well so am I.

But as you say once you know,we can all consider these options which most if not all dont even consider.

It doesnt have to be harder than it is!

Attempting to trade $15000 to even $100,000 in say 2 yrs would be an impossibility in 95% of cases,I would suggest.

With a bit of lateral thinking the impossible becomes the achievable to most anyone.