Editors Choice

MT DATABASE
Thursday, 6 April 2017
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100 Bagger

I ask for Stupid Questions in my newsletter and I get them. “I have $10,000 and want to turn it into a million dollars. How do I do it?”

You’re thinking “How Stupid” but it’s actually a really good question. How do you "hit it out of the park"? So let’s try and answer it.

First thing to do is to accept that you will not achieve this goal without being prepared to lose all your money. You will not achieve it in the bank, in cash, in property or in managed funds. There is no “average” return in any asset class that will suit you. You need to win Tatts Lotto or place and win some long odds bet at the bookies.

Outside that you have two options. Build a business, the most sensible option and the real answer to the question, or the stock market. The stock market appears to be less effort so let’s look at that. 

If you try to achieve this goal in the stock market you will not do it through diversification. A “portfolio” is not for you. You will only achieve it through two techniques. The first is to find one stock, one fantastic “Rocket under a Rock” and ride it to a million. Or two, get a lot of stocks right consistently over a long period of time, in other words you need to develop a system for investing and build the capital by consistently successful trading over a long long period of time.

If you are going to build a system you have a lot of work to do. You’ll have to get your head in the investment game or, more specifically, the trading game.

If you are going to do it in one stock then here are a few numbers. To turn $10,000 into $1,000,000 you need a stock that goes up 100 fold. That’s a 10,000% return. In the All Ords at this very moment (about 500 stocks) there are around 60 stocks that have in their trading histories, if you timed it perfectly from all time low to all time high, returned more than 10,000 percent. That’s a lot better odds than you might imagine. That’s 12% of stocks. Here are some of the highlights:

Biggest and fastest rises in history:

  • Fortescue Metals. Turned $10,000 into $73,166,166 between September 1990 and June 2008. 17.8 years. This is the biggest single return of any stock over any period in the All Ords.

  • UXC Limited. The fastest of all. Turned $10,000 into $6,000,000 between June 1998 and March 2000 in the Tech boom, it was called Davnet at the time. 1.8 years. Now delisted.

  • Paladin. Turned $10,000 into $13,500,000 between April 2003 and April 2007. 4.0 years. Third biggest return and the third fastest.

Other stocks have done remarkable things with $10,000 include News Corp. which turned it into $26,692,393 in 25.4 years. BHP into $2,543,468 in 42.2 years. QBE $12,165,775 in 32.7 years. Others that have achieved it include ANZ, RIO, Woodside, Origin, Santos, Leighton Holdings. Coca-Cola Amatil, Lend Lease. The list goes on.

Bottom line, it is possible. But it will not be easy and it could take 42 years. And I ask, how on earth are you going to stop yourself selling when you have doubled your money to $20,000. And what are you going to do when it falls on day one. And the big one, which stock do I start with?

I have written before about how pitiful the real average return from the stock market actually is post tax, inflation, transaction costs, management costs and the index fudge and because of that the stock market is not about averages and diversification, it is about timing and buying stocks that go up.

The pursuit of $1,000,000 with $10,000, as unrealistic as it is, is the essence of what this game and the advice game is all about. It’s not about pretending to be fund manager, hiding in the average and relying on the long term. There are no free lunches. It’s about finding stocks that go up and avoiding stocks that go down. It’s about thinking it’s possible and applying yourself to the task. Even if you come up 9900% short, you’ve still doubled your money. 

 

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