Today is a history-making day. Today, we bought our very first stock, funded soley on earnings from our other holdings. This is significant. It means that our little money-making machines have made enough money to birth their very own money-making machine, with no deposit from us.
We’d hoped this would happen. We dreamed about it. It means that maybe we have figured out a winning strategy.
I am very proud of us and I’m going to shamelessly brag for a moment. If you don’t wish to hear, then I would suggest that you stop reading. Now.
Since we purchased our first holdings in March, we have averaged 32% returns. What does that mean? That means that for every $1,000 we have invested, we have made $320. It doesn’t sound like much at first. But imagine that you have $5,000. Your profit for the year would then be $1,600 (or $133/month). Add that $1,600 to your original $5,000, and you have $6,600. That $6,600 can now make you $2,112 (or $176/month). Now you have a grand total of $8,712. Keep this train going, and if you average 32% annual returns for 25 years, your initial $5,000 will grow into over 5 MILLION DOLLARS. Imagine now how much you could have if you added even just $100 of your own money every month to your original $5,000!
Our pie-in-the-sky goal is to average 40% annual returns, with the more realistic dream of coming in a little over 20% annually. We do this by carefully selecting under-valued stocks and investing the exact same amount into each stock. It makes it easier to monitor this way. We also keep a “buffer” amount available for each stock, so we can buy more if the stock dips by a certain percentage. This tactic is known as “dollar cost averaging” and it brings down your cost of the stock, so it’s not such a steep climb back up. It also prevents us from losing 100% of our investment money, should something catastrophic happen, like a bankruptcy. We have rules that help us avoid this scenario, too. The nice thing about dollar cost averaging is that we have stopped panicking when a stock drops.
Our goal for each stock is to sell when it hits 40% returns. We give each stock 90 days in which to achieve this goal. If at the end of 90 days, the stock is down, or it has not gained more than 10%, then we hold onto it and re-set the 90 day window. More often than not, our stocks have been hitting 40% within 60 days of purchase. We felt it important to put a cap on our returns, so we don’t sit too long at the poker table and lose our winnings before we realize them (I had a tendancy to want to wait and see how high it could go. Bad idea.).
Then, we take our original amount we invested and use it to purchase a new stock. The proceeds from the sale go into a holding account, where they sit until we have turned enough profit to buy a new stock. This is how we started out with 6 money-making machines, and now, today, we have 7. I am happy to announce that we are in the TOP 20% of the Motley Fool CAPS players. Yeah, baby, we are All Stars! We are beating over 7,000 other players, by using our strategy. In addition, we are beating the market.
And the best part? All it takes is a little bit of research and daily monitoring. No second job required, no business degree mandatory. No commission to a Wall Street broker. No one deciding what is best for your money (granted, all the sucess and all the failure can now be pinned on you – are you up for the challenge?). And, if we wanted, we don’t ever have to put in another dime of our own, hard-earned money. Success, however, is the best motivator of all, because now I’m itching to add to the pile.
Okay, shameless bragging session is over.
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