Choppy start to the week

Good morning,

I read an article yesterday targeting retail investors that it is possible to make a million dollar from stock investment. It is not impossible, but it really depends on how long is the time horizon, the risk/return profile and the initial investment capital. Another article claimed that doubling the money is easy if their rules are followed. Based on the rule of 72, i.e., 72 divided by the rate of return will give you the number of period to double the initial investment amount. That is, $100,000 will take 7.2 years to double the money if the return is 10%. If it is 30%, it will take 2.4 years. So you can see that you need to have a large initial investment amount to start with and at the same time take higher risk to achieve a shorter period to double your money. Let’s assume if you have $50,000 to start with. At 10% annual returns, it will take about 31.5 years to achieve a million if it is compounded. At 20% it is 16.5 years, at 30% it is 11.5 years and at 40% it takes 9 years. To be compounded means the gains are not consumed but re-invested. If gains are realized, than it will take a much longer time.

What is troubling is that the million dollar dream is chased by most retail investors. Taking the world renown Warren Buffet’s stocks' returns as a benchmark, achieving more than 20% consistently per year is quite impossible for most professional fund managers, much less retail stock investor. I just wonder how many of these retail investors has $50,000 to start stock trading and believing they can achieve more than 30% per year consistently. I could only pray that their luck does not run dry before their dreams are fulfilled. Does it mean that we should not be trading stocks? No. We just have to be realistic and understand our ability and tolerance to take risk. The money set aside for stock trading should only form part of the total assets and the amount depends on the risk profile. So the next time you read any advertisement claiming you can double your money by investing in their seminars, think of the rule of 72 and decide if you have the money and if they can really achieve the high returns consistently.

US markets did what KUTE system had predicted last night. Stocks jumped after strong reports on manufacturing and housing but were fluctuating by the afternoon. The Dow Jones industrial average ended up 77 points after being up as much as 146 points. The stocks KUTE recommended did well on the first trading day of the week. CAH advanced 1.2% to close at $28.68. NBL closed at $65.69, up 0.09%, with the stock trading with a $3 spread during the session. Among the stocks I have decided not to buy because they do not pass through the final criteria of KUTE technical, BHI was up 0.33% at $42.21 trading around the spread of $2, DRIV was down -2.67% to close at $22.22 and OSG was down -3.08% to close at $38.04.

As for PTEN, I am still waiting for the price to hit my limits to sell. It ended the session at $15.64, up 0.39%.

Have a great day today.

Francies Cheng
BBUs MAppliedFinance