There are many methods and examples of how to enjoy an extraordinary rate of return by reinvesting short term gains into a longer term trend in business operations, investment or speculation. For instance: Manhattan was bought in 1626 by the Dutch West India Company from the Indians then living there for $24 in beads and other trinkets. This amount is small but if the $24 had been compounded each year by just six percent from 1626 until today, the amount would far exceed the value of Manhattan real estate. It is important to keep in mind that economic activity is, like all things, cyclical. Nothing in the real world is linear forever. Trees do not grow to the sky. Nevertheless, compounding has its appropriate application in making both short and long term financial planning. In speculation it is called pyramiding.
The most efficient form of pyramiding is available in the futures market. Your profits are computed on all positions at the end of each day and so available for additional speculation the next day. The big negative is that there are margin calls when the market turns in the other direction that can cause serious losses. That risk is eliminated if you buy options. With options there are no margin calls. You cannot lose more than you have paid for the option. Options however have to be liquidated before profits can be used to buy more and you pay a time and risk premium over what a futures contract costs.
I combined both futures and options on gold and gold shares for a year in a prior bull market. I started with $10k in the futures market and turned it into $1.3m. Then I took $250k of those profits and pyramided that into $4.5m. So in little less than one year I had, rounding down, a 550 fold increase through pyramiding profits from the right side of a bull market in gold and gold mining company share options. If I had continued with the same 550 time increase, the results would have been: second year $3b and in the fourth year all the money in the world plus. It is essential to have a sound exit plan. In the second year the gold market turned from bull to bear. Those who switched to a bear market system, in time, did just as well. I took more than three quarters of the futures market profits off the table. I have had two additional runs in the gold market and lesser gains being short the 1987 crash, the Internet bubble and other speculations. I was able to call the top of the real estate bubble in 2007 and the bottom of the gold shares market to the day in 2012 but have not done as well calling the top. Desires control thought. To win in speculation, the mind must be in control of the emotions.
You can make extraordinary profits in a bull market with a bull market trending system. You can make extraordinary profits in a bear market with a bear market trending system. And, you can make extraordinary profits in a trading range market with a trading range market system. All you need to know is when the market will go from one to the other trending direction or to a trading range or from trading range to trending and which trending direction. A few clues: 97% of what you read on this topic is propaganda; economic law insists on expressing itself just as the law of gravity does; and, government intervention in the free market does not repeal economic law. Governments will always act to advance the interests of those who control them and individuals will follow their own self-interest as they understand it. All is in order.
Photo credit: U.S. Embassy The Hague via Visual hunt / CC BY-ND
Leave a Reply