"...No, I know I could. I guarantee that." - Warren Buffet.
This is a well known quote from Buffet. What strategy would you take to return 50% on $1 million? A few I've thought of:
Obviously if you want to make these kind of returns year after year on a principle of $1m you've got to be on the ball and have a constant stream of good information. You'd need to pay up for a bloomberg/reuters terminal or similar and would need a platform that allows you to quickly make trades in shares, currencies and commodities in a variety of markets.
Do you think you could make such returns. Would you use a strategy I listed or something else?
This is a well known quote from Buffet. What strategy would you take to return 50% on $1 million? A few I've thought of:
- Bet it all on or against companies that are in a good market space but insolvent and struggling to stay out of bankruptcy?
- One example is Teck Resources which hit lows around $3 in Dec 08 recovering to around $16 in July 09 and now reaching $61.
- Many other copper, gold, silver and nickel focused companies had similarly huge gains recovering strongly after facing insolvency due rapid mineral price falls at the onset of the GFC.
- You could also bet against companies if you are confident they won't recover.
- Obviously this strategy has a huge downside risk and signs of recoveries can take more than our one year time frame.
- Look for companies that have a strong financial position (significant cash, high eps...) and are depressed due to whatever reason and bet they'll recover?
- Issue with this if you want 50% annual returns is that such returns will only come over a longer period of time.
- Also in the world of computerised analysis it is hard to find companies as undervalued as in Buffet's early days (he often bought solid companies with more equities than the market cap and pe ratios of 1).
- Look for companies undergoing INSIDERS buying/selling and buy/short in the hopes of making 5-10% returns monthly (reinvesting monthly gains). Set stop loss orders to limit the carnage if the price moves against you?
- Risk is that despite INSIDERS buying in their favor any number of unforeseeable events could send prices rapidly falling/rising against your position.
- Listen out for major events and think about what they'll do to share and commodity prices on a macro level, place orders to reflect your beliefs.
- One example is in late December on hearing flooding was closing down mines in Queensland you'd have done like me and taken up positions on smaller coking coal producers expecting them to gain heavily.
- On the ASX cza is one such examples that shot up 25% in 3 weeks on news of floods.
- You'd also take news on serious events like Russian wheat export bans, rare earth export bans, quantitive easing plans, defaults in the Eurozone etc... to take positions on commodity, currency and share prices.
Obviously if you want to make these kind of returns year after year on a principle of $1m you've got to be on the ball and have a constant stream of good information. You'd need to pay up for a bloomberg/reuters terminal or similar and would need a platform that allows you to quickly make trades in shares, currencies and commodities in a variety of markets.
Do you think you could make such returns. Would you use a strategy I listed or something else?
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