The rule of 72, in a nutshell, states that if you divide 72 by a rate of return of an investment, that is how long it will take to double your money (approximately). For example, if an investment returned 25% annually, it would take a little less than 3 years to double your money. A 2% rate will need 36 years to double. Now, let's assume $1000 investment and you sell a position whenever it hit 2% gain, you could sell, buy something else with the money, gain 2%, sell again etc., and you would double the money after 36 buy/sell cycles. Which is easier, to find 1 position that gains 25% or 15 positions of which 12 gain 2-5% in the course of a week or two? I've experienced several times where I've held a position that gains 25% and because I held out hoping for 30%, I didn't sell before a large correction and I lost my profits. What if you intentionally sold at a much lower gain % but reinvested it immediately into something else that you think will gain that small %? Would it ever be possible, in the real world to put such a scheme into play and succeed at it? Parameters: $10000 spread amongst 2-3 positions at most Sell once a gain reaches 3-6% or a loss reaches 3-4%. The objectives are to sell before a drop and to limit losses One will need a 6% gain for every 3% loss in order to stay on track After selling, invest in something that appears undervalued but that you think will accelerate in the short term Repeat Mentally ignore (hard!!!) what a stock could have done had you kept it. The objective is increasing the frequency of compounding. What stock that is doing the compounding is unimportant Assume no trading fees or commissions Assume capital gains not an issue (i.e.trading via a self-directed IRA like I have) No penny stocks or short selling Assume all companies chosen have sound fundamentals and are probably S&P 500 listed Ignore dividends for now?
It is entertaining to read people's thought process. There is a clear path to success but extreme few have any interest at all in that path, particularly anyone under the age of 40. I wish you much success and hope you share this experiment so we can watch and cheer for you.
Hi Tom, Entertainment? I better do well or my results may become fodder for SNL!!!! I'm easing my way into this and hope to post my results. Will likely create a more useful informative thread titled "Rule of 72 Trading Journal." I'm a little hesitant about posting too specific detail (i.e. $ amounts or # of shares), in case someone unscrupulous reads it and figures out from my username who I am, Got to figure out how to give useful info without divulging too much. .
I understand. Nothing is gained from sharing full detail but it brings significant liability. Good luck, GT.
