Monthly Archives: December 2011

100 to 1 Return on Your Investments

Sound to good to be true?

That was my initial belief, until I read recent article that reminded me of earlier times.

An investment that compounds by 14% per year will generate a 110-to-1 on an investment in 35 years. Yeah, but who holds onto an investment for 35 years? Most investors turn over their portfolio every couple of years…and never make much money.

Personally, I can’t see myself holding any single investment for 35 years. Article was also using fairly large investments. Most of us don’t have a lot to invest at one time.

A $5,000 investment compounded at 14% a year would generate $18,536 after 10 years. $35,689 after 15 years. $68,717 after 20 years. That’s a return of 3.7 times your investment in just 10 yrs., 7x after 15 yrs and 13.7x after 20 years.

How do you find investments like these?

First, find investments you can hang onto for a long time, through thick and thin. Many years ago that was the investment philosophy that assured wealth. Turns out the most successful investors still follow that strategy. Brokers push for frequent trades. Most make their money on commissions. If you buy an investment and hold it for 10 years, they don’t make much money.

Second, identify investments that solve problems. Or help us do things quicker and less expensively. Concentrate on”new.” But not trendy. Trends come and go, often very quickly. Look for “new” products, materials, or methods that make new/better use of products and materials.

Third, make investments you believe in enough that you won’t second guess yourself the first time the investment drops 20%. Like any investment, you can’t buy it and forget it. These investments still have to be watched. We all make investments decisions from time to time that we wish we had not made. Those need to be eliminated. How do you do that? A good rule of thumb to use: Any initial investment you buy should get sold if it drops 25% in value after you initially buy it.

Another common investment thought is to sell 1/2 your investment when you double your initial investment. That philosophy guarantees the return of your initial investment. You simply let your profits “ride.” If company subsequently goes out of business you have not lost any actual cash. Of course that means you need to hold the investment longer to get your 100-to-1 return.

Fourth, pick investments that are relatively cheap. High priced stocks in very large companies typically return much less than 14% compounding annually. (Many of them did for many years but have passed that part of their growth curve. Nothing wrong with these companies at all. They simply fit a different part of your investment plan.)

100-to-1 investments are designed to give you real wealth.

Keys to make this work for you.

Look for companies that occupy unique positions in their market segments. Many of these may be established companies bringing out new products or new technologies that will appeal to, or be of use to large segments of the population. Or products/service that enable big companies to operate more efficiently. Watch who is buying the investment. Stay away from trends or fads.