In today’s Exponential Investor…
- Pure unadulterated speculation
I can show you proof of how to turn just £200 into a whopping £325,360,593,824.79 in just one year.
I know, I know, it sounds ridiculous doesn’t it.
Two hundred pounds…
Three-hundred and twenty-five billion, three-hundred and sixty million, five-hundred and ninety-three thousand, eight-hundred and twenty-four pounds and seventy-nine pence.
What a number!
I can tell you how you can do it in the stock market too.
All you have to do is bear with me while I show you this simple and widely known little trick.
Without further ado, here’s how to turn £200 into £325,360,593,824.79 in just one year.
First you buy stocks with £200.
Then you make 6% every day compounding for one year.
I know that’s how you get those two numbers because I did it on an Excel spreadsheet.
After one day, 6% gains on £200 is £212.
After ten days you’re looking at £337.90.
After one month, £1,148.70.
Then it gets interesting. By day 90, it’s now £35,748.02.
By day 150 it’s an astonishing £1,179,244.66.
Day 227 you hit £100 million. Day 254 you hit half-a-billion.
Day 266 you hit your first billion. You’re at £100 billion by day 345. And then on the last day of the year, you’re a £325,360,593,824.79–aire.
That’s just maths. Right? Right?
Surely 6% a day is easy? Right? Right?
According to a guy I saw on TikTok, that’s how you do it. You just buy stocks that go up 6% a day and you can turn a couple of hundred into a couple of thousand in the blink of an eye.
That’s what he was suggesting. Albeit he stopped short at just 90 days… pfft… rookie. Extrapolating out that kind of return and surely everyone could because a multi-billionaire this year.
It is after all, just simple, “TikTok maths”. Right?
Reality to kick swiftly in the backside
I believe by now you realise the insanity of everything I’ve just written. Of course, it is true and the maths is correct – £200 compounding at 6% every day for a year will turn into well over £325 billion.
Clearly however, it’s just not that bloody simple. And just in case you weren’t aware, that will never happen. Never.
Although try telling that to the 2020 and now 2021 phenomena that is “social trading”.
We’ve been covering this over the last few weeks ,notably in one of our Friday podcasts. But we’re seeing more and more fast and loose trading “strategies” and social media posts by unqualified and unregulated people.
They’re appearing on Twitter, Facebook, Reddit and notably TikTok. There’s even a name for it, “FinTok” or “StockTok”.
It’s a phenomena driven on by markets that (right now) appear to only ever go up. However, it’s also buoyed by the pumping and notoriety of stocks on these platforms. In effect, there’s all the hallmarks of the more traditionally known market phenomena, “pump ‘n’ dump”.
That’s where significant influencers pump up the potential and price of a stock having already taken a significant position in it. Then as the hype and fear of missing out (FOMO) kicks in from retail investors, the large holders dump on unsuspecting people.
This is rife in crypto, and it’s rife in penny stocks where a lot of unscrupulous and unregulated influencers exist.
There’s a few things that you need to be aware of with these phenomena. A couple of things that it can lead to that you need to be careful of.
The first thing is that you see these posts and hear about them and want a piece of the action. That’s reasonable. After all you’re in the market to make money – when you hear about ways to make money, you naturally want to explore.
Then you see how some of these “StockTok” stocks begin to fly.
You see the likes of Tesla that’s got a huge social trading tailwind behind it. Then you see something like GameStop (NYSE:GME) and how that’s been trading (about 267% this month).
The reason behind the recent move (51% on Friday and over 40% on Monday) is predominately a short squeeze mobilised by posters on Reddit.
That’s right, Reddit users organised to short squeeze a large hedge fund position.
However, as tempting as these stocks look when they’re doing over 50% in a day, day after day, the risk here is astronomical. Stocks like this that trade on momentum from social media and nothing else are destined to make moves against you when you least expect it.
For every 50% rise, there’s often an equally significant move on the way down when they move on to the next hot stock. The hard part is that you never really know when or where it comes from… or who or what is making it happen.
My take is that it’s a cesspool of illegal trading that’s waiting for the regulator to come in with swift, decisive action. Of course there’s nothing wrong with someone trying to trade these trends on publicly available information and picking up on what’s trending on these platforms.
But I think it’s an area that you can very quickly get carried away in. You might land a winner or two. Perhaps ride a trending StockTok stock up to some fast gains – if you’re lucky.
Then overconfidence kicks in, and the idea that trading in stocks and making money in the market is easy begins to set in. Before you know it, a couple of hundred in punt money is a couple of thousand and more than you could afford to lose.
Many will lose. Very few will win. The ones that do win, rinse every fibre of their “success” while they can to build more followers on StockTok to do it all again.
Be warned, it is not that simple. You will not make £325 billion in a year by making 6% compounding day after day for a whole year. It’s never that easy, it’s never that simple.
Getting caught up in these irrational market behaviours is easy to do and dangerous to do. You may be up for it. You may already be into it. If so, tread with great caution and understand your capital risk.
It’s a market there for pure punting, pure speculation and pure luck. Treat it any other way and you’ll come out of it with a proverbial footprint right on your backside.
Editor, Exponential Investor