You must be living in a cave if you haven't heard of it.
How many of you actually traded stocks in the market?
Did you made or lost money?
How many of you would like to find out how the rich makes money in the stock market?
Before I begin, let me briefly educate the cavemen.
The stock market is a place where you trade shares.
What are shares?
They are parts of a company that people can buy and own.
Where do they come from?
They come from companies that are listed in the stock exchange. Meaning, companies that can be publicly traded. Usually these companies bear the entity of a Corporation.
Why do companies have stocks?
There are various reasons, the most common one is so that they can raise the capital they need to expand.
Still confused?
Go and google the word shares and read more.
For those non-cavemen, sorry for the wait.
Let's simplify things for the sake of understanding.
Remember our friend Blue from this story?
Today, he is a multi-multi-millionaire.
Let's say he has $10 million cash and has no where to spend it.
These are the few things he can choose to do.
- He can splurge in on luxury items like buying lots of clothing and expensive accessories and give himself a treat at the finest dinning restaurant.
- He can donate all of it to all the orphanages he sponsors. But he has already set aside a fund to donate automatically every quarter.
- He can put in a bank and let it grow at 3% a year.
- He can play the stock market.
Now, before I reveal how he is going to grow his money, what do you think is the strategy he will use?
Or rather, if it was you who had $10million cash, how would you invest in the stock market?
Give this some thought. Some of us may have strategies as to how to make money in the stock market, but for those who do not, take this moment and imagine how would you have done it.
How sure are you that your strategy will make money? Is there a guarantee on your money? Or are you actually gambling?
Now, you may or may not know this method. But let me give you a warning, this method is truly mind blowing.
Let me introduce 2 more characters into the story. They are Maroon and Green.
Maroon is a stock broker. His job is to trade stocks in the stock market. He works for clients who wants and buy and sell shares through him. He is fast, tenacious and cunning. Best in his field.
Green is Blue's secretary. She is meticulous and follows orders very well. Her job is to carry out Blue's bidding and to ensure that Blue's needs are taken care of.
So one day, Blue told Green to come into his office.
"Find me a company that fulfills the criteria on this list over here" said Blue
- has sound business fundamentals
- has been around for at least 10 years
- share priced at between 10 cents to 50 cents a share
- conservative and traditional company that does not have any major upcoming plans
- steady management
This company's name is called TradeMe. It is a small and medium sized company manufacturing cards. It has 50 million shares that are publicly traded. Price of stock had been stagnant at 10 cent a share due to dull management and low dividend payout. Management is a group of conservatives who had been with the company since the beginning.
So basically, this company is a steady company that is not very promising and not likely to collapse either.
Blue is very satisfied with Green's finding. He gave her the next instruction.
"Take $10000 to buy the shares of this company at 10 cents to 20 cents everyday. If prices spike, wait for the price to fall back before making purchase again. Do not buy the share at more than 50 cents a share. Take as long as you need to accumulated 5million shares of TradeMe."
So Green called up Maroon and relayed Blue's instruction. Maroon was puzzled at first but he trusted that Blue knows what he is doing. And Blue pays well. So he carried out the instruction faithfully.
After 365 trading days, Maroon managed to accumulate 5million shares of TradeMe. Current pricing of the stock is 40 cents. Total investment was $1.5million excluding the fee Maroon charged which amounted to $50,000.
That done, Green reported to Blue. Blue was very happy so he gave Green a bonus of $50,000 for that year.
Now comes the next phase of Blue's strategy.
As the company remains dormant, the price of the stock remained stagnant. If Blue left his money in the stocks, he will make a lost as the price will fall back to 10 cents in no time
So his strategy was definitely not Buy, Hold and Pray it will go up.
At this point, can anyone guessed already what Blue's next move will be?
Think about your own strategy. Would you have bought TradeMe shares in the first place? Did you imagine yourself pouring over all the top earning company's profile? Did you see yourself glued to a computer monitor comparing P/E ratios?
No matter what your strategy is, I'm sure you strongly believed that it will make you money. If not, why would you have done it?
Compare what Blue is doing and what you will do. Try and see the difference in terms of time, effort, risk and returns.
This is Blue's next set of instructions.
"Put 2 million each in four different company entities that I own and buy the shares of TradeMe aggressively from the market at 100 lots a day irregardless of price" (1 lot is 1000 shares)
The orders were carried out.
In 1 month's time, price of TradeMe stocks shot up to $1 a share.
At this point in time, each of Blue's company entity holds about 5million to 10 million share of TradeMe. In total, Blue now has 25million shares of TradeMe
Almost all of the $10million are in the shares of TradeMe.
Let's do a simple calculation here.
If let's say Blue decided to sell all the shares simultaneously at the price of $1 a share.
For 25million shares, he would get back $25million. With initial investment of $10million, his return on investment would be 150% in 2 years. Not too bad.
BUT
That return is still considered little for the amount of time needed to prepare.
In case you didn't get the picture, let me paint it for you.
How many of you didn't quite get why the price shot from 40 cents to $1 a share?
The way the price of a share works is like this. Part of the what determines a share price is the supply and demand theory. If there are more buyers than sellers, prices will go up. Vice versa.
Get the theory?
There are 50million shares of TradeMe trading in the market. The supply has always been 50million shares at 10 cents a share.
Blue choked up 5million shares in the first year, cutting supply to 45million shares at 10 cents each.
Next, he drove the demand of the shares by aggressively buying the stocks from other owners.
The owners of the 10 cent stocks sensed that there is demand for their stocks, started to sell at a higher price. At the same time, Blue is drying up the supply pool.
After choking up 50% of the total supply pool, Blue has already driven the market into a buying frenzy.
Imaging seeing the price of TradeMe in a chart. The line moves diagonally upwards.
Most people, cavemen included, would experience a syndrome called greed.
"The stock price is going up, this stock must be good. I must buy fast to make alot of money."
The public starts to buy shares of TradeMe. This act, when being carried out by large number of investors will rocket the share price.
Those who already possess the stocks will hold on to them as they think the price will rise even higher. Thus, shrinking the supply pool.
Now, the key to making the full profit from this feeding frenzy for Blue to be patient.
As long as the demand exceeds supply, the price will keep climbing.
Because it was Blue who instigated the rise, the true value of the stock which is determined by the company's way of being run and market perception of it will always be 10 cents a share.
So the price of the share will keep rising until it reaches a point where people perceive it to be overpriced. Once that point is reach, the market will correct itself and the price of the share will drop.
To prevent his efforts from going to waste, Blue has the power to determine the maximum price of the stock and get out of the market when that maximum price is reached.
If Blue says that the maximum price of the stock is $5 a share. What it means is that once the price of the stock rises to $5, Blue will order all his shares to be sold. What ever happens to the share price next is none of his concerns.
If he entered at 10 cents to 50 cents and exited at $5 a share. 25million shares at $5 each is $125million total. 1150% return in probably 3 years?
Who here would like to have that kind of return?
Who here still did not quite get the picture?
Simply speaking, what Blue has done is to create a pseudo demand for the stock of TradeMe. What most investors and traders see is that the price is rising and most of them will start entering the market hoping to catch the ride.
Even when the price has reached ridiculous heights, these people will still pay the amount for the price because they think that they can still make a profit when they sell.
These phenomenon is happening all the time all over the world.
Investors got their fingers burnt because of this. They play into the game of the rich and became a money making tool for them.
The rich got out of the game richer and seldom will anyone know what really happened behind the scene.
Did anyone just received a revelation?
Holy Shit? Oh My God? What The F***?
If we are to analyze Blue's method of making money. We can pick out several distinct difference between Blue's method and what common folks will do.
- Risk is relatively small. Blue chose a company that is stable and non-explosive. For this factor served 2 purposes. It ensures that the price of this company will not rise on its own due to the company's performance. It is out of sight of common folks, nobody will be interested in a stock tat is stagnant. Because the company is conservative, risk of it folding is low. For common folks, most of their strategy is buy, hold and pray stocks that are dancing around.
- Participation ratio. What common folks will do when they buy shares is this, they will buy alot of books and start reading on how the gurus buy shares. Sometimes, the books will tell its readers to look out for certain traits of the company and price movements. Common folk's buying decision is based on what can be seen by all. And when they buy a company share, either they bought it because they received a "hot tip" or they become the guru and get their friends to buy.
The significant difference between Blue and common folks is this, Blue uses what is invisible to others and common folk uses what is visible to everybody. You see I see, everybody see; you go I go, everybody go. - Time frame is short. Blue's strategy has a predictable time frame. His strategy has predictable stages that can be timed. Acquisition, price play, exit.
For common folks, they buy shares and glue themselves to the monitor screen. If the price go up, they celebrate and keep watching it rise. Until the price starts to drop a little, they sell. This is for those lucky cases. If the price did not go north, they'll hold on to the stock until it hits the bottom. These people do not have a strategy. All they do is pray. And because of this, their time frame is unpredictable. They are not in control. - Return on investment is high and guaranteed. Entry level is determined by Blue, he acquires the shares at a low price and stops buying when the price is too high. When the ball starts rolling, he sells his stocks at a price he determined. $5 is the price he wanted. Nobody else knows the actual value of the stock price except him. He knows the share value is 10 cents a share. But common folks do not know about the price. All they see is price constantly rising. Common folk do not keep track of their earning margin because they are not in control of the share price.
If you think it is because Blue has that $10 million and you do not, think again.
Is it really the $10 million that made Blue the $125million in the end?
What if Blue took the $10 million and played the stock market like common folks played?
Do you think he can get $125million in 3 years guaranteed?
It is not the amount of money you have; it is what you do with whatever little you got.
Here's a little story to enforce the statement.
Orange is a good friend of Blue, he is 10 years younger and just started out on his career. He met Blue on one of the money making workshops he attended. Blue happens to be the speaker.
Seeing Blue so successful, Orange decided to make Blue his mentor.
Blue gave Orange the advice a very rich man gave to him before he succeed many years ago.
"The simplest way to become rich, is to mix with rich people"
Mixing with rich people doesn't mean to be acquaintances. Mixing means you only go out with rich people, stay around rich, talk rich people's language.
Do a simple reality check.
List down 5 people who are the closest to you. People whom you will share your joy and woes with.
This exercise is fun. Give it a try.
Don't just read it and not do anything.
I can assure you that you will see what I mean after the exercise is completed.
It's not really difficult.
Besides, it gives you an opportunity to see yourself clearly.
After you have written down the names, write down their monthly income. If you are not sure, estimate the amount base on their profession.
Done?
I implore you to do this exercise. I can't stress its enlightening power enough.
Now, add up the 5 numbers and divide it by 5.
The figure you get is roughly the amount of money you are currently earning.
There's a saying: Birds of a feather flock together
So, Orange decided to follow Blue's advice and reduced the amount of time spent with his low income friends and start to mingle with the successful folks.
The one change Orange saw in himself was this, he became more motivated to make lots of money. Not because so that he can keep up with his rich friend's spending. In fact, mixing with rich people gave Orange the energy to perform to his best potential.
Nobody told him he couldn't do it. Whenever he feels unworthy, all he needs to do is to listen to 1 or 2 success stories from his new friends and he is back on his feet.
Nobody laughed when he discussed about his money making ideas. No skepticism. No wet blankets.
Because of the support these new group of friends has given Orange, he became more receptive to money making ideas he normally would not dare to attempt.
He saw opportunities in every crisis. Turn lemons into lemonade.
He now has the ability to see "grapes" as "wine".
One day when he came to look for Blue, he overheard Blue giving instructions to Green about how he wants to acquire the shares of TradeMe.
He went home and did a little research on the company background. He saw what everybody will see. A dull company that is stagnant.
But he also saw something else. He saw why Blue is interested in this company.
So the next day, he went to look for Blue again to confirm what he thinks.
Blue was very proud of Orange's deductions and agreed to let Orange join him in this venture.
As Orange is still young, his savings did not amount to much.
But because he is hard working and did not have a lavish lifestyle, his savings over the past 5 years amounted to $10000.
How many of you thinks that $10000 is a lot of money?
How many of you have $10000?
How would you have used your $10000?
Orange wanted to put in the whole of his $10000 savings into TradeMe stocks.
But Blue stopped him.
"Never risk your necessities money no matter how low risk an investment is."
"If you put all your money and leave nothing for emergencies, you are no different from common folks. You will be living a hand to mouth life.
Common folks earn and spend whatever they have and sometimes more. They live a day by day existence. And that is something you should not subject yourself to in no matter what circumstances you face."
So, Orange used $6000 to buy TradeMe shares. $4000 is his projected expense for 6 months. He is living with his parents and thus, his living expenses are low.
When Blue sold his shares, Orange decided to take a risk. He sold 25% of his stocks at $5 each. Which is 15000 shares at $75000.
He held the rest of the shares and sold them at 5000 shares every time prices increase by a dollar.
When the price reached $10 3 months after Blue pulled out of the market, Orange sold the remainder of his 25000 shares and pocketed $250,000.
2 weeks after the price reached $12.30, there was a selling frenzy. People start to perceive the stock as overprice and started to sell. Nobody was buying. Everybody wanted to get back their money.
Now, there are more selling than buying. This caused the price to plunge.
In 1 day, TradeMe stocks saw a drop from $12.30 to $2. Thousands of investors were wiped out. Most of them got in when the price was at $5.
In less than 2 weeks, TradeMe stocks went back to its original value of $0.10.
Let's not worry about the losers. They should use this to learn a lesson.
Look at the winners instead. With $6000 initial investment, Orange's return is as followed.
Entry ==> 60 lots at $0.10/share
15,000 share @ $5/share ==> $75,000
5,000 share @ $6/share ==>$30,000
5,000 share @ $7/share ==>$35,000
5,000 share @ $8/share ==>$40,000
5,000 share @ $9/share ==>$45,000
25,000 share @ $10/share ==> $250,000
Total gain ==> $475,000
ROI = 7800% in 3 years
Some of you might think, what if after Blue pulled out and the price starts dropping?
Think again. Would Orange make a lost?
Let's say Orange already pocketed $75,000 and he still has 45 lots.
The next day the price plunged to $2 or lower, would Orange make any lost?
Now, let me reiterate. It is not about how much the returns.
It is not about what you do to make that returns.
It is not whether you are lucky to have bought TradeMe.
It is not how much money you have.
What is it about?
What is the f***ing ingredient that makes the money?
It is you.
If you are Orange, you do not want to be rich, will you attend money making workshops and met Blue?
If you did not meet Blue and decided that you want to learn from him, would you have heard of the golden advice?
If you did not really want to be rich, would you really follow the golden advice and spend less time with your current friends?
If you did not change the group of people you mix with, would you have changed your mindset about investing?
If you did not have the mindset to accept investing, would you have taken pride in the ability to see potential in any investment?
If you did not have the ability to see potential in any investment, would you even became interested in TradeMe stocks when you overheard Blue talk about it.
If you did not even have any interest in TradeMe stocks, would you have done the research and made the deductions of what Blue is going to do?
All in all, do you think that you would even took out your hard earn money and buy the shares of TradeMe.
Seeing Blue investing in TradeMe stocks is one thing, taking your money out and putting it into a stock without any understanding is another thing.
If you did not discover Blue's strategy, would you even have the balls to buy TradeMe stocks?
Who decides what to do with your money?
You.
Who decides how much money you deserve?
Your boss.
But who decides the boss to work for?
You.
Who decides how hard to work to earn money?
You.
Who decides the lifestyle you are living?
You.
Who decides the people you mix with?
You.
Who is the biggest loser?
I don't know?
Everything happens for a reason. And each reason has its root to you.
What you think will manifest itself into your actions.
Thoughts become emotions. Emotions become action. Actions become results.
What you reap is what you sow.
This is not about what you do. This is about who you are and why you will do it.
Opportunities are everywhere. EVERYWHERE.
Ask and you will get one.
Question is, will you see the opportunity spinning infront of you?
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