In Dostoevsky's "Gambler," when a gambler puts down a stake on the game of roulette and wins, he places both the original stake as well as the entire wining on the next bet. He repeats this until he decides to leave the table or loses the whole thing in one bet. It is a man behaving very badly.
I have been practicing a similar behavior in "betting" on the market with some twists. This investment strategy (if you would call it an investment strategy instead of a gambling strategy) follows from my three-part series "How to Double Your Money."
The basic principle behind this strategy is the power of compounding. To take advantage of this power of compounding, you have to reinvest your entire "stake" including all of the accrued winnings in the next "bet." The difference between Dostoevsky's "Gambler "and what I do is that when my "bet," the stock I picked, starts to go sour, I can limit my loss by getting out of the bet or rather sell the stock I bought. Still, as I cautioned before, if you want to engage in this strategy, it is not for faint-hearted and you have to be very nimble.
I started this strategy about 10 months ago on January 19, 2012. And, I reported the result of the first four months on or about May 14, 2012. [Sorry about my fat fingers that the dates in my original report were mistyped as January 19, 2019, and May 14, 2014 - both years should have been 2012.]
Here is the result of this strategy after about 10 months and as of December 3, 2012.
I started this strategy with an initial capital of $50,356.95 on January 19, 2012, by purchasing 400 shares of DIA. By March 12, 2012, the investment grew to $53,186.71 and, as I have gotten more confident in this strategy, I doubled my investment by adding an additional capital of $53,026.29. I have presented my entire trading records of the first 67 trades in the last of the three-part series mentioned above.
I have basically followed the same trading practice but with one major modification to the all-in betting method I described above. Instead of all-in, I now bet only one-half of my capital in the initial purchase. Quite often, the price of the stock I purchased drops significantly. When that happens, I have the options of either getting out of the stock immediately or, if the stock has the promise of quick recovery, I may go in and buy more shares of that stock with the rest of the capital.
Here is the cumulated net to date.
Here are pertinent statistics of this program:
Return on Capital
Return on Capital, Annualized
Days to Double, Days
Days to Double, Years
Return per trade
Total Number of Trades to Date
Both the actual return to date of 14.72% and an annualized return of 20.82% are quite good.
At this rate, it is going to double in less than four years. This is quite good also.
The return per trade is quite low, it is only 0.10%.
The frequency of trade is very high. A total of 138 trades in about 228 trading days, which comes to about three trades in every five trading days or one week.
A batting average of 82% or the fact that I made money on more than four out of five trades is something I think I can brag about.
Buried in the statistics are several big setbacks due mainly to a misplaced bet (bought the shares at wrong time or wrong price) or, while I had the right pick of the stock, I did not have the patience to wait for the share price to recover after the drop in the share price occurred immediately after my purchase.