I've read Phil saying in response to this question that his money grew that quickly in part because of his fundamental system he teaches in "Rule #1" (buy a great co. on sale) and in part because of luck - he got into the market right before it took off and went way up. He also invested in a few "Risky Businesses" (this category is described in the book) that took off as well. Though his fundamentals were sound, he took some risks back then that he wouldn't recommend to new investors, so now he teaches people to go after 15% a year with no risk, so they don't need to depend on luck at all.
Remember Buffett's law of diminishing returns: growing a large amount of money 19%, such as Buffett has, is incredibly more difficult in comparison to growing a small amount of money 300%. It's harder to double a billion dollars than a thousand, in practical terms. (which is what makes Buffett's long-term success all the more phenomenal, as any money manager will attest.)
So it is possible to invest well in a few companies, and get lucky and return 300% in a year. But please remember most investors, even following Town's advice, won't be able to do that. But most prudent investors following Buffett's advice and example should be able to exceed 15% a year, as I have done, averaging 24% a year.
When I heard Phil in person, he explained the simple reason for this is that, when you are working with smaller numbers, you are like a jetski compared to an aircraft carrier. The big guys simply can't move as fast. It's not because he's smarter than Buffet--it's because Buffet has to move money in and out of various stocks bit by bit whereas the small investor can buy/sell all shares in a given stock at once. If Buffet did that, the price would skyrocket on a buy or plunge on a sell, simply because of the number of shares he controls. What I wonder is how much options and derivatives comprised Town's 'good luck' strategies--it would be much more conceivable to have a 300% growth rate with successful advanced options trading.
so how about this... if it is so possible, then everybody can start with $4,000 and be ready to have $4 million in 5 years. And with $4 million and with the interest rate at 5% yielding $200,000 per year, then everybody can retire for life starting with this $4,000?
or even... just turn $1,000 into $1 million and with 5% interest rate, that's already $50,000 per year of interest earned... and as good as a salary already...
Why are you so skeptical? My impressions of Town, having seen him in person twice as well as on DVD, are that he is having a blast sharing his knowledge now. Why? Because, after traveling the world and living in opulence, he found he got bored! So he's now finding his thrill in life, not in whitewater rafting through the Grand Canyon, nor in spending his surplus wealth, but in teaching ordinary people how to become wealthy. You should see how much fun he has watching the light go on in people's eyes as they catch on how simple this is.
Can you truly say you have never seen a company grow 300%? It happens all the time--but to only a very few companies at any given time. The secret is not to just discover and buy a great company at a great price but also to know when to sell to stop your loss when a company plateaus. I truly suspect that part of Town's success lays in jumping off a slow moving stock and onto a new one ready to surge. It's also about sticking to the rules instead of letting your emotions get in the way. In personal and business relationships, there have been a few times I've hung on to a person long after I first felt I should let him or her go--and it ALWAYS ended up costing me more that way. So if you're in the stock market to make as much as you can, it's as important to stop your losses as it is to find the promising stock on the upswing.
But let's just say that Town didn't tell the entire story of how a borrowed $1000 became $1,000,000 in just five years. Perhaps there were other contributing factors that's he hasn't tracked. Even so, there are many, many investors making very good returns by applying these methods. So what if not all of them are able to gain consistent 300% returns? The only way to win is to play the game--and rule number 1 is what makes it profitable for so many of us who would lose our shirts without a little help figuring it all out.
so you are not skeptical huh, Lark Tucker, so I bet you subscribe to the "How to turn $4000 into $4,000,000" newsletter huh? yeah it is better to trust, especially it is related to $4000 becoming $4,000,000.
Well, Epsilon Delta, you raise a good point. If I had to send someone else all my money and let him invest it, I would be more concerned. You're talking to someone who used to run away from the stock market, because I was clueless how to turn a profit there. Now I understand more of the dynamics, I find it pretty exciting.
At any rate, my own business went from nonexistent to $1,000,000 in sales its first full calendar year. So I still don't consider myself having the know-how to go from $1000 to $1,000,000 in the stock market in five years, but that doesn't mean I don't think it's possible or that I have to trust anyone but myself with my own money. My biggest challenge right now is not in choosing stocks but in choosing where to devote my time first. There's just so much opportunity out there, I don't have time to take advantage of it all--especially while making sure I get in some quality family time as well.
Hey Joe, It's also very easy to double $1000 in your head and see how many times it takes to reach $1,000,000. Guess what? You only have to double your money 10 times! (1k - 2k - 4k - 8k- 16k- 32k - 64k - 128k - 256k - 512k - 1,024,000) That's considerably faster than 15% per year. Evidently, Phil was doubling his money an average of twice a year to reach his first million. If you look at some of the top performing stocks on the market, there are some that more than double in a year. The trick is finding those that are most likely to really grow--and then being very careful around earnings release dates! (Check out VDSI's recent performance for a good example how easy it is to lose much of it back in one day!)
I've finally been reading Phil's book. He's very readable, and his strategy is strictly in stocks--no options trading. (I still don't know whether he trades on margin though.) So a skilled options trader can make even more. Of course, you can lose even more also, if you aren't careful. That's where investor training and using paper money accounts to practice are so valuable! I'm still in learning phase, but my paper money account is making modest gains. :)
Hi, After reading the book and spending hours browsing the different sites to collect the information as described, I decided to develop code to do that for me, which proved to save me hours of number crunching. I would like to share that with the forum. Please go to www.zadbaz.com, enter a valid ticker and click get summary. You will get a page of all information that you would normally browse many pages to get including the timing tools (MACD, STOCHASTIC, EMVA). I would appreciate any feedback or any errors you may see.
I don't know a ton about Town's method, but note that Buffett himself stated he maintained the minimum amount of risk possible. With more risk comes more reward, and undoubtedly Town's method is riskier.
Exactly, what you're saying is true. Ever hear the joke about the finance professor and the $100 bill? A finance prof and his student are walking down the street. The student sees a $100 bill on the ground, and right before he bends over to pick it up, the prof says, "Wait! If it were really $100, someone would have already picked it up!"
Remember that Buffett earned nearly triple digit returns in the early 50s with his own money before founding his partnership in the late 50s. He did it then, and I presume it's possible now under the right conditions (pray for another powerful bull market!!).
Buffett can do nearly triple digit gain, but can he do 300% gain, for 5 years straight?
Also, if we can do it quickly with less than a million but can't with $50M, note that when 2000 people use the same method, and 300 of them happen to be in the same sector and same stocks, then their money is much more than the $50M effect.
Agreed. Of course if I had 50 million to move in and out I wouldn't be looking to Phil for advice on getting rich. I'd park 30 million or so with some hot shot hedge fund and live very well off the earnings with 20 million for a rainy day.