How can a little guy with small means make big profits in the stock market? After pondering on the toilet I have considered that considering uncertainties, time, transaction costs it is not feasible for the tiny absolute returns an investor makes. And this is not taking taxes into account!
My theory is basically economies of scale. Transaction costs and cost of living are assumed to be constant so even with a small rate of return the absolute return is significant.
Am I missing something?
2007-03-13 18:18:33 · 4 answers · asked by Anonymous in Business & Finance ➔ Investing
These days transaction costs are so low through e-brokers that there is pretty much a level playing field. Obviously if you talk about investing just one hundred dollars than it doesn't make sense, but if you are a "little guy" with $ 5,000 you can play pretty much as the big guys. I'll give you an example:
Company XYZ is trading at $ 50, and you expect it to go to $ 60. With your available cash you can afford to buy 100 shares, and a typical commission would be 9.95. So your costs is 5,009.95 and your revenue on sale is 5,990.05. You have a profit of 19.6%, where the maximum would have been 20% if transaction costs did not exist
Now the big guy just buys 10,000 shares. His cost would be 500,009.95 and his revenue 599,990.05, which gives him a percentage profit of rounded 20%, which makes the transaction costs insignificant.
I would argue however that for the little guy the profit is also so close to the maximum 20% that transaction costs do not play a role at all for investment decisions. If you are short term trader it is a different story obviously.
But if you are a long term investor seeking wealth creation, transaction costs should not stop you and even $ 1,000 could be invested. If your investments gives you 8% or so compounded returns over 10+ years, the 1% upfront commission was money well spent.
2007-03-13 19:11:43 · answer #1 · answered by Cheanea 3 · 0⤊ 0⤋
There are very few big shots in the stock market, or at least very little of their money. Most of their money is tied up in bonds and real estate. For them it's about keeping their wealth rather than making new wealth.
Stocks are for the little guy. It does take time and patience. Putting in $4,000 a year in a Roth IRA averaging 12% compounded for 47 years will get you $7.6 million tax free. The principal for you totals $188,000 over that period. There is nothing else that you could spend $188,000 now to get that return in that time.
2007-03-14 06:25:34 · answer #2 · answered by gregory_dittman 7 · 0⤊ 0⤋
No its not for just the big shots. Our firm is for professional traders and most of them got started with a minimum capital investment which we leverage out to them. We also offer training by our professional traders. If you would like to learn more visit our website or send me an email. www.rematatrading.com
2007-03-14 03:39:28 · answer #3 · answered by phantomtrader2 2 · 0⤊ 0⤋
Stocks are not just for the big shots. read tips on investing , stocks and mutual funds to help you better on this site
2007-03-13 18:30:17 · answer #4 · answered by tuff luv 2 · 0⤊ 0⤋