How I Trade Stocks For a Living -- [Chapter 7]

CHAPTER 7:  The Beanieville System (Part 2)
 
The Beanieville System is the only system I know of that gives you both the
benefit of short term trading and the benefit of long term investing, all in the
same stock.  In short, it allows you to "mesh" together the best of both
worlds!  Most people either short term trade stock A (and many other stocks
as they tend to become "flippers") and have a long term investment in stock B.  The problem with this is that stock B, ​which also happens to be a bigger part of your portfolio​, isn't generating any income at all and could become a stagnant long term investment.  
The life long "opportunity cost" of not generating any income in stock B can be staggering.  This would be like a real estate investor who buys a property and pays the mortgage and hopes the value of the property goes up so he can eventually sell it years down the line, without ever renting out the property to generate income. 
This kind of thinking does not make a real businessman. 
 
Now, I want to give you two examples that allows you to see the awesome
power inherent in the application of The Beanieville System. 
 
Example#1:​ 
 
You spend a small portion of your money and buy a $10 stock that has lots
of volume and will stay that way for awhile.  Hopefully, the company is
profitable and is growing as well.  (Why would you want to own a company
that doesn't make money?  In the real world, you would never invest in a
business venture that loses money.)  Your goal with this new stock you just
invested in is to generate massive income to be re-invested back into the
business.  Let's say the stock is pretty volatile and moves an average of a $1
range daily.  Your plan is to generate 10% BVI per week.  That means for a
$10 stock, you try to generate 1 BVI  total for the week.  It shouldn't be that
hard to do if you're a decent trader and the stock has a $5 range total ($1
per day range) per week.  Let's say you own 500 shares of this stock;  so 1
BVI essentially means you generate $BVI = $500 (1x500) per week. 
 
The principle you've invested in the business is $5,000 (500 shares x $10
per share).  Moving on, on week#1, you generated 1 BVI.  Remember what
that means?  That means you saved $1 total on the $10 stock by selling
higher and buying lower, which means essentially (in the long term scheme
of things and assuming your stock don't implode like the next Enron) you
made 10%, or $500, in this case.  So on the last day of the week, you
re-invest back that 10% into your business.  That means you buy about 50
shares extra (50 shares is 10% of 500 shares), giving you now a total of 550
shares at the end of week#1.  (Let's assume the stock stayed below $10,
just for the sake of simplicity.) 
 
Remember the Rule of 72 and the law of compounding?  At 10% interest, for
instance, it takes your money about 7.2 (72/10) years to double.  Let's
round it up to 8 years for the sake of this example.  So it takes 8 years for
your money to double when you re-invest all the interest or income.  In the
example above, you are creating 10% BVI or "income" ​per week​, not per year.  That means, it will take your money 8 ​weeks​ (or 2 months) to double when you compound your earnings on top of your earnings. 
Let me put a table up for you, and let's say you are trading and trying to generate BVI's for one full year for this $10 stock you own:
 
By the end of week 1, you now have 550 shares.
By the end of week 2, you now have 605 shares.
By the end of week 3, you now have 665 shares.
And by the end of 8 weeks (2 months), you now have about 1000 shares.
By the end of 4 months, you now have 2000 shares.
By the end of 6 months, you now have 4000 shares.
By the end of 8 months, you now have 8000 shares.
By the end of 10 months, you now have 16,000 shares.
By the end of 12 months, you now have 32,000 shares.
 
Assuming for the sake of simplicity, your stock stayed at $10 by the end of
the year, you now ideally own 32,000 shares of this $10 stock, and it
continues to generate you massive income.  Now, for every 1 BVI you make,
you now make $BVI = $32,000!  That means for every dollar you "saved"
through your trading, you actually make $32,000 in income.  The value of
your business that you started out with $5,000 has now become $320,000
(32,000 shares x $10 per share). 
 
Ideally, that is how it all works.  But in real life, lots of things can happen
that can make it hard for you to reach the ideal, like:
 
1) Your trading skill isn't very good.

2) The stock that you pick doesn't stay volatile and it loses trading volume
before the year is up.  That is the nature of low priced stocks.  The volume
tends to die out when all the daytraders leave the stock.  (However, this
doesn't mean you can't look for one that lasts.)

3) If the stock goes to $20 a share, on week#2 for instance, you would now
need to adjust your trading to making 2 BVI instead of 1 BVI for the week
because 1 BVI is no longer 10% of a $20 stock.

4) You don't focus on doing what you're supposed to do.  Instead, for some
reason, you get pulled into other stocks.

5) Your stock implodes quickly like the next Enron.
 
Still, the above example is achievable to a certain extent.  It certainly is
possible.  We're only going for 1 BVI per week, or 10%, for that $10 stock. 
If you're an excellent trader, you can make more than 1 BVI per week. 
 
I have personally tried to do this once.  I put in a small portion of my money
and bought a $10 stock, about 700-1000 shares.  My goal was to get my
initial investment out first.  I was able to do this and get my initial
investment out of the stock after about two months.  But after about four
months, the stock imploded and started losing a lot of trading volume.  I
eventually quit and sold everything.  I made a very decent amount of money
but since it represented only a small amount of my overall portfolio I did not
feel it was worth my time to continue to trade speculative $10 stocks.  I
want to think very long term, where I only buy and trade very good stocks
that are over $50 per share.  Obviously, you're not going to double your
money within two months on large capitalization dinosaurs like a Walmart
(WMT) stock.
 
I want all of you to try this at least once.  Put a small amount of your money
into a $5-$10 speculatively volatile stock and trade it using The Beanieville
System for one year.  I believe most of you will make very good money, but
a few of you will probably make a killing like the amounts shown on the
table above.  Good luck, and please write me and let me know your
successes.  I would very much like to hear from you.  
 
Occasionally, on my website, I might give out certain stock picks you might
want to use the system on.

(continue to Chapter 8)


Leave a comment

Please note, comments must be approved before they are published