Investing using the 'Rule of Numbers' method: Let's say

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joey68
Investing using the 'Rule of Numbers' method:

Let's say Joe Bob has $1000 to invest in the market. Its not more than he can afford to lose, and any losses wouldn't affect his standard of living.

Joe Bob is somewhat new to investing but he wants to invest with the hopes of at least doubling his money.

Using the 'Rule of Numbers' method, Joe Bob would invest $900 in 9 different companies. Why $900 and not $1000? Simple. Fees. The average cost of each transaction is $10, so if he has $1000 to spend, $100 is actually paying for the purchase leaving him with $900 to invest.

You see, he could invest $990 in one company (minus $10 fee), hope for the best, and see where it goes. If it was a great investment, he could make a pretty good return on his initial investment.

But.. and theres a big 'but' here..


If he invested his entire balance in one stock, and that stock fails, does a reverse split, goes under, ends up being a pump and dump, etc etc.. he just lost $990 in one fell swoop.

On the other hand, with the 'Rule of Numbers' method, investing in 9 different companies allows room for error, poor DD, failed companies, etc etc.

Example:

Stock ABCD is selling at .0005. Joe Bob wants to invest his entire $990 in it. He has a great feeling. Lots of hype brewing in the investment forums online. People promising 'too the moon!'.

After fees, he would own 1,980,000 shares. Sounds great! To double his initial investment, the share price has to go to just over .001. Possible? Of course. anything is possible in the OTC.

On the other hand, if he invests $900 (minus fees) in 9 different companies and theyre all at .0003:

Each company would equate to 333,333 shares. In total, Joe Bob would own 2,999,997 shares; that's 1,019,997 MORE shares than if he invested in only one company for only $90 more.

See where I'm going with this?

Now lets say Joe Bob simply sucks at picking good stocks and 6 of his 9 investments fail leaving him with only 3 stocks which are about to move up:

Stock 1 goes from .0003 to .001. $333 profit
Stock 2 goes from .0003 to .005. $1,666 profit
Stock 3 goes from .0003 to .014. $4,666 profit

After selling, Joe Bob has $6,665 in his account.

Here's the best part:

Even though SIX of joe Bob's investments failed, he still was able to pull off a profit. Seeing he's not very good at picking good stocks, which scenario do you think is better for him?.. Invest everything in ONE company? Or invest in several.

This method also makes the most of our time. Instead of investing in one company and waiting for PR's and updates, by investing in several companies with several different time tables, it affords us the opportunity to possibly experience more PR's and progress for the same amount of time.

Obviously, the 'Rule of Numbers' method doesn't guarantee profits. All 9 companies could fail. Anything can happen in the stock market. But by doing DD, heavily researching each company, contacting the companies and asking questions, by NOT investing more than he can afford to lose, and by investing in more than one company, he provides himself a cushion.

Note:
All of these numbers are examples. It would work by investing in two companies instead of just one. That's the great thing about investing. It can be tailored to our individual needs and resources.

Note2:
I believe many investors do not want to take the time to research several companies and would rather risk their entire investment in one stock.

Not investment advice. Investing is RISKY and you can LOSE IT ALL IN A SINGLE DAY!!
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There is a VERY HIGH degree of RISK involved in trading and investing. Only invest what you can afford to lose.

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