Everyone wants to become a millionaire by trading penny stocks, but few ever do. You’ve heard the proverb “every journey of a thousand miles start with the first step.” Well, this journey start with $1,000.
There are hundreds of spam penny stock newsletters that send emails telling you how, with just $1,000, you can become a millionaire in just 38 trades. Mathematically it works; $1,000 invested with a 20% gain and then reinvested repeatedly 37 more times for a 20% gain works out to $1,020,674.70. Now imagine if it was with $2,000 to start, or even $5,000. What we will illustrate for you here, not only is how to do it better and smarter from a mathematical point of view, but also how to keep it be able to live of a $4,000 a month tax-free income afterwards. Does it sound too good to be true? Good.
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Since not every snowflake is the same, neither are investors who want to make a million dollars. Some have more funds available to them, some have less. Some have life responsibilities, while others a free-spirited with less or no defendants. Regardless of your life status, these formulas used in the proper manner, can provide, not only the financial independence each of us seeks out, but also the ability to tell others how you took a small amount of money and turned it into $1,000,000.
Starting out with just $1,000, it’s hard to see that money appreciate rapidly in a blue ship stock like Apple Inc. (NASDAQ: APPL) or Exxon Mobil Corporation (NYSE: XOM). This is usually what attracts investors to OTC listed penny stocks since having the right penny stock at the right time, two intangibles to making money in the penny stock market, can increase in the shortest period. The tangible, fixed product is the money. Without the tangible, the ability to invest, the intangibles are irrelevant.
I have $1,000, Now What?
First thing that needs to be done before even considering how you can become a millionaire by starting out with just $1,000 is you need to say it. You need to say it out loud, in front of a mirror if possible, and believe that you can do it. There is an old proverb that proves this theory: “Liars can figure, but figures don’t lie.”
Working of that theory alone, $1,000 invested for a 20% gain and reinvested 37 more times will give you $1,020,674.70. See how:
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What you get there is a basic mathematical calculation on how, in just 38 trades, you can invest $1,000 and make it $1,000,000. What we also made sure of was to extend this calculation to prove that it actually takes 40 trades to turn $1,000 into a $1,000,000 since taxes and transaction fees are unavoidable. With a capital gains tax of an assumed 40%, you have $69,000 to play with for miscellaneous wire transfer fees and brokerage commissions. Make sense? Good.
Now, as you can clearly see from the table above, once you get past the 10th or 12th trade, fining a penny stock that has the liquidity needed to be able to allow for both an entry and exit becomes slightly more difficult than playing the momentum of just any given newsletter promotion or momentum stock. To be able to drop $10,000 to $20,000 into a penny stock for a 20% gain is not impossible, it’s just that it occurs less often which makes the speed of the portfolio you have built slows down some, almost like joining gym for the purpose of losing weight – it comes off quick in the beginning, then you need to push hard and be strict to continue to see results.
With this now as a small obstacle to the mathematical equation, this is where investors can begin to looking at penny stock on larger exchanges such as the NYSE and NASDAQ. But, before we go there, let’s just see what might happen if you had, say $2,000, or even $5,000 to start with.
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Mathematically, starting out with $2,000 or $ 5,000 would eliminate 3 trades and 8 trades, respectively, from approaching a $1,000,000 net worth from a $1,000 initial investment. What this allows for you to do is to enter into the second level, the big board penny stocks, much earlier than you would had you begun with just $1,000.
However, since this is all theoretical based on fixed numbers; let’s just see how quickly you could turn $1,000 into $1,000,000 if you traded with some better intangibles and a higher target:
If you started out with just $1,000 and made a 50% gain on your first 4 trades, following the illustration above, and continued forward with a 20% gain target onwards, you will have $1,442,061.11 in 35 trades.
If you started out with just $1,000 and made a 100% gain on your first 4 trades, following the illustration above, and continued forward with a 20% gain target onwards, you will have $1,526,339.47 in just 29 trades.
If you followed that same scenario, but instead of banking 100% gains on your first 4 trades and moving on to the 20% ones, you did your 5th and 6th trades for 50% gains, $16,000 and $24,000 invested respectively, you would have $2,384,905.42 in the same 29 trades.
Amazing isn’t it.
I Made Too Much Money To Trade OTC Penny Stocks, Now What?
This is the problem you want to have. The problem of leaving behind all those message board pumpers and the “King Kong on Cocaine” feeling of having doubled your money before lunch is inevitable if you are serious about reaching you end goal: Being able to say you made a million dollars with just a $1,000 investment to start with and living off $4,000 a month of tax free money. Yeah, don’t forget about that.
Once you have left the gladiator pit of the OTC and moved on to the big boards with your custom built investable funds from a small initial investment, finding 20% gains may seem difficult for the novice investor. Fear not young jedi warrior because the abyss is much easier to navigate through when you stick to what you know.
First of all, find your niche. A giraffe doesn’t swing from trees just as a baseball player doesn’t dance ballet for the Nutcracker. Find the sector of the market that you know inside and out. If you’re Joe the plumber, know the housing market which you deal with every single day when you’re at The Home Depot, Inc. (NYSE: HD). If you’re a trash collector, know Waste Management, Inc. (NYSE: WM). And don’t just know everything you can about these companies, know even more about their competitors. If Home Depot just closed down 6 stores last quarter, find out who ran them out of town. If Waste Management is sub-contracting out work, find out who’s getting paid.
Two places that you will also want to pay close attention to when you get this close to your end goal are earnings forecasts and analyst upgrades. Knowing that a company is due to report earnings in a month and their competitors have been reporting good numbers, look to see how their last two earnings reports came in and what the analysts are looking for. Another old proverb which will pay off huge dividends with this vehicle is to “buy on rumor, sell on news.”
The second, analysts’ upgrades, can give you a clear heads up as to what the guys who are paid to tell people what to do think. Understand though, not all wall street analysts are the same. One firm’s “buy” rating could be another firm’s “outperform,” or even “neutral.” Many penny stocks get covered by these Wall Street analysts and invited to speak at their next investor conference which all looks good on paper, but when you dig into the SEC filings, you see that the firm in question just loaned $500,000 to that company which is convertible. Translation: They need that company to get attention from investors so they can make their money back from their loan to the company.
Once you have reached this level where you’re investing $100,000, $200,000, $800,000 into one stock, you will want to diversify into a few to play the odds. You may be tired of the proverbs, but “think long, think wrong,” will only slow you down from reaching your end goal, making a million dollars from a small initial of investment and being able to earn $4,000 a month tax free for the rest of your life. Hence, follow the insiders if you experience a crossroads moment. Look to see which insiders are buying big blocks of their company’s stock in the open market and follow them. Other than the millions Warren Buffett dumped into Solyndra, insiders are usually doing it for a good reason.
I turned $1,000 into $1,000,000, Now What?
Regardless of if you made your 29th, 35th, or 4th trade, you made a million dollars so pat yourself on the back, give yourself a standing ovation, whichever is your celebration of choosing (as long as it doesn’t involve a face tattoo). Now, to keep that $1,000,000 and have it support you safely, with virtually no risk, set yourself up with an appointed financial institution who can safely invest those funds into municipal bonds (muni-bonds) with the intent of them being AAA rated, tax-free for federal, state and local tax authorities, and with an interest rate of 4.5% or better.
Muni bonds are the backbone to the U.S. They’re how our roads stay paved, our streets clean, our public schools functioning at a level where they can produce the next generation of bright minds to take the torch from us when we pass it on. Muni bonds can, in some states, trigger what they call Intangible taxes which in Florida are roughly 3 cents for every $1,000 invested. The taxes are minimal compared to the benefits, $1,000,000 at 4.5% per annum is $45,000 divided by 12 works out to $3,750 a month.
Bottom Line: It’s not $4,000 a month? Ok, then, you tell me how to turn $1,000 into $1,000,000 in 40 trades or less so that I can make $3,750 a month tax-free income for the rest of my life? I will try your theory on my 3rd round of successfully doing this proven one. There’s a reason why we are the best penny stocks website out there.
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