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I’ve been investing and doing well. I want to invest more money. I don’t have more money. How do I get some?

I’ve been earning about 108% profit on average, but have only been investing about 26 dollars at a time. It takes me about 3 weeks to get the return on investment. Yes it’s legal; no I won’t say what it is. And no, asking family and friends isn’t an option.

Only 108%? It’s not unusual for numbers over a short time frame to extrapolate out to hundreds even thousands of percent per annum but it won’t be sustained. My spreadsheets often show 4,700% per annum in the first week of a position but it’ll just as likely show -267% per annum in the first week. If you think you’re going to be able to hop in a stock for a few days and hop out to lock in these phenomenal returns then think again cause you’re just as likely to hop in and get horrendous negative returns. If you are hopping in and out of the ones providing decent returns and then just holding the ones that are bad in hopes the daily volatility will give you fantastic returns or at least neutral returns to not cancel out your gains then the random walk will leave you with all your money tied up in losing positions before long. If you hop out the bad positions quickly too then you’ll find that it all evens out.. If that was over ten years then it would be something to boast about but over 3 weeks, it’s just volatility.

You should only leverage your investments with borrowed money on a sure thing. If it’s an arbitrage play or a delta hedge play then borrowing makes sense. If it’s a buy this hot stock cause it’s going to go up then the logarithmic utility is zero and it’s not a good idea. You need to be able to assess the probability of the play and hedge against the extreme outcomes if you are going to borrow.

People actually do invest borrowed money, that’s what a margin account is about, borrowing from the broker though the broker also borrows your equity hence the requirement that you maintain a certain amount of equity or it isn’t worth the broker’s troubles and the risks are high, if a margin call happens, you either cough up money (real money) or be forced to lose your positions which can turn a sure profit into a disaster.

Believe me, you did not do as well as you think you did, 108% over 3 weeks in several $26 trades means nothing, if anything I would’ve expected much larger numbers for such a short time frame.

Besides how are you calculating the average? When it’s investment, particularly with compounded interest or reinvestment, the standard arithmetic mean known as an average is meaningless, yes a lot of people still uses it but it overstates the mean. With compounded interest a geometric mean is more relevant, when ratios are involved a harmonic mean is more relevant, that’s why Excel has a geomean() and harmean() function. For example if you made 15% interest in one year, 5% in the next and 7% in the third all compounded then your overall yield is 29.20% over three years, the geometric mean is 8.92% while the arithmetic mean is 9%. If you took 1.0892^3, it gives you 1.292 or 29.2% but if you took 1.09^3, you get 1.295 or 29.5% so the geometric mean is the more valid average (the difference may not seem like much but remember it compounds). There are other pythagorean means but the geometric mean is the most relevant to investment. If you don’t get the math right then you’re only fooling yourself.

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