Albert Einstein, when he wasn't working on his theory of relativity and other matters of scientific import, thus described the phenomenon of compound interest. Those with long memories or the ability to delve deep into this blog will remember or discover that it was with an exploration of compound interest that I started writing in my little corner of the interweb.
I mention it again after reading Cassini's piece on compounding and the wisdom of having, or of not having, daily targets. I haven't read the article in Ian Erskine's newsletter that Cassini quoted but it got me thinking. In a nutshell someone wrote that increasing your bank by 2-3% per day should be achievable. A quick spreadsheet reveals that if that statement refers to a compounded bank that by day 365 at 3% per day your bank would be just shy of £5,000,000 from a start balance of £100! The daily target for that day would be a modest £141,211.80. Clearly, as Cassini says, this is not viable and if it were that easy probably both he, I and every other trader would be out of work on a beach somewhere laying 1.1 shots for a hundred grand!
If, however, the author was referring to a 2-3% increase in bank size in a non compounded sense then that is completely different. A bank of £1000 returning £20 - £30 per day is entirely realistic - in fact you could even argue that you are under utilising that bank. Trading in that way for 25 days per month grows the bank by a handsome £500 - £750 per month. Slightly better than sticking that grand in the Nationwide!
For a while now I have been of the view that I should be trying to compound my bank 10% a week or 30%-40% a month, etc - with a view to turning £100 into £5K-£10K, etc in a year to 18 months.
ReplyDeleteI've now realised how hard (and unrealistic) that is.
But when you think about, if you start off with £100, then making 1% of hundred quid sounds simple, doesn't it? So in theory, I don't see it as a problem to be able to win around 1% a day. You could probably do this trading pre match.
The problem would be as you stated yourself, when/if you get to the point where your bet/trade is a few grand, it must get hard then (I obviously don't know that for a fact as I have never got that far) and you must need balls of steel.
Maybe I'm deluded, but I still believe that this can be done, but on at a far lesser rate, ie 3-5% a week, with say a 4-5 year plan instead.
Discipline would obviously be a problem then though, I spend hours some weeks trying to work out in my head what I need to do - and usually end up confusing myself what to do, going round in circles, and ending up unsure of the best way forward.
1% sounds easy, but would I have the patience to do this for 4-5 years, etc? Probably not if truth be told.
So I end up back at the start, and your theory of £20-£30 a day starts to sound more realistic.
Trying to work out the right theory for yourself really is the key to this I believe, we need to find out what we're comfortable with and try to implement that. It's definitely not a one size fits all scenario.