Did that post title get your attention? It sure got mine!
I saw that headline pop up in my Facebook feed this morning, linking to this article on The Atlantic. I couldn’t resist, I had to read on and learn just how that kind of return was possible. If the secrets to unimaginable wealth were within those words, I wouldn’t be stuck at my desk job while the rest of you went shopping for your own private islands!
The truth, however, is that there’s probably a greater chance of me winning the Powerball jackpot and marrying Kate Upton in 2014 than replicating what is needed for that kind of ROI.
How To Turn $1000 into $264 Billion
All you would have needed to do in order to turn a $1000 investment into $264 Billion over the past year is take your $1000 and invest it all into the best performing stock of the S&P 500…and then repeat the process every day for the entire year. Simple, right?! It took Warren Buffett over 50 years to amass his fortune. You could have made your first million dollars by the 3rd week in April and surpassed Mr. Buffett’s fortune in time to brag to your family about it over Thanksgiving dinner!
This is essentially like sitting down at the World Series of Poker main event and shoving all-in (and winning!) on every single hand until you won the tournament (surely giving Norman Chad a brain aneurysm in the process). It’s utterly insane unless you have a flying DeLorean hidden in your garage.
So, barring the existence of a time machine or a crystal ball to see into the future, there’s no way any of us would be able to know which one of the five-hundred stocks in the S&P 500 would outperform the 499 others on any given day.
Going all-in on a different stock everyday isn’t investing, even if you do have a horseshoe firmly lodged up your butt and pick the right stocks. It’s gambling, and reckless gambling at that.
What To Do Instead
Now obviously neither I, nor The Atlantic was presenting this as a legitimate possibility. It’s just fun to think about, and it is kind of neat to look back and see which stock was the best on each day this past year, read the names and you’ll really doubt the ability of picking the right ones! As is pointed out in the article, even if you think you have 50/50 odds of picking the right stock each day, your odds of guessing right each day would be 1: 3.53 x 10^72. Or one in 3.53 trevigintillion, and no, I can’t verify that trevigintillion isn’t a word one of those cute kids in the AT&T ads made up.
Instead of chasing hot stocks and dreaming of getting rich quickly. The course of action to take is to come up with a sensible asset allocation, pump your money into simple index funds and reap the rewards over time. This strategy trumps actively buying and selling stocks just about every time.
If you were sitting on $1000 and hoping to turn it into billions next year it probably wont happen, but that doesn’t mean you can’t turn that $1000 into something meaningful. Check out my post on how to invest without a lot of money where I show you how to turn a sum as small as $500 into a well-balanced portfolio to get your started on your investing journey.
Readers: If you could go back in time, or could see the future, how would you use it to your financial advantage? Picking the winning lottery numbers? Investing in Apple at $2/share? Betting on sporting events you knew the results of?