The "Stock Trading Riches" Investment System

[aim hier]

HI Larry,

I enjoyed Praveen's book, there was much in the book that I agreed with, and he sounds like a very likeable guy. I have suggested some ways that I think the system could be improved. However, for someone with no system, I think the system could be helpful. The average investor winds up incurring small gains on a number of stocks, but big losses on others, and in the end, has a portfolio made up of all losers, that he holds, hoping that somehow, they will recover. In many cases, I think an individual could buy low cost ETFs, and merely hold them, and beat most systems. Just my opinion.

However, the weak link in the book is the topic of cash reserves. IN my opinion, the return for Amazon, is overstated. Where did the cash mysteriously come from to make purchases, year 2 and 3? If this was the initial portfolio purchase, I would assume the investor bought $2,000 AMZN, and set up a 30% cash reserve, or $600. Several problems ensue. Firstly, how many investors, initially enthused with this new stock trading riches method, would not have become discouraged, with the stock continuing to sink lower and lower, month after month. Indeed, imagine his wife's reaction, after a year, when she learns that he has lost 3/4ths of their money, wants to further invest the $500 savings in the same lousy stock, and needs even more monies to meet the plan. The next year, he still needs some more money. To correctly compute the return, you have to consider all of the resources, including any cash reserves, not just look at the actual cash invested in the stock. Note, that even, if I was to consider that Praveen invests $2,000 every month, this doesn't cover possible needs for additional cash. IN the book, he indicates he would start with a cash reserve of $2,000, and invest $2,000 a month into a new stock. At the end of the year, we don't know if $2,000 is enough to rebalance all of the stocks. As the portfolio grows, it almost certainly will not be sufficient, unless there have been a lot of sales.

To my thinking the only return calculation worth considering, is what do you have now in all of the accounts, versus what did you invest in all of the accounts (including cash reserves), then annualize that figure.