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I'm making monthly contributions to my self-directed investment account and I'm looking to be aggressive with my investments because I want more than 10-15% returns each year. One of the positions I just purchased and have been building shares in is Sun Edison (SUNE) which analysts have given a one year projection of between $10/share on the low, $15-$19/share on the mean, and $42/share on the high.

My question is, is it unreasonable or unheard of to double or near double your returns each year through aggressively investing in volatile stocks?

Pac2015
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    It's not unheard of. The problem is, with that much volatility, you can just as easily lose everything (SUNE has dropped 90% since June, as an example). It's unlikely that you'll be able to consistently get 10-15% returns. You're probably more likely to go negative, especially long-term. – ceejayoz Nov 30 '15 at 16:21
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    "For every gusher, there's a thousand empty wells. An' for every me, there's a million yous tryin' to be me." – corsiKa Nov 30 '15 at 23:17
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    This question is a bit pointless unless you are more specific. Are you asking (a) whether you can trust analyst ratings (no), (b) whether SUNE will quintuple in a year (who knows), (c) how likely it is that you will consistently earn 100% annual ROI (very unlikely), or (d) whether simply buying the most volatile stocks will generate a good return (hell no)? – Superbest Dec 01 '15 at 00:45
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    The source of @corsiKa's quote is Blood & Oil – Lilienthal Dec 01 '15 at 10:25
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    The answer is certainly yes in the long term. If for no other reason than that if you did manage that sustainably by the time you were 80 or so you would be worth MUCH more then the current GWP (gross world product). According to the wiki it is currently estimated at 107 trillion (107*10^12). Whereas if you were able to double your cash yearly in only 50 years you would be at 10 times that - roughly 10^15 - assuming you started with an investment of 1 dollar. – DRF Dec 01 '15 at 11:55
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    It is not at all unreasonable to double your investment year after year after year. Why, I have been doing so for the past 64 years. A long long time ago, an ancestor of mine (who invented chess) was asked by a grateful king what he wanted as a reward and he replied "O King, grant me one grain of rice for the first square, two grains of rice for the second square, four grains for the third square, and so on, doubling the amount of grain each time until you have paid me for all 64 squares." The king said "It shall be done!" and that is how my family became immensely wealthy. – Dilip Sarwate Dec 02 '15 at 03:57
  • For how many years is each year? – user2338816 Dec 02 '15 at 05:13
  • High rewards come with high risks, it is not unreasonable to expect to double your investment over a year, if you are equally willing to risk it all as well! For example, I run a share club, a group of us invest about an hour's salary each month. One of our stocks has risen 150% in little over a month, but several others are showing losses of ~50% over similar time scales. Difference is we are playing with small sums of money mainly for fun, you are not! – davidjwest Dec 02 '15 at 14:30
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    In an investing career, everyone is likely to see at least one one tenbagger in their portfolio. The mistake is assuming intrinsic skill put it in your hands. http://www.investopedia.com/terms/t/tenbagger.asp – user662852 Dec 02 '15 at 15:03
  • I'd highly question any analyst putting that value on SUNE. It went bankrupt for a reason. Those could easily be old projections. – Reed Rawlings Sep 20 '17 at 15:07

9 Answers9

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Yes, it is unreasonable and unsustainable. We all want returns in excess of 15% but even the best and richest investors do not sustain those kinds of returns. You should not invest more than a fraction of your net worth in individual stocks in any case. You should diversify using index funds or ETFs.

Tom Cabanski
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    I agree that it is unreasonable and unsustainable. However, I disagree with the sentiment that only a fraction of your net worth should be in individual stocks. It is possible to be well diversified with individual stocks--through careful selection or index skimming for example--and some brokers have tools to analyze your portfolio. Know your limits @Pac2015 and know that aggressive investing can result in aggressive losses as well as gains. Those analysis you quote are often wrong. Diversify, then try to hit some home runs with a small slice of your total portfolio. – Alex Kuhl Nov 30 '15 at 17:40
  • Is there a source for these claims? Also why is it exactly 15%, and not 10 or 20? – Superbest Dec 01 '15 at 00:39
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    @Superbest I think it's safe to say we all want returns in excess of x% for any x. – Paul Dec 01 '15 at 05:11
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    @Paulpro The claims I was asking about were: (1) "it is unreasonable" (2) "[it is] unsustainable" and (3) "even the best and richest investors do not sustain [returns in excess of 15%]". – Superbest Dec 01 '15 at 05:32
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    @Superbest: It is unreasonable to expect 15% returns precisely because you're trading on an open market which doesn't grow by 15%. The market isn't a zero-sum game either, but on average you can expect 6-8%. It's unsustainable because short-term bets can deviate from that average. And the usual yardstick for "best investor' is Warren Buffett, who is currently making about 8%. (He made more when inflation was high, but that's no achievement. That's just the dollar dropping, not stocks rising) – MSalters Dec 01 '15 at 08:32
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    @AlexKuhl even diversified stocks can all lose. – JamesRyan Dec 01 '15 at 12:35
  • @Superbest OP stated wanting "more than 10-15%" annual returns in the question. – user Dec 02 '15 at 13:34
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    @JamesRyan I'm not sure if you're disagreeing with my assertion that diversification can be achieved through individual stocks, or with user35343's original idea that diversification through indexing can lose. Either way, you can say "it can lose" about any investment, and you can show any asset outperforms or loses to another by cherry picking time frames. The point of diversification is minimizing risk, not eliminating. If you want no risk, you shouldn't be investing in stocks. – Alex Kuhl Dec 03 '15 at 18:59
  • @AlexKuhl AFAIK that is why the OP suggested limiting the amount you invest to limit the amount you can lose – JamesRyan Dec 03 '15 at 21:22
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Yes, because you cannot have an exponential growth rate that is faster than the rate at which the economy grows on the long term. 100% growth is much more than the few percent at which the economy grows, so your share in the World economy would approximately double every year. Today the value of all the assets in the World economy is about $200 trillion. If you start with an investment of just $1000 and this doubles every year, then you'll own all the World's assets in 37.5 years, assuming this doesn't grow. You can, of course, take into account that it does grow, this will yield a slightly larger time before you own the entire World.

Count Iblis
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One thing I like to do every once in a while is look at the day's market movers. It's a list of symbols that had huge movement. There tend to be a couple of 50+% movers every time I look. In fact today I see ATV moved up 414.48%:

ATV stock Gain/Loss of +414.48%

So there it is—doubling your investment in one day and then some is technically possible. The problem is that the market movers chart also has an equal number of symbols that had major movements in the other direction. Today's winner is:

SPCB stock Gain/Loss of -40.26%

SPCB lost 40% in one day, and thats the problem. If you invest in anything that can double your investment in one year, it can also halve your investment in one year. Or do better. Or do worse. You really don't know because the volatility is so high.

ErikE
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David says Reinstate Monica
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    Wow! If only I'd known that yesterday, I'd have bought calls on ATV! ;) – Mason Wheeler Dec 01 '15 at 16:53
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    Lol bruh; ATV split 15:100. It didn't go up 400%. – DoubleVu Dec 01 '15 at 18:54
  • i'll take a bet with a 50/50 chance to double or lose half its value all day long. (EV=1.25) this is generally not what you can expect from a speculative investment, however. –  Dec 01 '15 at 19:03
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    @DoubleVu Ah.. I never actually looked into why it went up 400%. Either way, my point still stands. I'm sure the next item on the list also had astronomical growth – David says Reinstate Monica Dec 01 '15 at 19:03
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"Wealth gained hastily will dwindle but whoever gathers little by little will increase it." Proverbs 13:11 (ESV)

Put another way...

"Easy come, easy go"

You cannot sustain 100% annual ROI. Sooner than you think you will hit a losing streak. Casinos depend on this truth. You may win a few rolls of the dice. But betting your winnings will eventually cause you to lose all.

Jack Swayze Sr
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    Proverbs is suspiciously reticent when asked to show its datasets ... – dg99 Dec 01 '15 at 23:48
  • @dg99 - Yet you had no criticism regarding the idiom "easy come, easy go". Wouldn't you be jus as suspicious of it as you are about quotations from the book of Proverbs? http://idioms.thefreedictionary.com/easy+come%2c+easy+go – Jack Swayze Sr Dec 02 '15 at 16:09
  • Yes, but you provided no source for the latter quotation. (Were this Wikipedia I would add a little [citation needed] there.) – dg99 Dec 02 '15 at 16:48
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    Reminds me of the old joke: Q: what's the best way to end up with a million dollars in the stock market? A: Start with two million. – user662852 Dec 02 '15 at 17:38
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It is not unheard of. Celebrity investors such as Warren Buffet and Carl Icahn gained notoriety by more than doubling investments some years, with a few very stellar trades and bets.

Doubling, as in a 100% gain, is actually conservative if you want to play that game, as 500%, 1200% and greater gains are possible and were achieved by the two otherwise unrelated people I mentioned. This reality is opposite of the comparably pitiful returns that Warren Buffet teaches baby boomers about, but compounding on 2-5% gains annually is a more likely way to build wealth.

It is unreasonable to say and expect that you will get the outcome of doubling an investment year over year.

CQM
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    Warren Buffett, from 1965-2005, has produced an annual average return of 21.5%. You might have a few great years but they would probably makeup for the disastrous ones. – letterhead Nov 30 '15 at 17:14
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    @letterhead feel free to include the last ten years in that metric, as there were plenty of other recessions and bad bets that lowered his annual average return. Plenty of ways to get an average. – CQM Nov 30 '15 at 17:19
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    https://static-ssl.businessinsider.com/image/54f48139eab8ea456c6d991b-454-685/table-final.png This table represents what USD $1000 would be worth if invested with Warren Buffet. The table goes from an investment in 1964 to 2014. – letterhead Nov 30 '15 at 17:27
  • @letterhead nice, some 50% decreases in value, ouch! – CQM Nov 30 '15 at 17:54
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    It should be noted that Madoff didn't double investments. It was a Ponzi scheme. – ceejayoz Nov 30 '15 at 21:37
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    And BRK.A's 15 year return is currently 8%. http://performance.morningstar.com/stock/performance-return.action?region=USA&t=brk.a&culture=en-US – ceejayoz Nov 30 '15 at 21:39
  • @ceejayoz Madoff Securities LLC was a ponzi scheme perpetrated by Bernie Madoff. This is mutually exclusive of the bets he made throughout his career in finance. He started his finance career with $5000 from a summer job as a pool boy. Similarly, the individual investor would have made great returns in said ponzi scheme over decades, if they withdrew anytime before 2008, which for someone like OP (and everyone else that invested, and complacent authorities like the SEC and FINRA), is all they need to know – CQM Nov 30 '15 at 23:25
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    @CQM Proceeds from a scam aren't "returns", and large amounts of those proceeds wound up clawed back by the government to return principal to victims. Federal investigators think the scam may have started as far back as the 1970s - a few years getting lucky in penny stocks may have helped his reputation, but he certainly wasn't doing real 10-15% returns as asked about by OP for very long. – ceejayoz Dec 01 '15 at 01:31
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Nobody has consistently doubled their investment year after year, not even the "greats" like George Soros and Warren Buffett. Mr. Buffett's average annual returns have been over 20% for over 50 years. That's about twice the American average of 10%-11% a year.

So Mr. Buffett has been "twice as good as average" for his adult life. That's like having a 200 IQ. And in a poll taken in 2000, he was rated the greatest portfolio manager of all time. No lesser person could hope to do better.

What has happened is that people may double their investment in ONE year, then "give some back" the following year. Or else go through several years of "average" 10%-15% returns. The reason is that they will have an investment style that works for one particular market, but not for all markets, so they will have to wait for their "best" market, to have their "best" year.

Tom Au
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Yes. The definition of unreasonable shows as "not guided by or based on good sense." 100% years require a high risk. Can your one stock double, or even go up three fold? Sure, but that would likely be a small part of your portfolio. Overall, long term, you are not likely to beat the market by such high numbers.

That said, I had 2 years of returns well over 100%. 1998, and 1999. The S&P was up 26.7% and 19.5%, and I was very leverage in high tech stock options. As others mentioned, leverage was key. (Mark used the term 'gearing' which I think is leverage). When 2000 started crashing, I had taken enough off the table to end the year down 12% vs the S&P -10%, but this was down from a near 50% gain in Q1 of that year. As the crash continued, I was no longer leveraged and haven't been since. The last 12 years or so, I've happily lagged the S&P by a few basis points (.04-.02%).

Also note, Buffet has returned an amazing 15.9%/yr on average for the last 30 years (vs the S&P 11.4%). 16% is far from 100%. The last 10 year, however, his return was a modest 8.6%, just .1% above the S&P.

JTP - Apologise to Monica
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Not at all impossible.
What you need is Fundamental Analysis and Relationship with your investment.
If you are just buying shares - not sure you can have those.

I will provide examples from my personal experience:

My mother has barely high school education. When she saw house and land prices in Bulgaria, she thought it's impossibly cheap. We lived on rent in Israel, our horrible apartment was worth $1M and it was horrible. We could never imagine buying it because we were middle class at best. My mother insisted that we all sell whatever we have and buy land and houses in Bulgaria. One house, for example, went from $20k to EUR150k between 2001 and 2007.
But we knew Bulgaria, we knew how to buy, we knew lawyers, we knew builders.

The company I currently work for. When I joined, share prices were around 240 (2006). They are now (2015) at 1500. I didn't buy because I was repaying mortgage (at 5%). I am very sorry I didn't. Everybody knew 240 is not a real share price for our company - an established (+30 years) software company with piles of cash. We were not a hot startup, outsiders didn't invest. Many developers and finance people WHO WORK IN THE COMPANY made a fortune.
Again: relationship, knowledge!

I bought a house in the UK in 2012 - everyone knew house prices were about to go up. I was lucky I had a friend who was a surveyor, he told me: "buy now or lose money". I bought a little house for 200k, it is now worth 260k. Not double, but pretty good money!

My point is: take your investment personally. Don't just dump money into something. Once you are an insider, your risk will be almost mitigated and you could buy where you see an opportunity and sell when you feel you are near the maximal real worth of your investment.
It's not hard to analyse, it's hard to make a commitment.

DraxDomax
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    One big reason why people lose money when investing is because they get personal with their investments and fall in love with them. You should always try to remain objective and keep your emotion out of your investments and your investing, especially with rental properties and with shares. – Victor Dec 01 '15 at 20:20
  • Invest in what you know. – Mohair Dec 01 '15 at 22:52
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I know it may not last longer but i was able to 2.5x my wealth over last 2 years.(2016, 2017 cont)

I was successfully able to convert 70k into 452k in 21months. Now at this amount, I am really worried and want to take all the profit. I agree that I have been lucky with these returns but it was not all outright luck.

Now my plan is to take 100k of it and try high risk investments while investing 350k in index funds.

Naive Investor
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  • Can you provide details on the type(s) of investing you did over this period for these types of gains? Mutual Funds? Single Stocks? (small, mid, or large cap, emerging markets, etc.)? Real Estate? That might make this a higher quality answer. – Ogre Psalm33 Sep 21 '17 at 19:06