Wall Street Money Machines
Our local business radio affiliate, 730 AM in the DC-Metropolitan area, makes all of its money selling airtime to investment advisers, brokers, banks and other financial organizations. A guy named Wade Cook has bought a heck of a lot of airtime recently to promote his new book, the Wall Street Money Machine, as well as his package of seminars and booklets on everything from evading taxes by having your family become a Nevada Corporation to making millions in real estate.
What is particularly interesting about Cook's claims is his stock market success. Apparently, Mr. Cook has been generating gains of 20% to 40% per month in the stock market using various techniques. He says he has been doing this for years and getting annualized gains of 320%, doubling his capital every two to four months. Not bad, right? And all he is doing is stuff he calls rolling stock and dividend capture, the shortest of short-term strategies to play a stock when it trades in a specified range for a while or jump from stock to stock to stock about to pay a dividend.
This all had me scratching my head, though, as I am not sure that Cook knows what his claims really suggest. With gains of 20% to 40% per month, the compound rate of growth would be absolutely tremendous. Let's assume that Cook has been doing this for the following time periods: five years, ten years and twenty years. Let's also be reasonable and say he only started with $1000. Finally, let's split his claim down the middle and say he does 30% per month. In five years at 30% monthly compounding, $1000 turns into $6.864 billion. In ten years, 30% monthly compounding turns into $47,119.6 billion. In twenty years, 30% monthly compounding turns into $2,220 *SEPT*tillion, which is roughly about 100,000 times the national debt of four trillion.
If Cook has been doing this for any amount of time with any amount of capital, he very quickly would have surpassed Mssrs. Buffett and Gates on the Forbes 500 -- something which he has not done. Quite honestly, he probably would have given up his seminars and hard-sell over the radio long ago with anything near this amount of capital, in order to buy his own island in the Caribbean and retire in style, much like Sir John Templeton. As Cook continues to push his books, I've gotta wonder whether or not his claims are all that they are made out to be. Investors should take exaggerated performance claims with a grain of salt unless they see some sort of supporting evidence, as returns on the order of Cook's would cause anyone with a reasonable amount of capital to become a billionaire in five years -- something that just does not happen that often.
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