How high will Microsoft fly? Message Board

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Technology Stocks : How high will Microsoft fly?

MSFT 465.93

+3.3%

Jan 23 9:30 AM EST

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To: johnd who wrote (25824)	7/11/1999 3:54:00 PM
From: johnd	Read Replies (2) of 74651

Making a Billion: My kid brother asked me other day about he becoming a billionaire just by investing in LEAPs. His strategy he says: is following. A. He borrows 2 million from his friends. (He doesn't know the difficulty of getting 2 Million) B. He then buys 2000 LEAPs equivalent of Jan 02. diversifies by spreading it across CSCO, MSFT, INTC and SUNW. C. Say he can see some 160 points return on every 10 invested or 16x. [He has read on this thread that MSFT could be at 300 by 02 and he could buy 140 leaps. - But he was wrong that it costs only 10 per contract. It is at 14 or so, last time I checked.] Anyways. Upon 16x, his 2million would be 32 million. D. He goes on he can do this 16 banger a couple of times more and get to 1 billion. Why? Well, he says, " 32million x 16 => .5B and then just have to double" I had to calm his enthusiasm a bit because he grossly missed some important points like RISK & SLEEP. A) He has to pay tax even if he makes his 16 banger. B) He has to pay interest even if he can raise money C) He has to sleep at night if the LEAPS go down to 1/2 the value and one the lenders needs money back in a hurry. D) What if MSFT CSCO SUNW DELL INTC were to rise about 25% per year for the next 2 years. His 2 million will be 0 million while stock holders would have had a cool 25% return per year. I suggested he start with his money and put only what he can loose. Told he start with a more modest sum of $2,000 and try to grow that to 32,000 if he could. I told him, if he can double money every 2 years, then the effect of compounding means in 20 years he can do 1024 times his investment. This probably can be done with investing a bit on margin on a 1million capital (even if it is borrowed). But he shouldn't go more than 20% margin at any time. But doubling ones money every 2 years for next 20 years without risk of loosing it all is not an easy task. Warren Buffets has an army of people trying to achieve 24% return per year. Getting "just:-)" 26% would triple every 3 years. So instead of being able to do it in 20years, one could do it in 30 years. Like Buffet, he would no have to pay any taxes. You pay tax only if you sell. Now if only someone gave him the 1 million to start with and told him how to get year in and year out a 26% return. johnd

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