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Strategies & Market Trends : Anthony @ Equity Investigations, Dear Anthony, -- Ignore unavailable to you. Want to Upgrade?

To: anniebonny who wrote (105822)	1/17/2009 4:41:49 PM
From: scion	Read Replies (1) \| Respond to of 122087

How long does it take to double your money? jeremy.zawodny.com

To: anniebonny who wrote (105822)	1/17/2009 4:54:51 PM
From: Jeffrey S. Mitchell	2 Recommendations Read Replies (1) \| Respond to of 122087

I did create a spreadsheet to model what I wrote about. I then started to write a detailed post about it but figured all the numbers would be boring. I'll try to simplify things. For example, if you started with $100M and promised a 12% annual return, it would take 21 years, on paper, to top $1B; 35 years to top $5B, 41 years to top $10B, and 55 years to top $50B. If we assume that managing up to $50B doesn't raise eyebrows in and of itself, Madoff had plenty of time to grow his fund without suspicion. Where the problem comes in is how you pay out money to those who need it. For sake of argument I assumed a worst case scenario where everyone wanted their 12% return in cash each year. I figured that those who wanted to cash out more than this would be balanced by those who just wanted to reinvest the paper interest gains. The average inflow to cover the above 12% outflow would need to be: $47M per year for the first 21 years, $300M per year for the next 14 years, $860M per year for the next 6 years, $2.78B per year over the next 14 years, and $8.27B per year for the last six years. As you can see, 21 years is pretty doable, but after that it gets interesting. The key is to be selective in who you take in as a client to minimize your required outflow. If you put the inflows into a money market account that earned 5% you would lessen the burden on yourself somewhat. As for how you profit, this is where it gets tricky. The simple answer is that you just keep whatever money from your allocated outflows that are leftover. The complicated answer is that you take as much for yourself as you foresee you can cover up the next year-- keeping in mind the ripple effect of each added dollar compounding at 12% on paper each year. That's where the "genius" part comes in with regard to Madoff. What passed for extreme selectiveness was Madoff managing this process so that he wouldn't ever be caught short and raise any red flags with any investors. Observers, that's a different story. But as long as investors get their money, you have a good shot at maintaining your credibility. When they don't, as happened in these hard times, game over. - Jeff