Play with house money

One more way an investor can use the velocity of money in their favor is but playing with house money.

There are two reasons I like small cap stocks. Reason number one is because I am an entrepreneur rather than a cooperate person. I like and understand the problems of small startup companies and can sense of the business has chance for growth or not. Reason number two is because a small cap stock can double and triple in value much faster than a blue chip stock. Since a small cap stock have a better chance of doubling or tripling faster than many large cap stock in the right market conditions, it is easier to play with house money.

Let’s say you buy 5,000 shares of XYZ, company of $5 a share. You now have $25,000 in the market. The market shines on you and in less than a year, the price of XYZ is now $10 a share. You now have a market valuation of $50,000. A greedy investor which I have been, the market will keep going up so I will hang on. Again, in exit strategy is important before getting into the market.

Instead of hanging on and just parking your money, one way to increase the velocity of your money is to simply sell $25,000 worth of stock. That way, y9ou still have $25,000 worth of stock, although half the shares in this case and you have your initial investment back. The remaining shares which have the $25,000 valuation at that time is playing with house money.

There have been times when the price of the stock went from $5 to $8, not reaching the exit price of $10, so I held on. Many times, the stock has not held and dropped below $5, leaving me with all my money either lost or still on the table. I will admit that the times I have used this strategy of selling shares to recoup m y initial investment, I have felt much better about interment, even though I may not have made as much money, due to the fact that I did pull some money from the table.