Why My Investing System Works

WHY THE SYSTEM WORKS (From Chapter 12 of my book)

A check of the share price of Campbell Resources (spreadsheet next page) shows it has declined from the original $ 6 a share to $ 2.37 a share or a 61% drop. Thus a lump sum investor (all money is in stock) if he had invested the same total amount of money you had ($35,000), would have lost 61% and the $35,000 investment would have lost $21,350 and be worth $13,650 in November 1987. Compare that to what your investment is now worth. Your portfolio is worth $48,610; quite good for a stock that may be a total disaster. You're ahead $13,610 or 38.8%. How did we do it? What's the trick? Why does the system work?

I was curious myself and so I started investigating. A review of the buy/sell chart at the end of the chapter shows that your average buy price (excluding initial buy) was $ 1.35. Your average sell price was $ 1.95. Thus, you made 60 cents per share profit on every share sold.

You sold 13,094 X .60 = $7,856.40.

Some profit comes from interest earned on the cash balance (add column 10) = $1,120. The rest of the profit comes from the increase in value of your remaining shares from what you paid for them. I won't give all the details but will show you a couple of examples: you buy 5,771 shares at $.94 each and 5,291 shares at $.87 each. As of September 1987, the share price is $2.37. Each of the 5,771 shares is worth $1.43 more than what you paid for it or 5,771 X $1.43 = $8,252 more. Each of the 5,291 shares is worth $1.50 more than you paid for it or 5,291 X $1.50 = $7,937 more. If you check the buy sheet, you'll see other months where you bought stock for less than the current $2.37 share price.
When you see that you can make money on a stock that drops 61% below your original purchase price, you know you have a really amazing system. Of course you had to have a fairly tough attitude to hang in there and put that extra $25,000 into the stock. Think of the profits if Campbell Resources merely goes back to its original selling price. Or if you decide to get out, sell out; you can sell all your shares, take your profit and get into another stock. The choice is yours.

In the book you will see all the buys and sells and find that the average selling price for many thousands of shares was $1.95 while the average buying price was $1.35 - so you made a profit of 60 cents on many thousands of shares you sold.