Advice on how to make 5%/month on $1 million

[danielc1]

Would like to get some feedback on the following "not so hypothetical".

Consider the following constraints:
- U.S.-based brokerage account with $1 million in cash
- monthly target of 5%/month; this will be withdrawn, so account won't grow
- max trade limit of 50 trades/month
- ideally no more than 2-3 hours/day of watching/trading markets
- lowest risk to achieve the 5%; in other words, would rather have less risk than a return greater than 5%

How would you approach this?
what markets/instruments?
what trade sizes?
where to place stops and limits?
other thoughts?

Thank you for your time.

You did one thing right all ready. You started with the objectives first and are now searching how to meet them trough trading a system and instrument choice. Most would do it the other way around.
You just need to learn a skill where you make, day in day out around $2500. That is not complicated and it doesn't take a million in your account to do it.

 

[newwurldmn]

You did one thing right all ready. You started with the objectives first and are now searching how to meet them trough trading a system and instrument choice. Most would do it the other way around.
You just need to learn a skill where you make, day in day out around $2500. That is not complicated and it doesn't take a million in your account to do it.

setting an unrealistic objective isn’t doing anything right.

as one of the most successful traders on this site said: first find the strategy and the edge. The pnl will be whatever it is.

 

[qlai]

as one of the most successful traders on this site said: first find the strategy and the edge. The pnl will be whatever it is.

Who that?

 

[virtusa]

That guy is nuts. Anyone able to get 5%/month would simply borrow $billions from banks, investors and even countries, and pay them back 10%/year. They would be super excited to get 10% because they can’t be guaranteed that much anywhere.
While the guy making 5%/month would make $billions in a year, and wouldn’t even need a $million to start.

While when you do have a $million you should at least have basic education and know calculus.

You apparently also miss that basic education and don't know calculus.

Maybe he cannot invest billions in it as that market might be too small. Even Renaissance/Medallion have limitations in size.
If he would get just 1 billion from the bank, the amount to invest after 10 years would be around 350 billion. That's a multiple of what Renaissance/Medallion can trade. But you don't even seem to understand that.

Banks will not lend him billions as they have no certainty that he will make the 5% in future and the risk is too big.
Banks who lend money for trading in general never give more than 50-80% of the value of the investments. So he would have to have 20-50% of the money himself. He needs between 200 and 500 millions from his own. So your statement: "and wouldn’t even need a $million to start." makes no sense too.
Next stupidity you wrote:" They would be super excited to get 10% because they can't be guaranteed that much anywhere.", so you are sure about the 5% a month in future. That tells all. What guarantee does the bank have that he will make 5%?

 

[Sig]

Sure.

1) open a portfolio margin account
2) go long your top 20 best high dividend payers/dividend growers and short spx— you need to be beta neutral
3) this will allow you to lever up 4-8x (so your $1MM is now $8MM of assets)
4) spend each morning using excess cash to hedge out both market and security risk (buy puts based upon your daily value at risk); takes 1-2 hours
5) spend 2-4 hours weekly checking your companies & reviewing potential additions

If you do this right, you can target an annualized yield of 6-8% on $8MM of capital paying 1% in margin. That translates into 40-50k/mo, which is close to 5% on $1MM.

So imagine you buy a stock that pays a 5% dividend once a year. The price of the stock will drop by 5%, all things being equal, the day it goes ex. Therefore after the dividend you'll have exactly the same amount of money as you had before, just your split between cash and stocks will be different. Same thing if you had a stock with a 50% dividend yield, or 90%... Absent some tax arbitrage, the fact that a stock pays dividends in and of itself it absolutely meaningless when it comes to overall returns.

Which leaves me somewhat mystified as to this advice? It basically is simply a bet that stocks that pay dividends are companies whose performance will outdo the overall market reliably over the long term. I'm not sure there is any evidence that this is the case, seems like a bet just like any other except this one misleads one into thinking they have far less risk than they actually do? Am I missing something here?

 

[luisHK]

Yes, I don´t get the excitement about dividends, after witholding tax kicks in, one ends up with a smaller net worth than before the dividend ?!?

It´s far from clear to everyone though, that´s for sure. Remember a guy I use to know, who was as an accountant so you´d think he´d have understood the issue better. He was a small time investor and was convinced Dividends were profits, was boasting how he managed to pool enough money with a friend to buy a small amount of a high dividend paying stock just before Ex Div, like they hit the jackspot.
Witholding tax was 25% from memory in Belgium where he lived, and he was also hit by the french witholding tax on the french stock, and the stock went down about as much as the div on Ex div, yet all this didn´t compute ?!?

 

[lindq]

This is all thoughtful advice. But for whom? The OP has never returned.

 

[Scataphagos]

Would like to get some feedback on the following "not so hypothetical".

Consider the following constraints:
- U.S.-based brokerage account with $1 million in cash
- monthly target of 5%/month; this will be withdrawn, so account won't grow
- max trade limit of 50 trades/month
- ideally no more than 2-3 hours/day of watching/trading markets
- lowest risk to achieve the 5%; in other words, would rather have less risk than a return greater than 5%

How would you approach this?
what markets/instruments?
what trade sizes?
where to place stops and limits?
other thoughts?

Thank you for your time.

Can be done trading the ES... if you're "market-smart" and disciplined enough. 2 BIG "ifs".

 

[Sig]

This is all thoughtful advice. But for whom? The OP has never returned.

It was only a day ago he asked, I'm sure he's carefully considering all of our wise and sage advice

 

[newwurldmn]

So imagine you buy a stock that pays a 5% dividend once a year. The price of the stock will drop by 5%, all things being equal, the day it goes ex. Therefore after the dividend you'll have exactly the same amount of money as you had before, just your split between cash and stocks will be different. Same thing if you had a stock with a 50% dividend yield, or 90%... Absent some tax arbitrage, the fact that a stock pays dividends in and of itself it absolutely meaningless when it comes to overall returns.

Which leaves me somewhat mystified as to this advice? It basically is simply a bet that stocks that pay dividends are companies whose performance will outdo the overall market reliably over the long term. I'm not sure there is any evidence that this is the case, seems like a bet just like any other except this one misleads one into thinking they have far less risk than they actually do? Am I missing something here?

while you are right that on the ex-date the stock drops and you create a taxable event. i believe the market doesn't price these stocks correctly and the stock price quickly reflect the next dividend (far out in the horizon that the market was ignoring). otherwise stocks like PG, T, XOM, etc would be zero today after decades of paying out high dividends.