Teenage Investors: 3 Success Stories and How They Did It
Updated: Jun 9, 2020
Thirteen, seventeen, nineteen: an entire spectrum of ages with an identical outcome in the end: status millionaire.
While we teenagers strive towards quick wealth and even quicker freedom from home, we tend to eradicate the thought due to the notion that we can only become wealthy after earning income as an adult. This piece aims to decimate those perceptions, because teenage investors who have gained incredible wealth do exist: and we have them along with their strategies explained below:
1. Brandon Fleisher
A 17-year old high schooler who – much like any of us – was intrigued by the notion of earning money young, Brandon’s strategy involved targeting smaller companies, i.e. penny stocks, in order to create the potential for much higher returns.
Essentially, penny stocks are companies that hold shares which trade under $5. Since Brandon didn’t attain a large amount of capital, targeting these penny stocks would allow him to purchase a greater number of shares: and optimistically, more shares equals more profit.
He deduced that any factors affecting an industry (i.e. if the tech industry saw increased regulation) would affect both the large and small businesses in it, which is significant as it suggests that the penny stocks would move simultaneously with the big, blue chip companies. As a result, holding more shares of penny stocks would suggest that he could take advantage of this movement, and profit from the small companies more than he would from buying some of the bigger companies. If this seems slightly confusing, consider the example below:
Scenario 1: Buying shares of Biogen Inc. with $1000
Since Biogen trades at $285.43 at the time of writing, we’d only be able to by 3 shares of this company with $1000. Hence, if Biogen shares went up 5% (to about $299), we’d make a $43 dollar profit.
However, if we held a business such as Aphria Inc. we’d be able to see far greater returns. Since Aphria is a penny stock, trading at $4.28 per share, Brandon could buy 233 shares with his $1000. Not only would this mean that he would gain 5% in a higher quantity of shares, but penny stocks also tend to react more than proportionally to external factors. If investor confidence on the medical industry is strong, traders take it as a sign that penny stock businesses also have a large upside to grow (i.e. demand for their stocks increase), and therefore causes their stock price to augment exponentially.
Figure 1: Side by Side comparison of Biogen and Aphria reaction to FDA approval
As depicted above, Biogen’s reaction to the FDA approval in July was meager, with the stock price going up only about 4.5%. While still a favorable outcome, the penny stock’s reaction to the FDA approval was far more rigorous, with the stock price soaring over 40% in several days. On a $1000 investment, this is a profit north of $400 within 48 hours: an extremely desirable outcome for teenagers looking to make some impactful investments.
This is significant because it articulates how rewarding penny stocks can be, and is further emphasized as Brandon was able to make upwards of $100,000 by investing in low-cap companies such as these.
Key Point To Consider: As seen in the latter stages of the diagram, it’s clear that the penny stock’s performance fell significantly. This implies that, while penny stocks are rewarding investments in the short term, their long term prospects are not as favorable as the bigger companies in the industry, due to their lack of capital and low market dominance. Hence, in the particular scenario above, the Aphria investment would only be a short term risk, as investors would aim to exit their positions after making sizeable profits. Contrastingly, bigger companies such as Pfizer, Merck, and perhaps even Biogen are more favorable investments for the long term instead.
2. Dan Legg
From flunking his A-levels to thousands of dollars in profits, Dan Legg built his wealth through forex trading from the age of 19.
Trading foreign exchanges can be one of the most rewarding investments if done correctly. It generally is pursued with a combination of macroeconomic and technical analysis, both of which can facilitate extremely high returns. Although FX trading is mostly for day-traders (short term) and not investors (long term), we can still provide an insight into some key tricks of the trade.
a) Key Macroeconomic Indicators With Regard to Forex Trading:
Of these 6 factors, interest rates and political stability tend to be the two most volatile and moveable notions. Within the last year itself, the Fed has altered US interest rates 3 times, and along with the ongoing political turmoil, these aspects have substantially impacted foreign exchange rates regarding the US dollar.
The volatility created by these external factors are highly favorable to forex traders, because they have short term goals: i.e. they aim to open and close trades within minutes, instead of the weeks or months that a position is held open in traditional investing. For those readers who are more interested in short-term trading and a fast-paced industry, the foreign exchange market is generally the optimal place to pursue.
To gain a greater insight into the factors listed above, visit the explanations at https://www.compareremit.com/money-transfer-guide/key-factors-affecting-currency-exchange-rates/
b) Technical Indicators That Are Used in Forex Trading
The fact that there are extremely small movements within the foreign exchange markets suggests that technical analysis will yield far more adequate results compared to fundamental analysis. This is because forex markets are heavily judged on historical movements, which is why technical charts and mathematical foresights will allow traders to utilize past data more effectively, whilst fundamental analysis will not allow for as effective implications because it targets future performance instead.
This is why many traders rely on algorithms and mathematics in order to produce reliable opinions on the future performance of a currency. In terms of beginner levels, the most feasible strategy to use is “The Fishhook”, a concise depiction of which is shown below:
Figure 3: Fishhook Pattern for Trading
In layman's terms, when a stock chart depicts a sudden fall, traders can aim to buy the currency/stock after it's turning point and then sell it within several minutes: creating profits in an extremely short amount of time. Once more, this depicts the usefulness of technical trading to those who seek quicker winnings.
Overall, whilst we tend to prefer fundamental analysis at The Dividend Payout, the technical tricks here are substantially useful for forex trading, and would therefore act as a suitable guideline for those interested in pursuing it.
3. Ray Dalio:
While you may know him as the most successful hedge fund manager of all time – producing over $45 billion for his clients – Dalio started his investing career as a teenager, and a well-profitable teenager, that is.
At aged 13, Dalio purchased his first stock of American Airlines for $300: an investment that tripled within several days due to news of AA being acquired by a large competitor. Obtaining a 383% profit on his first trade, Dalio became hooked onto the game of investing.
However, his teenage strategy differed from the first two individuals we cited on this piece: whilst the aforementioned ones delved into more microeconomic factors (within the business and industry), Dalio pursued macroeconomic analysis instead. This is because he often found that a change in interest rates, initiation of trade wars, or altering within consumer/business confidence would be far more impactful on the market’s performance, regardless of the attractiveness of a business on its own.
For example, consider the scenario of an investment into Apple Inc. Fundamentally, this is perhaps one of the most reliable investments that one could make, whereas, in a time of low confidence, these fundamentals are outweighed by external notions.
Figure 3: Apple Inc.’s Stock Price Chart:
As depicted above, there’s an incomparable uptrend with regards to Apple in 2019, but we still see a relatively significant dip in between. This occurred because President Trump reignited trade war concerns in May and slapped over $100 billion more in tariffs on Chinese goods: a move that sent the entire market tumbling for several days.
This is why, despite the favorable fundamentals of Apple Inc., the stock still plummeted almost 20% during that period, as the external notion of Trump’s actions outweighed the actual fundamentals of the company. From here, we can comprehend Ray Dalio’s perspective that it doesn’t matter if the microeconomic fundamentals of a company are solid, as the macroeconomic sentiment will almost always overpower this.
A key insight to keep in mind from one of the most successful investors of our generation.
Strategy 1: Brandon Fleisher used Penny stocks in order to purchase more shares with a smaller amount of money: a move that allowed him to gain greater returns as well as benefit from the fact that smaller companies are more proportionally affected by industry changes.
Strategy 2: Dan Legg made his apparent millions through investing in foreign exchange: using the combination of technical analysis and currency related news factors. Both the Fishhook method and external factors are key accounts that need to be considered, and are proven to be feasible guidelines for beginner technical traders.
Strategy 3: Prioritize macroeconomic analysis over its micro counterpart, as the aforementioned evidence suggests that the former will affect the financial markets much more significantly than the latter.