Recently, I was honored to have the chance to chat with John Rampton, an entrepreneur, investor and columnist for Inc. Magazine who did a profile of me for the magazine's "Icons of Entrepreneurship" section. It was a great experience - John and I really hit it off after he told me that one of his lifelong dreams is to become a millionaire.
And since turning students into millionaires is pretty much my specialty, I thought all of you here might be interested in a few of the lessons that came out of our conversation...
Lesson #1 - Cut stock market losses quickly
It still stings a little bit, but my biggest all-time, one-day loss was a whopping $180,000. I thought I was in the right position shorting a stock, but after it kept getting higher and higher, I had to get out and take a loss on it.
The good news, though, is that the next day, I re-shorted the stock - thinking that it had to crash at some point - and wound up making back $220,000. My net profit was still $40,000 in the black, but there's no denying that seeing such a big loss in such a short period of time was pretty painful.
Now, I'm a lot more conservative with my trades. I trade with smaller accounts, not just to protect myself from major losses, but also to show people that it can be done - that you don't have to be a millionaire to get rich trading penny stocks. But the biggest lesson I've taken away from that and other losses is the importance of cutting and running. These days, I don't wait around and hope. If the numbers aren't going my way, you can bet I'm out of there before I put my capital at risk.
Lesson #2 - Companies don't have to be good to be profitable
This is another big one that surprises would-be millionaires. So many people think that stock trading success comes from finding the next Apple or Microsoft and buying in before they get big, but the reality is that companies don't have to be good to be profitable.
I don't trade on a company's story or how much they claim their products are going to change the world. I'm only looking at a few things, the biggest of which is price action. I trade based on observable, repeatable patterns - the kind I've spent the last 15 years studying. Penny stocks are that predictable. If I see good numbers, I act on them - no matter what the company underneath looks like.
Lesson #3 - Make 20-40% on your money
Let me tell you - this is one of the things I love most about penny stocks. If you're starting out with a small account, earning 3-4% - even 7-8% - on your money isn't going to make you rich any time soon (and, quite frankly, you're lucky if it'll take care of you when you finally reach retirement). But because penny stocks come with built-in volatility, it's possible to earn substantially more than you'll get through bonds, blue chip stocks and traditional mutual funds.
Personally, I am to earn 20-40% on my money per stock trade. I'll often earn more than that - and that's great - but I also like to be conservative about how much risk I'm taking on in exchange for this kind of reward. And if you want to be a millionaire like me, you've got to look for opportunities like this. If you want the same results everybody else is getting, do what they're doing. If you want something bigger and better for yourself, you've got to get creative when it comes to earning the returns you need.
Lesson #4 - You don't have to be a rocket scientist to become a millionaire
Finally, I hate that so many people think they aren't smart enough to earn millions through stock trading. That's just not true. You don't have to be a rocket scientist to get rich with penny stocks - you just have to know what you're doing.
Remember those regular patterns I mentioned earlier? You can teach yourself how to spot them and how to act when you see them. It really can be that simple - I'm dead serious.
Ultimately, becoming a millionaire isn't that difficult - as long as you're willing to study the right information and act on what you've learned. Take it from me. I was able to turn $12,415 into more than $4.3 million in trading profits, and I'm not a genius or anything. I'm just somebody who was willing to work hard and learn as I went along. You can do the same.
What's holding you back from becoming a millionaire? Share your roadblocks - as well as how you're going to break through them - in the comments below: