Ask HN: How do I turn 100K into 1 million?

[joelreymont]

It's been a blockbuster year and I'm looking forward to 100K EUR in my checking account very soon.

How do I turn that into 1 million?

I'm a self-employed contractor, have been at it for over 10 years.

My strong point is learning complex things from scratch, on my own and quickly. I'm an autodidact and a college dropout. Judging by the amount of money I made from programming over the years, I'd say I'm a pretty good programmer. I'm driven by a quest for knowledge and I'm a voracious reader.

I'm quite tenacious and often seek perfection. I once rewrote a compiler from a trading language to C# in Haskell, OCaml and Lisp.

My weak point is that I get bored quickly, otherwise I would have developed an app and sold it already. My other weak point is that I love to work alone and hate lots of people around. Last but not least, I take a hedonist approach to programming and only take on projects that please me. I'm fine on the Mac, for example, and wouldn't go to Windows even if it made me money.

Trading is fun and interests me. I would also love to learn electronics, with an eye towards low-power gadgets on sailboats. I love sailing and will take August off to sail and get a RYA coastal skipper qualification. I'm also interested in robotics and embedded bits, although that's related to electronics.

I live in Tenerife (Canary Islands, Spain) and would love to flip real estate but I'm afraid 100K won't carry me far. I'm married and have two daughters. I rent but paid cash for a recent BMW last year.

I'm thinking that trading may be my best bet. My first trade was back in 1996 when I was working at Bear Stearns and AOL announced unlimited dialup. I drew about 700 bucks from my credit card and bought two AOL calls (different months). My bet was that AOL will dominate the competition in the short term and I was up to over 2K in a month or so. Then AOL ran out of capacity and I was back to my 700 bucks after paying about 200 in commission to Bear.

I also bought 5K worth of APPL calls before Apple announced the iPhone. I had 12.5K less than two weeks later. Unfortunately, I rolled the profits into more calls to speculate on the following APPL earnings announcement. The iPhone bit was the big news, though, earnings did not matter and volatility dropped off. I got out with the same 5K I started with.

I tried small scale straddling and strangling (options) around earnings announcement but lost a bit of money. I also lost around 1.5K day-trading trading S&P 500 and Russell 2000 e-mini futures.

I think there are plenty of opportunities for careful market speculation, particularly around events (BP oil spill?). I'm going through dozens of trading books and certainly won't repeat my amateur mistakes above.

I'm pretty content with what I have and use. I can't find a pressing need to develop something for myself and I can usually put up with my tools (Emacs, Erlang from the command-line).

I work alone at home and thus have a hard time spotting inefficient business processes. It was much better when I worked on Wall St, for example. I tried to launch a Securities Lending platform in 1997 but I guess I was way ahead of my time.

I also sold trading software full-time for a year, on a 30% commission. I found that existing trading software imposes the need to program on people who don't want it. Think making a non-programmer develop trading models in C#!

A wise friend, an experienced businessman, suggested that the only way to have a chance in hell to grow those 100k in to "bet on yourself" one way or the other.

Any other suggestions?

http://www.linkedin.com/in/joelreymont

[pdx]

Why do you want a million euro? Are you going to spend one million euro on something?

I bet the answer is that you aren't going to spend $1M on anything. You intend to put the $1M in some very safe investment and live off the interest, correct?

So you don't really need $1M, what you need is $100K per year passive income. It's the same thing.

If you look at your problem that way, things seem more doable. Instead of spending 10 years making $1M, you can spend the same 10 years growing your passive income from $1K to $10K to $100K.

As somebody who has made a lot of money in real estate and in stocks ... and who has also lost much of it, I believe a business is a better investment for you than stocks or real estate. A business is a machine that produces money. Making your money in stocks or real estate is like hunting. Every time you go hunting, you may be lucky, but you may be unlucky. It's not conducive to a stress free state of mind.

Since your current business can't ever be passive, you'll need to start a new one that can be. Your sailboat electronics passion seems like a good one. Electronic products can be passive income and sailboat owners have money.

Good luck.

[HSO]

When I first read the question, I thought Oh boy, there's going to be some asinine suggestions to this one. But this is one of the most sensible answers I can think of. Seeking to turn 1 buck to 10 in the markets, and quick, sounds like the beginning of a disaster. Reframing the question to one of passive income, one can view the 100K as a sort of financial buffer that can finance or cushion different forays into passive income generating ideas (for example, take a month off regular work, take 5K (or whatever it costs to maintain your family) out of the buffer, and work on some crazy idea that may or may not work out. You could do this 20 times (although I doubt anyone could be so dumb as to totally lose it all 20 times in a row!) and even if it's all financially unsuccessful, you would have learned a ton! That sounds doable and realistic and actually fun.

On a personal note: I'm in a similar position to the OP, except I inherited the money a few weeks ago, and am still trying to figure out how to go about this. Thanks a lot for this new perspective!!!

[joelreymont]

You are right. I don't need the million euro since I don't know what to spend it on. What I'm looking for is freedom to learn and do new things that interest me.

I used to do this by working 6 months out of a year at most but I still don't own a house and don't have a nest egg. Nothing to ensure my family has a comfortable life if, God forbid, anything happens to me.

I like your perspective of growing passive income from 1k to 10k to 100k!

[rjett]

Invest in adderall and see where that takes you. Joking.

In all seriousness, drop the desire to turn 100k into 1 mil in x amount of time. That will lead you into wreckless, speculative behavior. Trading is tempting for you because it offers instant feedback. With one or two successful trades, people tend to extrapolate their returns into future returns, believing that it's possible to repeat these trades over and over again. Odds are stacked against them. Don't fall victim to this thought pattern.

Smart investors invest where their odds are highest of winning. From what you've written, it sounds like that investment would be in yourself. What led you to this "blockbuster" year? Can you grow and expand upon the factors that led to such a successful year? I'm sure there's some opportunity. Do it.

[jimbokun]

"With one or two successful trades, people tend to extrapolate their returns into future returns, believing that it's possible to repeat these trades over and over again."

Worse, he describes how he has tried trading various times with no success, and still thinks trading is his best bet for meeting his goals.

Sounds more like a compulsion than a well thought out strategy.

[stcredzero]

Seriously, my best friend has had fantastic results from adderall. He feels like he can get things done 150% as well as he used to, and I agree from watching and listening to him. He's a self employed HVAC contractor, but I think some of the same factors might apply.

[joelreymont]

What led to my blockbuster year? Luck and my desire to work more. I used to work 1-2 weeks out of 4, that was enough for everything since my burn rate is low (3-3.5K EUR/mo). I sailed for about 8 weeks in the first half of 2008, for example. The relaxed work style didn't let me save much, though, not enough to get a shot at independence.

[cabalamat]

> That will lead you into wreckless, speculative behavior

I think you meant wreckful. Or reckless. :-)

[snissn]

hire more developers!

[and feed them adderall!!]

[brosephius]

>I'm thinking that trading may be my best bet

if you had asked "how do I turn 1 million into 100K?" I think I'd agree with that statement.

[lanstein]

How do you make a small fortune in the x business? ...

[vessenes]

Timescales: How long do you have to turn your 100k into 1mm?

(I'm assuming here we're not considering inflation. )

If you need it in 10 years, you're going to need an annualized 25% or so rate of return. That's unlikely.

If you need it in 25 years, you can get by with 10%. That's definitely possible, if you follow good principles.

On the other hand, if you can put in an extra 50k a year, You should have close to $1mm in 10 years. (550-600k in investment, 400k in growth).

Given that you hate people and are super smart, and have a self described penchant for gambling, I would suggest you not try to grow your business, and also that you stay away from the stock market as long as you think timing it is a great plan.

All that adds up to (in my mind) buying some real estate. You live in a beautiful vacation spot, and could find property managers so that you don't have to deal with tenants.

Your 100k could easily buy a 300k small property, with some left over for unforeseen problems. Try it! It won't fluctuate in value like your previous stock market purchases, that's for sure.

[joelreymont]

Thanks! I don't hate people, I just get tired of lots of people around me and need the solitude of my office.

My timeline is 10 years or less and I could, likely, add 50K a year.

I don't have a penchant for gambling, I traded twice in ... ugh... 15 years or so. I stopped because I figured I didn't know enough and wasn't capitalized well.

Real estate is great long-term. There are some awesome deals to be had in Tenerife as a lot of people are giving up their speculatively bought houses. You can buy a 1-bedroom apartment in a well-travelled tourist area near the beach. This will cost less than 100K in foreclosure.

Buying one apartment a year and renting it out to tourists is a great option, so long as the market has hit bottom, more or less. I don't think the Spanish real estate market has hit bottom, though.

[vessenes]

p.s. Flipping real estate -- eventually, you're going to want income. Transaction costs for real estate are high, man. I guess my major advice is "Slow down. Value stability and income. Keep socking away the money, and invest it in areas unlinked to your primary earning potential (programming)."

[aaronblohowiak]

Ahoy! Sailing is great, I've got a personal goal to do the SHTP in 2014.

You have a terrible investment track record and a good programming track record. Go with your strength. Since you have a short attention span, you should focus on short projects that you can ship quickly.

Bring maritime weather / charts to the iphone, I'd buy that :-)

[mlLK]

I concur, maybe invest in learning R first and build a couple prototypes that monitor a market trend and report some sort of result then just start iterating and building applications for investments that interest you.

[joelreymont]

Some of that already exists, check out the App Store. I'm thinking an iPad would make a decent chart plotter, though :-). Now, if I could only find a weather-proof enclosure!

[yoseph]

"Trading" is not the answer. "Investing" is.

Read The Intelligent Investor and Security Analysis, both by Benjamin Graham; and F Wall Street by Joe Ponzio (His website fwallstreet.com also has a number of gems. Particularly, his post about how to value a business http://www.fwallstreet.com/article/25-calculating-the-value-... )

If you read those materials, you will learn how to invest and using the approaches set out in those books, I believe you can turn $100k to $1m.

[javery]

To illustrate this point around the same time you were trading those Apple options (2006?) and not making any money I made a straight stock purchase of Apple at $73.25... its up 263% since then.

[arthurdent]

I'm going to invite a flurry of disagreement here, but I'm just going to say it. Investing is not the answer, trading is.

II and SA are phenomenal books, but they are also more relevant to a different time in market history. The basic tenets certainly hold true. (Ben Graham famously loved buying companies under book value. Thats still a winning bet and will continue to be.)

Its important to realize the macro picture here as well though. The last 70 years have produced tons of literature saying that long term growth is the way to do it and that int he last 70 years long term investments have outperformed. This period of "proven returns" coincides with the US rising to the world superpower, becoming the richest nation on earth, and spending beyond our means.

I have a massive faith in America, but its irresponsible to not consider that times have changed. The next 70 years could be like the last 70, but we stand at a social/economic/global power precipice which could imply a dramatically different America in 10 years. If the American economy sucks hard for the enxt 10 years, returns are just going to suck. Long buy and hold portfolios have won in large part also because the American economy has expanded for the last 70 years.

The other huge difference is that HN is comprised primarily of extremely computer savvy people. The tools wielded by the readers here are uniquely suited to tackle financial problems that can produce excess returns that far exceed

The risks aren't significantly higher, yet the upside is disproportionately greater when utilizing the techniques (computing) and infrastructure (electronic markets and cheap execution) that have become available in the last 10 years that did not exist in almost the entire duration of the period that produced all of the "buy and hold is the only way to go" literature.

HN people are smart. REAL smart. That's why a lot of people have read mountains of literature to educate themselves. Unfortunately, the success of buy and hold strategies in the last X years produced a bias towards that sort of literature and everyone's drank the kool-aid.

The last 5 years, and even more the last 2 years have democratized the quantitative trading process, exposed the tools to those not in the industry, and changed the face of finance.

There's still a place for the Intelligent Investor. But if you're the average HN reader, Ben Graham style investing isn't your best shot in finance. Quantitative trading is. Both will take a lot of work. It won't be easy. But if you're going to invest serious time, think about how much the tools and the game have changed in the last 2 years and ask yourself if you really think that all the literature that predates this change is indicative of the new world.

I too believe you can turn 100k to $1mm. and I think you can do it a lot faster.

[dean]

"I rent but paid cash for a recent BMW last year" One tip I can offer is not to do things like that. A house or condo is generally an investment that increases in value, so you should buy that for yourself instead of buying it for your landlord. And paying a lot for a car that will be virtually worthless in 10 years won't help you achieve your goal.

[mikebo]

Buying isn't always a better idea than renting. The OP lives in Spain, but the nytimes has a US based rent/buy calculator that is very good:

http://www.nytimes.com/interactive/business/buy-rent-calcula...

It basically comes down to how long you'll be in the house, and how much you think it will appreciate over that time. There are plenty of scenarios where renting comes out ahead.

[joelreymont]

Umm... I forgot to mention that I'm still an illegal alien :). My wife received her residence just last year so the BMW (1.5 y.o when bought) was really a gift to her. Plus, I really wanted one after driving the 2004 Fiat Punto (no air conditioning!) for over 2 years.

I still have the Punto and hope to get a residence this year. It's an 80% mortgage when I do and 50% while I don't so I'd rather wait.

[roel_v]

Couldn't agree more. Seems like the OP needs to start with basic money management skills before doing fancy things. 100k isn't a lot. I suggest reading getrichslowly.org/blog, it's focused on getting out of debt but the same principles apply to personal finance beyond that point.

[pietrofmaggi]

"How do I turn that into 1 million?"

Iterate this last year ten times. ^_^

On a more serious suggestion, try to stick to something a bit longer, make a product, iterate it some times and finally take profit from it. BTW, What happened to your poker server?

[joelreymont]

I don't play poker and I'm not interested in learning. I inherited the software at http://sourceforge.net/projects/openpoker/ and tried to fix it. I then thought I'd write a much better server quickly.

I ended up writing a server that's scalable and robust but incompatible with the original Delphi client. Part of it is that the contract programmers blackmailed me into Delphi (C++ will cost you more!) and I was greedy. The other part is that they are serializing Delphi objects and shipping them down the wire. Supporting that would be a nightmare.

It's hard to sell a server without a client and my server is pretty bare bones too. There's only Texas Hold'em, no tournaments. There's no accounting, payment processing, affiliate tracking, etc. I tried to sell it as a base people could build around but not very successfully. I broke even on development but that's it.

Ultimately, poker people are fine with running a 200K solution on scores of servers that handle just thousands of clients. There's not much interest in squeezing that into a handful of servers since marketing expenses of a new poker room dwarf those of hardware and software.

[michael_dorfman]

I'd agree with your friend.

You obviously have some skills, or you wouldn't have been able to earn the 100K. So, given the recent windfall, there ought to be a way to use the 100K to magnify your income.

What's the bottleneck in your regular business? What is it that is keeping you from having a blockbuster year each year? Or, even better, having a double-the-blockbuster year?

Once you've identified the constraint, try to figure out how to use some (or all) of the 100K to lift it.

Then: rinse, lather, repeat.

[joelreymont]

The bottleneck is that I sell a service and I can only offer so much of it. Also, my base rate is 100 EUR/hr, about $125, although I always quote a fixed price.

I found a niche in writing Mac device drivers for a big company this year. I had to buy a hardware USB analyzer and IDA Pro to reverse-engineer a good chunk of LabVIEW so I was able to charge a good price for that project.

I could raise my base rate and charge more for projects (fixed price) but that doesn't scale and there are only 24 hours in a day.

[illumin8]

My advice to you is to have a long timeline. If you try to turn it into a million in 1 year you're going to take too many risks and fail.

Diversify your investments. Putting $100K in 1 stock is how you lose money. Try picking 10-15 companies in different industries: technology, healthcare, finance, commodities, etc. Do your research and pick companies that have a lot of upside potential.

For example, if you wanted to make a bet that the mobile space is going to be the future of computing, which seems pretty likely, start buying up suppliers of tablet computers. ARM holdings, Qlogic, etc, find all of the chip makers that make chips in an iPad and research each one of them.

Finally, I would recommend you protect your earnings. My portfolio is up 35% in the past year, and I keep trailing stop limit sell orders on all of my securities to protect my winnings. The global economy is uncertain enough right now, and who knows if we're going to see a repeat of fall 2008 again (my bet is we are). I want to lock in my earnings. Consider pair trading, or hedging yourself in other ways.

Definitely think long-term, protect your earnings with stop limit orders or hedging and pair trading. This is the only way to come out ahead of the market.

[0nly1ife]

It sounds like you made 100k from contracting in six months. If that is the case, the fastest way to a million is to continue contracting.

[rajatmehta1]

From what you have written, it seems like you are a hard core programmer.If you like programming then shifting to some other profession to earn more money , might not help much as you will always have the craving to sit on your computer and create code. Trading is good but risky, i would suggest not to risk all your hard earned money there though you might allocate a smaller portion for this. Since you mentioned you take only those projects that you are interested in that means you do get more offers, start a consulting business and give the other projects that you are not interested in to other folks that you hire and earn from their hourly rate.

[joelreymont]

I don't have a craving to sit in front of my computer and create code. I have a craving to learn things, get to the bottom of things, solve tough challenges.

I also like selling. I spent a year as a commission-only sales person, selling trading software over the internet. I think I did reasonably well and I enjoyed it tremendously.

I did notice that I missed the technical challenge, though.

[andymoe]

Looks like your trading experiments have not worked out so well. Probably because you seem to be a fan of market timing... good luck with that. I think you need to take a longer term view with your investments. I also think your friend is right - you should bet on yourself. I worked in the financial services industry and I know first hand how horrible 90pct of the software is in that space. It's a market full of poor quality or outdated software with roots in the 80s and I think it's ripe for a shakeup if you can figure out how to break in and sell.

[joelreymont]

I left Wall St with the semi-official title of "Director of Prime Brokerage Technology". I did work on the technology budget and spoke to vendors. I simply don't have the organization required to service Wall St.

[marze]

Continue contracting. Sell the BMW and buy a 2000 Camry.

Take 60% of the 100k and invest in Apple, the rest in a selection of index funds. Reevaluate Apple in four years. Invest 15% of your ongoing contracting gross income the same way.

Pick some 'just for fun' iOS apps and write them in your spare time. Brainstorm for app ideas weekly, and other low-capital ideas. If one shows promise, partner with some other developers and put more time into it. Only invest cash you can afford as long as it doesn't get in the way of continuing the 15% long term investing.

[kadavy]

Blog about your quest to turn 100k into 1 million. Lots of people will read it, the advertising potential would be strong, and - if you're successful - you could write a book about it.

[joelreymont]

Thanks! I think it stands to have more success than the Erlang book I never finished :D.

[mkramlich]

Trading sounds like a very risky way to try to grow the $100k you worked so hard for, esp considering you have a wife and kids. My best non-expert advice would be to try starting a profitable small business that leverages all your strongest skills and passions, and that can evolve into a passive income stream. That stream plus possibly more contract/wage work over the next 5-10 years could take you to $1 million. Take this with grain of salt.

[grandalf]

1) take $50K to a casino 2) buy a color on the roulette wheel 3) set up a bet that has some fun characteristics ... maybe a 10% chance of paying 1m and a 30% chance of losing entirely (with some variety in the middle).

Let the wheel spin and enjoy the adrenaline. Worst case you go back to your lucrative consulting gig. Consider that you already paid the amount you lost in taxes and you don't even miss it.

[joelreymont]

I don't pay taxes. Mine is an offshore company and I'm not yet a resident of Spain. I hope to start paying about 20% in taxes by the end of this year, I'm sick and tired of being an illegal alien.

[pier0]

Considering that you already built a poker product and some trading programs and that betting on fantasy sports will be the next major thing and there is no industry leader yet, I would probably look into creating a fantasy sport product with a trading component in it.

Something that you can sell to media operators or gambling sites either as a standalone product or white label.

Coding and selling.

[ahk]

Given the probability that you will not actually make a million, I think that this is a false goal that will only lead to frustration. My plan is to utilize my savings, after having got out of the 10 year rat race, to do something I enjoy (that also has a fair chance of being big). If it turns out that I make a million, well and good, if not then atleast I've been enjoying the money instead of leaving that to after retirement. The rat race is always there if I feel the need to go back.

Addendum: I also believe pretty much anything you do for the next ten years has a fair chance of being big. The only problem I see is that you're constrained by having a family and so might not have 10 years to fritter away like that.

[joelreymont]

I have a very understanding family and my wife works lightly while she babysits the younger daughter. I think I can still manage to accomplish something.

[kunthar]

Create generic game server product for turn based games. Start to sell it with insane price :D

[joelreymont]

Kunthar, did I give you a quote? ;-)