Small Investor, Big Profits

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About 10 years ago, I had a job interview at the University of Texas at Austin.

While I was sitting in the front office waiting for the interviewer, I could hear his secretary on the phone with her friend.

The conversation was about the friend’s multi-thousand dollar tax refund.

There was some kind of tax credit rolled out that year, and the friend was bragging to the secretary about how much money she got back.

Then the secretary said:

“Hmm, I haven’t filed my taxes in a few years. Maybe I should do it this year and see how much I can get…”

The Twilight Zone

I swear I looked around to check if I hadn’t somehow been transported to an alternate dimension.

This lady had gotten away with not filing her taxes for YEARS?!

It never occurred to me that was even possible.

Had I ever even considered it, I would have assumed that it could only be done by going completely off the grid, and living in an armed compound somewhere in the wilderness.

But here was a lady working for the University of Texas…practically a civil servant (might actually BE a civil servant now that I think about it).

She was being paid by check, or direct deposit.

Her employer was reporting her wages to the IRS.

And the IRS could clearly see that she hadn’t filed her taxes for the past 3 years or more.

And yet…nothing bad had happened to her.

She didn’t lose her job.

Her accounts weren’t frozen.

She wasn’t in jail.

And she wasn’t even being secretive about it!

Loopholes

How was this lady getting away with this?

How was she able to not file, and have no consequences?

The simple answer is that she unintentionally found and exploited a loophole.

By not filing, she found out that she was too small for the IRS to care.

The IRS had all the information to tell them that she wasn’t filing her taxes, and yet, they did nothing.

She just wasn’t worth their time.

Celebrating Small

This experience pointed out to me that being small is a huge advantage.

The smaller you are, the more loopholes you can fit through.

The more opportunities you have that are just “not worth their time”…where “they” are anyone that might try to stop you or get in your way, like competitors.

When you’re small, you can get away with things that bigger parties can’t.

You can sell items without charging sales tax.

You can sell services without getting the proper permits.

And you can consider high return investments that would be too small for larger investors.

Small Investor, Large Return

11 months ago, Dividendium’s Options Trading Service had me buy an option for $30 (1 contract at $0.30 per share).

Today, the Service told me to sell that option for $210.

A 600% return in 11 months.

Now, consider…could I have made that same 600% if I was a large investor?

Say I had $100 million to invest…would I have been able to take advantage of this same opportunity?

The Numbers

The current open interest on that option is only 544 contracts.

To purchase every single one of those contracts 11 months ago, it would have only cost $16,320. ($30 * 544)

And selling them all today at $210 each would have returned $114,240. ($210 * 544)

$98k ($114k – $16k) is the maximum amount this particular investment could have returned.

For someone with $100 million to invest, a $98k profit is more annoying than helpful.

They’re looking for investments where they can put $1 million or more to work at a time. And that STILL leaves them with 100 different investments to watch.

If they were investing $16k at a time, that would be more than 6000 investments to keep track of!

So even if an investment has the potential to generate a large percentage return, it might be too small overall for a large investor to take advantage of.

Enjoy Small

That means those large investors have to leave these great investments for us small investors to take advantage of.

This same effect happens with small companies as well.

A small company can grow at hundreds of percent per year. Whereas a large established company might have trouble eking out just a 4% growth per year.

Enjoy being small.

Take advantage of the great opportunities it affords you.

Epilogue

The picture above is from a house in my neighborhood.

The piece of art was created some time around Thanksgiving, and has since been stained burnt orange.

It is almost as tall as their house.

Oh, and by the way, I didn’t get that job…which turned out to be a great thing.

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