The 20% a year stock-market return that four shares brought down

Earning 20% a year in the stock market by selling four shares

Can you make 20% a year in the stock market without being a professional, with next to nothing and no risk? The pitch that circulated with that claim promised exactly that: a 20% annual return by buying low and selling high, with 4,000 euros in capital, paid-for market data and plenty of nerve. The stated goal was to comfortably beat interest-bearing accounts, fixed income and “almost all investment funds”, and to do so with “maximum safety” for the money. Its author acknowledges three years of experience, between 2011 and 2014, and claims to have learned “so that almost nothing happens to me”.

The toolbox holds no mystery: historical and real-time data from a paid provider —about 12 euros a month—, the bank’s or broker’s website (BBVA or Renta4 in this case) and common sense. Technical and fundamental analysis are ruled out from the start: in his view, they are “a sure guide to going broke”. The strategy, as summarised by its author: buying and selling shares is like buying and selling potatoes, except that quality ones “don’t go off, don’t spoil and always have a buyer”.

The 61-euro profit from selling four shares

The first documented trade starts to go wrong. 247 FCC shares are bought at 16.23 euros —about 4,000 euros invested— and 4 shares are sold at 16.40 euros. The calculation presented is this: 65 euros from the sale minus 4 euros in commission leaves 61 euros of profit. One elementary detail is missing. Those shares had to be paid for first. Less than 2% of the position is being sold, and the result of that partial sale is called “profit”, without deducting the purchase price of the shares.

Compound interest doesn’t work like that, and even less so if the move is repeated. The most repeated objection is primary-school arithmetic: “selling shares five at a time isn’t profitable because commissions eat the profits” and making 4% by selling less than 10% of the capital isn’t equivalent to 20% a year. That’s the crux: there’s a gulf between the return being advertised and the one being calculated.

The cost of trading: commissions that eat the margin

The second hole is the cost of trading. With commissions of at least 1% per trade and a minimum of 4 euros, any small order wipes out the margin. Selling four shares at a time is an order of about 65 euros; the commission eats more than 6% of the amount and the trade starts off lame. With 4,000 euros in capital, and according to the criticisms repeated in the thread, the drip of expenses exceeds 120 euros in less than a month.

The method comes back after the corrections. In a second stage, starting with 4,190 euros, it is decided to leave 1,382 euros in cash —33%— and invest 2,793 euros: 181 FCC shares at 15.35 euros. On paper everything fits; in practice, every entry and every exit adds a commission, and the margin left is increasingly thin.

Were they really sold at 17 euros?

Then comes the most forceful debunking. At one point in the account, it is claimed that the position was sold at 17 euros, with 182 euros in profit. The problem is the calendar: according to another forum user’s recalculation, the last time FCC traded at 17 euros was in February, and the 10 April high was 16.63 euros. Redoing the trade with those figures —242 shares at 16.63 euros, about 4,024 euros, against 4,008 invested and accumulated expenses— the result is not a profit: according to that recalculation, it is a loss of about 29 euros.

This is the point where the discussion stops being a calculation problem. From the other side it is argued that the numbers have been fabricated; the author’s response is to ask that the conversation be closed, attribute bad faith to the criticism and announce his withdrawal. The retort that sums up the mood: “Close the door on your way out”.

A promise of returns that ends up on his own blog

The sequence is a manual for the genre. First, high returns with no risk. Then, the accounts that don’t add up and the awkward questions. Then the twist: “mine was a joke”. And finally, the withdrawal with the blame shared out —if anyone feels treated with contempt, it’s because they were disrespectful first— and the move of the method to a blog of his own, far from the sceptics.

The underlying reproach is not mathematical, it is about responsibility. Presenting the stock market as an easy way to earn a living from modest savings, without underlining the risk, is not simplifying: it is selling. That is where much of the criticism converges, wherever the numbers come from.

With 4,000 euros, 65-euro orders and a minimum commission of 4, the recalculation being handled in the thread yields a loss of about 29 euros, a method under review and a brand-new blog. Any resemblance to the infallible formula that was advertised is purely coincidental.