I have had a few people ask me for a quick tutorial on how to calculate the free shares using the GOPM method (Grow on Other People’s Money). I teach this system in my book, The Confident Investor. I describe the technique in that book but maybe a few more examples are helpful.
Since this tutorial is only interesting to the readers of my book, only those registered readers will see the rest of this article. If you haven’t read my book, The Confident Investor, then you may not understand how you can have free trades based on GOPM. In fact, if you haven’t purchased the book and registered here on this site as a book owner then you won’t be able to see these additional examples. If you have registered and cannot see the balance of this article, make sure you are logged in and refresh your browser.
Which brings me to the big set of questions. Shouldn’t you own this book? Does your investment strategy beat buy-and-hold? Do you even have an investment strategy? If your strategy beats buy-and-hold, does it beat GOPM – Grow on Other People’s Money?
You can purchase my book wherever books are sold such as Amazon, Barnes and Noble, and Books A Million. It is available in ebook formats for Nook,Kindle, and iPad. It may be available at your favorite bookstore as well but you may have to ask.
[s2If current_user_can(s2member_level1)] Profitability Example 1
The basic math is actually quite easy. Let us say that you bought 100 shares of Company XYZ for $30 per share. For this use case, assume that Company XYZ has increased in price to $34. Using the tools in the book, you feel that the stock is about to drop in price. You want your original investment to be pulled out of the stock but want to keep the free shares growing.
You originally invested $3,000 in the stock plus you paid your broker $10 for a total of $3,010. When you sell those shares, you will pay your broker an additional $10 for a total of $3,020. You now need to divide that total investment by the current selling stock price which is $34. $3,020/$34 = 88..82. This means that you need to only sell 88.82 shares to completely get your $3,020 back into your account. Since you cannot sell partial shares of a stock, you will sell 89 shares at $34 giving you a total of $3,026 in your account. You have an additional $26 to invest in your next company along with your original $3,000. The most important thing is that you have 11 shares of XYZ Company that are absolutely free.
Rather than the above word problem that reminds me too much of nightmares of elementary math class, let’s put this into a formula.
(Original investment + commission to buy + commission to sell) / current stock price = number of shares to sell
Profitability Example 2
Another word problem is now appropriate. You bought 140 shares of MNO Company for $52.18 and your broker charges you $8 per trade. MNO is now currently selling at $56.62. Plugging this into the equation above gives us:
((140 x $52.18) + $8 +8) / $56.62 = 129.30 shares. Therefore, you would sell 130 shares and have 10 shares to continue to grow.
Good luck with your investments!