We all work hard, and many of us dream of putting together a nice nest egg to show for it. Turning that dream into a reality has become harder and harder since the crash of 2008 and the ensuing recession, as the economy takes its time regaining its footing. But I’ve got good news. Absolute Capital Return is designed to build wealth by getting in and out of stocks quickly and at the right time.

The secret lies in a simple but extremely powerful concept: compounding. In other words, your money keeps earnings money, which in turn earns more money. I’m sure many of you have seen this in action, especially with earned interest. If your savings account earns 3% interest on $100, that initial amount becomes $103 in a year’s time. That $103 earns 3% the next year to move up to $106.10. So both your interest and principal are earning interest.

Compounding works the same way with Absolute Capital. It can be an effective way to turn even a modest investment into a real and life-changing sum.

Do the Math: How $5k Turns into $1 Million

You start with an initial investment of $5,000, which is then invested into at least one 10% gainer per month. Next, you string together a series of 12 of these 10% winners every year. The most important key is that you reinvest all of your gains every month instead of spending them. By compounding your money, your initial $5,000 investment would grow into $15,692 the first year, $49,248 the second year, and $154,563 by the third. By the end of five years, you’d have $1,522,408. Remember that the key is to reinvest all of your gains, so you are continually growing your base investment.

Here are the month-by-month returns you would get by investing in a 10% winner each month (and reinvesting your profits) over the course of the first year starting with $5,000:

Month 1: 5,500
Month 2: 6,050
Month 3: 6,655
Month 4: 7,320
Month 5: 8,052
Month 6: 8,857
Month 7: 9,743
Month 8: 10,717
Month 9: 11,789
Month 10: 12,968
Month 11: 14,265
Month 12: 15,692

How to Apply this Strategy

Now, to apply this strategy and get the results of turning $5,000 into $1 million in less than five years, you must pay careful attention to where you buy and sell. Our approach is not to buy and hold stocks with the classic value investor’s timeframe of “forever.” While some of our investments may take longer to play out, many of my Absolute Capital picks are up double digits in a matter of weeks. Taking those quick gains and rolling them back into the next opportunity gives you the potential to make great returns in a short amount of time.

But you have to be willing to lock in profits when you have them, especially in a market as volatile as the ones we’ve experienced in recent years.

Why Momentum?

I’ve found that this strategy works best with momentum plays on stocks. That means going where there’s movement and jumping on for the ride. The good news here is that regardless of what the overall market is doing, there are always momentum opportunities, whether it’s on the upside or downside. Trading this way means we aren’t fighting the market. We simply take what the Street is giving us and make it work for us.

How do I find the right trades? It’s a mixture of tools, but they are surprisingly basic. It’s all about keeping your ear to the ground (I love hearing what trends my investment friends on Wall Street are excited about) and watching how hot names are performing in relation to the market. There’s also plenty of chart analysis that goes on, too, with a special focus on volume spikes (a key sign for momentum) and breakout indicators.

The big thing that really helps identify the best opportunities from the rest is a catalyst. They are what keep us from jumping on a stock too soon or selling too late. Catalyst-driven stocks are my bread and butter. Any company can see its shares start to swing, but unless there’s a specific catalyst in place to keep pushing them in that direction, it’s likely not worth our time or dollars.

Putting Your $5k to Work

Since every investor is different, there is no set strategy for how you decide to invest your initial $5,000 investment. You have the power to put it in stocks that work best for your portfolio. There is also no specific number of stocks that you must buy. You can put all of your money into one stock or spread it amongst several recommendations. I encourage you to invest in a way that makes you the most comfortable. One important thing to consider is your risk tolerance. Each of my Absolute Capital picks is assigned a risk rating of either conservative, moderate or aggressive. The more risk you are willing to take on, the more aggressive names you can consider. However, if you want to give your portfolio added protection, you may want to stick with more conservative or moderate trades.

Please also be aware that these categories are more about volatility and trading patterns than they are a measure of my confidence in them. I intend to be very selective in the stocks that I recommend to you, so all will be high-confidence trades with the goal of building our wealth through a high success rate in a relentless stream of double-digit gainers.

Where Do I Get Started?

By now you should be all set to kick-start your momentum millionaire portfolio. I do not have a model portfolio for this premise, but a great place to start investing is with my new buys, which are labeled with a green “New” icon on the Buy List.

If you’re looking for some more ideas, let me call out a few stocks that are well-positioned to return double-digit profits as their momentum stories play out:

• Ambac (AMBC): Pending litigation remains a huge potential catalyst, and strengthening capital markets should help this bond insurer.
• Applied Materials (AMAT): Strong momentum and improving fundamentals as semiconductors enjoy a bit of a rebound.
• General Electric (GE): A quiet but effective holding. The stock is up 6.5% over the last three months, pays a solid dividend (3.3%), remains attractively valued and continues to see growth in emerging areas of the world.
• W.R. Grace & Co. (GRA): Has picked up momentum after consolidating around $90 for a while, and continued strengthening in the business along with share buybacks should continue to help the stock.
• Microsoft (MSFT): Up 5% in the last month as investors like what they see from the new CEO and initiatives such as a more robust cloud strategy and Office 365.
• National Bank of Greece Preferred A Shares (NBG.A): A slight increase in the last month, but a strong and identifiable catalyst on the horizon. There are still indications the company will redeem these shares, and they would have to pay par value of $25, which would bring an instant double-digit gain from current prices.

Don’t forget to check the Buy List for my latest buy advice on each. If any name is trading above my recommended buy limit, stay disciplined and don’t chase it above that price. Instead, be on the lookout for my next Buy Alert for other opportunities!

On Our Way

I hope this report has been a helpful guide to get you started on building long-term wealth with Absolute Capital. Please remember that everybody’s situation is different, and it’s important to get some feedback specific to your particular situation, such as what is appropriate for your age, tax bracket, and retirement goals. Your advisor can help you determine what is likely to help you in the long run – or if you are nearing retirement age, in the short run

Sincerely,

Hilary Kramer
Editor, Absolute Capital Return