Case Study: How A High School Student Generated Investment Gains of $72 Million (Or Not)

NY Magazine created quite a stir with a story this week about Mohammed Islam, a high school senior in NY, whose investment success led to gains of $72 million:

Late last year, a rumor began circulating at Stuyvesant that a junior named Mohammed Islam had made a fortune in the stock market. Not a small fortune, either. Seventy-two million.  An unbelievable amount of money for anyone, not least a high-school student, but as far as rumors go, this one seemed legit. Everyone at Stuy knew that Mohammed, the soft-spoken son of Bengali immigrants from Queens and the president of the school’s Investment Club, was basically a genius.

How did he do it?

Like Belfort, Mo started with penny stocks. A cousin showed him how to trade. He loved the feeling of risk—the way his hand shook making the trade—but he swore it off after losing a chunk of the money he’d made tutoring. “I didn’t have the balls for it,” he said. He was 9.

It was a while before he was ready to try again. In the meantime, he became a scholar of modern finance, studying up on hedge-fund managers. He was particularly enamored of Paul Tudor Jones. “I had been paralyzed by my loss,” Mo said. “But he was able to go back to it, even after losing thousands of dollars over and over. Paul Tudor Jones says, ‘You learn more from your losses than from your gains.’ ” Mo got into trading oil and gold, and his bank account grew. Though he is shy about the $72 million number, he confirmed his net worth is in the “high eight figures.”

So, after losing “thousands of dollars over and over”  investing in penny stocks at age 9, he took a while to try again and eventually found a winning strategy by trading oil and gold.  So, let’s assume Mo was the most productive 9-year old tutor on the planet and earned $15,000 (1,500 hours @ $10 per hour).  Assume losing “thousands of dollars over and over” translates into 5 losing trades of $1,000 before Mo hit paydirt with his oil and gold trading prowess starting with a $10,000 stake.

The question for your students:  What would Mo’s annual return need to be in order to turn a $10,000 investment into a $72 million over an 8 year period?

The answer:  203.51% return per year for 8 years.  Seem outlandish?    For context, Warren Buffett, generally considered the best investor of our time, has averaged a 22.4% annual return over the past 35 years.

We have a calculator for that:

Screen shot 2014-12-16 at 10.01.20 PM

As you may have guessed by now..from CNBC:

The improbable story making the rounds today of the 17-year old whiz kid of Wall Street who is rumored to have made $72 million trading the markets, while still in high school, is being widely disputed.  Mohammed Islam, the alleged teenaged prodigy, said he had no idea where that dollar figure came from and that it’s not accurate.

As the old axiom goes, “If it sounds too good to be true…”