A 3,000% Return
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The classroom fell into silence.
+3,021%.
Thirty and twenty-one percent over three thousand.
A number more than thirty-one times the original principal.
I heard someone swallow hard, the sound unnaturally loud in the stillness.
A student in the front row dropped the pen he’d been holding, but no one even looked that way.
Every eye in the room was fixed on me.
Even Professor Warren Cromwell on the podium had his mouth hanging slightly open, which said it all.
With fifteen years of teaching behind him and real-world Wall Street experience to match, he had probably never seen a number like this on a weekly return before.
Victor, sitting next to me, whispered, “Buddy. That’s a typo, right? The decimal point got shoved to the wrong place or something... right? No matter how you slice it, 3,000% is just unrealistic. You mean 300%, don’t you? Which is still insane, but...”
Cromwell, too, seemed to side with Victor’s theory.
“Assistant. Check it again. I think you may have made a mistake. Could it be 300% rather than 3,000%?”
“Yes, Professor. But I cross-checked the original order form and the execution price sheet three times. There’s no error. Every step was carried out by the rules.”
“...Hmm.”
Professor Cromwell frowned deeply.
His voice grew firm.
“In ordinary stock trading, it’s hard to produce that level of return in such a short time. Even if you caught a momentum name, hitting that timing four weeks in a row is statistically close to impossible. To get numbers like this, you’d have to buy every time at the very bottom and sell at the very top, which is the same as predicting the market. How did you do it, Mr. Lee?”
“The professor is correct. With ordinary listed stocks, that figure is almost impossible.”
“But you did it.”
“Yes. It isn’t entirely impossible, either. As you all know, this mock investment exercise has clear rules designed to prevent manipulation. First, all trade plans must be submitted in the form of an order sheet by Friday, one week in advance. Second, anything not listed on the submitted order sheet doesn’t count as a valid trade. Third, once submitted, the order sheet cannot be altered, and the original is kept by the assistant.”
I went on.
“I focused not on common stock, but on Warrants.”
At the word, several students tilted their heads in confusion.
But Professor Cromwell’s gaze sharpened at once.
“Warrants!”
He thought for a moment, then turned to explain for the students’ benefit.
“A warrant is a kind of call option issued directly by a company. It gives the holder the right to buy shares at a fixed price within a set period. It’s similar to an option, but the maturity is much longer, and companies often attach them to bonds or preferred stock when raising capital. When the underlying stock rises, the warrant rises far more explosively. But the risk is equally large.”
“Yes. As you said, Professor, warrants are high-risk leverage instruments. That’s why most investors won’t touch them. Especially the warrants of companies in bankruptcy protection.”
“And you jumped into that pile of scrap?”
“Because not every warrant is scrap.”
I walked over to the side of the screen and picked up a marker.
“To be precise, I bought warrants in companies that were effectively at the end of Chapter 11—that is, companies whose bankruptcy protection proceedings were almost complete.”
Chapter 11 meant a system that gave a company court protection and a chance to recover before it went under for good.
“Chapter 11 is not liquidation; it’s a reorganization process. The company restructures its debt and, under court supervision, works through rehabilitation until it can return to normal operations. But ordinary investors see only the word ‘bankruptcy’ and run. Warrants are even worse in their eyes.”
“Go on.”
“The problem is right there. Even when Chapter 11 is nearly finished and only court approval remains, the market still sees the company as nothing but a ‘bankrupt business.’ The common stock is already on the floor, and the warrants are practically forgotten. They trade only on the over-the-counter market or on the Pink Sheets, if they trade at all, and even the bid-ask spread barely exists.”
“I see. You used Disclosure to review the restructuring plan and the creditor consent filings submitted to the SEC?”
“Exactly. It was like walking through an auction house and picking out undervalued antiques on the cheap. Or rather, more like going to a dawn flea market and buying the bruised, ugly-looking fruit that had been knocked around in transit but was perfectly fine in taste and nutrition, just sold off at clearance prices.”
Cromwell let out a dry laugh.
“I was trying to win only inside the market, and here I am, too narrow-minded after all. Maybe teaching has made my perspective too small. So, which company did you choose? To be honest, the places you looked over must have been nothing but garbage heaps.”
He wasn’t wrong.
What I had surveyed outside the so-called market had indeed been filled with distressed companies that didn’t even deserve to be put on display.
But there was treasure in the garbage heap too.
As a regressor, I had the prior knowledge to pick it out with precision.
I answered Professor Cromwell honestly.
“It was a company called Basin Drilling Services. They rent out oilfield drilling equipment, a small but strong company with a market cap under roughly twenty million dollars. It had once been an old supplier to a giant company called Green Hell.”
At the mention of Green Hell, Grace in the row beside me perked up, both ears practically twitching.
I had my own connection to the company as well.
Not long ago, most of the crude-oil refining equipment I’d taken from my uncle’s junkyard had been sold off by Basin Drilling Services.
I continued.
“It wasn’t even listed on Nasdaq—smaller than Nasdaq SmallCap, in fact—and traded on the OTC bulletin board, so institutional investors never covered it in the first place. The deal size was too small, so even Wall Street’s restructuring funds had no interest.”
“So your opportunity opened up.”
“Yes. The restructuring plan showed that more than 85% of the creditors had already agreed, and the court-approval hearing date had been set. I also checked the schedule for court approval and the details of DIP financing—meaning the debtor-in-possession funding agreement. The bank providing the loan was Citibank, and the legal counsel was Skadden Arps, a respectable New York firm. They were all solid players. The structure was almost designed not to fail. I put in everything I had without hesitation.”
Hearing my explanation, Professor Cromwell stepped over to the blackboard.
He picked up a piece of chalk and began writing the numbers out.
“All right, let me break it down for the students who are having trouble following.”
-Underlying stock purchase price: $0.80
-Warrant strike price: $2.00
-Warrant purchase price: $0.05
“When Mr. Lee bought the warrant, the underlying stock was only eighty cents. The strike price was two dollars, so the warrant was completely out of the money. Unless the stock moved above two dollars, the warrant was trash. That’s exactly why the market valued it at five cents.”
He drew a long arrow with the chalk.
-Underlying stock after court approval: $4.50
-Warrant intrinsic value: $2.50 (stock at $4.50 - strike at $2.00)
-Actual warrant trading price: $1.56
“But once Chapter 11 ended, the stock jumped to four dollars and fifty cents. At that moment, the warrant’s intrinsic value became two dollars and fifty cents. The market still didn’t fully trust it, so the actual trading price was one dollar and fifty-six cents...”
Professor Cromwell underlined the last line heavily.
“Five cents became one dollar and fifty-six cents, which is roughly thirty to thirty-one times. So the return is, roughly speaking, over 3,000%.”
The classroom went quiet again.
I shrugged.
“The leverage principle of warrants is simple. When the underlying stock rises about 5.6 times, from eighty cents to four dollars and fifty cents, a two-dollar-strike warrant rises about 31 times, from five cents to one dollar and fifty-six cents. The stock’s upside gets magnified several times over in the warrant.”
Professor Cromwell nodded slowly.
“You used the warrant’s gamma effect perfectly. The moment the underlying stock crosses the strike price is when the warrant’s sensitivity explodes. And because you already knew the Chapter 11 conclusion was a sure event, you essentially maximized leverage while minimizing risk.”
He had seen straight through the heart of my strategy.
Right then, Grace raised her hand, her expression saying she still couldn’t quite accept it.
“I’ve got a question.”
“Go ahead.”
“Didn’t you factor in the risk that court approval might be denied? You can’t know that just from the chart and the documents. And what if the creditors had opposed it at the last minute, or the court had rejected the plan? Then the warrants would’ve become literal trash, wouldn’t they? Even before the stock! You could’ve lost everything.”
While the other students were barely grasping the concept, Grace had not only followed my logic but found the weak point and pointed it out.
But to someone as worn-down by Wall Street as I was, it was nothing more than a question at the undergraduate level.
“That’s right. Which is why the most important thing wasn’t the financial statements, but the legal process and the creditor structure. From the creditor list in the SEC filings, I confirmed that the three major creditors were all long-term relationship banks. Naturally, they had more to gain from reorganization than liquidation. And the fact that DIP financing had already been disbursed was a sign that the banks were confident the company would survive. The court had no reason to object to an 85% creditor approval rate.”
“So you just watched the banks move and followed them? Blindly? How could you trust their judgment?”
“If you put it that way, then there’s nothing in this world you can trust. You couldn’t even eat lunch in the student cafeteria today. What if the chef had malicious intent and laced the food with poison? Or what if someone had planted a bomb inside the dining hall?”
“I’m saying there was no need to bet everything you had. If it were me, I’d only put five to ten percent of my capital into a dangerous route like that.”
At Grace’s words, I nodded.
Ordinarily, she would have been right.
No matter how much of a regressor you were, investing with concentration was still risky; diversification was the rule, and going all in was something to avoid.
But I had my own reasons for doing exactly that.
“If I’d done that, you would’ve beaten me, Professor.”
“...”
You can’t pass up a contest.
Grace, unable to beat that final line, opened and closed her mouth before falling silent.
Then Professor Cromwell clapped and laughed.
“Ha ha ha—exactly. This was a wager, after all. A wager for an A+.”
“And you said I didn’t have to attend class anymore. You told me to do something else with that time.”
“I did say that. Grades and time were the prize. And you, Mr. Lee, are the first person in fifteen years to actually claim that prize from me.”
Professor Cromwell added one last thing.
“But remember this, Mr. Lee. The bridge you crossed was little more than a single rope. From what I’ve seen on Wall Street, nine out of ten individuals who dive into these warrant gambles lose everything they own. One line in a filing, one creditor changing his mind, and every step you’d taken up to that point would’ve been wiped clean. It would all have turned into scrap. You won this time, but this kind of wager has a losing side that’s almost certain next time.”
“I’ll remember your teaching for the rest of my life. But last time, Professor, you said you’d be taking more risk, so I couldn’t just stand by and do nothing. In fact, if I had invested the way I usually do, you would’ve turned the whole game around completely this time.”
“I made a careless remark and poked the whiskers of a sleeping lion. All right, I lose. Completely. As promised, Lee Sanha will receive an A+ this semester, no questions asked. You may skip the remaining classes and it will still count.”
“Thank you. But I’d still like to attend and listen to the rest of the classes if possible.”
“You’re diligent too, aren’t you? Fine. Mr. Lee is a model student.”
The whole classroom broke into applause.
Even Grace, usually expressionless, gave a faint smile and clapped along.
Victor, applauding like a fanatic at my side, said, “Still, it’s kind of a shame! Since this was a mock investment! If it had been a real one, you’d already be a millionaire.”
His voice was full of regret.
“...”
But I didn’t bother answering that regret.
Because.
...I never made a mock investment in the first place?
Life was always the real thing.
I had been making actual investments based on the very reports I submitted for Professor Cromwell’s class.
The fictional seed money he set at the beginning of the course was one hundred thousand dollars.
The money I earned from refining unlicensed crude oil at home was exactly one hundred thousand dollars too.
My father and mother had sent me all of it as promised, and I grew it through a stock account I opened using Victor’s father.
As a result, sitting in my account now was money accumulated through compound gains, resting beneath a cumulative return of +6,435%.
A total of six million five hundred forty thousand dollars.
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