LeftyFingerPop
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Wed Sep-17-08 10:48 AM
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Some simple math for investors. |
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If a stock drops 50%, it has to rise 100% just to get back to where you were originally.
Original value = $100 Value after 50% drop = $50 Percentage increase from $50 to get back to $100 = 100%.
This is why these huge drops are SO FUCKING DANGEROUS.
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magellan
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Wed Sep-17-08 10:51 AM
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1. Not an investor, but that's still an eye-opening post |
RB TexLa
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Wed Sep-17-08 10:52 AM
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2. unless you continue buying at the lower cost then it takes far less of an increase |
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to be above where you were originally.
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LeftyFingerPop
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Wed Sep-17-08 10:55 AM
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4. That's the trick, but... |
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You never know if you are either:
1) Cost averaging down, or
2) Trying to catch a falling knife.
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LeftyFingerPop
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Wed Sep-17-08 10:58 AM
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8. Also...people have cost averaged down all the way to $0. n/t |
ThomWV
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Wed Sep-17-08 10:54 AM
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3. Simple math for investors |
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If a stock was at $100 and drops to $50 its time to buy because when it returns to it previous value the return is 100%. Just depends on your outlook.
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JCMach1
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Wed Sep-17-08 10:55 AM
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5. And why it dropped... MOST drops of the moment are pure speculation |
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panic and program trading.
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LeftyFingerPop
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Wed Sep-17-08 10:56 AM
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6. It is a lot harder for a stock to rise 100% than it is to drop 50%. n/t |
Dreamer Tatum
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Wed Sep-17-08 10:57 AM
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7. If you bought after it dropped 50%, you don't need it to rise 100% |
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In fact, you'd be pretty happy with a 10% rise.
If you're HOPING it comes back, well, that's another story.
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LeftyFingerPop
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Wed Sep-17-08 10:59 AM
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Dreamer Tatum
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Wed Sep-17-08 11:03 AM
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LeftyFingerPop
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Wed Sep-17-08 11:05 AM
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11. No, sometimes there is a fundamental reason for the drop... |
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and they never rise again. It is not always due to panic.
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Dreamer Tatum
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Wed Sep-17-08 11:20 AM
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12. This will NOT be a popular post here, but stocks are on sale right now |
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The economy is not collapsing. It's not even teetering. The financial crisis is SERIOUS, no doubt, and it could very well affect the near-term availability of credit for anyone and everyone, but there will be no Depression. The asset price bubbles popped, which are exacerbating the financial pain for now, but the baseline fundamentals for most publicly-traded companies are still pretty good. I think expectations have to be tempered now, because so much equity has dissipated and credit is more scarce, but this too will pass. Anyone with dry powder will do well in the years to come at these prices.
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masmdu
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Wed Sep-17-08 12:29 PM
Response to Reply #12 |
13. AGREED!...DU hand-wringers are an excellent contrary indicator |
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We are within sight of a sustainable bottom to be followed by inflation of asset prices for YEARS to come (2020)
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mnhtnbb
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Wed Sep-17-08 12:34 PM
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15. Hmm. The old buy low, sell high advice. The time for buying low |
LeftyFingerPop
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Wed Sep-17-08 04:59 PM
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17. Your whole post is premised on the idea that everyone has the MONEY... |
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or "dry powder" to buy at these prices. Many do not.
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Dreamer Tatum
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Wed Sep-17-08 07:44 PM
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18. The fact that the Dow is down 1000 points this week means there is very dry powder out there |
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Someone was on the sell side of every trade.
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sixmile
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Wed Sep-17-08 07:50 PM
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19. Most people don't understand that point: Shorting |
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Every time a stock ticks up or down someone is MAKING MONEY. Likewise, every time a company goes bust, a mortgage goes belly up or a worker loses a job SOMEONE MAKES MONEY.
There's plenty of capital in the markets. Most of it is dry, as you stated, and waiting until the streets run red with blood before buying. Shorts used to be the scourge of my business years ago. It seems they still are.
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mudesi
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Wed Sep-17-08 07:55 PM
Response to Reply #19 |
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Edited on Wed Sep-17-08 07:57 PM by lynyrd_skynyrd
For every one person MAKING MONEY there is one person LOSING MONEY.
Only the banks actually "make" money whenever they create a loan. The act of buying low and selling high (or shorting high and covering low) is a TRANSFER of money from one trader(s) to another.
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AZ Criminal JD
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Wed Sep-17-08 08:12 PM
Response to Reply #20 |
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Not everyone is losing money if someone makes money. If I buy a stock at $20 and sell at $30 I have made money. The person who I sell it to may or may not make money depending on if it goes up from $30 or not. That is not even considering dividend payments.
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mudesi
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Thu Sep-18-08 04:17 PM
Response to Reply #21 |
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Somebody who owned the stock before you bought it had 20 dollars transferred to him from you. That person may have been on the losing end if he bought it for more. In fact, by the act of you buying low, it's almost guaranteed that he bought it for more, because you're buying it for a lower price than it was previously.
You are then transferred 30 dollars from someone else, and that someone else may have yet someone else transfer money, but eventually, when the stock drops (and it will), somebody will be on the losing end of a trade.
Dividend payments are the only part of this equation where one actually makes money from profit, which was generated by actual production of some good or service. Capital gains/losses are nothing more than the movement of money from people to people, where every single dollar made must have, by necessity, been lost somewhere.
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AZ Criminal JD
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Fri Sep-19-08 12:24 PM
Response to Reply #22 |
23. That is not how our economy works |
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Value is created by companies and is usually directly or indirectly reflected in the stock price. The idea that it is a closed system where one person always wins and someone always loses is false. The pie gets bigger over time so there are more pieces to be eaten.
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SoCalDem
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Fri Sep-19-08 12:26 PM
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AZ Criminal JD
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Sun Sep-21-08 07:20 PM
Response to Reply #24 |
25. Double the meds. You will feel better. |
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If the pie is poisoned I wonder why millions want to get into this country and eat some. I guess you think they are stupid.
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mnhtnbb
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Wed Sep-17-08 12:32 PM
Response to Original message |
14. But if you are putting in some money on regular basis, you're going |
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to add to your position at much lower levels, thus reducing the rise you need to get back to even.
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LeftyFingerPop
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Wed Sep-17-08 04:51 PM
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16. oh, and for all of you advocating DOLLAR COST AVERAGING, hear this... |
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Some of us don't have the money to buy more on the way down...so it is either:
1) Sell at a loss.
2) Ride it down and hope it comes back.
:grr:
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