With the Market’s swings, you lose

Stock markets have been very volatile recently. Mr. Market’s got a very fragile mood. One day is up, the next is down.

In this post, I just wanted to make an obvious remark for most of you but a small insight for those who are not very acquainted with numbers.

Whenever the market moves up and down in consecutive moves of the same percentage, no matter which move comes first, you lose.

Imagine you have 100$ in the stock market. One day your stock moves up 2%, so you end having 102$. If the following day your stock goes down again by the same 2%, you’ll end up with 99.96$. Less than what you had before day one.

Then take the reverse case. If your stock went down 2% in the first place, you’d have 98$. If the following day it went up again 2%, you’d end up with the same 99.96$ (nothing more than the commutative property of the product).

Anyway, with those consecutive moves you would end losing some cash. You may believe that 4 cents are not worth the comment.

Think then about your savings (e.g. 10,000$) and about possible yearly performances (e.g. +/- 20%)… now you will see that at the end of the second year instead of 10,000$, you would have 9,600$, down 4% from the beginning (about -2% per year).

I just wanted to leave this small note here in the blog, obvious for some and not so for others, as I will come to it at a later point in time.

1 Comment

Filed under Investing

One response to “With the Market’s swings, you lose

  1. Pingback: Gains with a negative performance? | The Blog by Javier

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s