When your $100 investment earns a 30% profit, it goes up to $130 = 100 x 1.3. Pretty straight forward, no problem there. Then it makes a 30% lost. Instead of going back to $100, it actually drops to $91.
130 x ( 1 - 0.3 ) = 91
The calculation above is not deceiving. A 30% discount on any market item is actually calculated the same way.
So you have just made a lost of $9 !
Sounds tricky ? Lets see what if it moves the other way round.
This time you lost 30% from your $100 investment, it become $70 = 100 x ( 1 - 0.3 ). No problem here. Then it earns back 30%. This time you got 70 x 1.3 = $91. Again you lost $9 !!
There you go, sometimes 30% earning is NOT necessary the same as 30% loses. Get your numbers right in both your business and investment, 9% strategical lost due to a not-so-well-setup strategy could be killing.
6 comments:
Why dont just make a more impactful example?
Let say you have RM100 portfolio, and it dropped 50% in value.How much percent increase to make it even(back to RM100)?
100%!!!!!
this is why you should not lose money.You have to take more risk to just to get back where u started.
good point, actually I didn't really relate to that earlier. This article was initially meant for business man who mark up 30% and then give discount 30% but always ended up losing money ... I just relate that to investment for this site.
'don't lose money' is a good ideology but often not practical especially when you are a volume trader.
this symptom of 'earn less lose more' actually turns out a great opportunity in some trading patterns.
which is common ....
what should be the correct formula of markup?
Don't mark up, sell by values :)
I support fix price mechanism :)
Good one! :)
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