Tuesday, October 20, 2009

I have earned 67% in a day !! can it be TRUE ?


Have you ever heard people said he made a profit of 67% in a day ? And then continue to show a few more 'proof' that he often earned incredible profits all the times. Then in order to be more realistic, he shows you a few small lost he made. Do you think he tells truth ?

Well, yesterday was a good day. I earned 67% in a day! Not just paper gain, I actually initiate and end the transactions on the same day to realize the 67% profit. No kidding ! But can it be TRUE ?

While the 67% could be true. Most people would be able to catch the first pitfall.

  1. One day earning doesn't really mean much. As shown in this article, another day of 67% lost would not only not break even but actually making you some loses. The average return for the whole year is more important so that it is comparable with other rates like BLR and fix deposit interest rate etc. Persistency over the years would also become more important as time goes. Be reminded that Warren Buffet average annual return is 15.6% ( details in Greatest Investors of all time ).
  2. It is also not too hard to catch the 2nd pitfall. Actual amount matters. Earning 67% from $1,000 is very different than earning 67% from an investment of $100,000. I can easily turn $1 to $2 earning 100% return but I would be happy if I can get 10% return from my $1 million investment. This is the part that says size does matter and a big percentage number is only exciting when it works together with another big number.
  3. Another pitfall is one that some may overlook. Investment return should be calculated based on total capital, not the transaction amount itself. For example, I have allocated $1 million for a particular investment. In one particular transaction, I invested $100,000 and earned 67% return while the rest of the $900,000 sits somewhere doing nothing. My overall return is actually 6.7% only. Meaning I have earned $67,000 with $1 million. This is particularly important when judging fund managers performance.
So while it may be TRUE I earn 67%, but it may NOT be THE ENTIRE TRUTH on the perception of making such statements.

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6 comments:

Anonymous said...

this is very true...totally agree with you :) another good post (Y) keep up!!

Michael Tsen said...

Thanks ....

alan tan said...

I make $40,000 in FOREX in 7 days!(as advertise in Paper)

WOW! Other will say impressive but they never told you that his capital is $400,000.

Very misleading, right?

Michael Tsen said...

yes indeed.

Forex is slightly more complicated due to its high leverage. So although the capital is 400k but the investor only fork out 4k ( 100:1 leverage ), so earning 40k from 4k is darn exciting. But leveraging 100 also means you not only lost 4k, you could have lost 400k.

But in forex there is another mechanism limiting your lost to 4k only, not the 400k.

put all in one, in order to use 4k to earn 40k in 7 days, you have to risk losing all of your 4k in 6 hours.

some said this is more exciting than suicide :)

Carson Ding said...

consider placing a stop loss for every trade and investment.

that way whenever you lose, you only lose 10 or 20% (depending on the stop loss order). but when you gain, you stand to make 67%.

investing without stop loss is suicide.

Michael Tsen said...

thanks for the comment, indeed stop loss can help ... to some extend.

see more cut loss strategies here