Tuesday, March 10, 2009

New Math?

Wow am I thrilled today! Many of my stocks gained 30%!
Unfortunately statistics lie and the above statement is KAKA!

You see those stocks lost over 50% in the recent downturn and today's rise, while nice is quite a small amount.

How can I say that?
Well, on the surface it appears that I am only down 20% - 50% down and 30% up.

But plug in dollars to see the fallacy.

Down 50% means if you started with $100 you now have only $50.
Then 30% jump adds back only $15. (That's 30% of the new $50 starting point.)
Your new total cash on hand is $65 - A loss of $35 which is 35% in this example!

In other words when it comes to statistics and more precisely percentages minus 50 plus 30 is actually minus 35!

And that's the real new math!

By the way I lied also - Only a few of my stocks gained 30% today but it sounded nice, didn't it?

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