Some simple math for investors.

[LeftyFingerPop]

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.

[magellan]

1. Not an investor, but that's still an eye-opening post

:thumbsup:

[RB TexLa]

2. unless you continue buying at the lower cost then it takes far less of an increase

to be above where you were originally.

[LeftyFingerPop]

4. That's the trick, but...

You never know if you are either:

1) Cost averaging down, or

2) Trying to catch a falling knife.

[LeftyFingerPop]

8. Also...people have cost averaged down all the way to $0. n/t

[ThomWV]

3. Simple math for investors

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.

[JCMach1]

5. And why it dropped... MOST drops of the moment are pure speculation

panic and program trading.

[LeftyFingerPop]

6. It is a lot harder for a stock to rise 100% than it is to drop 50%. n/t

[Dreamer Tatum]

7. If you bought after it dropped 50%, you don't need it to rise 100%

In fact, you'd be pretty happy with a 10% rise.

If you're HOPING it comes back, well, that's another story.

[LeftyFingerPop]

9. See Enron. n/t

[Dreamer Tatum]

10. See non-sequitur n/t

[LeftyFingerPop]

11. No, sometimes there is a fundamental reason for the drop...

and they never rise again. It is not always due to panic.

[Dreamer Tatum]

12. This will NOT be a popular post here, but stocks are on sale right now

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.

[masmdu]

13. AGREED!...DU hand-wringers are an excellent contrary indicator

We are within sight of a sustainable bottom to be followed by inflation of asset prices for YEARS to come (2020)

[mnhtnbb]

15. Hmm. The old buy low, sell high advice. The time for buying low

is approaching.

[LeftyFingerPop]

17. Your whole post is premised on the idea that everyone has the MONEY...

or "dry powder" to buy at these prices. Many do not.

[Dreamer Tatum]

18. The fact that the Dow is down 1000 points this week means there is very dry powder out there

Someone was on the sell side of every trade.

[sixmile]

19. Most people don't understand that point: Shorting

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.

[mudesi]

20. A flaw in your post

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.

[AZ Criminal JD]

21. A flaw in your post

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.

[mudesi]

22. No

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.

[AZ Criminal JD]

23. That is not how our economy works

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.

[SoCalDem]

24. The pie is POISONED

:scared::rofl:

[AZ Criminal JD]

25. Double the meds. You will feel better.

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.

[mnhtnbb]

14. But if you are putting in some money on regular basis, you're going

to add to your position at much lower levels, thus reducing the rise you need to get back to even.

[LeftyFingerPop]

16. oh, and for all of you advocating DOLLAR COST AVERAGING, hear this...

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: