“The math of percentages shows that as losses get larger, the return necessary to recover to break-even increases at a much faster rate. A loss of 10 percent necessitates an 11 percent gain to recover. Increase that loss to 25 percent and it takes a 33 percent gain to get back to break-even. A 50 percent loss requires a 100 percent gain to recover and an 80 percent loss necessitates 500 percent in gains to get back to where the investment value started.”
Source: Middle school math class
Fixed.
That's assuming you just buy once and that's it. Most long-term investors buy consistently and so average down a lot in the downturns.
Buy a $100 dollars worth of a stock valued at $100 and you have 1 stock. It plummets down 50% to $50 and you buy another $100 worth. You now have 3 stocks. It doesn't need to double back up to $100 for you to be back level.
That's assuming you just buy once and that's it. Most long-term investors buy consistently and so average down a lot in the downturns.
Buy a $100 dollars worth of a stock valued at $100 and you have 1 stock. It plummets down 50% to $50 and you buy another $100 worth. You now have 3 stocks. It doesn't need to double back up to $100 for you to be back level.
What?
Your $100 original investment is not worth $50.
You need to get a 100% return on that to get back to even.
This is independent of any future investments you make.
That's assuming you just buy once and that's it. Most long-term investors buy consistently and so average down a lot in the downturns.
Buy a $100 dollars worth of a stock valued at $100 and you have 1 stock. It plummets down 50% to $50 and you buy another $100 worth. You now have 3 stocks. It doesn't need to double back up to $100 for you to be back level.
Any buying strategy is a good one in a market going up!
- the jagged blue line on the left was the SP500 index up to March 2018
- the jagged orange line is the SP500 index following the March 2018 projection
- the green straight line through the middle was the "smooth trajectory" best fit to all index data since 1950 (or, roughly, the "mean" the index tends to revert to or oscillate about)
- the smooth lines above and below represent the range of 2018 forecasts, from the absolute worst case low to high, including the 10th and 90th percentile ranges
What I've added just now is a set of hand-drawn crude curves representing my own personal expectations for what the index will do over about the next year and a half:
- the upper green curve is my most optimistic, and assumes the current decline reverses and the index marches up again at something approaching its prior rate. Things *could* be better than this but I doubt it
- the lower red curve is my most pessimistic, and assumes a steady decline to as low as could be expected from prior major down swings
- the two black dashed lines represent my best guess as to where things will go, bottoming out somewhere between ~ 2400 to 3200 by next spring / summer before starting back upward
From this crude, naive projection, I think we likely see market highs again sometime between summer 2024 and winter 2025. Of course it *could* happen sooner than that, or in the worst case it *could take 10-15 years, like Igy keeps warning us about.
It's on this basis that I'm thinking about starting to slowly unwind my cash position when the index drops back through ~ 3500. Of course, if that doesn't happen, and the market rebounds before getting there, I've missed out and left money on the table.
- the jagged blue line on the left was the SP500 index up to March 2018
- the jagged orange line is the SP500 index following the March 2018 projection
- the green straight line through the middle was the "smooth trajectory" best fit to all index data since 1950 (or, roughly, the "mean" the index tends to revert to or oscillate about)
- the smooth lines above and below represent the range of 2018 forecasts, from the absolute worst case low to high, including the 10th and 90th percentile ranges
What I've added just now is a set of hand-drawn crude curves representing my own personal expectations for what the index will do over about the next year and a half:
- the upper green curve is my most optimistic, and assumes the current decline reverses and the index marches up again at something approaching its prior rate. Things *could* be better than this but I doubt it
- the lower red curve is my most pessimistic, and assumes a steady decline to as low as could be expected from prior major down swings
- the two black dashed lines represent my best guess as to where things will go, bottoming out somewhere between ~ 2400 to 3200 by next spring / summer before starting back upward
From this crude, naive projection, I think we likely see market highs again sometime between summer 2024 and winter 2025. Of course it *could* happen sooner than that, or in the worst case it *could take 10-15 years, like Igy keeps warning us about.
It's on this basis that I'm thinking about starting to slowly unwind my cash position when the index drops back through ~ 3500. Of course, if that doesn't happen, and the market rebounds before getting there, I've missed out and left money on the table.
Good luck riding this sucker out, everyone!
Rather sit it out than ride it out.
We are kept at least partially in by the desire to gain back some of these losses.
That's assuming you just buy once and that's it. Most long-term investors buy consistently and so average down a lot in the downturns.
Buy a $100 dollars worth of a stock valued at $100 and you have 1 stock. It plummets down 50% to $50 and you buy another $100 worth. You now have 3 stocks. It doesn't need to double back up to $100 for you to be back level.
What happens if you bought back when it recovered 25%, then dropped 50%?
Is there blood in the streets yet? Is it time to buy some VTI yet? Everytime I think SARK and SQQQ have peaked, they keep going up! But I'm too scared to buy those now.
I guess that's more proof that inflation is not cooling.
/sarcasm on the second sentence.
The Labor Department on Thursday said the producer-price index, which generally reflects supply conditions in the economy, increased a seasonally adjusted 0.5% in April from the prior month. That marks a deceleration from the upwardly revised 1.6% gain in March, which was pushed up by surging energy prices after Russia invaded Ukraine. April’s rate of increase was the lowest since September 2021,
I guess that's more proof that inflation is not cooling.
/sarcasm on the second sentence.
The Labor Department on Thursday said the producer-price index, which generally reflects supply conditions in the economy, increased a seasonally adjusted 0.5% in April from the prior month. That marks a deceleration from the upwardly revised 1.6% gain in March, which was pushed up by surging energy prices after Russia invaded Ukraine. April’s rate of increase was the lowest since September 2021,
