The Mystery of Percentages and Investing

The Mystery of Percentages and Investing

November 26, 2020

One may think if you make 10%, then lose 10%, you’re even. However, when you do the math, you discover the mystery of percentages. For example: 

$100 X +10% = $110 Up Market
$110 X -10% = $99 Down Market

We can see how down market percentages take away more than up market percentages. The bigger the percentage gain is, followed by a loss, the greater the pain. One lost $1 at 10%. At 30%, as the second illustration shows, the loss is $9 (not $3).

$100 x +30% = $130 Up Market
$130 x -30% = $91 Down Market

The break-even number on the downturn following a 30% up market is around 23.1% rather than 30%. 

$130 x -23.1% = $100 Down Market

In conclusion: you can lose money in the market by comparing returns with percentages. It can turn out to be a false positive. Absolute numbers are a better measuring stick of success than percentage comparisons if more than one year is involved in the calculation.

This is a hypothetical example and is not representative of any specific investment. Your results may vary.