I SUCK at math. Never really liked it in high school.
(updating some items, this is from an email sent to my email list on 4/21/2024)
So, when I went to college I had to take 2 prerequisite math classes. And, because of the math I had taken in high school…that I had to…that meant I had to take a calculus class in college.
First day, I show up and the Teaching Assistant that was teaching the class was Russian. He had a thick accent and I had no idea what he was saying.
THEN, I hear the two girls in the row behind me talking. One says to the other, “I’m Russian, are you?” The other girl says, “Yes!”
I think, OH MY GOD, everyone in this class is Russian, I’m going to get killed in grading even if there is a curve!
Then, a few minutes later I realize they meant “rushing” a sorority, not “Russian”. I almost burst out laughing at myself. But I still dropped that class.
So, when I went to New York to work as a market maker I was psyched. There really is very little math involved in most trading. I did have to brush up on my fractions because stocks still traded in 1/8s and 1/16ths.
And I had to learn a few other things that are critical as well, but not complicated.
One of the most important, the impact of a percentage loss. Most people focus on gains, as in what percent the market, or their portfolio, is up. Few people focus on losses and avoiding them.
Ironically, when people start to lose money in the market, they actually stop looking at their brokerage account online…and even opening their paper statements.
This when the most important time to pay ATTENTION to your money is when it may be evaporating.
One of the biggest reasons losses are so important is the math. You can lose 10%, and you only need an 11% gain to make it back. No biggie. Seems right.
But if you lose 20% you need a 25% gain to make it back. And then, the one most people don’t logically comprehend, if you lose 50% you need a 100% gain to make it back.
So, losses can spiral quickly and become very difficult to make up ground on. That’s why it’s SOOOOOO important to limit them at all times.
And, that’s why I got several thank you emails and texts from you guys this weekend.
Sorry if I haven’t personally answered each one, I had a trip down to Chapel Hill to see my daughter, but I do appreciate each and every one. AND I’m super psyched my short little emails saved some of you some big time money!
It’s been a VERY fun market the past week if you anticipated a nice drop off hasn’t it!! Congrats to those who also shorted on my “at a minimum I’d be putting in protection” statement and made money coming and going.
Hope you’re having a great weekend, and Best of luck in your trading!!
Cheers,
Steven