Hi multicollinearity; If you made money in previous trades of RMBS, that has nothing to do with your cost basis on the shares you still own.
If you truly run your accounting the way you and ekid describe, you're basically idiots. For the rest of us to believe your statement at face value would require an act of deliberate mindlessness. Go ask an accountant for a professional opinion.
What happens to people who think that they own shares with a negative cost basis is that they somehow think that these shares can be held for however long they wish without their losing any money on them. This distortion of reality tends to cause them to hold way too long.
You think that if you bought 2000 shares of a company for $100 per share, and then sold 1000 of them for $150 per share, you would then have lowered your cost basis on the remaining 1000 shares to $50 per share, right? Suppose you sell these remaining shares for $150 as well. Let's work this out the numbers. Clearly, your cost basis on the first shares was $100 per share. You sold them for $150 per share, and therefore made 1000 x $50 = $50,000. According to your silly accounting technique, your cost basis on the remaining shares was $50 per share, and since you sold them for $150 per share, you made a profit of $100 per share on the sale. That means you made $100,000 on the second trade. The total profits you made are therefore $150,000? That's funny, you actually bought 2000 shares at $100 and sold them for $150, therefore making a profit of $50 x 2000 = $100,000.
So which is it, multicollinearity? In the example given, did the trader make a profit of $150,000 or $100,000? LOL!!!
If merely overstating your profits by 50% isn't enough of an obvious fabrication for you, I can put together examples where your profit calculations are even more badly distorted.
Basically, you're trying to have your cake (profits) and eat it too. You want to think that you've made good profits in the past, and that, in addition, your remaining position will benefit from those profits that you already took. This is magical thinking my friend.
-- Carl |
