TD your the one using Voodoo math.
The important issue is the percentage increase or decrease, not the absolute number. A relatively small percentage change from a larger base will give you a larger numerical change, but that's just a sign of a larger base, not of massively poor performance. Your method is simply wrong.
Using your method if you ignore Reagan and Clinton, the DJIA would show a negative return for its entire history (and in nominal terms, I'm not even talking about after inflation adjustment). That's just nonsense.
What matters in the real world is the percentage change over the time your trading.
A simple example, with nice round numbers to make everything easy.
Lets say a stock starts at $10. After 1 years its $100. After 2 years its $500, and after 3 years its down to $300.
OK, suppose you buy at $10, sell it all at $100, leave that money sitting around and don't buy again until you use all of it to buy in at $500, and then sell for $300.
According do your method you've lost money. After all it only went up $90 while you owed it the first time, and it went down $200 when you owed the second time.
But when you use the proceeds from the first sale to buy back in the 2nd time, you get less shares. The loss per share being greater the 2nd time than the gain is the 1st, doesn't mean you make a net loss.
Lets assume you start with $100. At that price you can buy 10 shares at the initial $10 price. A year later you sell them for $1000. After another year you use that $1000 to buy shares at $500 each, now you can only buy 2 shares. And after one more year you sell those 2 shares for $300 each, so you now have $600.
So you started with $100, and now you have $600. But you would say you've lost money... |
