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To: Beachbumm who wrote (9495)	2/5/1998 2:12:00 PM
From: sea_biscuit	Read Replies (1) \| Respond to of 25814

Anyway, since it was I who started all this :-), so let me restate my point : Let's say I invest $1000 on a stock and I make a profit of $500. It will make me happy (obviously!). Now, let's measure the amount of happiness and call it "X". However, if, instead of a profit of $500, I lost $500, I will be unhappy (of course!). Let's measure the amount of sadness now. It will not be "X", but much higher than that, say "3X" or "4X" or thereabouts. Dipy.

To: Beachbumm who wrote (9495)	2/6/1998 10:01:00 AM
From: Jock Hutchinson	Respond to of 25814

The market absolutely does not give a hoot about purchasing power of the individual investors. What I can tell you is that it is just as difficult to increase the value of five hundred dollars to one thousand dollars as it is to increase the value of five thousand dollars to ten thousand dollars. What your reply does suggest however, is support for the greater pain theory since, I believe you are observing that less income brings sufficiently less purchasing power given the greater percentages needed to cover basic expenses. And my final word on the subject is this: Anybody who believes that a gain of five hundred dollars on a one thousand dollar purchase is the same as a loss of five hundred dollars on a one thousand dollar purchase is simply wrong. You can talk about new math. That's nonsense. This is the old math that for the past thirty years has been a mainstay question on the GMAT test for business schools for the past thirty years. The actual math has been around since the time pools of carbon gasses began to form life on earth.How is basic math relevant to the LSI board. The LSI board is about investing, and if this isn't a paradigm about investing I don't know what is. Two final examples to definitively illustrate the point . One will start out with an initial profit of fifty percent on one thousand dollars and than follow it through with a fifty percent loss and do this sequentially five times. The other will start with a fifty percent loss on one thousand dollars and follow with a fifty percent gain and do this sequentially for five times. In the first example you will end up In the first example the "lucky" investor who started out with a fifty percent gain before beginning his fifty percent loss will net $237.30. In the second example, the "unfortunate " investor who began with a fifty percent loss will also net $237.50 after five consecutive experiences. And folks, it works for every single percentage from one percent on up to one hundred percent, after which you can't have a loss greater than one hundred percent. , while you can always have again greater than one hundred percent. Finally, I invite you and the other members of the LSI board to take advantage of my contest offering a true prize to the person who can best predict LSI's future performance. Please see post #9468. Good luck and Good Health

To: Beachbumm who wrote (9495)	2/6/1998 1:00:00 PM
From: Jock Hutchinson	Read Replies (2) \| Respond to of 25814

Dear Beachbumm--Here is the correct formula that applies to equal percentage gains and losses. The percentage return that one can expect on his investment when he/she has an identical gain and than an identical percentage loss is 100 minus (the percentage of equal gain and loss squared divided by 100) i.e. 100-(%2/100) where % is the applicable percentage and 2 simply means squared What it demonstrates is the successful trader's mantra of loving little losses but despising huge losses. For example if you make one percent on a trade and then loose one percent, your total loss will be equal to one one hundreth of one percent of the initial investment. At five percent your loss increases to only twenty five one hundreth's of a percent-not much but twenty five times the loss of one percent. But here is where it really gets very compelling for those people who derided me about my so-called new math. At a ten percent gain and subsequent loss the total loss of capital is only one percent. Whereas in the example of a fifty percent gain and a subsequent fifty percent loss, the total loss of capital is twenty five percent or a total of twenty-five times the loss when working with the ten percent example. That's right. I'll state it once again. This scenario is twenty five times more painful than where you have a loss of and gain of ten percent--so the next time you use your decision point as your point of purchase ( i.e "I just wanted to break even and not loose)remember that in essence your percentage losses increase exponentially in terms of what it takes to get back to even. And this is why EVERY successful short term trader has a greater absolute number of losses for the year, and lets his profits ride. Finally, I apologize for the spelling of lose (sic. loose) Good luck and Good Health