top of page
  • Writer's pictureDel Chatterson

Wow, my stock’s up 67%!

Sounds exciting, but it's actually a cruel lesson in mathematics.

The good news was that CitiGroup stock had jumped from $1.00 per share to $1.67. The bad news was that my average cost is still about $33.00 per share and the current value is still about 95% below cost. Starting from today's $1.67 the stock has to come back 1,976% for me to reach breakeven.

A sad but true fact of mathematics: as values decline the percent increase has to be much more than the percent that has been lost. Think about it - a stock that has lost 50% of it's value has to come back by 100% (double its price) before returning to the original value.

In the other direction this effect is a good justification for cashing our before you get too greedy. For example, if the stock has doubled from your original cost, it only has to slide by 25% to take back 50% of your gain.

Since we're looking at market values currently down about 40% from a year ago, they have to climb about 67% to recover their original value. Faint hope or sure thing? The historical comeback of 80% within two years of a recession suddenly doesn't sound quite so good. Unless you were lucky or smart enough to get out before the crash and are buying back in at today's values with all that available cash.

Unfortunately, that's not me.

0 views0 comments


bottom of page