E-Mail 'Successful Investing Using Money Management' To A Friend

by Investing School on September 22, 2010

Email a copy of 'Successful Investing Using Money Management' to a friend

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MP January 27, 2011 at 3:32 pm

The premise of your article is a good one, but your comparison to a coin toss is totally inaccurate. Just because you say 2 investments win and 2 lose, there must be a 50% chance of that occurring is totally false. For the winners, the stock needs to move 3.3x as much as for the losers. So, what are the odds that a stock will move up 3.3x as much as it moves down? Obviously an unanswerable question, but it’s not a 50/50 coin toss. By that same logic, let’s just say I buy 5 stocks and 2 go up 100% and I take profits and the other 3 move down 3% and I sell for a loss. Well, I only won 40% of the time and still made a bundle. And, that’s easier to do than calling a coin toss. Not really, but the point should be obvious.

Again, the premise is perfect accurate and should be learned by all. But, please don’t inflate the expectations of your readers by making them think that they have just as good a chance of picking winners that move 3.3x as much as their losers as they do calling a coin flip.

Cheers.

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