{"id":1118406,"date":"2019-05-29T16:30:35","date_gmt":"2019-05-29T16:30:35","guid":{"rendered":"https:\/\/dailyreckoning.com\/?p=107448"},"modified":"2019-05-29T16:30:35","modified_gmt":"2019-05-29T16:30:35","slug":"can-you-pass-this-math-test","status":"publish","type":"post","link":"https:\/\/juniorminingnews.com\/?p=1118406","title":{"rendered":"Can You Pass This Math Test?"},"content":{"rendered":"

This post Can You Pass This Math Test?<\/a> appeared first on Daily Reckoning<\/a>.<\/p>\n

I love tests. Always have. <\/span><\/p>\n

The way I see it, they\u2019re a challenge — an opportunity to prove what you know — and also find out what you don\u2019t know.<\/span><\/p>\n

I recently told my 11-year-old daughter the same thing when she was complaining about school.<\/span><\/p>\n

And then she turned around and did something really awesome \u2013 she made me a math test as a present for my recent birthday. <\/span><\/p>\n

She searched the Internet and found some of the hardest SAT questions\u2026 put them into a little Google slideshow. And then gave me a set of rules for taking the thing (maximum 45 minutes, prizes depending on the number I got right, etc.).<\/span><\/p>\n

Cool and creative, right? <\/span><\/p>\n

And now I\u2019m giving you the same type of gift today: a series of investment-related math questions. <\/span><\/p>\n

It\u2019s not as terrible as it sounds, I promise.<\/span><\/p>\n

Question #1: <\/b><\/span><\/h2>\n

At one point in my career, I was running a real-money $100,000 portfolio for my dad and sharing the results with readers. <\/span><\/p>\n

We made more than $54,000 over the course of several years of the publication and then decided to call it a wrap. But at one point, a reader wrote in and asked how to mirror the portfolio \u2013 which consisted of a bunch of different stock positions \u2013 with just $32,000 in starting capital.<\/span><\/p>\n

Do you know how to do it?<\/span><\/p>\n

Well, here\u2019s the answer:<\/span><\/p>\n

If you divide $32,000 by $100,000, you\u2019ll get 32%. <\/span><\/p>\n

That means you should then multiply every single position in the portfolio by .32 to arrive at the correct allocation for any given position. <\/span><\/p>\n

And you\u2019re so close to 33%, or 1\/3, that you could also use that friendlier divisor and come close enough, too.<\/span><\/p>\n

Okay, here\u2019s another one for you\u2026<\/span><\/p>\n

Question #2:<\/b><\/span><\/h2>\n

You\u2019re at a cocktail party and someone tells you they just made $10,000 on a single trade.<\/span><\/p>\n

Are you impressed or not?<\/span><\/p>\n

The answer, at least to me, is that you can\u2019t answer.<\/span><\/p>\n

See, one of my biggest pet peeves is hearing investors talk about gains and losses in dollar terms rather than percentages. <\/span><\/p>\n

We don\u2019t know how much the person initially<\/i> invested to get that $10,000 profit!<\/span><\/p>\n

If it was $1,000 you should be darn impressed. But if it took a million, then it\u2019s probably time to go refill your drink.<\/span><\/p>\n

Or what about someone who says such-and-such stock was \u201cup ten points\u201d yesterday? <\/span><\/p>\n

Giving you this information isn\u2019t helpful at all unless you know the starting point.<\/span><\/p>\n

This is why I always prefer percentages. Percentages don\u2019t lie. <\/span><\/p>\n

If someone says they got a return of 45%, the only other thing we need to know is the timeframe; the amount of money originally invested is largely irrelevant. <\/span><\/p>\n

It\u2019s the same thing if someone tells you the Dow rose 2% — you don\u2019t even have to know where it opened that morning to immediately grasp what happened.<\/span><\/p>\n

Of course, a lot of people misunderstand the difference between percentages and percentage points\u2026<\/span><\/p>\n

Question #3:<\/b><\/span><\/h2>\n

Consider the following two sentences:<\/span><\/p>\n

Sentence A: \u201cStock XYZ beat the S&P 500 by 10 percent last year.\u201d<\/span><\/p>\n

Sentence B: \u201cStock XYZ beat the S&P 500 by 10 percentage points last year.\u201d<\/span><\/p>\n

Are they expressing the same idea? <\/span><\/p>\n

Well, let\u2019s assume the market was up 10% last year. <\/span><\/p>\n

That means in Sentence A, stock XYZ was up 11% for the year.<\/span><\/p>\n

Here\u2019s the math behind the answer: 11 minus 10 equals 1, and 1 divided by 10 equals .10, or 10%. <\/span><\/p>\n

Sentence B, however, says stock XYZ rose 10 percentage points.<\/span><\/p>\n

In other words, it rose 10% above and beyond the market\u2019s 10% gain. <\/span><\/p>\n

So in Sentence B, stock XYZ was up 20% for the year\u2026 which is quite a difference in meaning from Sentence A!<\/span><\/p>\n

Okay, final question for today\u2026<\/span><\/p>\n

Question #4:<\/b><\/span><\/h2>\n

Does a $1 stock carry more profit potential than a $1,000 stock?<\/span><\/p>\n

Plenty of people think so. They tell me they like \u201ccheap\u201d stocks because they get more bang for their buck.<\/span><\/p>\n

There\u2019s no doubt on a day-to-day basis, you will likely see much sharper moves from the typical smaller stock. <\/span><\/p>\n

It\u2019s also true that some tiny companies go on to become huge success stories creating huge windfalls for their early investors.<\/span><\/p>\n

But how many small firms go belly up for every one that skyrockets? <\/span><\/p>\n

Or how many small shares crash just as quickly as they soared? <\/span><\/p>\n

Meanwhile, larger stocks \u2013 whether you\u2019re talking about the size of the company or the share price \u2013 can also double, triple or quadruple in value. <\/span><\/p>\n

Just look at Apple Computer. It\u2019s up about 780% over the last decade and it was hardly a small, unknown, low-priced stock in 2009!<\/span><\/p>\n

To me, it\u2019s far better to fixate on a stock\u2019s value rather than its price. A truly \u201ccheap\u201d stock is one where the underlying business is worth more than what share price suggests.<\/span><\/p>\n

After all, it doesn\u2019t matter if you buy 1000 shares of a $1 stock or one share of a $1,000 stock. <\/span><\/p>\n

You\u2019re making the same overall investment in dollar terms… and a 10% rise in either gives your portfolio the exact same result.<\/span><\/p>\n

To a richer life,<\/p>\n

\"Nilus<\/p>\n

\u2014 Nilus Mattive
\nEditor, The Rich Life Roadmap<\/i><\/p>\n

The post Can You Pass This Math Test?<\/a> appeared first on Daily Reckoning<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"

This post Can You Pass This Math Test?<\/a> appeared first on Daily Reckoning<\/a>.<\/p>\n

Now I’m giving you the same type of gift today: a series of investment-related math questions. Can you answer them?<\/p>\n

The post Can You Pass This Math Test?<\/a> appeared first on Daily Reckoning<\/a>.<\/p>\n","protected":false},"author":55,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""}},"footnotes":""},"categories":[366,625,2762,490,2763,462,398,2764,923],"tags":[],"_links":{"self":[{"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/posts\/1118406"}],"collection":[{"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/users\/55"}],"replies":[{"embeddable":true,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=1118406"}],"version-history":[{"count":1,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/posts\/1118406\/revisions"}],"predecessor-version":[{"id":1118407,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/posts\/1118406\/revisions\/1118407"}],"wp:attachment":[{"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=1118406"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=1118406"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=1118406"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}