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THE MARKET WHISPERER 41 5

Points, Not Percentages –
Quantity, Not Sums of Money

A math question for you:
Danny bought stock when its shares were $100. In the afternoon the

price rose by 20%, but later dropped by 20%. What is the price of the share

after it dropped?
If your answer was $100, think again.
After the price rose 20%, its value was $120. When it drops 20%, the

drop is calculated on the new price of $120. Therefore, after it drops, the
price per share is $96.

What is the conclusion? Percentages manifest relative values and not
absolute values.

If I say that the stock of ABC yielded a profit of 10%, how much money
did I actually make? There’s no way of knowing. It could have been $10 per
share if the share was bought at $100, but it could also have been 10 cents
per share, if its buy price was $1.

Here is another example:
Danny bought stock at $100 per share. One fine morning the price
dropped by 50% to $50. By what percentage does the price need to go up
in order to make $100 per share again?
If you answered 50%, think again.
To return to the original price, we need to see an uptrend of 100% of its
current price of $50.
By contrast, in absolute values, there is no confusion: the stock lost
$50 and must add $50 (i.e. 50 points) to return to its start value. This
example demonstrates exactly why percentage-based calculations can get

so confusing.
• Remember: Traders do not calculate profits in percentages. They

calculate in points, i.e. dollars, where each $1 = 1 point.

SMART A fundamental principle of stock trading management is
MONEY based on measuring gains and losses in points and not in
percentages, and when buying, in quantities and not in
sums of money.