On Investing

Imagine that you are losing money in the stock market. Using your investment strategy, your initial investment of X dollars leads to a loss of $100:

Investment Strategy ($X) = $X – $100

An example of such a strategy might be to sell stocks upon reading bad news of a company whose stock you own, and buying stock upon reading goods news of a company whose stock you do not (Niederhoffer, in Practical Speculation).

You might think that reversing your strategy, doing the opposite of what you were doing, might lead to a gain of $100 instead. So instead of selling/buying upon hearing bad/good news, you buy/sell upon hearing bad/good news. Will that strategy then lead to a gain of $100?:

Investment Strategy-1 ($X) = $X + $100

Unfortunately, no.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s