Re:Ask HN: Good resources for learning+getting into Finance...
by dedward on Monday June 28, 2010 @07:54PM
(#1469876)
That highlights a fundamental error many people make - you can't average percentages. A graph of an index fund on a percentage basis for the last 20 years tells you nothing useful (at least not directly).
For example, say you start trading with $100, have a bad day and take a 50% loss, and are down to $50. What % gain do you need to get back $100?
Not 50%, as many new investors answer without thinking. To get from $50 back to $100 requires a 100% gain.
If you only a 25% loss down to $75, you need a 33% gain to get from $75 back to $100.
If you took a 75% loss to $25, you need a 300% gain to get back to $100.
Given the loss, the odds of getting the gains required to break even are not good.
Avoiding losses is a huge part of making money trading, which is why I particularly like both What I Learned and Taleb's stuff.