Why your investment needs to rise 100% to compensate for a 50% loss.
Investing is an art and while many succeed at it, there are moments when you will wonder if you could have done something differently. To better understand the concept of “profit and loss,” it is useful to take a closer look at the ratio of profits to losses.
The principle behind winning and losing
Investors often underestimate how difficult it is to compensate for losses. A common misconception is that a profit of 50% can offset a loss of 50%. But in reality you would have to make 100% profit to offset a 50% loss!
A look at the numbers
Let's look at a concrete example with an initial amount of €5,000:
| Initial amount | Percentage loss | Balance after % loss | % win required | Final amount after winnings |
|---|---|---|---|---|
| 5.000 | -5% | 4.750 | 5,3% | 5.000 |
| 5.000 | -10% | 4.500 | 11,1% | 5.000 |
| 5.000 | -15% | 4.250 | 17,6% | 5.000 |
| 5.000 | -20% | 4.000 | 25,0% | 5.000 |
| 5.000 | -25% | 3.750 | 33,3% | 5.000 |
| 5.000 | -30% | 3.500 | 42,9% | 5.000 |
| 5.000 | -35% | 3.250 | 53,8% | 5.000 |
| 5.000 | -40% | 3.000 | 66,7% | 5.000 |
| 5.000 | -45% | 2.750 | 81,8% | 5.000 |
| 5.000 | -50% | 2.500 | 100,0% | 5.000 |
| 5.000 | -55% | 2.250 | 122,2% | 5.000 |
| 5.000 | -60% | 2.000 | 150,0% | 5.000 |
| 5.000 | -65% | 1.750 | 185,7% | 5.000 |
| 5.000 | -70% | 1.500 | 233,3% | 5.000 |
| 5.000 | -75% | 1.250 | 300,0% | 5.000 |
There are specialized tools such as for detailed and interactive calculations Profit and loss calculator from Ayondo, which allows you to see this principle in action.
Opportunities, profit and loss in balance
As an experienced investor, you know that higher return expectations often come with higher risks. The more speculative a financial product, the better you should know it. Products such as warrants or CFDs require in-depth knowledge.
Minimize losses: A key aspect
It is not only important to maximize profits but, above all, to minimize losses. Susan Levermann, a renowned stock market expert, offers in her video “2 tips for newbies to stocks“ valuable advice on how to reduce losses in the investment process. Engage with such sources to make more informed decisions in the context of “profit and loss.”
Be careful and educate yourself
Risk management should be a priority, especially for less experienced investors. It is essential to know the risks and do your research before investing with real money.
TransparentShare: A tool to minimize losses
Another tool that investors should consider in their strategy is TransparentShare. This tool will not only help you make your investment decisions better, but also identify potential pitfalls. With the ability to rate stocks based on various criteria, TransparentShare allows investors to identify poorly rated stocks and therefore minimize the risk of losses. It's always better to be proactive and avoid such stocks in the first place rather than having to do damage control later. By integrating tools like TransparentShare into your investment strategy, you can gain a clear advantage and protect yourself from unnecessary risks.
Try TransparentShare for free
In conclusion, investing is a process of continuous learning. It's not just about high returns, but also about understanding and managing the risks associated with investments. Use all available resources to make informed decisions.
