Points Vs Percent
I pull my hair out whenever I turn on the financial news and hear "Dow up 70 points today." I scream "so what!". Points or dollar values, like "IBM up $1" has no meaning in the grand scheme of things. Investing is all about percentage. We need to know how much the dow and nasdaq went up as a percentage. We need to know the percent a stock gained or fell today. All investing is about percentage increases, not points or price. This is the same topic I talked about earlier in the week with regards to owning X shares of ABC stock at Y price. I don't care the price of the invidiual stock (as long as it's over $20). I care about the total amount invested in that stock, and how that amount moves up and down each day, based on percent.
Log Charts Vs Linear
This is the same issue as above but with regards to charting. A linear chart tells us nothing. If a stock is going up over time, on a linear chart, this will begin to look like a ski jump and offer us little visual value. Log charts turn the price moves into percents. This is what we need to be looking at. Here is a quick example....two charts of VNBC, here is the linear ski jump, and here is the nice clean, lay a ruler on it, log chart. That stock's log chart shows steady yearly growth.
80 20 Rule
The 80 20 rule when applied to stocks suggests that 20% of your portfolio will make as much as the other 80%. I find this often to be true. You may find that if you hold 10 stocks, 2 will accel and make all your gains. If you understand this can be very normal, you won't be alarmed when it occurs. It doesn't happen all the time, but it's often the case that a small number of stocks in your portfolio will make all the big gains.
Trader Mike
I want to thank Trader Mike for reviewing my book on his excellent blog! Check out his site.
