Return on Investment

Ask the following question to anyone. Are you an average investor? Majority of people answer “yes”. What defines an average investor? Average investors do not study markets. They do not have time.  They earn money through hard work from an area of their expertise. They invest this hard-earned money without studying what constitutes a good investment. They take shortcuts like following news, stock tips or expert advice. They buy and hold stocks. They do not have specific entry and exit…

If 1 lac investment in shares rises by 50% (first year) and then drops by 50% (second year), what will be the return on investment? Common answer:  Zero 1 Lac. First year return +50%, second year return -50% average return 0%. Correct answer is loss of 25% How? 1 Lac becomes 1.5 lacs with 50% rise. 1.5 Lacs becomes 75 Thousand with 50% fall. Following is the picture to show why is it difficult to recover from losses. Some investors…