Monday, July 20, 2015

Real harm of a sharp market decline

The stock market in China rocketed up 140 percent from July 2014 to July 2015. So a 30 percent drop is a big, but not unexpected, correction.
So, what is the net result? Has the stock market grown from July 2014 to now, after the correction, and by how much?
If the stock market has shown a net gain, what is the real problem? There is actually a big problem that is not disclosed by this so called "net gain". Can you explain this problem?
If the market went up 150% and dropped 30%, there is still a net gain of 75% for someone who had been invested at the start. So, this investor is still sitting on a comfortable gain.
Unfortunately, most of the investors jumped in towards the peak and suffered a large part of the drop. They can see their investment dropped by up to 30%. Worse, if they had invested on 2 time leverage, their loss could be almost 100% of their original invested sum.
This is the real harm of a market decline.

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