The percentage illusion in stock market

Say, you own $100 stock. In day 1. if your stock increase 10%, your owned stock worth $110, and earn $10 in net. if decrease 10%, your stock worth $90. In day 2. if your stock continually go up 10%, your stock worth $121 then, while if your stock continually go down 10%, your stock worth $81.

Two 10% increase will give you $21 net earn. but two 10% decrease will cost you $19. the gap is $2

In a bull market, let’s say everyday your asset will increase 2%. for a consequent 10 days. the total increase is 21.8%. while total of consequent 2% decrease is 18.3%. the gap is $3.5.

2% increase or decrease is still not common in real market. let’s change the percentage to 1% and consider 20 consequent days. total increase will be 22%. total decrease will be 18.2%. the gap is $3.8.

See? the same percentage of increase and decrease won’t always lead to the same value it impacts on. I call it the percentage illusion.

If you put $100 stock in the market for 5 years and keep it there. it is quite possible that your stock value will triple to $300. a.k.a increase 300%. but do you see many stock decreased 100% in 5 years? decrease 100% which means delist from the stack that is unusual.

In real time, put $1,000 in stock market, the worst case is losing all $1,000, but if you choose the stock with some sense, say buy $1,000 Apple or Amazon 10 years ago. the price could have increased 10 times now.

The percentage illusion make stock investment in the long run a lot sense.