Hi Nate,

It is clear that you know quite a bit about this financial stuff, but
I think your math might be a bit wrong here:


On Tue, Sep 30, 2008 at 11:19 PM, Nate Duehr <nate@natetech.com> wrote:
>
> Remember, a 50% loss today requires a 100% gain tomorrow to be back
> where you started.
>
> (If you have $100, and you lose 50%, you have $50.  To go from $50 to
> $100 means a 100% gain.)

X_0=$100 (starting value)
X_1=X_0-X_0*0.5=$50 (after 50% loss)
let X_2=X_0 (assume we break even on the next step)
X_2/X_1=100/50=2.0
X_2=X_1+1.0*X_1 (100% change)

OK, that's correct.

>
> To make back 3%, it takes the fund doing 6% in capital gains to cover
> just the fees, let alone make you any money.
>

X_0=100
X_1=X_0-0.03*X_0=$97
let X_2=X_0 (break even on next step)
X_2/X_1=100/97=1.0309
X_2=X_1+0.0309*X_1 (3.09% change, not 6% change)

In general:

Rate_to_break_even=(1/(1-Rate_initial_cut))-1=Rate_initial_cut/(1-Rate_initial_cut)

When the initial loss is much smaller than 100%, the required gain to
break even is very close to the initial loss.

I apologize if this is obvious to you and I just missed something.

Sean
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