Beware the Novice

Formula for the Misguided:

Sadly, there is a common practice among amateurs who wish to gain high percentages within their portfolios and then brag about it. This is accomplished by using Penny Stocks which can be very misleading.

Stock formula for calculating percentage change:

(Price Sold - Purchase Price)/ (Purchase Price) * 100 = %

Let’s take an example:

Let’s buy 100 shares @ 0.80 cents per share. The Cost = $80 dollars

Let's say we sell at $1.29 per share = $129 (which will actually show a high percentage)

Here is the math: (Price Sold - Purchase Price)/ (Purchase Price) * 100 = 61%

(1.29 – 0.80)/ (0.80) * 100 = 61.25%

But in reality this 61% gain is not impressive.

First subtract the buy price from the sell price, then subtract the commission of $10 for the buy and $10 for the sale = 129 – 80 – 20 = $29.00

($10 is an average commission price, but this does vary slightly)

This is assuming that you can actually find a buyer for all of your low volume shares at the ask price and if you bought all of the shares at one time.

Additionally, we have not even mentioned the Short-term Capital Gains Tax which can be as much as 35% for 2009. The average is 28%.

Let's do one more example with a 1000 Shares:

Buy 1000 shares @ $0.80 = $800

Sell 1000 Shares @ $1.29 = $1290

Sell price difference would be $490 – 20 commission = $470

470 – 28% tax = 470 – 131 = $339

I guess $339 is okay for people living in their parent's basement.

An important question would be can the so-called trader sell the order and consistently eke out a profit with each trade? The simple answer is, "No." But, you will never hear the idiot(s) mention his or her losses. Keep in mind, for every winner there is a loser.


One can clearly see how misleading and unimpressive this is actually. Sadly, this is common among amateurs who wish to gain high percentages within their portfolios and then brag to their idiot friends or the naïve; but in reality they are making very little money or none at all.

Thankfully, percentages start to make more sense once you get away from penny or low priced stocks.

Do yourself a favor, find five to twelve reliable companies and start building a winning portfolio.