Now, let's play a similar game. This time, we offer "commentary" instead of "translation". We didn't make the quotes up...they're pulled from various investment websites.

When a leading stock breaks down, it can lose up to 95% of its value.

Commentary: Actually, it can lose 100%. Followers too.

The fact that the 10-day moving average dropped below the 89-day moving average adds to the likelihood that...

Commentary: Why not use a 90 day average? On second thought, don't bother answering...89 is the 11th Fibonacci number. But it's extraordinary to imagine that after averaging 89 days of data, possibly weighting the more recent data, comparing this average against a 10 day average (which, by the way, isn't a Fibonacci number!), the result would be of greater interest than a simple round 90 or 100 day figure.

Biggest Price Drop Since Breakout Marks Rally's End (title of an article at a popular financial website)

Commentary:  The first drop since a breakout IS the biggest drop since the breakout.  Unless you're looking at a chart with hindsight, of course.

My analysis shows that the market’s strong and weak seasons actually vary greatly from year to year, some years being as brief as four months, and others going up to eight months.

Commentary:  An eight month season?  On which planet is this investment advice being offered?  In retrospect, every year can be divided into a good period and a bad period, but does this really relate to investing with regard to "seasons"?

In every losing year over the last 20 years, except one, stocks have performed poorly in the first half of the year.  

Commentary:  Wow, only 1 time out of 20?!  Not really.  After all, there have only been a handful of losing years in the last 20.  And out of these losing years, how many would you expect to have a gain in the first half?  One sounds about right.

To put it another way, take any losing period and divide it into halves.  Randomly choose a half.  Chances are better than 50% that this half will be negative as well.  Should we really be surprised that losing years tend to have losing halves?

If a stock drops 50%, you need a 100% gain to recover the loss...it's twice as difficult for a stock to double in price as it is to lose half its value.

We've seen the above logic offered on numerous occasions, usually as a reason to cut your losses short following a drop.  Cutting your losses short may or may not be a good idea, but one thing is for sure...the math is silly.  In the market, we're ultimately concerned with the probability (i.e. "difficulty") of a stock rising 100% or falling 50%.  But this probability isn't addressed...instead we get mathematical games.

Following this sort of logic, a 100% loss should be just as "easy" as a 100% gain.  For that matter, a 101% loss (impossible when talking about common stock purchases), should be just as likely as a 101% gain.  The truth is, of course, we usually see numerous stocks that double in the course of, say, a year, and relatively few that flat-out go belly-up...the 100% gain is far more likely than the 100% loss.

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