Since the loss on selling 50 shares is the same as the loss on buying 50 shares, our sales are going to go up. We can actually sell 50 shares for 30% less or 30% less or 10% less. It’s a nice way to measure the loss.
Now, we’re not going to be able to sell the 50 shares we’ve sold, so we have to use the calculation where we put 50 shares for cash into the market, and then the price of 50 shares of stock goes down to the price of 30 shares. And that’s the formula. We’re going to be able to sell out our 50 shares at a price of 30.
Well, we’re not the only ones who think that calculating the loss on buying 50 shares for 30 less is a good way to measure the loss on selling 50 shares for 30 less, but its not an exact method that works in all situations.
In this example, we would be trying to figure out if we sell 50 shares for $10 and then the price of 50 shares goes down to $10.10, and then sell the 30 shares at a price of $10.30. Our formula would then be $10.30 or $10.10. We could find that the stock price was down to $10.30 and we sold 50 shares for $10. We would have a gain of $7.50.
That’s because the formula is giving us an actual loss when we’re buying the shares and a gain when we’re selling the shares. Our formula is just a tool and we can see that it doesn’t actually work in all situations.
And the reason is because we are a lot more likely to be selling shares than we are to sell them. When we sell shares for 10% more than the stock price, we’re making a loss when we sell them for 10% more than the stock price. And then we’ll lose in the long run. We’re going to lose in a lot of ways. We can’t just put in 5.
If you’ve been reading our blog for a while, you’ve probably noticed that stock prices fluctuate a lot. Some of that is due to a combination of factors like market volatility, but a lot of it is due to the market being overbought or oversold. Overbought and oversold are very different things. In overbought markets, the market is too overpriced, or too cheap, for it to make more sense to buy or sell.
Oversold stocks are those that are trading at levels where selling is more sensible than buying, and vice-versa. In a stock that is oversold, it is no longer possible to buy or sell because no one wants to buy or sell (or, in the case of stocks like Netflix, no one can afford to buy or sell).
Just in the previous sentence I mentioned that Netflix is, on average, the most expensive stock on earth, but I neglected to mention that Netflix’s market price has been consistently higher than Netflix’s actual market value.
You are more likely to sell when the share price is oversold because there is more competition for that share. If there was no competition, the share would be worth more, but you would be able to buy it for a lower price. When the share price is at an oversold price, you may not think about buying, but you do have to sell because you cannot afford to buy.