Toolkit

Short lessons on the arithmetic of an account: what a move in one holding does to the whole, why losses and gains are not symmetric, how much rides on the largest few names, and what a yearly cost adds up to. Each lesson takes one question, works one example and, where it helps, gives a small calculator that runs in your browser. The lessons teach the math. They do not say what to hold or how much.

1. How much does a 10 percent drop in one stock hurt my portfolio? Draft
   A move in one holding, times that holding’s share of the account, is the move in the account.
2. Why does it take a 100 percent gain to make back a 50 percent loss? Draft
   A gain is measured from the lower base the loss left behind, so the way back is longer than the way down.
3. How much of my account rides on its largest few holdings? Draft
   Add up the shares of the largest few holdings; that sum is how much of the account moves when they do.
4. What does a 1 percent yearly fee cost over 30 years? Draft
   A yearly fee is taken from a balance that keeps growing, so its cost compounds along with the returns.

Next

• Drawdowns in history: how deep, how long, for a broad index, from dated official or index-provider series
• Rebalancing: what it does, and what it costs
• Correlation in plain words
• Volatility, and what a typical year’s range looks like