Forum Archive Index - April 2001

[Dick O Connor <problast@altavista.com>]

Because today is April 1 and the start of a new financial year, I felt I should 
warn other investors that something very underhand is going on in our 
sharemarket.

Imagine investing, say, $1000 in the shares of some coy and then seeing them 
rise by 10% in 12 months, followed by a 10% fall in the year after that. Okay, 
you'd probably say that you got the dividends and came out square on the 
capital movements.

Nothing could be further from the truth. Here's the figures: $1000 + 10% = 
$1100 - 10% = $990. Now the curious thing is that if you do this the other way 
around: $1000 - 10% = $900 + 10% = $990. You lose either way.

It gets even more diabolical if we raise the percentage movement: $1000 + 20% = 
$1200 - 20% = $960. And vice versa. The first time, in 10% movements we lost 1% 
of our capital, but when we double the percentage movement to 20% we lose 4% of 
our capital.

Go to 30% movements and we lose 9%
   to 40%               we lose 16%
   to 50%               we lose  25%
 On 10% movements up and then down (or the other way around) we lose 1% of 
capital; increase the jumps up and down to five times as much and we lose 25 
times the mount of capital. It's plain theivery and some questions need to be 
asked:-

Who is responsible for this alarming erosion of capital?
Who is pocketing all this money?
Would it be allowed in other countries with proper sharemarket rules and  
control?

When I asked Winston he said he thought it was probably the people who were 
responsible for the winebox affair (whatever that was). What do others think?


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