Putting Stuff In Perspective
- Posted by TheArmoTrader
- on October 30th, 2011
I love putting stuff in perspective. Its one of my favorite things to do. I never like comparing things nominally. I always want to measure something off of a standard. I usually use this when I do my $MACRO analysis, but it can apply to trading as well.
So, what do I mean when I say “Putting stuff in perspective?”
Below, I will list some real life examples that I have come across that just bugs me to no extent.
- Debt: Zerohedge tweeted several weeks back that the entire world debt had increased 140% in the last decade. While that number sounds like a lot, it is worthless when not compared to something else, like lets say the World’s GDP. In 2001, the world’s debt as a percentage of GDP was 78.13%. In 2011, the world’s debt as a percentage of GDP is at ~67.18%. That 140% increase suddenly turned into a 11% decrease. [As a joke, I tweeted back that my bench press in the same time period jumped from ~40 pounds to ~215 pounds, an insane 430% increase].
- A Loaf of Bread: Hyperinflationists claim that food was SO cheap decades ago when we were on a gold standard. Really? Yes, in 1930, a loaf of bread costed 9 cents. HOWEVER, the average wage was $1,970. I’ll save you some time and do the math, but a loaf of bread costed you 0.000045685% of your wage. In 2009, a loaf of bread ($1.98) as a % of your wage was (drum-roll please)……… 0.000048636%. A whopping 0.000000049% increase.
- Money Printing: We print to much! Well, not exactly. Currency in Circulation as a % of GDP has only gone up from ~4.5% in 1984 to ~6.8% currently. While that is an increase, that is not a massive spike by any standards.
- Population Growth: With the Earth ready to hit 7 Billion people this weekend, we should all panic right? Food, water, oil, and living space will soon run out right? Wrong. I know this might not be the best comparison, but the world population as a % of our world GDP was 0.0022% in 1960. Today, it sits at 0.0001076%, which is a 95.1% decrease. Those sound like small numbers, but that just goes to show you we produce exponentially more than we reproduce (pun intended?).
- Trading: Yes! The options trade you just banged out made you 35%. But in reality, the gain was much much smaller. Think about it. Lets say you made 35% ($350) on your $1,000 options trade. You have a $100,000 account. That is only a 0.35% gain. Now I’m not hating on options trading, but a real 35% gain in a stock (straight up equity) would have been really impressive.
- Bench Press: Just to go back to my earlier comment on the bench press, I see WAY to many guys asking “How much can you bench press?”. Not only does that annoy me because the bench press is one of the dumber ways to measure strength, but obviously a guy who weighs 50 pounds more than me is going to theoretically bench more. That why when I compare bench (or any other exercise) strength , I talk about it as a percentage of my weight [Just for what it’s worth, my max bench is at ~215 pounds, which is around 125% of my weight).
The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.blog comments powered by Disqus
Jerry Khachoyan is currently an undergraduate student at UCLA pursuing a degree in Political Science. He started trading in September of 2008. He concentrates on using technical analysis and reading the tape to enter the best risk/reward trades. The stock market to him is one of the greatest inventions by man.
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