Remember when we talked about Drawdown?
We looked at the maximum stock price over the past umpteen years and compared it to the most recent price to see ...
>To see how much we would have lost. Yes, I remember now.
Well, that was a negative look at the past, so now we ...
>We take a positive look, right?
Yes. We now look at the minimum stock price over the past umpteen years and compare it to the most recent price to see ...
>To see how much we would have gained!
If Max is the maximum and Min is the minimum price over the past umpteen years,
and P is the current price, we look at:
For example, if the price dropped from a maximum of $50 to the current price of $30, then LOSS = 1- 30/50 = 0.4 or a loss of 40%.
LOSS = 1 - P / Max
GAIN = P / Min - 1
If, over the same time period, the price increased from a minimum of $20 to the current price of $30, then GAIN = 30/20 - 1 = 0.5 or a gain of 50%.
>I'll take the gain!
There's a spreadsheet that looks at the daily prices over a 5-year period. It looks like this:
>I take it you just click on the picture to download the spreadsheet?
Yes, as usual. A measure of how good or bad the stock has been is the Ratio: Average Gain/Average Loss.
G/L Ratio = Average[P / Min - 1]
Average[1 - P / Max]
>And if that's a big number, you buy the stock, right?
Of course! Everybody knows the future is a replica of the past!
Of course, you might also want to use this.
Here are a few G/L ratios (for the period June/03 to June/08):
>Guess I'll buy the XOM.
Exxon-Mobil? Go right ahead ...