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In my previous blog post, I shared the below two points:
– Differences between discount and markup rate
– Markup rate is always higher than the discount rate

How can we apply this knowledge in investing? Well, the goal of any investment is to earn a return or profit at a future date. It simply means you sell your investment at a higher price compared to the purchase price. Ideally, every investor would love to purchase an investment instrument at a cheaper or discounted price. Example, buying an item at 50% discount and selling it at the price before discount will earn you a 100% profit.

The formula is the same, but instead of using discount or markup rate, in investment, we use the term return or loss or profit rate.

Loss/Profit Rate = ((New Price – Old Price) / Old Price) * 100%

To illustrate this point, let’s assume Investor A, B, C, and D are to invest their money in company ABC stock. They can purchase the stock at any month, but they need to sell it off at the end of December. Assuming, below is the stock price of each month.

Month	Stock Price RM
Jan	10
Feb	9
Mar	8
Apr	11
May	13
Jun	10
Jul	7
Aug	5
Sep	8
Oct	9
Nov	12
Dec	11

Investor A:

Decides to purchase the stock in January at RM10. In December the stock price rose to RM11. This means Investor A made a 10% profit.

Investor B:

Decides to purchase the stock in Mar at RM8. In Dec the stock price rose to RM11. This means Investor B made a 37.50% profit.

Why is the profit rate different than Investor A? It is simply because Investor B managed to purchase the stock at a discounted price of RM8. Comparing to January price RM 10, the discount rate is 20% ((8-10)/10 * 100%).

Another point to observe here, the stock price in June rose back to RM10, similar to its January price. If Investor B was to sell the stock in June, he would have made a 25% profit. Noticed how purchasing the stock at a discounted price of 20% can earn you 25% profit (if the price rises back to its original value).

Investor C:

Decides to purchase the stock in May at RM13. In Dec the stock price shrinks to RM11. This means Investor C made a 15.38% loss.

Investor D:

Decides to purchase the stock in Aug at RM5. In Dec the stock price rose to RM11. This means Investor D made a 120% profit.

If this was a competition, then Investor D would be the winner since he managed to earn 120% profit. Having said that, when it comes to investment, there is no winner or loser. Investment is not a competition, we don’t and shouldn’t compete with others.  I’ll share my thought on this later.

In my next post, I’ll discuss the options available for Investor C to recoup his investment capital and the possibility to earn a profit.

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