@madamswer,
I chose supermodels because they are more fun than golfers or tennis players. Anyway, supermodels are usually more able to spend money liberally, so more suitable to "upcoming biotechs".
Your example of investing in 10 supermodels and ending up still behind even when one of them manages to succeed is self-explanatory.
Unfortunately, there are lots of punters who will never understand what you and I are trying to tell them. From my experience in dealing with people, if someone doesn't get this kind of concept in the first 5 minutes, it is likely that he/she will never get it.
I would like to comment on your example. In your example, you assume that one of the 10 supermodels manages to make it, i.e. MSB reaching the $10 mark. In reality, I believe there is not many people who will have the temperament to
do nothing and let the share price keeps increasing to $10.
Most people will get very excited/nervous/itchy to sell, long before the price reaches $10. If someone gets into MSB at $1.50, he/she will probably sell it at $3 or $4 or $6 or $7.
If this happens, the Net Investment Return will be even worse than -18%!
This is why I prefer to invest in companies that produce a consistent 10-15% return year in year out. This is because I will be less likely to be tempted to sell too early to realise paper profit and miss out on future profit.
Companies such as ARB & REH fall into this category of boring companies producing 10-15% growth year in year out. That is why I don't even notice/realise the noise happening in their threads (assuming there is any).
When people talk about losses, they usually refer to the money lost when selling a stock at a lower price than the purchase price. There is however another type of loss, that will never show up in any kind of profit/loss statement, that is
lost potential profit.
Going back to the your MSB example. A punter who was wise enough to buy at $1.50 and smart enough to sell at let's say $5.00, realising a $3.50 profit, will suffer from a unique type of regret if he/she sees MSB continues to rally to $10.00 and missing out on another $5.00 profit. This missed $5.00 profit is the
lost potential profit. It will never show up in your books or in your tax return, but in my opinion, it's a real loss.
This kind of loss also adds to the stress level of an investor.
Based on my experiences, I also find that companies that produce low-volatility results, such as ARB & REH, are also less-stressful to invest in. On the other hand, companies that produce high-volatility results, e.g. big profit jump one year followed with sudden loss announcement the following year, are very stressful to invest in.
For the sake of my mental health & financial health, I prefer the boring companies.
(20min delay)