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To: Seldom_Blue who wrote (20922)	3/21/2000 3:22:00 PM
From: Thomas Mercer-Hursh	Read Replies (1) \| Respond to of 54805

Way back when I started programming (shortly after the disappearance of the hand crank!) I did what I thought was a clever little simulation based on formulas and sent it off to a researcher whom I thought would be interested. He responded with a nice letter saying "That's nice, but what you really need to do is ..." and, of course, that was massively more complex, took many months, and led to my first publication. I feel the same way about your presentation here. What you really need is a stochastic model with price fluctuations and some way of modeling your selling and buying strategy. Remember those frequently quoted figures about how much impact one could have had on one's investments by being out of the market for a very small number of days? You need this kind of factor in this model to make it meaningful. Your model is the equivalent of being able to unfailingly sell and immediately buy back at a discount. What about the times that the price didn't drop and you were out of the stock for an extended period waiting for your buyback price to be reached? What about the times you buy, thinking you are at a bottom and the bottom turns out to be farther down? The LTB&H folks don't really need this in the 30 yr model since there is no buying and selling going on. But, any model which includes buying and selling needs it or one is assuming perfect timing. If one could assume that, one could do a lot of things!

To: Seldom_Blue who wrote (20922)	3/21/2000 3:35:00 PM
From: Mike Buckley	Read Replies (2) \| Respond to of 54805

Seldom, It appears at a glance that you only carried your investment period out 29 years. Based on the way you set up the initial investment, the value at the 30th year in your table is in the beginning of the year, not the end of it. As for your buy/sell discount, your table proposes that you will be able to buy a stock on average at a 5%, 10% or 15%discount to the price you sold it the exact same day. As you're aware, that will never happen as often as your table suggests it might. I understand that you're doing some rounding of dates and that it might indeed be possible to nuy the stock at a discount a day, week or month later. But the trick is to knowing that in advance. When you factor in the number of times that traders buy those stocks at a higher price than when they sold it, and after having let their cash assets sit in a money market fund for weeks or months, that so-called average discount becomes mighty skewed as does the so-called average annual return of 15%. Why did I assume a 15% average annual increase in two-year cycles? It wasn't because I was making the assumption that an investor would buy the same stock for 15% less than it was sold. Instead, I was making the assumption that whatever decision the investor made, over time it would average out to a 15% annual increase over a two-year period. That's far different from assuming one can immediately buy a stock for less than it was sold. Make sense? --Mike Buckley