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Politics : Ask Michael Burke -- Ignore unavailable to you. Want to Upgrade?

To: TRINDY who wrote (117476)	1/5/2009 2:14:00 PM
From: Tommaso	Read Replies (2) \| Respond to of 132070

You have no idea how much I appreciate the elegantly clear explanation of the probabilities. I was just reading the new book by Niall Ferguson, "The Ascent of Money," and at one point he quotes a list of statements by Keynes, one of whose specialities was probability. I realized that my own thinking about various investment choices was badly contaminated by various things, including a failure to take into account low-probability but seriously damaging outcomes. In ordinary life I don't do this; I buy plenty of insurance. But when I speculate, I tend to look for confirming evidence of my decisions and fail to assess outcomes objectively. Thanks for the reminder about the assumption of independence of outcomes. It's true that all the outcomes I was considering assume a higher price for gold in the future. I assume that because I assume that there will soon be serious inflation. And I assume that there will be serious inflation because of what has already been done to the monetary aggregates as reported by the Federal Reserve bank of St. Louis and elsewhere. And I assume there will be no great reduction in those aggregates because of the announced intentions of incoming President Obama and the beliefs and actions of Ben Bernanke. So I was trying to assess clearly the relative risk of investing in three well-capitalized small gold-mining companies as opposed to just one. I have no inside information on any of these companies, so it seemed best to assume that one of them might totally fail. I actually believe that all three are quite likely to triple. And I believe that there is a good chance the the one I started with NGD, might increase fivefold from my average price of $1.00 a share. But there were too many eggs in that basket for me, so I am diversifying into Alamos gold and after that perhaps Eldorado gold, to cut the risk somewhat.