Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Roger's 1998 Short Picks -- Ignore unavailable to you. Want to Upgrade?

To: Pancho Villa who wrote (4420)	3/8/1998 7:57:00 AM
From: Mama Bear	Read Replies (1) \| Respond to of 18691

But a coin flip is a random event. People buy and sell stocks for a reason. Just because a random event like a coin flip produces a chart that looks like a stock chart, does not mean that it is. I guess I'll remain doubtful of the random walk methodology. Barb

To: Pancho Villa who wrote (4420)	3/9/1998 9:50:00 AM
From: hasbeen101	Read Replies (1) \| Respond to of 18691

Consider however the case of the person retiring 25 years from now. The expected average annual return for the 25 year period is still 12%/year but the law of averages reduces the standard deviation of return (the risk) by a factor of 1/square root(number of years) so the standard deviation for a 25 year period is only 20%/5 = 4%, since the suquare root of 25 is 5. This is why we say people investing for the long term face a lesser amount of risk! Pancho perhaps because you were tired, I believe you made a boo-boo with the math. The 25 year risk would be 20% * 5 = 100%, not 20% / 5 = 4%. To put this in context, the mean return (at 12% p.a. for 25 years) is 1600%. If the standard error is 100%, you have a 65% chance of getting between 1500% and 1700%. You have a 95% chance of getting between 1400% and 1800%. Even though 100% sounds like a lot, in the context of the expected return it is in fact not much. Note however that if we strip-out inflation, and use a long term real return of 9% for equities (this is about as good as it gets in real terms over the long haul), your mean return becomes 762%. The 100% is a bit more significant when comapred with this.

To: Pancho Villa who wrote (4420)	3/9/1998 2:17:00 PM
From: Tino	Read Replies (1) \| Respond to of 18691

As you see the average monthly return would be 0.52% + 0.51%= 1%. Don't mean to be a smart a**. Simply for the record: the above equation would yield 1.5% per month but the + sign should really be a - anyway in which case we would get 0.5%, i.e. more like 6%. E.g., assuming 3.5% for a good month and -1.5% for a bad one would work out alright: (1.035 + .985) / 2 = 1.01