Forum Archive Index - June 2002

["Ben Dutton" <bendutton@sharechat.co.nz>]

Further to your post Peter, if people are interested in reading more about
Taleb The New Yorker recently published an excellent article on the man and
his investment methodology - have a read here:

http://www.gladwell.com/2002/2002_04_29_a_blowingup.htm

It's long, but fascinating - perfect weekend reading.

Best Regards

Ben Dutton

----- Original Message -----
From: "Peter" <pmaiden@today.com.au>
To: <sharechat@sharechat.co.nz>
Sent: Saturday, June 08, 2002 10:47 AM
Subject: [sharechat] Randomness


> Something to think about - the more often you check the value of your
> portfolio the greater number of unpleasurable moments you will have.
>
> So says Nassim Nicholas Taleb in his book 'Fooled by Randomness".
>
> Take the case of, say, an excellent investor who makes returns of 15%
> annually with a volatility of 10% pa. He checks his portfolio every
> hour. The probability of seeing a gain is 51.3% - in essence over a
> year there will be 1,067 pleasurable moments (the portfolio goes up)
> and 1,013 unpleasurable moments (portfolio down).
>
> The numbers for daily checking of a portfolio in this scenario are
> 140 pleasurable days against 120 unpleasurable days a year.
>
> Checking on a monthly basis 8 pleasurable months against 4
> unpleasurable months. Sounds less stressful.
>
> What Taleb was demonstrating was that over short time spans one
> observes the volatility of a portfolio - not its returns.
>
> This also explains the relative contentment of excellent long term
> investors like Snoopy and Hugh. Their long term hold and buy strategy
> possibly means they don't bother check the value of their portfolios
> all that often. In doing so they see the returns - not the volatility
> that some gung ho traders see. And in doing so they have less
> unpleasurable moments.
>
> Didn't think you guys would mind being mentioned in this light. A
> book that you both or others could possibly enjoy - even though Taleb
> is a hedge fund operator.
>
> Cheers
>
> Peter
>
>
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