[extropy-chat] Peak Oil news
pharos at gmail.com
Wed Mar 8 23:21:23 UTC 2006
On 3/8/06, David Masten wrote:
> On Wed, 2006-03-08 at 15:20 +0000, BillK wrote:
> > No, *really*, they're not. It is just a better educated, slightly
> > higher IQ gamble.
> I'm having a problem with your use of the term "gamble". Do you mean any
> behavior that has an element of risk? Or is their some threshold of risk
> that makes a behavior a "gamble"? If the latter then what is the
> threshold and how do you arrive at that threshold?
Now you're dipping your toe into deep waters. ;)
Might be worth another thread on risk analysis and how totally useless
humans are at estimating risks.
Everything in life is a risk. I use the term 'gamble' when the risks
are virtually unknowable because of the many unknown, unpredictable,
random factors that are beyond our control and cannot be factored in
to our decision. If we don't even know what the factors might be, how
can we make allowances for them?
"But there are also unknown unknowns -- the ones we don't know we don't know."
My claim is that stock price movements are really a random walk. You
can chart them, analyse them, interview the CEO, analyse the accounts
as much as you like, but it will save you a lot of time, trouble and
money if you just stick a pin in the stocks list and buy that one.
Unexpected, unpredictable events are as likely to make your random
choice a winner as they are to cause all the detailed analysis to be
thrown in the rubbish bin. This has been tested many times by
comparing experts stocks selection against random choices.
The main site is <http://www.investorhome.com/darts.htm>
The Wall Street Journal Dartboard Contest
In 1988 the Wall Street Journal began a contest that was inspired by
Burton Malkiel's book A Random Walk Down Wall Street. In the book, the
Princeton Professor theorized that "a blindfolded monkey throwing
darts at a newspaper's financial pages could select a portfolio that
would do just as well as one carefully selected by experts."
On October 7, 1998 the Journal presented the results of the 100th
dartboard contest. So who won the most contests and by how much? The
pros won 61 of the 100 contests versus the darts. That's better than
the 50% that would be expected in an efficient market. On the other
hand, the pros losing 39% of the time to a bunch of darts certainly
could be viewed as somewhat of an embarrassment for the pros.
Additionally, the performance of the pros versus the Dow Jones
Industrial Average was less impressive. The pros barely edged the DJIA
by a margin of 51 to 49 contests. In other words, simply investing
passively in the Dow, an investor would have beaten the picks of the
pros in roughly half the contests (that is, without even considering
transactions costs or taxes for taxable investors).
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