frenchbriefs
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I blame Wall Street internet and MBS and credit default swaps.
Challenging ShinyThing assumptions.
- Thread starter ExtremeWays
- Start date
I blame Wall Street internet and MBS and credit default swaps.
frenchbriefs
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Now interest rates still dirt cheap right?around 2.56,%
Mecisteus
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Their rate is still the best that you can ever get.
Now is slightly higher compared to the recent lows. I'm done, deleveraged and sitting on a big pile of cash while the market is greedy.
ExtremeWays
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Ya right. But why so many corporations and even Singapore government consult the "theories"?
http://realworldrisk.com/clients
Shiny Things
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So I wrote you an—I thought—pretty nice response that explained where I thought we were disagreeing, and explained my thinking behind what percentage of people's cash should be invested vs held in cash, which I thought was the "assumption" that you wanted to "challenge". You seem to have gone off on a Zero-Hedge-fueled tangent. Do you want to hop back on topic, or are we done?
Also, sorry to burst your bubble mate, but Taleb's a crank. He peaked at Dynamic Hedging. Nowadays he spends all his time on Twitter accusing people of having no "skin in the game" (which is rich because he's blown up at least two hedge funds) and banging on about deadlifting and his batshit health regimen.
ExtremeWays
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Your portfolio backtesting is based on average market performance. We all know that in the markets, there are extreme winners and majority are losers in long run.
How would you answer to Ole Peter testing?
Asking how fast your money will grow over time, in just one world line, will give you an optimal leverage. “The answer may be ‘keep 80 percent of your money and invest 20 percent,’” Peters said. “Under the parallel-worlds perspective, the answer is always invest as much as you can, either long or short—no optimum exists. More risk is always better.”
“If a small investment increases my expected wealth, then a large investment increases it even more,” Peters said of this faulty reasoning. “Result: it looks as if I should leverage as much as I can, borrow 100 times the money I have, (or even better 1000 or 1,000,000 times), and invest it all. This mathematically naive perspective would fool me, and I will be bankrupt pretty soon.”
The problem is that the expected value is typically averaged over parallel worlds. But you exist in just one of those worlds.
ExtremeWays
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Why Assuming You’re Mediocre Could Save You From Financial Ruin
Jennifer Ouellette
2/02/16 11:15amFiled to: ECONOMICS
12.4K
31
4
After a slow fourth quarter in 2015, many economists predict the United States economy will rebound for a stronger showing later this year. That’s promising news. So why do many of us feel like we’re not doing so well—even in times of relative prosperity?
Perhaps there’s a fundamental error underlying current economic theory that accounts for this disconnect, as well as many other key challenges plaguing the field. That’s the gist of a provocative thesis outlined in a new paper in the journal Chaos.
ADVERTISEMENT
Several years ago, Ole Peters of the London Mathematical Laboratory became intrigued by what’s known as the leverage problem in mathematical finance. The leverage problem asks how much of one’s bankroll one should risk when making an investment. “Here’s the key problem of the discipline of economics: how do you judge the desirability of an uncertain venture? The established answer is a fudge,” Peters told Gizmodo via email. “This must have consequences for the entire discipline. And then the financial system had just collapsed, apparently because risks had been misjudged.”
In 2010, he gave a talk on the subject at the Sante Fe Institute. The audience included Nobel prizewinning physicist Murray Gell-Mann, a distinguished fellow at the institute, and the two men formed what proved to be a fruitful collaboration.
The development of probability theory in the 17th century produced key concepts that inform much of current economic theory. Back then, questions of how much one should bet in a game of chance, or how much to pay for an insurance contract, were typically addressed by imagining that every possible outcome would happen in its own parallel world. One would then take an average across all those possible worlds. But physicists in the mid-19th century adopted a different method, asking how those probabilities played out in one world only—your world, a.k.a. reality—across time.
ADVERTISEMENT
Peters and Gell-Mann found that this shift in perspective changes everything, particularly when it comes to risk management. “If you look at the organizational chart of an investment bank, you will find groups whose job is to make money (like trading desks), and individuals or groups whose job is to manage risks,” Peters said. “What our work says is that you can’t separate the two issues. Growth management and risk management are the same thing.”
Asking how fast your money will grow over time, in just one world line, will give you an optimal leverage. “The answer may be ‘keep 80 percent of your money and invest 20 percent,’” Peters said. “Under the parallel-worlds perspective, the answer is always invest as much as you can, either long or short—no optimum exists. More risk is always better.”
Take a simple case: toss a coin repeatedly, and whenever it comes up heads, add 50 percent to your wealth. When it comes up tails, subtract 40 percent of your wealth. If the sole criterion were expected value, you should play the game. In fact, you should borrow money and bet more than you have.
But you exist in just one of those worlds
“If a small investment increases my expected wealth, then a large investment increases it even more,” Peters said of this faulty reasoning. “Result: it looks as if I should leverage as much as I can, borrow 100 times the money I have, (or even better 1000 or 1,000,000 times), and invest it all. This mathematically naive perspective would fool me, and I will be bankrupt pretty soon.”
The problem is that the expected value is typically averaged over parallel worlds. But you exist in just one of those worlds.
Plot this coin-flipping game out over 1000 or 1 million iterations using the parallel-worlds approach, and gradually the random fluctuations smooth out, showing a clear overall upward trajectory. Sounds great, right? But when Peters and Gell-Mann took just one world’s average over time, their models showed the opposite conclusion. Instead of ending up with a clear upward trajectory, they saw a pronounced downward trajectory in the resulting plot.
That’s the disconnect. Crunch the numbers in aggregate (the parallel worlds, or ensemble method) and we all collectively appear to win. Do the same with the trajectory of a single world line using the time-centric method, and we lose as individuals.
ADVERTISEMENT
This happens because certain rare cases skew the aggregate results. For example, a nation’s GDP is calculated using an aggregate approach. But a sharp increase in wealth for its richest citizens can skew the average. The overall GDP may show an increase, but the majority of its citizens aren’t prospering.
We have a warped perception of reality
The difference between how individual wealth behaves across parallel worlds, and how it behaves over time, also quantifies how wealth inequality changes, according to Peters. “The mathematical system where everyone’s wealth grows at a lower rate than the expectation value translates into an economic physical system where 99 percent of the population is losing, while 1 percent is making such big gains that the average looks good,” he said. “So we find that our work chimes with the disconnect that has been reported between the economic experience of the man on the street and the generally more positive economic figures that are quoted in the press.”
ADVERTISEMENT
Back in 2011, Peters gave a TEDx talk about all of this at Goodenough College in London, England, concluding with a helpful takeaway message for the vast majority of us who don’t fall into that lucky one percent. We have a warped perception of reality, according to Peters, in that we focus on the rare successful exceptions, like Bill Gates or Warren Buffet, rather than the people we interact with on a daily basis, like teachers, bus drivers, or salespeople. We focus on excellence and reward rare fluctuations. We shouldn’t, Peters advised, because if you combine that warped perspective with steep inequality, the result is higher levels of anxiety and depression in society at large.
Jennifer Ouellette
2/02/16 11:15amFiled to: ECONOMICS
12.4K
31
4
After a slow fourth quarter in 2015, many economists predict the United States economy will rebound for a stronger showing later this year. That’s promising news. So why do many of us feel like we’re not doing so well—even in times of relative prosperity?
Perhaps there’s a fundamental error underlying current economic theory that accounts for this disconnect, as well as many other key challenges plaguing the field. That’s the gist of a provocative thesis outlined in a new paper in the journal Chaos.
ADVERTISEMENT
Several years ago, Ole Peters of the London Mathematical Laboratory became intrigued by what’s known as the leverage problem in mathematical finance. The leverage problem asks how much of one’s bankroll one should risk when making an investment. “Here’s the key problem of the discipline of economics: how do you judge the desirability of an uncertain venture? The established answer is a fudge,” Peters told Gizmodo via email. “This must have consequences for the entire discipline. And then the financial system had just collapsed, apparently because risks had been misjudged.”
In 2010, he gave a talk on the subject at the Sante Fe Institute. The audience included Nobel prizewinning physicist Murray Gell-Mann, a distinguished fellow at the institute, and the two men formed what proved to be a fruitful collaboration.
The development of probability theory in the 17th century produced key concepts that inform much of current economic theory. Back then, questions of how much one should bet in a game of chance, or how much to pay for an insurance contract, were typically addressed by imagining that every possible outcome would happen in its own parallel world. One would then take an average across all those possible worlds. But physicists in the mid-19th century adopted a different method, asking how those probabilities played out in one world only—your world, a.k.a. reality—across time.
ADVERTISEMENT
Peters and Gell-Mann found that this shift in perspective changes everything, particularly when it comes to risk management. “If you look at the organizational chart of an investment bank, you will find groups whose job is to make money (like trading desks), and individuals or groups whose job is to manage risks,” Peters said. “What our work says is that you can’t separate the two issues. Growth management and risk management are the same thing.”
Asking how fast your money will grow over time, in just one world line, will give you an optimal leverage. “The answer may be ‘keep 80 percent of your money and invest 20 percent,’” Peters said. “Under the parallel-worlds perspective, the answer is always invest as much as you can, either long or short—no optimum exists. More risk is always better.”
Take a simple case: toss a coin repeatedly, and whenever it comes up heads, add 50 percent to your wealth. When it comes up tails, subtract 40 percent of your wealth. If the sole criterion were expected value, you should play the game. In fact, you should borrow money and bet more than you have.
But you exist in just one of those worlds
“If a small investment increases my expected wealth, then a large investment increases it even more,” Peters said of this faulty reasoning. “Result: it looks as if I should leverage as much as I can, borrow 100 times the money I have, (or even better 1000 or 1,000,000 times), and invest it all. This mathematically naive perspective would fool me, and I will be bankrupt pretty soon.”
The problem is that the expected value is typically averaged over parallel worlds. But you exist in just one of those worlds.
Plot this coin-flipping game out over 1000 or 1 million iterations using the parallel-worlds approach, and gradually the random fluctuations smooth out, showing a clear overall upward trajectory. Sounds great, right? But when Peters and Gell-Mann took just one world’s average over time, their models showed the opposite conclusion. Instead of ending up with a clear upward trajectory, they saw a pronounced downward trajectory in the resulting plot.
That’s the disconnect. Crunch the numbers in aggregate (the parallel worlds, or ensemble method) and we all collectively appear to win. Do the same with the trajectory of a single world line using the time-centric method, and we lose as individuals.
ADVERTISEMENT
This happens because certain rare cases skew the aggregate results. For example, a nation’s GDP is calculated using an aggregate approach. But a sharp increase in wealth for its richest citizens can skew the average. The overall GDP may show an increase, but the majority of its citizens aren’t prospering.
We have a warped perception of reality
The difference between how individual wealth behaves across parallel worlds, and how it behaves over time, also quantifies how wealth inequality changes, according to Peters. “The mathematical system where everyone’s wealth grows at a lower rate than the expectation value translates into an economic physical system where 99 percent of the population is losing, while 1 percent is making such big gains that the average looks good,” he said. “So we find that our work chimes with the disconnect that has been reported between the economic experience of the man on the street and the generally more positive economic figures that are quoted in the press.”
ADVERTISEMENT
Back in 2011, Peters gave a TEDx talk about all of this at Goodenough College in London, England, concluding with a helpful takeaway message for the vast majority of us who don’t fall into that lucky one percent. We have a warped perception of reality, according to Peters, in that we focus on the rare successful exceptions, like Bill Gates or Warren Buffet, rather than the people we interact with on a daily basis, like teachers, bus drivers, or salespeople. We focus on excellence and reward rare fluctuations. We shouldn’t, Peters advised, because if you combine that warped perspective with steep inequality, the result is higher levels of anxiety and depression in society at large.
ExtremeWays
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The thing I suspect that ST fails to verify is the cash to investment ratio. He is just using emergency fund as a heuristics. After investors had enough redundant cash, they will go overbetting.
ST is a hairbarber. Never ask him which haircut is good for you.
ST is a hairbarber. Never ask him which haircut is good for you.
Last edited:
Knight_Rider
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We will know next year.
w1rbelw1nd
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Thought it's pretty clear ST point is to have 0% in investable portfolio in cash?
Anyway isn't the point on extreme winners/losers a further justification for indexing?
If you have so much criticism of ST position, how about for a change you share with us whats ur view of "optimal" cash holdings %?
Anyway isn't the point on extreme winners/losers a further justification for indexing?
If you have so much criticism of ST position, how about for a change you share with us whats ur view of "optimal" cash holdings %?
w1rbelw1nd
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That's a terribly short sighted way of looking at things. 1 year is not enough to assess an investment strategy.
Markets could crash next year, for all we know. Just because an individual has kiasi inclination for that 1 year means he is "right"?
Markets could crash next year, for all we know. Just because an individual has kiasi inclination for that 1 year means he is "right"?
Knight_Rider
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Next year is the 10th year of the economic cycle. So what happen if market doesn't crash? So your dca doesn't work or you gonna faithfully put money into etf hoping that your investments will eventually work out in the long run. Like I said what if Europe is in deep sh** for 5 years and market correction for the next 5. You still putting in in the 11th year? You just assume ST is right. Do you have a contingency plan if he is wrong?
w1rbelw1nd
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revhappy
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One way of looking at it is to look at what the average networth is for a family of a particular age profile. For example, I am 37 and Singapore average of networth of people of my age group and family profile is let's say 100k. Averages are averages, but still they make sense. Now my networth despite of not investing in markets is 700k. So I am 7 times better than the average. Now this 110-age should work for average people as well. So if I consider myself average and willing to live an average life in worst case, then I can apply the 110-age to my 100k. The rest is still safe.
Sent from Xiaomi REDMI NOTE 4 using GAGT
Sent from Xiaomi REDMI NOTE 4 using GAGT
Company earning of solid dependable companies did not disappear overnight even when the stock market plunged 50%. For example, you can check MacDonald's earnings during the GFC.
Even though there's no point predicting, its always good to ask yourself what would you do if there was a 20%, 50% market crash. If your answer is to panic, then perhaps you have to reduce the equity portion of your portfolio and increase the bond component.
With my reasonably sized CPF-OA and CPF-SA adding to the 'bond' portion of my portfolio, I have the ability to continue buying equities /equity unit trust in any downturn (over and above my cash bond holdings which I can also sell to buy more equities
)
Even though there's no point predicting, its always good to ask yourself what would you do if there was a 20%, 50% market crash. If your answer is to panic, then perhaps you have to reduce the equity portion of your portfolio and increase the bond component.
With my reasonably sized CPF-OA and CPF-SA adding to the 'bond' portion of my portfolio, I have the ability to continue buying equities /equity unit trust in any downturn (over and above my cash bond holdings which I can also sell to buy more equities
)
BBCWatcher
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You're close, but dining at McDonalds was/is quite optional. Eating is not optional, and there were some terrific bargains among food companies in the depths of the Global Financial Crisis. Examples include(d) General Mills, Kraft Heinz, Kellogg's, Nestlé, Tyson Foods, Hershey, J.M. Smucker, Danone, Dean, Hormel, ConAgra, and Lamb Weston. (Full disclosure: I own shares of a couple of these food companies and bought them near the depths. I did/am doing well with them and happy to keep holding.) Tobacco companies' earnings barely skipped a beat -- nicotine addicts were/are still nicotine addicts -- and many of them pay solid dividends, such as Philip Morris International, Altria, and British American Tobacco. Water companies, particularly in regulated territories with mainly residential use, are completely boring in most respects, and that's a good thing in a financial crisis. York Water is America's longest continuously dividend paying stock, to pick an example.
There are some low cost, sector-specific, passively managed index funds if you'd like avoid point risks associated with individual stocks. For example, the "Consumer Staples" sector (food, beverages, tobacco) is well represented with Vanguard's Consumer Staples Index mutual fund (symbol: VCSAX) and a similar ETF (symbol: XLP). I'm not necessarily recommending any of these stocks or funds, especially for non-U.S. persons (lucky folks with such choices!), but there you go.
Mecisteus
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yea... market works in a totally predictable cycle.
How can you doubt someone who has the capability to make easy $500 daily through FOREX? He has a good forecasting ability. If he can do in FOREX, he can do in stocks.
Knight_Rider
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Yup totally agree. How can you believe someone with zero contribution and has no banker. All I see is TCSS only in every thread.
http://forums.hardwarezone.com.sg/search.php?searchid=34265869&pp=25
http://forums.hardwarezone.com.sg/search.php?searchid=34265869&pp=25
ExtremeWays
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Who are you referring to?
Knight_Rider
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See post #69
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