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October 8 - October 27, 2018
Players are confused about the inevitability of losing in the long term because they each play for a comparatively short time, which allows some of them to be lucky winners.
on average the bettor who has no ability to predict will win $35 one time in thirty-eight and lose $1 thirty-seven times in thirty-eight, for a net loss of $2 per thirty-eight bets.
The casino edge for him on single-number bets then is $2 ÷ $38 or 5.26 percent.
European roulette is typically more generous, having jus...
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playing safe and betting too little means you leave money on the table.
As I would learn, most stock-picking stories, advice, and recommendations are completely worthless.
I’ve seen my own anchoring mistake repeatedly made by real estate buyers and sellers, as well as in everyday situations.
Do not assume that what investors call momentum, a long streak of either rising or falling prices, will continue unless you can make a sound case that it will.
For two investments with the same expected return, the less risky one tends to be preferred.
We were now living beyond the means of most of our faculty friends. This had the unintended consequence of distancing us somewhat from the smart, funny, and educated people with whom we felt the most rapport. On
In the three years and ten months from the start of 1973 through October 1976, limited partners in PNP gained 48.9 percent.
During this time, ordinary investors had a wild ride in the stock market. The S&P Index fell 38 percent in the first two years and then surged 61 percent from 1975 through October 1976, for a net gain of just 1 percent. Meanwhile, Princeton Newport gained in every quarter.
Hedging with derivatives was a key source of profits for PNP during its entire nineteen years. Such hedging also became a core strategy for many later hedge funds like Citadel, Stark, and Elliott, which each went on to manage billions.
Why do companies issue such bonds? Because the value of the extra option or conversion feature, which gives the buyer a lottery ticket on the company’s future, allows the company to reduce the interest rate they need to pay on the bonds in order to sell them.
The defect of VaR alone is that it doesn’t fully account for the worst 5 percent of expected cases.
We analyzed and incorporated tail risk, and considered extreme questions such as, “What if the market fell 25 percent in one day?” More than a decade later it did exactly that and our portfolio was barely affected.
When I returned to my desk, the market had closed, having fallen 508 points, or 23 percent, by far the worst single day in history.
Statistical arbitrage, which was a computerized analytic model and trading system for common stocks using a real-time feed of the ticker into our $2 million computer center, where we generated automated electronic orders and sent them to the floor.
I had talked about the solution to the so-called marriage problem and had made the math behind it understandable.
Offering explanations for insignificant price changes is a recurrent event in financial reporting. The reporters often don’t know whether a fluctuation is statistically common or rare.
Our average trade size is $54,000 and we are placing a million such bets per year, or one bet every six seconds when the market is open.
Is the market efficient? but rather, In what ways and to what extent is the market inefficient? and How can we exploit this?
To measure the historical performance of his system and to simulate real-time trading, we used Princeton Newport’s 1,100-square-foot computer room filled with $2 million worth of equipment. Inside were banks of gigabyte disk drives as large as washing machines, plus tape drives and central processing units, or CPUs, the size of refrigerators. All this sat on a raised floor consisting of removable panels, under which snaked a jungle of cables, wires, and other connectors.
Every stock market system with an edge is necessarily limited in the amount of money it can use and still produce extra returns.
One reason is that buying undervalued securities tends to raise the price, reducing or eliminating the mispricing, and selling short overpriced securities tends to lower the price, once again shrinking the mispricing.
As Berkshire has grown, Buffett’s gain over the S&P 500 has diminished, as he predicted.
As the economy slowly recovered and the market bounced back to new highs, investors forgot what happened to them in 2008–09.
What if, somehow, you could save $6 a day and buy shares in the Vanguard S&P 500 Index Fund at the end of each month?
If that investment grows in a tax-deferred retirement plan at the long-term average for large stocks of about 10 percent, then after forty-seven years you can retire at age sixty-five with $2.4 million.
“Write down everything you spend. The waste in your daily spending should soon become apparent.”
Wealth, not income, is the measure of how rich someone is now.
It’s that increase in net worth from year to year that takes you up the ladder of wealth.
Each of us is financially rational only in a limited way. We vary from those who are almost totally irrational to some who strive to be financially rational in nearly all their actions. In real markets the rationality of the participants is limited.
As the philosopher George Santayana famously warned, “Those who cannot remember the past are condemned to repeat it.” Though the institutions of society have difficulty learning from history, individuals can do so. Next, I share some of what I’ve learned.
Education builds software for your brain. When you’re born, think of yourself as a computer with a basic operating system and not much else. Learning is like adding programs, big and small, to this computer, from drawing a face to riding a bicycle to reading to mastering calculus.
I believe that simple probability and statistics should be taught in grades kindergarten through twelve and that analyzing games of chance such as coin matching, dice, and roulette is one way we can learn enough to think through such issues.
The ten campuses of the University of California, once among the finest public systems of higher education in the world, raised tuition to $12,000 a year by 2015. When I was a student in 1949 it was $70, which is like $700 today, adjusting for inflation. A good education was available to any qualified student.
Life is like reading a novel or running a marathon. It’s not so much about reaching a goal but rather about the journey itself and the experiences along the way. As Benjamin Franklin famously said, “Time is the stuff life is made of,” and how you spend it makes all the difference.
