From: John Conover <john@email.johncon.com>
Subject: Re: forwarded message from William F. Hummel
Date: Sat, 15 Aug 1998 00:20:40 -0700
John Conover writes:
>
> So, bottom line, you can flee to quality and buy T-Bills, but, on
> average, your portfolio will only grow half as fast, in the long run,
> as if you bought equities. But if you buy a few equities, your
> portfolio value will vary by +/- 50% over a year, in getting a long
> term growth that is somewhat less than twice what T-Bills give
> you. The magic solution, (actually, optimal,) would be to have 10
> stocks, (but not many more,) comprising 40% of your portfolio value,
> the remainder of your portfolio being T-Bills-at least in our simple
> equity exchange model. That would make your portfolio grow the maximum
> possible, with the minimum volatility and risk. This optimal solution
> maximizes your gain, while, simultaneously, minimizing your risk
> exposure. You get the best of both worlds.
>
Hi Mike.
A lot of folks are invested very heavily in the likes of Yahoo. They
used to be invested very heavily in the likes of Netscape. You ask a
while back how folks lost money in the market. We know that the
Shannon probability of Netscape, Yahoo, whoever, is about 0.51. And,
how much of their investment portfolio should have been invested in
such a stock? f = 2P - 1 = 0.02, or about 2%. Many of these folks were
invested in only one or two stocks, (which our model says 10,
minimum.) And, that is how they lost money. They picked the stocks
right, made a lot of money, but the didn't hedge their bets by
investing in many, and promptly lost a lot of money. Investing in
equities is gambling. It is a lottery. Its not the cards you are
dealt, or the stocks you pick, its how you manage (eg, hedge,) your
money that counts. Literally.
John
--
John Conover, john@email.johncon.com, http://www.johncon.com/