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Tuesday, October 9, 2012

My candidates for the Nobel 2012

I want Carmen Reinhart and Ken Rogoff to win. See their book "This time is different, Eight Centuries of Financial Folly"

Their work helping us understand international financial crises is very important to policy makers and the lay people alike. Their work can be applied, their work can be understood and explained to most people. Their work should be discussed by politicians in this election.

It would be cool to see Steven Levitt  (Freakonomics) win

I would be happy with Stephen Ross or Robert Shiller. One them probably will.

Sunday, October 7, 2012

On correlation and LATAM arilines

Fuel up airlines down right?   Let's look at Delta airlines....

Not bad ... USO (the ETF) is used as a proxy (i know,... a bad one) for oil prices.  One up the other one down... moving together otherwise.

But how about this one...  The following chart is for LFL: LATAM airlines, formerly Chilean airlines.

Tuesday, October 2, 2012

Baseball and stocks... A numbers game

In the stock market as in baseball, is all about the odds, so here are the numbers...

You make your own decisions,

*I annualized daily returns using 250 trading days

Let's begin with the Dow Jones... by 2012, we had over 100 years of daily observations, close to 30,000 trading days. Two massive global recessions and countless cycles of boom and bust.
The breakdown?

15,208 days the market went up, compared to 13,938 losing days. This means that winnings days are 52.18 percent of the sample.  On average you should expect to make 0.027% per day... It is important to note that on average a negative return is higher than a positive return. You make up the difference because of the extra wining days.

Monthly returns offer a similar picture... there are more positive months than negative ones.. same for years. Interestingly the "winner" percentage goes up as the average return

The DJ is a very narrow index, and not indicative of a diversified portfolio... The next picture is the S&P 500, 1950 to present

Same patterns...

Our parents and grandparents could only dream on international diversification the way we have it now... What do you think would happen with the world in your basket?

Here it goes (dates vary from roughly 10 - 25 years)