Do you seriously find this exercise helpful? Couldn't you just as
easily back out the (von Neumann-Morgenstern, I presume) utility
function you need to get an introspectively plausible answer? In other
words, if you feel nervous with a SD of 20% of the mean, could looking
at utility functions
William Dickens wrote:
Not that much. Assuming constant variance and correlation the variance fraction
of the possible reduction you can get is inversely proportional to the number of
stocks you hold (you get half the reduction relative to holding one stock by holding
2 90% by holding 10
Bryan wrote:
Right, but if you want to reduce the SD of your return, you've got to
square those numbers - you need 100 stocks to get the SD down by 90%.
And isn't that the measure of risk most people vaguely have in mind?
Well what I suppose we should be using isn't either the SD or the Var,
William Dickens wrote:
Well what I suppose we should be using isn't either the SD or the Var, but the %
of the maximum increase in utility that is possible with increasing diversification.
Playing around with a few examples it looked to me that the gain in utility was
inversely proportional
[EMAIL PROTECTED] 07/14/02 14:19 PM
If I want to buy shares in the 500 or so companies on the SP 500, I'll be looking at
commissions of at least $3000, right (unless I have a commissionless trading account,
which requires a minimum balance of $500,000 or so)? If I hold those stocks for 20
If I want to buy shares in the 500 or so companies on the SP 500,
Should I not invest in stocks at all until
I've raised that much money just so I can save on commissions and fees?
James
Why not just buy an SP index fund?
I've read in the Wall Street Journal that exchange-traded funds are
