Re: Why do people pick stocks?
Fred Foldvary wrote: Even indexes replace firms from time to time. The SP 500 has just been purged of foreign firms, which apparently means that scads of index funds will now follow suit - which strikes me as a bit silly. -- Anton Sherwood, http://www.ogre.nu/
Re: Why do people pick stocks?
The SP 500 has just been purged of foreign firms, which apparently means that scads of index funds will now follow suit - which strikes me as a bit silly. Anton Sherwood, http://www.ogre.nu/ Maybe not. Modern Portfolio Theory segregates a portfolio into various categories, and typically US stocks are a category distinct from international or foreign stocks. By purging foreign firms, the SP becomes a more suitable vehicle for a domestic US index fund. On the other hand, if companies are increasingly global, so that few large firms are significantly US, then it would be silly. I don't know if that's the case today. Fred Foldvary = [EMAIL PROTECTED] __ Do You Yahoo!? Yahoo! Autos - Get free new car price quotes http://autos.yahoo.com
if coins were rare
If the 95% of the coins in the United States (i.e. 1c, 5c, 10c, 25c) were no longer in circulation, but bills were left alone, what would happen to the remaining coins? Would they go up in value? Could 3 quarters be worth the same as a $1 bill? Or will people still value coins by their face value? Is this relevant to the question of fiat money? Gustavo
Re: Why do people pick stocks?
William Dickens wrote: Discount brokers can really beat a .2% annual fee with no loads on either end? For sure. Most brokerage houses don't have any fees other than fees for trading. Even if you have a round-trip cost of $100 for $10,000 worth of stock (you can do much better than this - - $14 is not out of the question) if you hold it for 20 years you are way ahead of a .2% annual fee. For $10,000 worth of a single stock? Or $10,000 of any desired bundle of widely-held stocks? But again, according to my sources the actual difference in performance between holding yourself and holding in the lowest cost mutual fund is a lot more than .2% per year. - - Bill Dickens -- Prof. Bryan Caplan Department of Economics George Mason University http://www.bcaplan.com [EMAIL PROTECTED] He wrote a letter, but did not post it because he felt that no one would have understood what he wanted to say, and besides it was not necessary that anyone but himself should understand it. Leo Tolstoy, *The Cossacks*
Re: Index mutual funds
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 etc). If correlation isn't constant then you should be able to do better than that by choosing less correlated stocks. 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? In any case, I'd like to thank Bill for the only useful investment information I've learned since the JEL piece on international diversification. So Bill, if you had to guess, roughly what expected return reduction would you get from (a) standard stock-picking and active trading, (b) managed mutual funds, (c) index funds, and (d) buy and hold with discount brokers? I would still guess that (c) closes 90% of the distance between (a) and (d), but I'd like to hear your guesstimate. -- Prof. Bryan Caplan Department of Economics George Mason University http://www.bcaplan.com [EMAIL PROTECTED] He wrote a letter, but did not post it because he felt that no one would have understood what he wanted to say, and besides it was not necessary that anyone but himself should understand it. Leo Tolstoy, *The Cossacks*
Re: Silent Takeover
Kevin Carson wrote: I would argue that the rise of transnational corporations is a bad thing because they are products of state capitalism. Giant corporations, from the late 19th century on, have been statist institutions, and the plutocrats associated with them have been rent-seekers. Do away with state capitalist subsidies, legal privilege, and other forms of intervention in the free market, and the giant corporations would cease to exist, for the most part. Frankly, this strikes me as quite unlikely. There are lots of big government policies that encourage firms to be smaller than they would be in a free market. Double taxation of corporate income is the most obvious. Antitrust laws tend to be used against large market leaders. A lot of regulations only kick in if you have more than 50 or 100 employees. And once you are talking multinational corporations, there are other government policies discouraging cross-national integration. Protectionism, most obviously, tends to preserve the firms in each nation that aren't efficient enough to compete with the world's market leaders. You're right that there are some government policies pushing in the other way (any time regulations impose a fixed cost, firms' minimum efficient scale mathematically shifts to the right), but on balance I think you're wrong. Under laissez-faire, big corporations would be bigger than they are now. But to quote Seinfeld, Not that there's anything wrong with that. -- Prof. Bryan Caplan Department of Economics George Mason University http://www.bcaplan.com [EMAIL PROTECTED] He wrote a letter, but did not post it because he felt that no one would have understood what he wanted to say, and besides it was not necessary that anyone but himself should understand it. Leo Tolstoy, *The Cossacks*
Re: if coins were rare
--- Gustavo Lacerda [EMAIL PROTECTED] wrote: If the 95% of the coins in the United States (i.e. 1c, 5c, 10c, 25c) were no longer in circulation, but bills were left alone, what would happen to the remaining coins? Would they go up in value? Since the US government would not do this on purpose, we need to presume some scenario such as all the coin mints being blown up and some scary news such as that handling coins causes cancer, and some idiotic group going to banks and collecting the coins for hoarding. Then the news is exposed as a hoax. Supposing something ridiculous like that happens, the coins would remain at face value. The demand for small change tokens would be met with a supply of substitutes, such as postage stamps in small clear envelopes, or private tokens issued by banks. During the US Civil War, there was a shortage of coins, and postage stamps served as currency, and they could easily do so again. Fred Foldvary = [EMAIL PROTECTED] __ Do You Yahoo!? Yahoo! Autos - Get free new car price quotes http://autos.yahoo.com
Re: Index mutual funds
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, 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 to the decline in variance - - not the SD. However, more surprising than that was the incredibly small utility gain that one obtains by reducing the standard deviation of your income from say 20% of the mean to 10% of the mean. In all the examples I worked out a .1 or .2% increase in the rate of return completely dominated that. In any case, I'd like to thank Bill for the only useful investment information I've learned since the JEL piece on international diversification. Your welcome. Just note that this was never intended as investment advice, your milage may vary, not doing exactly what someone else told you to do will certainly cost you your life fortune and leave you broke and starving, its not my fault, repeat PLEASE DON'T SUE ME! So Bill, if you had to guess, roughly what expected return reduction would you get from (a) standard stock-picking and active trading, (b) managed mutual funds, (c) index funds, and (d) buy and hold with discount brokers? I would still guess that (c) closes 90% of the distance between (a) and (d), but I'd like to hear your guesstimate. Depends on the size of your portfolio. If its $2,000 you might very well be better off with the mutual fund. With a million dollars or more I expect that 90% is almost exactly right (figure zero percentage costs vs. annual costs of .5% of your current net worth in present value terms for 20 years). I use the .5% figure rather than the .17% or .2% figures for the reasons I mentioned in a previous post plus one more I've thought of since then. If you buy individual stocks you are likely to have some losers. You can sell those to take capital losses that you can use to reduce your tax liability for your unavoidable investment income (dividends and interest on fixed income assets). Can't do that if you diversify in a mutual fund. - - Bill Prof. Bryan Caplan Department of Economics George Mason University http://www.bcaplan.com [EMAIL PROTECTED] He wrote a letter, but did not post it because he felt that no one would have understood what he wanted to say, and besides it was not necessary that anyone but himself should understand it. Leo Tolstoy, *The Cossacks*
Re: if coins were rare
Fred Foldvary wrote: . . . During the US Civil War, there was a shortage of coins, and postage stamps served as currency, and they could easily do so again. How big is the stamp supply, by the way? How much `float' does the USPS have? -- Anton Sherwood, http://www.ogre.nu/
Re: Silent Takeover
Bryan Caplan wrote: A lot of regulations only kick in if you have more than 50 or 100 employees. Some explicitly kick out, though. I dimly remember one concerning visas, that said roughly If the HR department says the firm needs this alien employee, and the firm has N employees, we (the INS) will believe it, but a smaller firm must back it up. Designed presumably to discourage phony enterprises whose principal purpose is to get a visa for the owner's brother-in-law. -- Anton Sherwood, http://www.ogre.nu/
RE: Silent Takeover--IMO??
--- Kevin Carson [EMAIL PROTECTED] wrote: The chief failing of the mainstream antiglobalization movement is, IMO, they fail to recognize the extent that the global corporate economy rests on state intervention. What does IMO mean? -jsh __ Do You Yahoo!? Yahoo! Autos - Get free new car price quotes http://autos.yahoo.com
Re: Index mutual funds
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 to the decline in variance - - not the SD. However, more surprising than that was the incredibly small utility gain that one obtains by reducing the standard deviation of your income from say 20% of the mean to 10% of the mean. In all the examples I worked out a .1 or .2% increase in the rate of return completely dominated that. 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 really make you feel better about it? -- Prof. Bryan Caplan Department of Economics George Mason University http://www.bcaplan.com [EMAIL PROTECTED] He lives in deadly terror of agreeing; 'Twould make him seem an ordinary being. Indeed, he's so in love with contradiction, He'll turn against his most profound conviction And with a furious eloquence deplore it, If only someone else is speaking for it. Moliere, *The Misanthrope*
