From: John Conover <email@example.com>
Subject: Re: $674 billion sounds like a lot of money-or is it?
Date: 9 Jan 2003 10:58:35 -0000
So, very roughly, the NASDAQ didn't exactly fall harder than the traditional indices-it made more, but then lost more, for about a wash after all was said and done-but it probably will take longer to recover. Nonetheless, the NASDAQ's fall was not that uncommon-that's the way speculative markets have worked throughout the history of civilization, (there was mead/beer ingredient speculation found in the cuneiform/clay inventory relational databases of the Sumerians, circa 2000BC,) and the numbers, regardless of the economic system, have always been much the same, be it equity values, the GDP, industrial markets, currency exchange rates, etc. (Maybe, even the durations of civilizations their self.) The large swings of values in things economic from their median value is the way things work-and always have. Anyone uncomfortable with that shouldn't be in high risk speculative markets-like equities. The economic history is littered with "crashes", from the speculation in tulip bulbs in Seventeenth Century Holland, (which came close to bringing the Dutch Government down when tulip bulb values crashed,) to Isaac Newton loosing a fortune in the South Seas fiasco, (those that lost a lot in the NASDAQ have a lot of company in history.) So, has anyone ever exploited the swings in a consistent manner? The answer, obviously, is no, (regardless of what anyone says-including brokers and equity analysts, which are used stock salesmen.) Here's why. Exploiting the swings effectively would mean one could make at least the daily deviation value-about 2% per day; 14% of the stocks on an exchange does at least that on any given day. 1.02^253 = 150, or for every dollar invested, a year later, its $150; in seven years, the one dollar invested would be worth the entire net worth of the planet, 150^7, well over a hundred trillion dollars. Obviously, stock picking and timing are foolhardy endeavors for everyone except investor's brokers and equity analysts. On the average, in the US equity market crash of 2000, no one did any better, or worse, than anyone else, in a relatively common economic scenario that was expected, and inevitable. At least it was fair. John BTW, not that there weren't perceptions and expectations broken-there certainly were. But that's the way high risk speculation has been throughout the economic history of civilization. Don't expect it to change by hanging scoundrels. In the words of that Immortal Great American Philosopher, Pogo, "I have seen the enemy, and he is us." We're the ones that ran the NASDAQ to a value 2.5 times what it could hold up. The equity brokers and analysts just provided the means to do what we wanted to do. John Conover writes: > > Why did the NASDAQ fall harder than the S&P or DJIA? > > The NASDAQ carries about twice the risk of the S&P and DJIA, (a daily > deviation of about 2% vs. 1% for the traditional indices.) > . . . . > > (As a hand waving show and tell, the numbers used are typical for data > on the daily time scale of things economic; look at the values in the > first equation-its 20 * e^0 at t = 10000. The chances are a virtual > certainty that it has already failed; its deviation is equal to its > median-each and every day, it is running a 16% chance of dropping into > oblivion-it can not remain a fugitive from the laws of probability, > forever. Note that at t = 0, the deviation is zero, so it almost a > virtual certainty that it would not fail anytime soon, even though its > median value is the same as at t = 10000. Such is the way with > economic things that evolve into a log-normal distribution.) > -- John Conover, firstname.lastname@example.org, http://www.johncon.com/