rokid
10-29-2005, 12:30 PM
This is a quote from an article by Benoit Mandelbrot (the father of fractal geometry) and Nassim Nicholas Taleb (author of Fooled by Randomness) that argues the stock market is not random walk, i.e. small random changes. In fact, it is random jump – the market is dominated by large one day moves made by a small number of investments, i.e. think 1987.
“Long-run market returns are dominated by a small number of investments; hence the risk of missing them must be mitigated by investing as broadly as possible. Passive indexing is far more effective than active selection—but you need to go well beyond an S&P 500 fund to do yourself much good. And wherever you put your money, understand that conventional measures of risk severely underestimate potential losses —and gains.”[/b][/i] [/i][/b]My emphasis.
http://www.fooledbyrandomness.com/fortune.pdf (http://www.fooledbyrandomness.com/fortune.pdf)
“Long-run market returns are dominated by a small number of investments; hence the risk of missing them must be mitigated by investing as broadly as possible. Passive indexing is far more effective than active selection—but you need to go well beyond an S&P 500 fund to do yourself much good. And wherever you put your money, understand that conventional measures of risk severely underestimate potential losses —and gains.”[/b][/i] [/i][/b]My emphasis.
http://www.fooledbyrandomness.com/fortune.pdf (http://www.fooledbyrandomness.com/fortune.pdf)