Re: Bill Reid, Kelly Criterion


<GoldenGemNetwork@xxxxxxxxx> wrote in message
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On Jan 4, 9:55 pm, "Bill Reid" <hormelf...@xxxxxxxxxxxxxxxx> wrote:
<GoldenGemNetw...@xxxxxxxxx> wrote in message
news:e27cf2aa-0eb2-4de7-811e-d08e9bb58b56@xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

Hi Bill Reid if you are there:

I say a lot of dumb stuff...

Thanks for the response.

I was worried you'd lost interest in the group.

You can't lose something you never had. I only check in occasionally
to confirm that market participants aren't getting any smarter, which I
have called in the past "My Daily Affirmation".

Have a look at the
website anyway, it is just online, draws the distributions etc.

Maybe, probably not. Just noticed the Yahoo! toolbar on my service
provider browser, though totally broken like much of the Internet, is
suddenly
generating alarming amounts of net traffic on my system from their idiotic
advertisers.

That's just about the final straw for me concerning the web. I've gradually
reduced my use of the web over the years, and in the last year there are
almost no web sites that I would waste my time looking at, as they are
moronically "programmed" and virtually contentless. I am now almost
exclusively working with what I call "Web 3.0", which are my own Internet
"scraping" tools, and it's possible I may never run a retarded traditional
browser after tonight.

Of course, Usenet is a different story...Usenet has been only good for
laughs since 1990...

Question:

If, as financial people do, you assume a fixed distribution of (logs
of) price changes interval-to-interval, such as month-to-month, say,
then what happens as you iterate over time is that the standard
deviation grows more slowly than the drift, and what one sees in the
limit is a very narrow distribution centered around the mean.

Uh, sure, but I'm not sure what the point is...if it's because of this:

Yes, at the limit in theory your portfolio can become infinitesemally
small, shrinking to $0.00000000000000001 from $1,000,000.00, and
you'll have to claw your way back over the next billion years or so.

But the chances of this are also infinitesamally small, equivalent to
like a 30,000-sigma event in a normal curve, or maybe 1 chance out
of a number that is bigger than all the atoms in the universe.

Well, there's better ways to calculate this than what I alluded to...but
I'm really NOT sure what your point is...

For example, say the standard deviation of logs of price changes
year to year is .1

OK...why sigma of "logs"? ARE you trying to calculate the
probability of "ruin" using a "logarithmic portfolio growth function",
or something similar?

and the mean increase is .06

OK...and this is also the "logs" of the mean increase?

Here's some actual numbers that I just noticed laying around:

DJIA 1990 - 2000 Daily Change Distribution

-7.18% --> -5.97% = 2 0.07%
-5.97% --> -4.75% = 1 0.04%
-4.75% --> -3.53% = 4 0.14%
-3.53% --> -2.32% = 34 1.22%
-2.32% --> -1.10% = 198 7.12%
-1.10% --> +0.11% = 1230 44.26%
+0.11% --> +1.33% = 1121 40.34%
+1.33% --> +2.55% = 167 6.01%
+2.55% --> +3.76% = 16 0.58%
+3.76% --> +4.98% = 6 0.22%

The average daily change was +0.0528% (+0.1050% compounded),
with a standard deviation of 0.6491%. So you're saying that there is
some calculational inconsistency if we take the "logs" of something
there and project it out another 10 years in the future?

then if you assume
normal, the standard deviation over n years is 0.1 times the square
root of n, whereas the mean over the n years is .06n because the mean
logarithmic drift goes up linearly with n.

For right now, I'll take your word for it, just because I'm still not sure
what the point is...

So as .06n gets large compared to 0.1 root(n) this means you are
seeing a very narrow distribution, if you scale it back to year-on-
year you get the original mean drift, but with a tiny standard
deviation. That can't be right!

Well, then, it probably isn't!!!

How do you reconcile this?

I don't, I just hope it isn't an actual problem I'm not aware of...ONE
thing I KNOW for sure, is I am NOT a mathematician, which may even
be a help in this particular case (I can't "think" my way into trouble)...

Hope your health is good.

Much, much, much better than a lot of people I know...

---
William Ernest Reid
Post count: 894


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