I kind of admire Ed Thorp so I am biased with whatever is even related to him. On Twitter he shared a few sets of Q&A. I want to mark it for future reference for myself.
In 1284, while the town of Hamelin was suffering from a rat infestation, a piper dressed in multicoloured clothing appeared, claiming to be a rat-catcher. He promised the mayor a solution to their problem with the rats. The mayor, in turn, promised to pay him for the removal of the rats. The piper accepted and played his pipe to lure the rats into the Weser River, where they all drowned. Despite the piper's success, the mayor reneged on his promise and refused to pay him the full sum even going so far as to blame the piper for bringing the rats himself in an extortion attempt. Enraged, the piper stormed out of the town, vowing to return later to take revenge. On Saint John and Paul's day, while the adults were in church, the piper returned playing his pipe. In so doing, he attracted the town's children. One hundred and thirty children followed him out of town and into a cave and were never seen again. Three children remained behind: one was lame and could not follow quickly
I entered my MBA specializing in Finance at S P Jain Mumbai in 2008 just a quarter before Lehman came crashing down. One of the first classes in Finance was related to Financial Statement Analysis and in one of the sessions our Professor said something which set indelibly in my mind - Every company gets the PE it deserves. A low PE always doesn't mean undervalued and a high PE doesn't always mean overvalued. Sunset from the living room The usual definitions and explanations are not required for this note. I would recommend to flip over the CFA chapter on multiples for that or perhaps refer to any standard text such as by Professor Damodaran. In this post we will try to look at a general landscape of PEs in India and peek into two hypothesis - Buying a stock at low PE yields a better stock price CAGR A high PE stock cannot give excess market returns Since investing is more of an art and not science the answers will 'tend' to one of these states and not be absolute in na
I liked Prashanth's recent article on drawdowns. Leaving aside definitions we ponder over few things related to drawdowns in this post. The sun setting at Lake Washington. Photo taken by Deepak from Houghton Beach Park in 2022 There is some form of direct correlation between drawdowns in equity curves and pain suffered by investors/traders. The questions presented below are situations where you have to chose one of the two options which you feel is less painful. Assume this is the equity curve of your portfolio which begins it fall from value N at time t to some lower value at a future time. In one situation recovery is also shown. Simply note down which is a preferred Experience A or B (less painful for you). First try to answer each of these three questions impulsively. Then give each of these questions a few minutes of thought. Also try to recall real drawdowns you have witnessed in your equity curve before. Are you confident about the options you have chosen? Sensex as the e
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