Quote:
Originally Posted by Geniius
If you want to get to 200k, you will almost certainly go broke, yet the expected values of betting $200, 500 times, or $100,000 once, are equal. The higher variance you can tolerate, the more likely it is that you can acheive 200k. Sklansky actually talks about this situation in DUCY, about a casino giving him a $1000 chip that he must gamble. In this case, given equal expected values, you should choose the most volatile option to maximize long term profits.
Interesting. I posted a thread on the Business forum stating the following:
Suppose you had to invest a fixed amount periodically in a stock fund or money fund such as for a 401 K plan where your company makes a fixed contribution for you every payday. Then if you have two or more alternatives that have the same expected value at any future period, select that which has the highest volatility or variance. This is so simply because of reciprocal arithmetic. When the fund price is low you buy a lot of shares and when it is high you buy fewer. But you get more shares at a low price than the number of shares you lose at a higher price for equal deviations from the mean.
The key of course is that at any time in the future when you want to cash out some or all of your holdings, the expected price for each alternative is the same. In that case, you will have the most shares for the fund with the highest variance.
Anyway, I was blasted by most posters – dollar cost averaging is dumb, etc. etc. Here, we have no choice but to do the averaging – call it Required Periodic Investment-- and if so, then I think I am right.
Here's the link for anyone nterested
http://forumserver.twoplustwo.com/30...rategy-762428/