Comments on: S&P Returns and the Remarkable Case of 2008 http://boingboing.net/2008/12/09/sp-returns-and-the-r.html Brain candy for Happy Mutants Thu, 23 May 2013 11:26:00 +0000 hourly 1 http://wordpress.org/?v=3.4.1 By: Anonymous http://boingboing.net/2008/12/09/sp-returns-and-the-r.html#comment-352002 Anonymous Wed, 30 Nov -0001 00:00:00 +0000 #comment-352002 A couple of years in the -40% column would make the graph more symmetrical. A couple of years in the -40% column would make the graph more symmetrical.

]]> By: Anonymous http://boingboing.net/2008/12/09/sp-returns-and-the-r.html#comment-352259 Anonymous Wed, 30 Nov -0001 00:00:00 +0000 #comment-352259 There's TONS of research that point to market returns being more log-normal than anything else, no? See, because of the fact that returns can NEVER be worse than -100%, the distribution is bound on the left side, which is not the case for the right side of the histogram, which theoretically is limitless. This fact alone precludes (one period) returns being normal. There’s TONS of research that point to market returns being more log-normal than anything else, no?

See, because of the fact that returns can NEVER be worse than -100%, the distribution is bound on the left side, which is not the case for the right side of the histogram, which theoretically is limitless. This fact alone precludes (one period) returns being normal.

]]> By: Anonymous http://boingboing.net/2008/12/09/sp-returns-and-the-r.html#comment-351493 Anonymous Wed, 30 Nov -0001 00:00:00 +0000 #comment-351493 @4 Strawberryfrog: How can you possibly claim it's not a bell curve? The data is right there, on a graph, reasonably matching a normal distribution. @4 Strawberryfrog:
How can you possibly claim it’s not a bell curve? The data is right there, on a graph, reasonably matching a normal distribution.

]]> By: hidflect http://boingboing.net/2008/12/09/sp-returns-and-the-r.html#comment-351495 hidflect Wed, 30 Nov -0001 00:00:00 +0000 #comment-351495 My own research on the Dow Jones is born out here... Every year ending in a "5" except one was a (+) year. Here only 3 years ending in a "5" are minuses. My own research on the Dow Jones is born out here… Every year ending in a “5″ except one was a (+) year. Here only 3 years ending in a “5″ are minuses.

]]> By: Dave http://boingboing.net/2008/12/09/sp-returns-and-the-r.html#comment-351499 Dave Wed, 30 Nov -0001 00:00:00 +0000 #comment-351499 This is a bit premature, folks. 2008 isn't over yet. A lot can happen in a month. Hell, a lot can happen in a DAY. This is a bit premature, folks. 2008 isn’t over yet. A lot can happen in a month. Hell, a lot can happen in a DAY.

]]> By: Matt McKnight http://boingboing.net/2008/12/09/sp-returns-and-the-r.html#comment-351755 Matt McKnight Wed, 30 Nov -0001 00:00:00 +0000 #comment-351755 @21 Have to hold your gold overseas. The international markets are making it safer. You can also hold stock in mining companies that have rights to large physical assets. There's an ETF that tracks those (GDX). @16 Everything's not a normal distribution. In fact, a lot of errors in judgment arise from that poor assumption. @7, 23 I wouldn't count on a 1933. @21 Have to hold your gold overseas. The international markets are making it safer. You can also hold stock in mining companies that have rights to large physical assets. There’s an ETF that tracks those (GDX).

@16 Everything’s not a normal distribution. In fact, a lot of errors in judgment arise from that poor assumption.

@7, 23 I wouldn’t count on a 1933.

]]> By: Anonymous http://boingboing.net/2008/12/09/sp-returns-and-the-r.html#comment-352273 Anonymous Wed, 30 Nov -0001 00:00:00 +0000 #comment-352273 1887 is in there twice... 1887 is in there twice…

]]> By: Anonymous http://boingboing.net/2008/12/09/sp-returns-and-the-r.html#comment-351781 Anonymous Wed, 30 Nov -0001 00:00:00 +0000 #comment-351781 <i>Not to be a spoiler or anything but if you collect enough data points any distribution will look like normal distribution! Take a toss of a coin - it follows normal distribution.</i> This sounds like a misunderstanding of the Central Limit Theorem (http://en.wikipedia.org/wiki/Central_limit_theorem), which is a wonderful result, but is a little more nuanced than that and depends on a couple of assumptions. Read the Wikipedia article if you want to know more; it's not the same as "everything is normal if you take enough samples." Not to be a spoiler or anything but if you collect enough data points any distribution will look like normal distribution! Take a toss of a coin – it follows normal distribution.

This sounds like a misunderstanding of the Central Limit Theorem (http://en.wikipedia.org/wiki/Central_limit_theorem), which is a wonderful result, but is a little more nuanced than that and depends on a couple of assumptions. Read the Wikipedia article if you want to know more; it’s not the same as “everything is normal if you take enough samples.”

]]> By: Patrick Dodds http://boingboing.net/2008/12/09/sp-returns-and-the-r.html#comment-352558 Patrick Dodds Wed, 30 Nov -0001 00:00:00 +0000 #comment-352558 Biffpow - you might have a point... and that 1887 thing sure is a blow. Biffpow – you might have a point… and that 1887 thing sure is a blow.

]]> By: Isaac http://boingboing.net/2008/12/09/sp-returns-and-the-r.html#comment-351545 Isaac Wed, 30 Nov -0001 00:00:00 +0000 #comment-351545 @7 Patrick Dodds If I read you right, you're saying that you plan to buy in 2010. That sounds to me like a strategy that's destined to have you buy high and sell low. If you think that there are going to be great gains ~2010, the time to buy is ~now, when everything's massively on sale. But of course, there's no a priori reason to believe that the market will follow any previously followed pattern. @7 Patrick Dodds

If I read you right, you’re saying that you plan to buy in 2010. That sounds to me like a strategy that’s destined to have you buy high and sell low. If you think that there are going to be great gains ~2010, the time to buy is ~now, when everything’s massively on sale. But of course, there’s no a priori reason to believe that the market will follow any previously followed pattern.

]]> By: Lucifer http://boingboing.net/2008/12/09/sp-returns-and-the-r.html#comment-351546 Lucifer Wed, 30 Nov -0001 00:00:00 +0000 #comment-351546 According to my analysis, this graph looks like it's giving the middle finger According to my analysis, this graph looks like it’s giving the middle finger

]]> By: Anonymous http://boingboing.net/2008/12/09/sp-returns-and-the-r.html#comment-351548 Anonymous Wed, 30 Nov -0001 00:00:00 +0000 #comment-351548 Oh dear. It really isn't a normal distribution. This could be a much less pleasant arrangement of affairs, a fat tailed distribution (http://en.wikipedia.org/wiki/Fat_tail) where a distribution that looks normal is actually prone to extreme events (like this year) more often than you would expect from a normal distribution. There are *far* too few points on this graph to tell exactly what sort of distribution this is. And I wouldn't cite Makinw anyway. he's influential, but not in the right way. Oh dear.
It really isn’t a normal distribution.

This could be a much less pleasant arrangement of affairs, a fat tailed distribution
(http://en.wikipedia.org/wiki/Fat_tail) where a distribution that looks normal is actually prone to extreme events (like this year) more often than you would expect from a normal distribution. There are *far* too few points on this graph to tell exactly what sort of distribution this is.

And I wouldn’t cite Makinw anyway. he’s influential, but not in the right way.

]]> By: SamSam http://boingboing.net/2008/12/09/sp-returns-and-the-r.html#comment-351556 SamSam Wed, 30 Nov -0001 00:00:00 +0000 #comment-351556 @4 Strawberryfrog: It sounds like the bell curves described in your link is not the bell curve shown above. Your link was talking about the bell curve of returns on investment across the market, which is completely different from the bell curve of market changes year to year. Anyway, the fact that this is a bell curve isn't really surprising -- all it is says is that periods of wild expansion and wild contraction are rare, which is exactly what you'd expect from any mature market. @4 Strawberryfrog: It sounds like the bell curves described in your link is not the bell curve shown above. Your link was talking about the bell curve of returns on investment across the market, which is completely different from the bell curve of market changes year to year.

Anyway, the fact that this is a bell curve isn’t really surprising — all it is says is that periods of wild expansion and wild contraction are rare, which is exactly what you’d expect from any mature market.

]]> By: wcb00 http://boingboing.net/2008/12/09/sp-returns-and-the-r.html#comment-352080 wcb00 Wed, 30 Nov -0001 00:00:00 +0000 #comment-352080 Oh boy, people, a coin toss is a normal distribution. There is an inherent assumption in the game that causes it to follow a normal distribution and that is that the value of getting a heads or a tails is some constant. So for example if the value of getting either is a 1 then the likelihood of getting some value is 1 * the likelihood of seeing either a heads or a tails, which is 1/2. So 1 * 1/2 taken over the set of all flips made, produces a graph that should look very similar to a normal distribution with a high peek on the x-axis centered around 0.5 between 0 and 1 with the peak approaching 0.5 as you have more flips (y-axis). This is pretty much the text book definition of a normal distribution. For more information go here: http://www.ccs.fau.edu/~liebovitch/complexity-20.html In fact many things are a normal distribution, or tend to follow one. It is why there is a whole set of probabilistic formulas surrounding this assumption. For more information go here: http://www.duncanwil.co.uk/norm.html Now, this data shown above is a normal distribution. But it's a pointless one. I can move data around until it looks like a normal distribution and call it a normal distribution, but the important aspect is whether that information is useful. I think someone else said it above, all this tells us is that this is a mature market with typical market fluctuations being small except in some rare cases like this horrible year, 2008. For more pointless information go here: http://www.maths.tcd.ie/~bratkek/facts.html Oh boy, people, a coin toss is a normal distribution. There is an inherent assumption in the game that causes it to follow a normal distribution and that is that the value of getting a heads or a tails is some constant. So for example if the value of getting either is a 1 then the likelihood of getting some value is 1 * the likelihood of seeing either a heads or a tails, which is 1/2. So 1 * 1/2 taken over the set of all flips made, produces a graph that should look very similar to a normal distribution with a high peek on the x-axis centered around 0.5 between 0 and 1 with the peak approaching 0.5 as you have more flips (y-axis). This is pretty much the text book definition of a normal distribution. For more information go here: http://www.ccs.fau.edu/~liebovitch/complexity-20.html

In fact many things are a normal distribution, or tend to follow one. It is why there is a whole set of probabilistic formulas surrounding this assumption. For more information go here: http://www.duncanwil.co.uk/norm.html

Now, this data shown above is a normal distribution. But it’s a pointless one. I can move data around until it looks like a normal distribution and call it a normal distribution, but the important aspect is whether that information is useful. I think someone else said it above, all this tells us is that this is a mature market with typical market fluctuations being small except in some rare cases like this horrible year, 2008. For more pointless information go here: http://www.maths.tcd.ie/~bratkek/facts.html

]]> By: Anonymous http://boingboing.net/2008/12/09/sp-returns-and-the-r.html#comment-352081 Anonymous Wed, 30 Nov -0001 00:00:00 +0000 #comment-352081 What index is this? The S&P500 didn't start until 1957. 1820's Were there even indexes back then? I question the accuracy of this. What index is this? The S&P500 didn’t start until 1957. 1820′s Were there even indexes back then? I question the accuracy of this.

]]> By: the0ther http://boingboing.net/2008/12/09/sp-returns-and-the-r.html#comment-352601 the0ther Wed, 30 Nov -0001 00:00:00 +0000 #comment-352601 meh. you should see the graph of total debt versus gdp if you really want to be scared. meh. you should see the graph of total debt versus gdp if you really want to be scared.

]]> By: ab5tract http://boingboing.net/2008/12/09/sp-returns-and-the-r.html#comment-351585 ab5tract Wed, 30 Nov -0001 00:00:00 +0000 #comment-351585 "...just another.. brick in the wall..." “…just another.. brick in the wall…”

]]> By: Anonymous http://boingboing.net/2008/12/09/sp-returns-and-the-r.html#comment-352101 Anonymous Wed, 30 Nov -0001 00:00:00 +0000 #comment-352101 It's also worth noting that 2 years after the 1931 -50, came a +60 in '33 It’s also worth noting that 2 years after the 1931 -50, came a +60 in ’33

]]> By: Lysy404 http://boingboing.net/2008/12/09/sp-returns-and-the-r.html#comment-351593 Lysy404 Wed, 30 Nov -0001 00:00:00 +0000 #comment-351593 Not to be a spoiler or anything but if you collect enough data points any distribution will look like normal distribution! Take a toss of a coin - it follows normal distribution. It is said that child population (=sample population ) became normal by the time it reaches 30 (not "years old", bu "sample data points") Not to be a spoiler or anything but if you collect enough data points any distribution will look like normal distribution! Take a toss of a coin – it follows normal distribution.
It is said that child population (=sample population ) became normal by the time it reaches 30 (not “years old”, bu “sample data points”)

]]> By: Anonymous http://boingboing.net/2008/12/09/sp-returns-and-the-r.html#comment-383860 Anonymous Wed, 30 Nov -0001 00:00:00 +0000 #comment-383860 From Jan 1 to the last day of the year it was -38.5%, making at worst the 3rd worst return. From Jan 1 to the last day of the year it was -38.5%, making at worst the 3rd worst return.

]]> By: UncommonSense http://boingboing.net/2008/12/09/sp-returns-and-the-r.html#comment-351605 UncommonSense Wed, 30 Nov -0001 00:00:00 +0000 #comment-351605 Maybe he should have referred to it as an approximation of the S&P Index. What we know as the S&P 500 has only been around since 1957. The index itself began in 1923 with 233 companies. Prior to that, I imagine this shows all stocks listed on the NYSE. And I'm not really sure how such info from over a century ago would apply to today's conditions. FWIW. Maybe he should have referred to it as an approximation of the S&P Index. What we know as the S&P 500 has only been around since 1957. The index itself began in 1923 with 233 companies. Prior to that, I imagine this shows all stocks listed on the NYSE. And I’m not really sure how such info from over a century ago would apply to today’s conditions. FWIW.

]]> By: Swampdog http://boingboing.net/2008/12/09/sp-returns-and-the-r.html#comment-351616 Swampdog Wed, 30 Nov -0001 00:00:00 +0000 #comment-351616 @#11 Isaac - since we're quibbling here, if you think 2008 is like 1931 and 2010 is going to be like 1933, one could assume you think that 2009 is going to be like 1932. Which is a -10. Without further detail, I think you have to assume that means that anything bought (or held) at the start of 2009 would be worth 10% less at the end of 2009. So you'd want to buy end of 2009/beginning of 2010. Granted, this is not the same as "mid 2010" as #7 proposes. But if you think the situation is going to be closely analogous, this is not the time to buy. @#11 Isaac – since we’re quibbling here, if you think 2008 is like 1931 and 2010 is going to be like 1933, one could assume you think that 2009 is going to be like 1932. Which is a -10. Without further detail, I think you have to assume that means that anything bought (or held) at the start of 2009 would be worth 10% less at the end of 2009. So you’d want to buy end of 2009/beginning of 2010. Granted, this is not the same as “mid 2010″ as #7 proposes. But if you think the situation is going to be closely analogous, this is not the time to buy.

]]> By: Brian http://boingboing.net/2008/12/09/sp-returns-and-the-r.html#comment-351625 Brian Wed, 30 Nov -0001 00:00:00 +0000 #comment-351625 <em>Take a toss of a coin - it follows normal distribution.</em> No. Take a toss of a coin – it follows normal distribution.

No.

]]> By: Anonymous http://boingboing.net/2008/12/09/sp-returns-and-the-r.html#comment-357788 Anonymous Wed, 30 Nov -0001 00:00:00 +0000 #comment-357788 "the fact that returns can NEVER be worse than -100%" This statement is simply untrue. If one borrowed to invest and that investment becomes worthless, then they have lost more than 100% of their principal...just ask the people who were at firms that bought CDO equity (and other assets that are now worthless) and borrowed money to do so. They lost more than their shirt. “the fact that returns can NEVER be worse than -100%”

This statement is simply untrue. If one borrowed to invest and that investment becomes worthless, then they have lost more than 100% of their principal…just ask the people who were at firms that bought CDO equity (and other assets that are now worthless) and borrowed money to do so. They lost more than their shirt.

]]> By: Bledsoefilms http://boingboing.net/2008/12/09/sp-returns-and-the-r.html#comment-351645 Bledsoefilms Wed, 30 Nov -0001 00:00:00 +0000 #comment-351645 @19 BRIAN What exactly did you mean by that? @everyone else re: #5 I think an important point here is that there is a danger of misinterpretation w/ the bell curve. Normal distribution is merely a graphic display of data, which will fluctuate constantly. You can't safely infer that there is a pattern when considering this graph because there is no evidence to suggest that the future will follow the patterns of the past. And I think this is what Nassim Taleb is getting (from what I've seen of his talks). I think almost all of us saw 2008 and 1931 grouped together and immediately looked towards 1932, 33, 34, 35, etc to see if we could conceptualize how 2009-and-so-on would look. This can be grossly misleading, and it is really nothing more then a gamble. Statistically, there is nothing in this to suggest how the future will look. Make safe bets. Everything else is a gamble, always. @19 BRIAN

What exactly did you mean by that?

@everyone else re: #5

I think an important point here is that there is a danger of misinterpretation w/ the bell curve. Normal distribution is merely a graphic display of data, which will fluctuate constantly. You can’t safely infer that there is a pattern when considering this graph because there is no evidence to suggest that the future will follow the patterns of the past. And I think this is what Nassim Taleb is getting (from what I’ve seen of his talks).

I think almost all of us saw 2008 and 1931 grouped together and immediately looked towards 1932, 33, 34, 35, etc to see if we could conceptualize how 2009-and-so-on would look.

This can be grossly misleading, and it is really nothing more then a gamble. Statistically, there is nothing in this to suggest how the future will look.

Make safe bets. Everything else is a gamble, always.

]]> By: Anonymous http://boingboing.net/2008/12/09/sp-returns-and-the-r.html#comment-352166 Anonymous Wed, 30 Nov -0001 00:00:00 +0000 #comment-352166 But the S&P is not down over 40% yet this year. It was 1447.25 on 1/2/08, and is about 908 right now. That is "only" about 37%, so 2008 is in the wrong column. But the S&P is not down over 40% yet this year. It was 1447.25 on 1/2/08, and is about 908 right now. That is “only” about 37%, so 2008 is in the wrong column.

]]> By: SeamusAndrewMurphy http://boingboing.net/2008/12/09/sp-returns-and-the-r.html#comment-351659 SeamusAndrewMurphy Wed, 30 Nov -0001 00:00:00 +0000 #comment-351659 #20, What's a safe bet now? Treasuries? How about holding treasuries three years? That's dicey. Gold? Holding physical in the thirties meant losing your shirt once confiscation and dollar devaluation were legislated. Could happen again. Anything will be done to protect the dollar if threatened. There really aren't safe investments right now. "Bets" are never safe, that's why they're bets. Until markets and economies bottom (don't hold your breath...that long) safe investments are a guessing game, hence, no safe havens. In other words, Everything else isn't a gamble, always, but everything IS a gamble, right now. #20, What’s a safe bet now? Treasuries? How about holding treasuries three years? That’s dicey. Gold? Holding physical in the thirties meant losing your shirt once confiscation and dollar devaluation were legislated. Could happen again. Anything will be done to protect the dollar if threatened.

There really aren’t safe investments right now. “Bets” are never safe, that’s why they’re bets. Until markets and economies bottom (don’t hold your breath…that long) safe investments are a guessing game, hence, no safe havens.

In other words, Everything else isn’t a gamble, always, but everything IS a gamble, right now.

]]> By: Bledsoefilms http://boingboing.net/2008/12/09/sp-returns-and-the-r.html#comment-351661 Bledsoefilms Wed, 30 Nov -0001 00:00:00 +0000 #comment-351661 I'll take that I’ll take that

]]> By: PattiS http://boingboing.net/2008/12/09/sp-returns-and-the-r.html#comment-351408 PattiS Wed, 30 Nov -0001 00:00:00 +0000 #comment-351408 Interesting to track the years immediately following 1931 - it was a wild ride. Interesting to track the years immediately following 1931 – it was a wild ride.

]]> By: Ugly Canuck http://boingboing.net/2008/12/09/sp-returns-and-the-r.html#comment-352179 Ugly Canuck Wed, 30 Nov -0001 00:00:00 +0000 #comment-352179 Hmmm 2008 ain't over yet. Hmmm 2008 ain’t over yet.

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