“At one point, two former employees say, Goldman’s top management was demanding hourly profit and loss statements from certain teams [at Goldman Sachs Asset Management]..”
- Richard Teitelbaum, Bloomberg News.
The watched pot does not boil. The financial equivalent of this old saw, and one of our personal favourites, which we make no apology for repeating here, is Nassim Nicholas Taleb’s fictional retired dentist. This hypothetical investor is guaranteed to earn 15% per annum from his portfolio with an associated volatility of 10%. These statistics are not open to dispute. But if our investor friend monitors his portfolio in real time, however, the random price oscillations of his portfolio are likely to trigger extreme anxiety. Depending on the frequency with which he observes his portfolio, our dentist will experience varying degrees of heartache and distress. The frequency of portfolio observation versus probability of a pleasurable outcome for our imaginary investor is shown below:
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