The Sane Investor

The single best analysis for silver on the Interne...

2011-12-16T18:55:44.946-08:00

The single best analysis for silver on the Internet in 2011.

YOU ARE A TOTAL NOOB. hope that ZSL long is feelin...

2011-05-25T08:31:41.420-07:00

YOU ARE A TOTAL NOOB. hope that ZSL long is feeling real nice right now for ya, noobie

To learn more about unit roots in time series, the...

2010-12-19T20:26:12.706-08:00

To learn more about unit roots in time series, the best place to start is the classic wikipedia (http://en.wikipedia.org/wiki/Unit_root).

Here's an example of a short article related to random walks and stock prices (http://www.chicagobooth.edu/faculty/selectedpapers/sp16.pdf).

Enjoy!

Hey Vulcidian, That's a really interesting id...

2010-12-19T12:56:22.267-08:00

Hey Vulcidian,

That's a really interesting idea. Do you have any links to scholarly papers or any other further reading on that topic?

As another interesting exercise, what if you look ...

2010-12-19T09:22:22.194-08:00

As another interesting exercise, what if you look at the volatility of an asset's price over time? There's evidence that stock prices, and even GDP, might have unit roots in them, meaning that their variances goes to infinity over time!

Thus, if you're using the current variance in an asset as an approximation for risk, and the variance is actually increasing over time, you would not only be wrong in your current assessment of the risk, but you would probably also be wrong in using the variance as a proxy for risk at all.

This brings to light another interesting question. What is the risk of an asset following a unit root process, and consequently with infinite variance? And, if stock prices, like GDP, do have unit roots, are we setting ourselves up to fail with our current approach to finance?

Excellent analysis. Right now, my question for MIR...

2010-03-09T06:21:12.381-08:00

Excellent analysis. Right now, my question for MIR is what they will do with the excess cash. The Shareholder Rights (which prevents an individual from obtaining > 5% interest in the company) is preventing the buyback of shares and there is no plan to provide dividends so the next few months could be interesting...

@the dog: You're right that rates are really ...

2010-02-22T14:49:25.171-08:00

@the dog: You're right that rates are really low right now, but looking out in to the horizon, the yield curve gets much, much steeper.

While typically you'd take the risk free rate for the term of the investment and then add in the equity premium multiplied times the beta of the stock, the proper premium to use is highly debatable. Because of this I just used a simple 10% discount rate.

I did leave my model so that you can go in and plug in any rate that you want as the discount rate, so if you want to you can download it and play around with it.

Thanks for the comments!

Why do you use a 10% discount rate? Rates are extr...

2010-02-22T07:42:03.826-08:00

Why do you use a 10% discount rate? Rates are extremely low right now with 10yr TSY yielding 3.79%. I think 5% is good, 7% extremely conservative. That discount rate should cause AAPL's numbers to look more reasonable.

like you, it seems like most these days are bearis...

2010-02-21T09:24:14.731-08:00

like you, it seems like most these days are bearish.